The News Radar

Timely links to external news and articles, usually valuation related, with occasional commentary. Most recent items shown below - for more, check the archive in the sidebar.

Tuesday, 15 November 2022
FTX’s Balance Sheet Was Bad

And yet bad as all of this is, it can’t prepare you for the balance sheet itself, published by FT Alphaville, which is less a balance sheet and more a list of some tickers interspersed with hasty apologies. If you blithely add up the “liquid,” “less liquid” and “illiquid” assets, at their “deliverable” value as of Thursday, and subtract the liabilities, you do get a positive net equity of about $700 million. (Roughly $9.6 billion of assets versus $8.9 billion of liabilities.) But then there is the “Hidden, poorly internally labeled ‘fiat@’ account,” with a balance of negative $8 billion. I don’t actually think that you’re supposed to subtract that number from net equity — though I do not know how this balance sheet is supposed to work! — but it doesn’t matter. If you try to calculate the equity of a balance sheet with an entry for HIDDEN POORLY INTERNALLY LABELED ACCOUNT, Microsoft Clippy will appear before you in the flesh, bloodshot and staggering, with a knife in his little paper-clip hand, saying “just what do you think you’re doing Dave?” You cannot apply ordinary arithmetic to numbers in a cell labeled “HIDDEN POORLY INTERNALLY LABELED ACCOUNT.” The result of adding or subtracting those numbers with ordinary numbers is not a number; it is prison.

What Levine is doing is special. Give this man a Pulitzer.

Saturday, 12 November 2022
FTX says ‘unauthorized transactions’ drained millions from the exchange

FTX moved users’ funds to offline wallets early Saturday morning after a wave of “unauthorized transactions” drained hundreds of millions of dollars from the beleaguered cryptocurrency exchange. Ryne Miller, the general counsel at FTX US, didn’t confirm a hack, but said on Twitter that the company made the move to “mitigate damage” caused by the potential theft, as transferring funds offline, or to “cold storage,” helps prevents outsiders from gaining access to them.

The millions in funds evaporated from the platform shortly after FTX filed for chapter 11 bankruptcy on Friday, affecting the domestic FTX US trading platform, the global version of FTX, and Alameda Research. It’s still unclear how much is missing from the exchange, but a report from CoinDesk suggests the amount could total over $600 million, while the blockchain analytics company, Elliptic, puts this number at about $473 million.

One can only hope that the missing funds belonged primarily to Silicon Valley VC tech-bro libertarian clowns and not to the working-class folks that they've been pushing their ponzi scheme onto.

Friday, 11 November 2022
‘It’s All Gone’: FTX Bankruptcy Has Retail Traders Bracing for Losses

Investors with crypto on the FTX platform — who numbered more than 5 million worldwide at the peak — will be closely watching the bankruptcy proceedings for any hope they might be refunded. However, many are resigning themselves to the fact that their holdings may be gone forever.

“The company and Sam Bankman-Fried seemed trustworthy,” said Justin Zhang, a 34-year-old engineer in Los Angeles. “I thought FTX US was different because of all the regulations put in place, but it’s not.”

As incredible as it was predictable.

Wednesday, 9 November 2022
Is This Crypto’s Lehman Moment?

Indeed, the sale of FTX to Binance may turn out to be the most gripping crypto narrative of the year — a “Succession”-level drama involving rival billionaires, rumors of sabotage and high-stakes battles over the future of the industry. It’s a stunning, sudden fall from grace for one of the crypto world’s biggest celebrities. And it signals that the industry, already reeling from a brutal year of losses, may be in for even tougher times.

Monday, 7 November 2022
Tyson Foods CFO Arrested After Authorities Say He Fell Asleep in Wrong Home

John R. Tyson, Tyson Foods Inc.’s chief financial officer and son of the meat giant’s chairman, was arrested over the weekend after authorities said he fell asleep in the wrong house.

Mr. Tyson, 32 years old, was found asleep in a woman’s bed at her home in Fayetteville, Ark., on Sunday morning, according to a preliminary arrest report filed by the Fayetteville Police Department.


Mr. Tyson, the great-grandson of Tyson Foods’s founder, was promoted to the CFO role for the $24 billion meat company in September and took over the job at the start of October. He is the youngest chief financial officer serving at a company in the S&P 500 or Fortune 500, according to Crist Kolder, an executive-search firm.

Before taking over as CFO, he had been serving as Tyson’s executive vice president of strategy and chief sustainability officer, roles he still holds.

