Recently this was Jamie Dimon lambasting Bitcoin all the while a cryptocurrency trading desk was being set up at Chase.
The following exchange from The Big Short stuck with me. It’s Dr. Burry’s response to Goldman Sachs when they finally returned his numerous calls:
Deeb: Dr. Burry? Burry: Yeah. Deeb: Deeb Winston, Goldman Sachs. Listen, I've been reviewing your position. I wanted to discuss your marks and make sure they're fair. Burry: Yeah, I think you mean that you've secured a net short position yourselves. So you're free to mark my swaps accurately for once because it's now in your interest to do so. Deeb: I'm not sure what you want me to say. Burry: I think that...I think that you've already said it.
It's a bit concerning that people believe a hollywood movie has taught them how the industry works. Keep in mind how hollywood portrays "hackers" or "scientists" or "Russians" or whatever group is an outsider or opposition to the protagonist and realize they're doing the same to finance.
I worked in the mortgage/CDO/CDS industry for 10yrs during that period (2005-2015).
If anything, the movie was too positive. There aren't as many players like Steve Carell's character who are worried about the world, they are usually worried about how to liquidate their book at the right time.
The bit about getting marked the wrong way was especially spot on.
Another very accurate movie: "Margin Call"
The 3rd one is 99 Homes. The key line is: "Don't get emotional about real estate." What is sold as a place for family memories for some, is just another asset class for others.
Jeremy Irons is fantastic in this film. The entire board room scene is amazing.
OTC or seldom traded securities may not operate in the same way that a highly traded stock like Apple does from a price standpoint. For a boutique security that is created for a customer, the price is whatever the market is willing to pay - but the discovery of that price can quite literally happen over the phone because in the market there might only be one customer and if you sell to them... that's the price!
So assuming that Michael Burry (in this instance) actually had Goldman Sachs create a boutique security, price discovery may very well have happened over the phone in just such a manner. I don't know the details but I'm also not sure why you would think that this can't happen? Please feel free to educate me. I don't know much about professional investing either.
Did he change his position, though. Having a negative opinion of something is one thing; and profiting from selling shovels for the gold rush is another thing. The trading desk is not a long position.
The exception to that rule is if you have trouble getting OUT of an illiquid position (as in the example you quote) - then you don't want to panic other investors before you've successfully taken the other side.
Looking just at holdings of any one fund can be pointless since you never know how these holding are part of some bigger strategy especially when you don't know what other derivatives they're holding like options / futures and other non publicly traded products. Any particular holding might also be part of a bigger ploy. It can be part of a hedge / bet / short / or acquisition strategy. Any single holding can also be part of multiple portfolios within one fund each with their own diverse investment goals.
JPM Chase has 250K employees. Do you think Jamie was made aware every time the markets division took a hard look at crypto?
[0] - https://www.bloomberg.com/news/articles/2017-09-12/jpmorgan-...
There are all sorts of arbitrage and correlation trades to be made in bonds, stocks and similar securities (mortgages) because they all have intrinsic values or maturity dates, etc. To protect the banks capital it’s important to restrict the types of trades allowed, and to disallow pure speculation.
Jamie in that article describes cryptocurrencies as pure speculation because they have no intrinsic value, which is why he said he’d never allow employees to trade them.
But one thing I believe about Jamie Dimon is that he has a sharp and flexible mind. If the newer innovations in the DeFi markets around crypto convince him he’s wrong about cryptocurrencies, he will turn on a dime. While still putting in adequate safeguards for his banks capital.
I mean, the entire WSB subreddit is basically dedicated to this.
Actually buying stock and not just options is brand new to that group, and they have nearly doubled in size since January so it seems to be going through serious transitions. Now they are doing what they can to put the thumb on the scale to squeeze hedge funds out of their GME positions. The crux of it is whether enough shorts have been made to make this possible and the rumor de jour is that hedge funds misreport their positions. Whether this is true or not, well if you look at WSB posts they’ll say it’s obviously true. I am not convinced personally.
To be clear, WSB to me appears to be doing absolutely nothing illegal or wrong to manipulate the market. The only coordinated effort is to buy GME and AMC and not sell the stock unless it seriously goes up in value (current posts think it’ll go to $10k-100k). They suspect hedge funds are performing ladder attacks to lower the price, so every time the price dips the advice is to buy more. I don’t see how simply buying stock at market price is market manipulation except that it does have an effect on the volume of a particular stock.
