Tag Archives: Markets

Citadel Sues to Crush Competitors

“You’re the one who’s trying to regulate your way into a market victory”

Judge Justin Walker

Citadel Securities LLC is suing the SEC to stop curbs on high frequency trading:

A federal judge challenged a lawyer for Citadel Securities LLC about its efforts to thwart a new kind of market order from IEX Group Inc., the stock exchange operator made famous by “Flash Boys.”

“It’s you who’s going to a federal agency and saying stop a private entity from doing what they want to do,” U.S. Circuit Judge Justin Walker said at a hearing in Washington on Monday, after attorney Jeffrey Wall argued that the order type interferes with the natural course of the market.

The order type, known as D-Limit, has a roughly 350-microsecond delay to blunt the advantage of high-frequency traders.

Citadel makes massive sums from high frequency trading.

Brad Katsuyama created the IEX to stop high frequency traders from front running mutual funds and other investors. Now, IEX is offering a new technology, the D-Limit order, to help.

So Citadel sues the SEC to make them stop!

Imagine if Blackberry could’ve sued the government to make it stop the iPhone. Well, Blackberry might be doing a whole lot better today.

But the average person wouldn’t.

In Citadel’s defense, they’re having a tough time lately. Average investors in meme stocks like AMC Entertainment Holdings, Inc. are suing them in Florida.

And the SEC is considering a ban on payment for order flow, one of Citadel’s main sources of revenue.

It’s interesting to see who’s for the D-limit order. One proponent is Vanguard Group, which holds the savings of many individual investors, including me.

Vanguard is evidently convinced that circumventing high frequency traders will help the average investor. But for Citadel, Vanguard is competition in the market.

And Citadel will stop at nothing to win.

The only real question is: will we let Citadel lobby and sue its way to total control of markets?


This is the last blog for this week. There will be no blog next week; I’ll be visiting Barcelona!

See you on Monday, November 29th.

Until then, enjoy a few of my favorite posts. Happy Thanksgiving, everyone!

Starting a Financial Plan from 0

Citadel Builds Huge Position in AMC Call Options

Male Contraception With an Ultrasound Device?

NJ’s Best Apple Cider Donut

The Painting I Love the Most

Photo: “Ken Griffin” by DanGPhotos1 is licensed under CC BY 2.0

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Save Money on Stuff I Use:

Amazon Business American Express Card

You already shop on Amazon. Why not save $100?

If you’re approved for this card, you get a $100 Amazon gift card. You also get up to 5% back on Amazon and Whole Foods purchases, 2% on restaurants/gas stations/cell phone bills, and 1% everywhere else.

Best of all: No fee!

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. 

How Did High Dividend Stocks Perform In the Last Crash?

The Problem

I don’t know about you, but I’m starting to lose patience with bonds. The yields are rock bottom. Inflation is high.

And the interest rate outlook is pointing in one direction: up. This would mean substantial losses for bonds.

So I’ve been looking into high dividend stocks as an alternative. And not just any high dividend companies: the Dividend Aristocrats.

The Dividend Aristocrats

Ultra high dividends are nice, but if the company quickly depletes its cash and has to slash them, it doesn’t do us much good. That’s why Dividend Aristocrats are so attractive.

To get on the list, a company has to raise dividends for 25 years. Straight.

As of 2021, there are 65 Dividend Aristocrats.

The Experiment

Today, I wanted to see how some of the highest yielding Dividend Aristocrats performed in the last stock market crash. It lasted from February 19 to March 23, 2020.

The S&P 500 index lost 33.9% of its value in a matter of weeks. Not gonna lie, it was interesting. 🙂

I focused on companies currently yielding above 3%. I figured there wasn’t much point in replacing bonds with stocks that yield only slightly more.

Only 17 stocks made it into this illustrious group. Call them the Dividend Royals.

The Results

So how did the Dividend Royals do in the last crash?

Not terribly well. On average, they dropped 36%. That’s slightly worse than the S&P 500’s 33.9%.

Why did the Dividend Royals do worse? The fact that a small number of energy and real estate companies in this group suffered huge losses is one major factor.

Bonds, boring and frustrating as they are, did much better. The long-term Treasury fund actually gained 11.7%. The bond market index fund I own lost just 1.2%.

But today, they yield just 1.91% and 1.41% respectively.