Absolutly breathtaking that investors in a public company would put up with this nepotism. No one on that board should have any credibility whatsoever. Just imagine how poorly other parts of this company might be running.

Wednesday, 2 November 2022
Stocks Drop After Strong ADP as Fed Decision Looms

The Fed is expected to raise rates by 75 basis points, extending its most aggressive tightening campaign since the 1980s. The decision will be announced at 2 p.m. in Washington and Powell will hold a press conference 30 minutes later. He may emphasize policymakers remain steadfast in their inflation fight, while leaving options open for their December gathering.

“Markets want clarity on where the Fed will at least pause the current rate hike cycle, but Chair Powell is not really in any position to provide that just yet,” said Nicholas Colas, co-founder of DataTrek Research. “For every sign the US economy is slowing (housing, commodity prices, retail sales ex-inflation) there are others that say labor market conditions remain strong.”

Very odd and seemingly counterintuitive that stocks should fall on news that the labor market is doing great. But the market wants some level of confidence on when/where rate hikes will eventually stop, and the continued stregth of the economy despite rate increases to-date makes that a very hard question to answer.

Tuesday, 1 November 2022
What Moneyball-for-Everything Has Done to American Culture

The religion scholar James P. Carse wrote that there are two kinds of games in life: finite and infinite. A finite game is played to win; there are clear victors and losers. An infinite game is played to keep playing; the goal is to maximize winning across all participants. Debate is a finite game. Marriage is an infinite game. The midterm elections are finite games. American democracy is an infinite game. A great deal of unnecessary suffering in the world comes from not knowing the difference. A bad fight can destroy a marriage. A challenged election can destabilize a democracy. In baseball, winning the World Series is a finite game, while growing the popularity of Major League Baseball is an infinite game. What happened, I think, is that baseball’s finite game was solved so completely in such a way that the infinite game was lost.

Compelling piece about baseball but actually about everything. You get what you measure, and the cloud computing explosion has us measuring more than ever.

Mortgage Giant Rocket Plunges Back to Earth, Hit by Rising Rates

Getting potential customers to trade a 3% mortgage for a 6% one is like “pushing rocks up hills,” said Colin Wyzgoski, who quit a job as a banker in August after taking time off because of work stress.

“When the fish are jumping in the boat, the job is one thing,” Rocket Mortgage Chief Executive Bob Walters said. “When you’re competing with a lot of other people, it’s a different thing.”

I'm sure it's unfair and presented out of context, but that's still a hell of a quote from a chief executive.

Why Mortgage Rates Are So Darn High

For the past decade, the spread between a measure of average national mortgage rates and 10-year Treasury yields has averaged 1.8 points, according to figures tracked by Autonomous Research. This year began right around that level. But with Treasurys yielding over 4%, the spread now at roughly 3 points is about as high as it has been this century.

Other times that the spread has seen comparable widening were in late 2008 and March 2020, when the financial crisis and pandemic, respectively, were driving investors to the haven of Treasurys. In both cases, the Federal Reserve stepped up to buy more mortgage bonds, bringing spreads and mortgage rates down, as spreads on mortgage bonds are a key component in the mortgage rates ultimately charged to borrowers.

This time, that isn’t happening.

Friday, 28 October 2022
We Should Just Accept We’re Going to Have a Blah Economy

If you follow financial commentary, it sounds like we’re about to hit the inflection point — that moment when the economy turns and we enter a recession; the stock market crashes, inflation deflates, people lose jobs and housing prices tank. But if there has been one thing consistently true over the past two years, it is that what everyone consistently predicted has turned out to be wrong. That’s because we’re in uncharted territory. We have never before turned the economy off, then turned it back on again as we did in the pandemic.

Welcome to Hell, Elon

the problems with Twitter are not engineering problems. They are political problems. Twitter, the company, makes very little interesting technology; the tech stack is not the valuable asset. The asset is the user base: hopelessly addicted politicians, reporters, celebrities, and other people who should know better but keep posting anyway. You! You, Elon Musk, are addicted to Twitter. You’re the asset. You just bought yourself for $44 billion dollars.

The problem when the asset is people is that people are intensely complicated, and trying to regulate how people behave is historically a miserable experience, especially when that authority is vested in a single powerful individual.

Wednesday, 26 October 2022
Fed’s Yield-Curve Barometer Starts Flashing Recession Risk

The 10-year dipped as much as 0.08 percentage point below the three-month in US trading Wednesday, after brief and smaller inversions Tuesday and in early August.