Some types of market manipulation are truly a bad thing. I'm sure someone engaging in some of the more egregious cases could rationalize their behavior as "it's just guerilla marketing, everybody does that".
That's not wholly wrong -- the intent is really more important than the action in these cases. Were people buying GME because they legit thought the fundamentals of the company were good now or were they riding a bubble?
I'm already too far down the river though, because now we could argue about whether there is something fundamentally wrong about speculating on pricing alone.
I am not a financial expert, but to me this seems extremely bogus. I am not certain where exactly the math is wrong, but it seems like a hedge fund can just buy the shares from the people they borrowed from, and those people will be willing to sell because the price had risen a bit. WSB on the other hand has no strategy beyond "a squeeze will happen". There is no agreed up on price at which to sell, which will lead to some people going right past, say, $10k/share price point holding out for $100k/share, and then the price falling back down to earth while they are left holding the bag, having bought in at $300/share or whatever.
That's not how it works. A short position is basically the contract to deliver a stock regardless of its price at that point, so neither the short holder nor the party that gave them the stock in the first place actually hold that stock anymore.
Now I don't know this exactly and I am not an expert, but I wouldn't be surprised if short positions can exist absolutely independently from the existence of any actual stock. In principle, there can be agreements that only deal with the price of the stock. And something that can exist in principle probably also exists in the financial markets.
So whether or not an actual short squeeze will occur depends on the technicalities of the short positions.
Regarding b) I presume some clauses of said contracts are going to be used. Probably there is a part about some additional payments. Alternatively, the short positions could be extended (for a hefty price, I assume) or in the worst case courts and lawyers will get involved. Interestingly, some of the lenders don't even own the stock they lend. Sometimes they manage other people's stock. When these owners notice that they cannot sell their stock during a short squeeze, then things will get interesting.
In other words, when the guy that started it all (Roaring Kitty/DFV) testified before congress that the only reason he was buying GME was because he fundamentally thought they were going to be a profitable corporation, that was bullshit. He talks a whole lot about short squeezing the stock elsewhere, so his denial that that's why he did it seems to me to be a lie. On a personal level, he seems shady as hell and the whole thing seems like a setup for others to be left holding the bag.
I think this has been going on longer, but the players are different now. It looks like it used to be a forum for smaller players and well capitalized individuals to pump small volume options positions, because you can make a few k off of retail investors following your bait in a tiny pocket of the market. Now it’s something that bigger investors noticed and are now participating in.
Wouldn’t a market maker need to collude as well?
Not saying it’s not true, I genuinely curious as to the mechanics.
tldr; the SEC pays you a portion of any fine they levy against an entity.
But Jamie Dimon also has a reputation of not being the smartest bulb in the block, and also being overly cautious so....
I think the GP statement is more correct though. A lot of fund managers love to gloat about their positions rather than talk the inverse.
Being overly cautious makes you a smart banker. You do not move fast and break things in insurance or banking.
BTC may be great, but it has no intrinsic value and trading it is pure speculation. That’s not appropriate use of bank capital. It’s probably not an appropriate use of most peoples capital.
And brilliant doesn’t mean perfect. he’s had his share of mistakes, but his business record is one of the best.
2.) Where do you get this info that he was "brow-beaten" into accepting Fed money? Many of the banks, including others such as Wells Fargo and Boa didn't need the money either. That was just Hank Paulson's way of compensating them for the really expensive acquisitions, which none of the banks wanted to do really (JPM got Chase, Wells Fargo got Wachovia, BoA got Merrill Lynch, Buffett got Goldman Sachs and Lehman was left to die).
3.) There are way more brilliant bankers and financiers than Dimon in the financial industry. Steven Schwarzman and Peter Peterson built a behemoth investment firm from the ground up. Sergio Ermotti just engineered one of the best turnarounds for a big bank at UBS. Blankfein and now Solomon effectively shifted GS from their S&T desks to give more power to the Strats Tech teams, effectively changing the culture at GS, a sector where JPM is effectively lagging in spite of being the largest bank with the biggest resources. And this is not even taking into account some of the more brilliant bankers abroad.
Compared to nitwists like Thain or Corbat or whoever, sure Jamie Dimon beats them. But there are way more brilliant bankers who actually built something. Jamie is the classic example of happened to be at the right place at the right time.