Conclusion

Despite being solid, mature companies, high dividend stocks fell further than the market in the most recent crash. However, these creme de la creme of the Dividend Aristocrats all kept paying their fat dividends.

If you can stomach the capital loss, they may be a better bet.

More on markets:

Starting a Financial Plan from 0

FOMO: Investors’ Worst Enemy

Where Can We Hide in a Financial Crisis?

Note: Price data comes from Yahoo! Finance

Photo: “Stock Market Crisis Over” by Wagner T. Cassimiro ‘Aranha’ is licensed under CC BY 2.0

If you found this post interesting, please share it on Twitter/Reddit/Facebook/etc. using the buttons at the bottom of the page. This helps more people find the blog! 

Save Money on Stuff I Use:

Amazon Business American Express Card

You already shop on Amazon. Why not save $100?

If you’re approved for this card, you get a $100 Amazon gift card. You also get up to 5% back on Amazon and Whole Foods purchases, 2% on restaurants/gas stations/cell phone bills, and 1% everywhere else.

Best of all: No fee!

Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. 

Inside the Archegos Implosion: “We Don’t Know How Far the Tentacles Go”

Brokers are selling over $30 billion worth of positions in imploding hedge fund Archegos Capital Management, shaking markets. Wall Street does not know exactly how many positions the fund holds for two reasons:

  • It is very lightly regulated because it’s organized as a “family office,” rather than a typical hedge fund
  • Archegos didn’t actually own most of the stocks it took positions in, if any. Instead, it owned derivatives called “contracts for difference (CFD’s),” which have few disclosures.

Some experts liken the Archegos blow-up to the bankruptcy of Bear Stearns, which helped precipitate the financial crisis:

“We don’t know how far the tentacles go,” said Joe Saluzzi, co-head of trading at Themis Trading. “Early in the Bear Stearns crisis, the market was fine — until it wasn’t.”

Others are comparing the liquidation of the hedge fund’s positions to that of Long Term Capital Management (LTCM) in 1998, which caused severe market turbulence and ultimately required a bailout:

“This reminded me a lot of the Long-Term Capital situation,” Steve Sosnick, chief market strategist at Interactive Brokers, told Insider in an interview.

Long-Term Capital Management, a massive hedge fund staffed by famed traders and Nobel Prize-winning economists, employed such highly leveraged trades that it threatened to expose America’s largest banks to more than $1 trillion in default risks by 1998. The “genius” hedge fund nearly collapsed had it not been for a bailout package from the Federal Reserve and some major Wall Street banks.

However, Archegos’s positions appear to be far smaller than those of LTCM. Nonetheless, Archegos was very heavily leveraged:

Shrouded by the secrecy of CFDs, Hwang was able to build up almost $50 billion in stock positions on the back of the $5 billion to $10 billion that Archegos managed.

Perhaps the greatest source of worry for markets is uncertainty over exactly how many positions Archegos has and with which banks. This counterparty risk was a driving factor in the LTCM crisis in 1998 and the financial crisis of 2008:

…it seems clear that the banks didn’t realize until too late that they were holding similar positions, with malign implications for efforts to keep markets in those shares from falling further.

“You can have a suspicion that maybe this person is doing this trade with a bunch of other people,” said Jay Dweck, a former trading and risk-management executive at Goldman and Morgan Stanley and now consults for banks and hedge funds. “But no one knows the aggregate.”

In all, given the smaller size of the portfolio being liquidated and the current buoyant state of markets, I don’t expect any extreme shock from Archegos going under. I think the experience with LTCM, Bear Stearns, Lehman and others will also stand banks and regulators in good stead when dealing with Archegos. But you could see some choppiness for a while as we find out who is exposed to Archegos and wind down those positions.

Another possible outcome is stricter regulation, especially of these opaque family offices, which I think would be good for markets. Indeed, regulators are already scrutinizing hedge funds after the run-up in GameStop shares this year stung some with huge losses. From the WSJ:

The steep losses at Archegos come as a council of top U.S. regulators known as the Financial Stability Oversight Council is already scheduled to meet on Wednesday to discuss hedge-fund activity during the pandemic-triggered crisis.

