ValueArb

I was going to say SBF should be realizing the benefits of cooperating, but in reality they are two different cases. SBF committed fraud, he didn't break money laundering regulations. SBF never had the funds to restore customer deposits, so I think his only solution was to keep FTX going until magically it earned back all its losses. Approaching the government mid-fraud to say hey, "I'm stealing from customers, please stop me and give me a light sentence" would not have gone well. Even when it blew up he couldn't bring himself to admit his role in the fraud, and if he did probably would not have gotten much of a reduction. CZ was fortunate that his business was solvent and he had something to offer the government to lighten his sentence. And that he was smart enough to get lawyers and negotiate all of this before he was arrested and extradited, which would have reduced his leverage quite a bit.

I posted some of Matt Levine's thoughts on the OpenAI meltdown on the AI thread, but this is the important part. This end was inevitable because of how they started OpenAI as a public charity and giving the board that mission. There was always going to be conflict between Altman and employees trying to cash in on their work, and a board that didn't have that as their goal. Every time OpenAI achieved something new the board was probably asking Altman "great, but how safe is it, and how can we ensure its safe for humanity?". Over time it sounds like he tired of it, and started misleading them in order to do whatever was best to monetize their work. That bifurcated structure just sets up two opposing camps pursuing very different objectives and had to have lead to a lot of strife over the years. Basically Sam can't blame the board that he recruited because they were willing to agree to make benefiting humanity their sole mission with not caring about maximizing revenues and profits, or valuation at all. His objectives appeared to change over time, but theirs never could. He would have been better off with one easily corruptable board member who put enriching themselves first, then he could have always outvoted the "lame humanity first" members to do whatever he wanted.

Wow, $86B in value intentionally destroyed in a few days? From Matt Levine: Bloomberg

It would seem the market for a trustworthy law abiding exchange should be huge. If SBF just let Alameda die and didn't steal from FTX to fund Alameda losses he'd be a rich (and free man) today. If CZ had refused to allow terrorist and criminal transactions wouldn't he be worth more today (and not facing possible jail time)?

BTW, you should ask yourself how you think you know this. All of the Palestinian casualty figures have come from Hamas, and it's been consistently caught lying. The last time Israel intervened in Gaza (2008 IIRC) independent analysts looked at the "civilian" casualty records Hamas supplied to support their claim of thousands of civilian casualties, and they found that the number of military aged males in the "civilian" casualty list was a far higher proportion than in the Palestinian population. Pretty clearly Hamas counts every fighter killed as a "civilian" to try to make it look like Israel is being indiscriminate, when all evidence is to the contrary.

How proportional/acceptable were nuclear bombings of Hiroshima and Nagasaki, the even higher casualty Tokyo fire raids, and the firebombing of Dresden, etc? How are they different than Israel surgically attacking armed Hamas in Gaza? Note that reporters have confirmed that Israel regularly calls Palestinian civilians to warn them to clear buildings before strikes, even at the cost of allowing some Hamas to slip away. Hamas is still firing rockets into Israeli territory (and Gaza hospitals;)

Reminds me of when Israel had perfect intel on a meeting of the top leaders of Hamas in a house a few years ago. They debated over and over how large a bomb to use, but there were a handful of kids playing on the street in front of the house so they ended up choosing a small bomb. It just rattled the Hamas staff, and now how many kids are dead?

CNHI looks very interesting. I also own a little Porsche, a 2010 Cayenne w/190,000 miles;) Based on its maintenance costs and near zero residual value I have to say there is strong profit in owning a porsche dealer. I intend to dump this position as soon as possible.

Right. I just tend to believe in inertia, that investors usually continue to do the same things that made them successful. Typically just a bit less successfully as their portfolios grow it makes it harder to outperform. Burry is an interesting case because he fired his clients and went back to investing similar amounts as when he was outperforming by 28% per year in the years before the big short. So theoretically he might have been able to maintain that performance, and there are some investments we know were very successful (Gamestop) as per the Burry of old. But maybe the big short caused style drift and he's spent too much time on macro and options bets and isn't the same guy.

