Short-hacking?

In recent weeks, Matt Levine has written about two potential ways of driving a stock price down. The first via literally hacking into computers:

Joshua Mitts and Eric Talley of Columbia — discussing a different approach, which is that you could just trade on the fact that you could hack into the computers. Then you can disclose the hack and hope that the company’s stock will go down. Cybersecurity breaches tend to be bad news. This approach is … look, I have my doubts about how lucrative it is; cybersecurity breaches tend not to be such bad news … but it has the advantage of not being blatantly illegal. Of being legal? I mean, that is not legal advice, but her

In the second case, it’s not so much true hacking, rather it’s akin to growth hacking.

Shares of the Snapchat parent company sank 6.1 percent on Thursday, wiping out $1.3 billion in market value, on the heels of a tweet on Wednesday from Kylie Jenner, who said she doesn’t open the app anymore

So I am inclined to allow it, though I am of course neither your nor Kylie Jenner’s lawyer. But as a way to profit from celebrity, shorting a company’s stock and then being mean about its products on social media seems pretty easy, and the markets would be more amusing if someone tried it. Social media companies profit because their users provide content for free; I like the idea of the users profiting by deciding to stop.

 

Noah Smith makes the case for Bitcoin as gold

Noah Smith makes the case for Bitcoin as a new gold. The problem recently has been that it hasn’t held value well. Perhaps there’s a future where it’s used more in transactions, once fees are decreased, giving it a resurgence in a new manner.

There are essentially three reasons Bitcoin isn’t working out as a currency — twotechnological, and one economic. Technologically, Bitcoin tends to be slow and laborious to use because it verifies transactions in small blocks. That problem isn’t particularly hard to overcome — just use bigger blocks, or use a form of temporary credit to ease the burden on the network. More ominously, Bitcoin relies on people known as miners to verify all transactions, and compensates them by creating new Bitcoins. But soon, this will stop, since the total number of Bitcoins is capped at 21 million — at that point, transaction fees will be needed to pay miners.

It’s very possible that all of these technological problems will be overcome, either by Bitcoin or by rival cryptocurrencies. Lots of smart people are working feverishly on solutions. But there’s also an economic reason why Bitcoin and other cryptocurrencies will never be useful as money. Things that are good financial investments don’t make good currencies, and vice versa.

via Bitcoin Is the New Gold at Bloomberg.com

Software updates as SEC violations

Could disclosures on software updates be a securities violation? From Matt Levine in Bloomberg:

The U.S. Department of Justice and the Securities and Exchange Commission are investigating whether Apple Inc. violated securities laws concerning its disclosures about a software update that slowed older iPhone models, according to people familiar with the matter.

The government has requested information from the company, according to the people, who asked not to be named because the probe is private. The inquiry is in early stages, they cautioned, and it’s too soon to conclude any enforcement will follow. Investigators are looking into public statements made by Apple on the situation, they added.

While the slowdown has frustrated consumers, U.S. investigators are concerned that the company may have misled investors about the performance of older phones.

It is fun to imagine more extreme hypotheticals. What if Apple sold phones that it knew would explode after one year, and they all exploded and killed millions of people? And the Justice Department looked into it, examined the facts and the law, and said: “You know, this looks like securities fraud. The real victims here are Apple’s shareholders, who had no warning that the phones would explode and kill their users, and who have now lost money when the stock dropped.” If you were an alien trying to understand the U.S. legal system from cases like this one (also opioid casesclimate-change lawsuitsgun control, etc.), you might conclude that its purpose is to protect shareholders from losing money when the companies they own harm consumers. 

via Sergeant Spoof’s Time Has Passed at Bloomberg.com

Paying for performance

Matt Levine on charging higher fees for increased performance. It’s not looked upon well, which doesn’t make sense.

One mental model you might have is: Shouldn’t the active managers’ share of the pie be reduced by competition? If Fund X outperforms by 60 basis points but takes 44 for itself, shouldn’t Fund Y swoop in and offer to outperform by 60 basis points but take only 30 for itself? Just asking the question makes it obvious that the answer is no. Sure, right, if lots of active managers could predictably outperform, then they might compete with each other on price. But as long as reliable outperformance is rare, investors should rationally prefer to pay a lot for outperformance rather than to pay less for underperformance.

Full post Is Paying for Performance Bad? at Bloomberg.com

Trump solar panel tax likely won’t matter due to falling costs

Noah Smith on the Trump solar panel tax:

Because the U.S. now imports most of its panels, the import tax will probably hurt more American companies than it will help. But the overall impact is unlikely to be large because solar panel manufacturing costs have been dropping so fast that more expensive foreign imports will be merely a bump on the road. In 2017, a solar module producing one watt of power cost only around one-fifth of what it did in 2010:

There’s an interesting analysis of what lower manufacturing costs do to energy prices as a whole as well.

The tariff will create a number of less-obvious losers as well. Falling solar costs will eventually lower the price of electricity for U.S. companies — even when electricity users don’t switch to solar, lower costs can force natural gas, coal and nuclear plants to cut prices to remain competitive.

Cheaper electricity, in turn, gives American industry a boost. U.S. workers earn much higher salaries than workers in China and other developing countries, meaning that U.S. manufacturers can’t rely on cheap labor costs for their competitive advantage. Instead, they have to compete by having better technology and more capital equipment. This is why the shale-gas revolution was such a boon for U.S. manufacturers. Solar power promises to be even cheaper. Yet by slowing this process, solar tariffs could postpone the day when U.S. manufacturing comes back into its own.

via Trump’s Solar Tariff Is Bad, But Not a Huge Deal at Bloomberg.com

There’s reason for banks to worry about bitcoin

And here’s a good reason for banks to be wary of Bitcoin:UBS Group AG Chairman Axel Weber said the Swiss bank won’t trade Bitcoin or offer it to retail clients as increased regulation could lead to a “massive” drop in value.

“This is something where the price is really unclear,” Weber said in an interview Wednesday with Bloomberg TV at the World Economic Forum in Davos, Switzerland. “We fear that in the future if these investments implode and the market corrects, then investors will be looking at ‘who sold us this?’”

If some dude on the internet sells you a hugely volatile asset with no intrinsic value and it immediately loses 50 percent of its value, you’re like “well played, dude on the internet.” If a bank does it, though, you sue.

from Matt Levine in Crypto Finance Meets Regular Finance at Bloomberg.com