For more on Archegos and markets, check out these posts:

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Photo: “Fire” by Mike Poresky is licensed under CC BY 2.0

A Giant Hedge Fund Is Imploding, Taking Stocks with It

Ten billion dollar hedge fund Archegos Capital Management is imploding, causing banks to frantically sell its portfolio to stem further losses:

One mystery in a dramatic year on Wall Street has been the identity of a trader whose persistent purchases have sent shares in ViacomCBS Inc., Discovery Inc. and a handful of other companies surging even when the broader market was down.

People familiar with the transactions say the answer is former Tiger Asia manager Bill Hwang. Late last week Morgan Stanley, Goldman Sachs Group Inc. and Deutsche Bank AG swiftly unloaded large blocks of shares in those companies and others, part of the liquidation of positions at Mr. Hwang’s Archegos Capital Management.

The sales approached $30 billion in value, some of the people said, and fueled a 27% plunge Friday in shares of ViacomCBS—an unusually large decline in a widely held, large-capitalization stock on a day with no significant company-specific news. Billions of market value in other companies were wiped out as the sales continued, surprising market participants who called the size and speed of these stock sales unprecedented.

Hwang had placed giant bets on several stocks funded with borrowed money, and his fund suffered major losses when the stocks moved against him:

…a major actor in supporting companies’ share prices appears to have been undone by his continuing to add to leveraged bets as markets soared. The strategy fell apart when some of those bets started to reverse on him.

There were serious warning signs about Hwang’s conduct, which his banks, including Nomura and Credit Suisse, did not heed:

U.S. securities filings show Credit Suisse was prime broker in 2011 and 2012 to Mr. Hwang’s former firm, Tiger Asia Management LLC. Tiger Asia handed money back to investors after Mr. Hwang admitted in December 2012 that the hedge fund criminally used inside information from investment banks at least three times to profit on securities trades.

This is the latest in a string of problems for Credit Suisse:

Credit Suisse is still digesting the collapse earlier this month of Greensill, a British supply-chain finance company that declared bankruptcy shortly after the Swiss bank froze funds that provided it with liquidity. The double hit could be an extraordinary run of bad luck; there were other banks caught up in both failures. Alternatively, it could point to endemic problems of risk management at Credit Suisse. The Swiss company carried on working with Greensill despite internal concerns.

So if you see volatility in stocks like Viacom, Discovery, Credit Suisse, etc. in the coming days, you’ll know where it’s coming from. I do wonder if other stocks may be impacted by this forced selling of Archegos’ positions.

For more on what’s moving markets, check out these posts:

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Photo: “Boom-goes-the-dynamite” by Aaron & Alli is licensed under CC BY-ND 2.0

The US Government Is Selling Its Bitcoin

The US government is selling its bitcoin…all $38,000 worth:

Tucked away among the Ford, Dodge and Chevy sedans, the 12,000-gallon storage container and the inoperable Caterpillar tractor being auctioned off by the U.S. government is an unusual item: 0.7501 of a Bitcoin.

The federal government did not reveal the source of its cryptocurrency holdings, but I imagine they were probably seized in a bust of some sort. Indeed, a far larger collection was sold off when the Silk Road was shut down:

The government doesn’t say where its surplus digital currency came from. And while it’s a far cry from the 30,000 Bitcoins auctioned off by the U.S. Marshals Service in 2014 after they were seized from the Silk Road marketplace, the GSA auction is one more indication of how Bitcoin is becoming more and more mainstream.

This does make me wonder if eventually states and sovereign wealth funds will buy crypto and hold it. Can the day be far in the future?

For more on the latest in cryptocurrencies, check out these posts:

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Photo: “Vice President Joe Biden visit to Israel March 2016” by U.S. Embassy Jerusalem is licensed under CC BY 2.0

This New Indicator May Tell You Where Bitcoin Is Headed

For many years, investors in stocks have been able to see how volatile the market is expected to be by relying on a gauge called the CBOE Volatility Index, or VIX. This measure, often called the “fear gauge,” reads how much volatility investors are expecting based on option prices.

Nothing like this has ever existed for cryptocurrencies. Until now:

A bitcoin “fear gauge,” similar to the Cboe Volatility Index (VIX) investors use to gauge volatility in the stock market, saw its first trades on Wednesday.

The T3i BitVol Index measures the expected 30-day implied volatility in bitcoin derived from tradable bitcoin option prices.

The index goes two years back so far. Current expected volatility appears higher than normal.

A high VIX tends to correlate with a drop in stocks. A low VIX tends to predict calm, gradually rising markets. This pattern may hold with Bitcoin as well, giving crypto holders a chance to see a bit into the future.