Starship test launch #2 was amazing. The water fountain fixed their pad issues, all engines worked nominally (for a while), they actually successfully performed hot staging (which I thought was a stupid idea to try this early in the test launch cycles), and nearly reached their target suborbital velocity. Overall great progress. What didn't work was landing the booster thought its explosion was incredible. It was able to do the flip maneuver to return and relight its engines for a few seconds before they failed and the FTS (automatic flight abort system) detected the failures, concluded the booster wasn't performing to plan so blew it apart. Watching Scott Manley's post mortem he thinks it was some kind of water hammer effect in the fuel lines that ripped them open and caused the engine failures. I don't know if the effect was caused by the deceleration from hot staging or if they can just slow down the flip maneuver. The Starship itself made it almost to the end of its fuel load before failing. Scott points out at the end you can see a puff on video from some gas leak, then the LOX gauge starts emptying faster than the Methane gauge, so it appears to have been a leak from the LOX tanks. Again when it ran out of propellant early the FTS detected it was off its planned velocity/course and blew it apart. I would think it's probably not caused by the hot staging blowback opening a hole because it occurred 5 minutes later, but I'm not rocket surgeon. Also they are probably going to need to upgrade the Starship FTS as long range photographs seemed to show a pretty big chunk survived the self destruct. Outside of that looks like a cursory FAA review and next test launch within a couple months.

What evidence is there that Burry isn't still beating the market like a drum?

They should give priority to tips from known short sellers. There are certainly cases where the short sellers are off base, but overall their record is impressive.

@TwoCitiesCapital @thepupil Thanks to both of you for this interesting discussion.

This board needs an upvote feature.

The guy who thought up SARK to short ARKK created a lucrative ETF out of it. Who wants to help me create SMAG7, an ETF that owns the SP500 while shorting out the effect of the Magnificent 7?

Thanks for bringing this to my attention, portable alpha is an interesting topic I admit I didn't know as much about as I thought. I didn't even know about PSLDX. You've made it an area of research for me. One thing I will say is that I'm always skeptical of free lunches, I assume there is always some sort of cost but don't know what it is here. I remember when Long Term Capital Management was using advanced mathematics to print money and crush the markets with back to back 40%+ years. One criticism of PSLDX is that it's leveraged and in losing markets has always done worse than the index, sometimes way worse. It lost 43% in 2022 vs. index 17.5%, it lost 10% in 2018 vs index 7%, lost 3% in 2015 when index lost 0.3%. But of course we should care more about long term overall performance than volatility, and it's clearly delivering higher performance despite its higher volatility. It appears to be part of the portable alpha results that the highs are higher but lows are lower, if we use as another example when the pension funds using it had a few terrible years after the GFC. Questions that gives me, is the strategy increasing performance by adding volatility (and if so, how can I do same)? Does its leverage create risk of black swan events? IE during a rapid market crash could a combination of large outflows and difficulty in quickly exiting existing leverage obligations ever force PSLDX to close to prevent a "run on the bank" that would make it insolvent? I assume that the math geeks on staff at Pimco have modeled this ad infinitum and manage the futures/leverage to ensure its impossible, but again "there is no free lunch" keeps popping in my head. I vow to either find a crippling flaw in portable alpha, or buy a lot of index futures in my portfolios;)

Right, but my other suggestion was to eliminate corporate income taxes. Do that, and you can tax dividends and capital gains as ordinary income because their investment earnings only one layer of taxation. Increases fairness of income tax system, makes it much simpler to comply with and might not even reduce Federal tax receipts much.

I don't know how much Ray outperformed if Pure Alpha only averaged 1.5% a year from 2012 to end of 2022. I feel Portable Alpha is well accepted as a marketing tool for investment managers and derivative sales people, but I don't accept it as an actual good investment strategy. It got crushed for years after the GFC for example. I find any theories based on CAPM to lack rigor or application in the real world, where risk is not volatility. PSLDX has done great for 15 years (even after giving back a lot during the last 3 years). So there is one clear winner at the Portable Alpha game. But history rhymes not repeats. If its still crushing 5 years from now it will then have the problem of will it be able to handle all those inflows since no one will ever want to own just a raw index anymore?