I honestly don't know how this hero-worship of Dimon came to be - maybe it's those memes they have running around.
2) if JP Morgan Chase wasn’t as exposed to the MBS meltdown as other banks, how is that not to his credit?
3) The $6B in trading losses in 2012 didn’t stop JPMorgan from posting a record profit of $21B for the year.
Anyone looks bad if you attribute all their accomplishments to luck but doggedly hold them responsible for every mistake.
I did confuse Dimon with Kovacevich, but Jamie also didn’t need the TARP funding.
In the end a 12%+ annualized return and total return 50% higher than the S&P500 over 15 years is nothing to sneeze at.
2.) Different banks had different focus areas, and not everyone jumped into the MBS bandwagon. If you notice, all investment-banking oriented banks got rekted while all the consumer banks stayed afloat, bar some exceptional risky bets by the likes of Wachovia and Chase. All the survivors were consumer banks eating up investment banks.
3.) A profit that can be attributed from the consumer banking side.
4.) Most of the annualized return you mentioned comes from 2017 on, when the tax cuts came. Not the 15 years you mention. Before that, it was lagging at 50$ per share.
2) So for 6 years he could have had his team chase bigger profits like Wachovia, Bear Stearns, et al by making risky bets on MBS but didn’t.
3) he’s not responsible for the consumer banking side?
4) Everyone in the S&P 500 all got the same tax cuts, yet he finished over 50% ahead of the average. And they are all up big since 2017, but he’s still way ahead.
2.) Who knows, if 2008 hadn't happened, he might have joined the bandwagon too. Not to mention that JPMorgan's S&T was nothing compared to those players in 2008, so obviously their "risky bets" were minimal.
3.) You're going to attribute consumer side banking to him? Consumer banking is literally a safe-side cash cow for most banks, and you can literally see a number of institutions engaging in it continue to stay safe. He cannot be credited for that.
5.) There are n other companies that have grown even more than JPM. If you're going to use stock prices as a proxy for your argument (which is flawed in itself), GS is currently at 350, almost half of which was gained in the past month. Compared to GS, JPM does seem like a crapper here.
I don't know what's your motivation behind defending Dimon or something, but I'm just echoing the common sentiment in the industry, that he plays it too safe, his cautiousness (often attributed to his ignorance of newer tech) has made JPM a laggard before, and that he was lucky to be loyal dog at Bank One. There are far more brilliant bankers in the industry, for instance Kovacevich who actually changed the face of consumer finance (worse for the consumer eventually, but still changed the face of the industry) or the Blankfein-Solomon duo who brought tech from the backburner and made it one of the most elite teams in the world banking scene (cue Strats and Marcus). Dimon is just like Stumpf (pre-WF scandal) in that he was given one of the biggest banks to play with. I agree, it's not an easy task in itself, but it's certainly not a hard enough one to call him a "brilliant" banker for that.
If they always act as predictably as stated, there's too obvious of an arbitrage opportunity.
That doesn't make them wrong. It's basically just a tautology. If you believe X is a great investment, and you aren't investing in it, that would be a far stranger situation.
>"Don’t Tell Me What You Think, Tell Me What You Have In Your Portfolio"
(I'm not sure whether I agree with the point, but I think that is the point Taleb was making.)
Far stranger schemes exist, the most recently to hit popular culture is gamma squeeze. Just because a scheme is strange has little bearing on whether or not it'll end up working out with them having your money.
At the end of the day, the point is they're trying to sell their book, which is not the same as trying to sell investment X (although they may be very closely related).
Or most recently Gamestop investors.
> At the end of the day, the point is they're trying to sell their book, which is not the same as trying to sell investment X (although they may be very closely related).
My point it is almost never going to be possible to distinguish between good investment advice and self-serving investment advice. Sure, there is some fungibility there for people with different investment needs, like pension funds vs young income earners. But! we should think about what we would think if the reverse was true. If investors were advocating for investments that they weren't personally invested in, then I would be far more skeptical than if they did.
We should be skeptical of all investment advice. For a specific fact to make us more skeptical of investment advice, we need to consider the alternative where that was not true. I don't see situations where large investors advising people to put money not where their mouth is gives someone more confidence in their advice.
Most other industries have a clear separation between the people who make and sell the product, and the people who publicly opine on the product.