For more on the latest in cryptocurrencies, check out these posts:

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Photo: “Winklevoss Twins – Caricature” by DonkeyHotey is licensed under CC BY-SA 2.0

Bitcoin Anonymity Could Become A Thing of the Past If This Regulation Passes

In the waning days of the Trump administration, the government proposed regulations that would ban anonymity for holders of cryptocurrencies:

Users whose wallets now are only identified with codes would have their true identities recorded with the financial institutions they zealously avoided.

This proposed regulation has now been passed on to the Biden administration. There’s no timeline for a decision, but removing anonymity from crypto transactions could hammer the price:

If adopted, the regulations could cause a sharp fall in the prices of virtual currencies like Bitcoin, said Matthew Maley, chief market strategist for Miller Tabak & Co., adding that he thinks Bitcoin’s price will continue to rise in the long term.

There are some major companies like Fidelity and Coinbase pushing to retain anonymity, and I think their political influence may stop such regulations. But on the other hand, the possibility for anonymity to facilitate drug deals and terrorism could push the government in the opposite direction.

For more on the latest in cryptocurrencies, check out these posts:

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Photo: “Bitcoin, bitcoin coin, physical bitcoin, bitcoin photo” by antanacoins is licensed under CC BY-SA 2.0

How Bitcoin Could Reach $400,000

I came across an interesting stat today: the estimated value of all the gold in the world is $7.5 trillion. Gold and bitcoin are often compared as stores of value with a limited supply. What if bitcoin became as widely accepted and highly valued as gold?

At the current market cap of $949 billion, bitcoin would have to multiply in value eight fold in order to equal the value of all gold reserves. Bitcoin’s price is already heady at over $50,000, up from under $9,000 a year ago. But this stat makes me think it may have more room to run. If it reached parity with gold, one bitcoin would be worth $400,000.

Bitcoin is much easier to store and exchange than gold. On the other hand, gold has a much longer track record as a store of value and also has some industrial uses.

I prefer cash flowing stocks, bonds and real estate to either one, but for someone like me who is used to dismissing cryptocurrencies, this information did give me pause.

For more on cryptocurrencies and financial markets, check out these posts:

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Photo: “Bitcoin, bitcoin coin, physical bitcoin, bitcoin photo” by antanacoins is licensed under CC BY-SA 2.0

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Bitcoin Is Worth More Than Double All US Gold Reserves

When it comes to storing value, what could be more iconic than Fort Knox, where the US keeps a large portion of its gold reserves? It’s heavily guarded and contains gold worth over $290 billion.

But that along with all other US reserves, at $456 billion, are worth less than half of the value of all bitcoin, at $948 billion.

The value of all bitcoin worldwide still pales in comparison to the value of gold, however. Were they to reach parity, bitcoin’s value would have to multiply many times.

(I arrived at the value of all US gold reserves by taking the reserve amount here and multiplying it by the price per metric ton here.)

For more on cryptocurrencies and financial markets, check out these posts:

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Photo: “Bitcoin, bitcoin coin, physical bitcoin, bitcoin photo” by antanacoins is licensed under CC BY-SA 2.0

Bots Are Pumping GameStop And Dogecoin

Buy GameStop!

New research indicates that bots are pumping GameStop shares on Twitter, Facebook, and Instagram:

PiiQ said it identified very similar daily “start and stop patterns” in the GameStop-related posts, with activity starting at the beginning of the trading day, followed by a large spike at the end of the trading day. Such patterns are indicative of bots, said Aaron Barr, co-founder and chief technology officer of PiiQ.

“We saw clear patterns of artificial behavior across the other four social media platforms. When you think of organic content, it’s variable in the day, variable day-to-day. It doesn’t have the exact same pattern every day for a month,” he said.

The research firm, PiiQ Media, also found signs of robot activity in other stocks favored by the Wallstreetbets community, along with Dogecoin cryptocurrency.

Reddit claims it has seen no sign of bot activity, but anecdotally, I notice so many posts there that have basically no content. They just say “GME to the moon!” or what not. My gut tells me a lot of these are bots, but I can’t prove that.

For more on AMC and the Wallstreetbets phenonmenon, check out these posts:

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Photo: “Robot” by andreavallejos is licensed under CC BY-ND 2.0