This is my most closely watched indicator. Bad times ahead.

Thursday, 13 October 2022
‘Soft Landing’ Is Unlikely for US Economy, JPMorgan’s Dimon Says

Jamie Dimon said the Federal Reserve probably can’t cool the red-hot economy without bringing on a recession.

“I don’t know if it could be a soft landing -- I don’t think so, but it might,” the JPMorgan Chase & Co. chief executive officer said at an industry conference in Washington Thursday, adding that the alternatives would be a mild or a severe recession. “In a tough recession, you could expect the market to go down another 20% to 30%.”

Valuation models easily support another 30% drop from here, particularly if rates keep increasing.

Wednesday, 5 October 2022
Elon’s Back

All of this seems unlikely, though, and I assume that the deal will close. The stock closed at $52.00 yesterday, very close to the $54.20 deal price and up 22% from Monday’s close of $42.54. Several reports suggest that the deal might close “within a matter of days” or “as soon as next week.” Last night Musk tweeted that “Buying Twitter is an accelerant to creating X, the everything app,” which sounds exhausting. The app will do everything, but it will start with two functions: You can read tweets, or you can be shot on a rocket into space. Choose wisely.

Why? Why would you spend this much time and money trying to get out of the deal, and be this annoying about it, and then just unconditionally surrender two weeks before trial? One possibility is that it became increasingly obvious to Musk that he was going to lose the trial, and that didn’t seem fun, so he seized the initiative (?) by surrendering instead. 3 If this did go to trial he’d have to testify (and be deposed this week), his text messages with his friends have become public and more might come out, and the whole thing would be more distracting, unpleasant and embarrassing than he really wanted.

Similarly, Jessica Lessin’s theory is that Musk “has bigger challenges to contend with elsewhere. Spending hours and hours preparing for a trial everyone thought he was going to lose didn’t rank high on the list.” Musk’s efforts not to buy Twitter were becoming too distracting, so he decided to become the owner (and interim chief executive officer!?) of Twitter instead to minimize distraction. That seems right. Sure, running Twitter will be distracting and time-consuming, but in a fun way. Trying to get out of running Twitter was probably fun initially, but now it has become a drag.

National treasure, Matt Levine.

Tuesday, 4 October 2022
Opendoor Follows WeWork Into Non-GAAP Land

Consider loss-making mobile-games company Skillz Inc., which claimed last year to be profitable on an adjusted ebitda basis, when adjusted for the cost of acquiring new customers. Yet user acquisition marketing expenses were almost two-thirds revenue that year. When Skillz sought to reduce marketing spend in recent months, its revenue plunged, and so has the stock. (Skillz has said the metric helps investors understand “the value of existing users on the system.”)

Adjusted ebitda is especially problematic because companies have huge discretion about what to include. Last week, Singapore-based Grab Holdings Ltd. vowed to break even on an adjusted ebitda basis by the latter half of 2024, but its definition includes more than half a dozen add-backs. This isn’t unusual.

Great article on one of my favorite accounting / financial statement analysis red flags.

Sunday, 2 October 2022
Investors Aren’t Betting on Post-Midterm Rally

The S&P 500 has moved higher in the one-year period following every midterm election since 1942, according to Dow Jones Market Data. The benchmark on average has gained nearly 15% in post-midterm years since World War II.

This time, tightening monetary policy and worries about an economic slowdown cloud the outlook. Market participants are still contending with the Federal Reserve’s aggressive rate-raising campaign aimed at bringing down persistently hot inflation. Investors expect corporate earnings to weaken as the business environment gets tougher into the year end.

And recent wild swings in government bonds and currencies are threatening to further destabilize financial markets.

“While history is a great guide, it’s never gospel,” said Sam Stovall, chief investment strategist at CFRA Research.

Friday, 30 September 2022
The Democratic Stock Trading Ban

After months of moral panic, House Democrats this week released a bill to ban federal officials from owning individual stocks, but its sheer breadth is a reason for second thoughts. The evidence is thin that this addresses any real problem, while it will deter successful people from seeking or accepting public office.

The bill would forbid federal officials from holding individual investments unless they’re in a qualified blind trust. There are some exemptions, such as for “a diversified mutual fund” or “a diversified exchange-traded fund,” as well as for “an interest in a small business concern or family-owned business that does not present a conflict of interest.” But no trading shares in companies famous or obscure.

These stringent terms would apply to Members of Congress, their spouses and dependent children, and some senior aides on Capitol Hill. They’d also cover the President and Vice President, plus any Senate-confirmed “political appointee,” which is a category that potentially reaches something like 1,200 roles.