Film journalists aren't film makers, car journalists aren't car makers, games journalists aren't game makers. And if the CEO of EA Games announces the next Madden game is their best ever, you'd take that with a pinch of salt.
Of course, conflict-of-interest-free journalism ain't exactly a growth industry these days, so this probably isn't the model of future stock tips.
One example: I recommended real estate rentals through the 2008-2015 range to several friends despite having none myself. Why? Because it was possible for them to generate significant leverage otherwise unavailable to them and they were in a much better position than me to work the second job of being a landlord.
The only purpose of this essay is PR, for hiring and attracting capital. If you want to do the cynical self-interest take, that's the one you should be going with.
I made a number of bets on the tech industry early on in my career (2005-08): that the Web and Javascript would become increasingly more important, that Python would be a major language both for web development and for scientific computing, that Google and other new tech companies would continue growing until they were bigger than we could imagine, that startups would become a more respectable way of spending your career. I would happily crow about them to anyone that would listen, while also arranging my professional life to benefit from them. They happened. Did I cause the ascendancy of Javascript, or Python, or Google, or startups? Of course not. I called it, and then lots of other people, as events progressed, independently made the same call and jumped on the bandwagon.
So it is with Dalio (and Buffett, and other thought leaders in the financial industry). It's unlikely that their words are moving markets, particularly since their bets are often contrarian and unremarkable at the time they start publicly stating them, and financial markets often take years to catch up. Rather, they spot the trend, understand the implications, and then position themselves to benefit when everyone else spots the trend and understands the implications.
Your anecdote isn't equivalent here. You weren't broadcasting your idea to millions of people managing billions of dollars. If you did have that kind of power, it could have helped javascript/python/Google/startups get adopted faster.
This sort of thing does actually happen in other domains, like short selling, and maybe you're reasoning by analogy with that activity. But that logic simply does not apply here. The amounts involved are too large, the liquidity moves too slowly, and the people involved have too much expertise. All the stuff Dalio is saying here is already known to them, and far more.
His articles and books are not innovative. They are not designed to educate experts. They are designed to popularize his ideas, among the general public.
The kinds of people you would have to influence to move these markets are phd macro economists working for central banks, and portfolio managers at places like Pimco. These kinds of people are not reading Dalio's books and thinking "oh man, never thought about these debt cycles before, better go short treasuries".
edit: For the record, i wrote this because it was fun. I'm not endorsing that this is the case.
small Ray Dalio
flaps his wings in the U. S.
asian small caps soar
Unless you think he's actually trying to pump and dump the entirety of all the Asian stock markets? He doesn't have that kind of influence.
[1] https://m.youtube.com/watch?v=PHe0bXAIuk0 [2] https://m.youtube.com/watch?v=M95m2EFb7IQ
The price of bonds with a long duration varies with the prevailing interest rate (and inflation expectations). Even if the solvency of the issuer is beyond doubt.
If the US economy is going to do well, bond yields will be going up. That means a bond short position will pay off.
Being short on bonds is basically financially almost exactly the same thing as borrowing money.
(The US treasury is 'short' on T-bills. They have to essentially 'buy them back' when they become due.)
Might point was just that a short position in the bond market is not automatically 'betting against the Western financial growth and stability.'
(And, of course, the Western world is bigger than the US.)
That's what he's been saying in his book "The Changing World Order". I believe it's not finished yet, but the chapters are published on his LinkedIn newsletter one by one: https://www.linkedin.com/newsletters/principled-perspectives...
I am invested on margin. That is for every dollar I own, my broker lends me two, so I can buy stock for three.
It's in my interest to keep interest rates low. So I want other people to invest in bonds long, rather than buy on margin (ie sort-of invest in bonds short).
Of course, my influence is so small that it doesn't really make a difference.
But I can imagine there are much smaller markets, where your voice can make a difference.
So whether you buy these arguments or not, Ray Dalio is simply promoting a position that Bridgewater no doubt has taken. So when he says:
"I believe a well-diversified portfolio of non-debt and non-dollar assets along with a short cash position is preferable to a traditional stock/bond mix that is heavily skewed to US dollars. I also believe that assets in the mature developed reserve currency countries will underperform the Asian (including Chinese) emerging countries’ markets."
It's not his avuncular advice. He has millions (billions?) of dollars committed to this bet and he wants to convince others that it's correct so it pays off.