And ARKK continues to trail it, by 10% this year. Dumb indexes FTW.

We should just index capital gains to inflation and then tax them at ordinary income rates. The only reason to give them special treatment is the fact they include false (inflationary) gains, indexing eliminates that.

The income tax rate for businesses should be zero. Income should be taxed when its dividended out to an owner, not when its invested in the business.

10 years ago Apple made 70% of the profits in the smartphone space. Now, given the massive increase in Android's market share, Apple only makes about 70% of the profits in the smartphone space. A year later Qualcomm just announced they wouldn't be rolling out an emergency Satellite communications feature to Android phones to match Apples iPhone service. What makes iPhones "better" are dozens of "little" things, from build quality, to performance, to service, to software, to security, to resale value. Apple is arguably better at all of them, and arguably in many cases the difference isn't that great. In others, it's not universal. iPhone cameras are almost always ranked among the best in smartphones, but there are always a couple Android phones that are ranked as good or better. Google Pixel almost always has cameras on par with iPhones and very good build quality, but they also have worse security, service, app store and resale value. And they aren't much cheaper. Outside of the third or developing world, most people can easily afford to spend $1/day on a smartphone. That's about what a $1000 phone costs if you own it for only three years. If you decide to spend only 50 cents a day on a $500 phone you will have a worse camera, a smaller screen, and if its Android, worse security and software. Not "worse" by any large margins, but enough that if your income is over a few hundred a day that fifty cent upgrade to the better phone is a very small cost for a very nice upgrade. Another way to look at it. I pay $200 a month for 4 lines of cell service + a watch, so about $45/month per phone. If my daughter loses her iPhone, I'm not going to think too hard about spending another $20/month for a couple years so she can get a new SE. If I lose my iPhone (like I did swimming in Cancun), I'm not going to think too hard about spending $45/month for a couple years to get a new iPhone 15 Pro. Most important part of my smartphone is the camera since it documents my family life, so I'm always going to pay up a little for the best available. Anyways, this is a long meandering defense of Apple to say, it's not "fashion". Apple has a durable competitive advantage with the iPhone, which is why Buffett and Ted bought it. I'm not saying they should own it forever, I'd never say that of anything and all tech companies eventually fade. But for now it not only has some key proprietary technology (Secure Enclave, Ax series of processors, iOS) that is pretty much unmatched in the Android world, but it also has a much better business model. You see this in how superior they are in new product development, they have an institutionalized patience that ensures they rarely release innovative new products before the technology is ready. And being able to earn high returns on those products by selling hardware, not ads to captive audiences. How they have the heft to throw money at key problems, such as when they cornered years of the production of aluminum milling machines during the switch to aluminum bodies, or currently subsidize a satellite emergency texting system. Finally, how they do a great job of capital allocation and tax efficiently return excess to shareholders. Disclosure: I don't own any berkshire or apple stock, but I do own a lot of apple products and this rant was written on an Apple device.

I think you meant "notational value". So ultimately he lost at most, maybe $10M in a roughly billion dollar fund?

Thats a great question. If I was a bank and someone requested a modification like this, I'd know they needed to sell their house and would just sit on my hands until they closed and paid the entire mortgage off at par. But it can be argued that there is a group of home owners who don't have to sell their homes, and probably won't sell their homes any time soon but would if they were given a modification like this. So if the banks could create a product that targeted them it might improve their balance sheets, especially if they only give back some of the value to the customers. But I don't really understand the accounting of bank mortgages so maybe it doesn't make sense.

https://www.wsj.com/finance/investing/the-trillion-dollar-win-hiding-in-your-mortgage-ae1cd21e?mod=hp_lead_pos3 https://www.bloomberg.com/opinion/articles/2023-11-14/goldman-keeps-getting-more-boring?srnd=opinion