If voters don’t trust their Senator or Representative not to profit from their office, the answer is to throw the bum out.

This is absolutly unhinged. Did a junior high school student crack the passwords to WSJ's CMS system?

Monday, 26 September 2022
Everything-Selloff on Wall Street Deepens on 98% Recession Odds

A global recession probability model by Ned Davis Research recently rose above 98%, triggering a “severe” recession signal. The only other times the model’s been that high was during previous acute downturns, such as in 2020 and 2008-2009, according to the firm’s Alejandra Grindal and Patrick Ayres.

“This indicates that the risk of severe global recession is rising for some time in 2023, which would create more downside risk for global equities,” they wrote in a note.

Sunday, 25 September 2022
Buying the Stock-Market Dip Is Backfiring, Investors Keep Piling In Anyway

Instead of rebounding after a tumble, stocks have continued to fall, burning investors who stepped in to buy shares on sale. The S&P 500 has dropped 1.2% on average this year in the week after a one-day loss of at least 1%, according to Dow Jones Market Data. That is the biggest such decline since 1931.

The extended downturn is putting a dent in the popular buy-the-dip trade, a strategy in which many investors found great success after the last financial crisis and particularly during the lightning-fast pandemic recovery.

Absolutly stunning that a timing strategy that has worked really well during *checks notes* the greatest bull market in history hasn't been doing too well during a down year...

Wednesday, 21 September 2022
Powell Signals More Pain to Come With Fed Sending Rates Higher

Federal Reserve Chair Jerome Powell vowed officials would crush inflation after they raised interest rates by 75 basis points for a third straight time and signaled even more aggressive hikes ahead than investors had expected.

“We have got to get inflation behind us. I wish there were a painless way to do that. There isn’t,” Powell told a press conference in Washington on Wednesday after officials lifted the target for the benchmark federal funds rate to a range of 3% to 3.25%.

Sounds like the ol' yield curve is going upside down soon...

Tuesday, 20 September 2022
Fed Set to Reveal ‘Pain’ Coming in Next Stage of Inflation Fight

Federal Reserve officials are about to put numbers on the “pain” they’ve been warning of in recent weeks when they publish new projections for the economy, which could show a substantial rise in interest rates and unemployment ahead as the estimated price tag for reducing inflation.

The US central bank will release its latest quarterly projections Wednesday following a two-day policy meeting in Washington, where officials are expected to raise their benchmark rate by three-quarters of a percentage point for the third time in a row.

Thursday, 15 September 2022
Mortgage Rates Top 6% for the First Time Since the 2008 Financial Crisis

The average rate on a 30-year fixed mortgage climbed to 6.02% this week, up from 5.89% last week and 2.86% a year ago, according to a survey of lenders released Thursday by mortgage giant Freddie Mac. The last time rates were this high was in the heart of the financial crisis almost 14 years ago, when the U.S. was deep in recession.

Tuesday, 13 September 2022
Schools Are Back and Confronting Severe Learning Losses

National data show that children who were learning to read earlier in the pandemic have the lowest reading proficiency rates in about 20 years.

The U.S. Department of Education last Thursday released data showing that from 2020 to 2022, average reading scores for 9-year-olds slid 5 points—to 215 out of a possible 500—in the sharpest decline since 1990. Average math scores fell 7 points to 234, the first statistically significant decline in math scores since the long-term trend assessments began in the 1970s.

Learning loss generally is worse in districts that kept classes remote longer, with the effects most pronounced in high-poverty districts, researchers say.

Covid's most lasting impact in the USA will be a terrible acceleration of wealth inequality for generations to come.

US Inflation Tops Forecasts, Cementing Odds of Big Fed Hike

The consumer price index increased 0.1% from July, after no change in the prior month, Labor Department data showed Tuesday. From a year earlier, prices climbed 8.3%, a slight deceleration, largely due to recent declines in gasoline prices.

Particularly ugly to see inflation once again rising on a month-over-month basis.

Monday, 12 September 2022
NY Fed Says Consumers Saw in August Steep Declines in Future Inflation

The bank said in its August Survey of Consumer Expectations that one year from now, households see inflation at 5.7%, down from the 6.2% they predicted in the July survey.

How much of a predictive indicator is consumer sentiment on inflation? I'd like to know if this same survey saw the current levels of inflation coming.... That said, inflation expectations are self-fulfilling once they begin to ramp up, so very good news to see this tempered a bit.