Opinion

Ben Walsh

Disrupting the market for helping people lose money

Ben Walsh
Mar 12, 2013 22:26 UTC

Investors tend to lose money in boring, but effective, ways. Motif Investing (“turn any idea into a motif”) promises to disrupt this predictable pattern by helping people lose their money in new and exciting ways. Motif’s CEO proudly describes the company as like the iPhone, but for investing, with the ease of shopping on Amazon. The fact that that description makes no sense at all does not make it any less terrifying. It wasn’t hard to predict that Twitter mockery would (rightfully) ensue.

Here’s PandoDaily’s Michael Carney trying to describe what Motif actually does:

Since launching in 2010, the company has offered its own motif based investment ideas and allowed regular Joes and Janes to view data on the performance of these ideas, and then make actual investments. Consider it one part E*TRADE-esque online brokerage, one part think tank, one part tech startup.

Here are more gems from the PandoDaily piece:

    “Each of us has areas of expertise, or even of personal curiosity, that may offer insights into the way the stock market will behave in the future.” Sure, we might, but if we do, the best thing to do about them is nothing.
    “Motif Investing is… looking to turn Wall Street on its head.” This will end well.
    “Motifs can be more than just collections of stocks.” You can also invest in Facebook likes.
    “Fund creators will be able to make money through royalties when other investors buy their funds.” So it’s really like Reddit plus Herbalife, but for stocks.
    “If an investor can create demand for the stocks in their Motif, they’re likely to increase in value.” This is bad, as Matthew Klein tweeted. But to be fair, it was also the basis of Giovanni Ribisi’s best work.
    “Users can access financial data through Google Finance and Yahoo Finance.” This data is also available to any user of the internet.

Also, the pricing is terrible. Commission are a flat $9.95, and are charged not only on every trade, but also whenever a trade is rebalanced, which can happen automatically on a quarterly or annual basis. The investment minimum is $250, and the max is $100,000. I think most Motif users will be closer to $250 than $100,000. Motif probably thinks the same thing, or else they wouldn’t have chosen a regressive, flat-fee model. If you put $1,000 into a Motif account on a single trade, alter that trade once during the year, and assume quarterly rebalancing, you’ve just incurred 5.97% in annual fees. Accounts with the minimum $250 value rebalanced quarterly are charged annual fees of around 12%. To get an idea of what a terrible deal this is, the Vanguard 2045 target date fund charges a 0.18% fee.

Inexplicably, Arthur Levitt, the former head of the SEC, and Sallie Krawcheck, former CEO of Merrill Lynch Wealth Management, former CEO of Smith Barney, and former CFO of Citigroup, are now on the company’s advisory board. Levitt and Krawcheck must be getting paid well for their work (Motif has raised $26 million in funding), because I can’t why else they’d want to be be associated with this kind of company.

from Felix Salmon:

Counterparties: Krugman-Sachs

Ben Walsh
Mar 11, 2013 22:29 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints toCounterparties.Reuters@gmail.com.

Fresh off debating the deficit with Joe Scarborough on Charlie Rose, Paul Krugman is now tangling with fellow lefty economist Jeffrey Sachs. At issue is the government’s post-crisis stimulus spending, and the basic tenets of Keynesianism. Or at least that’s what Sachs would have you believe.

Sachs and Scarborough co-authored a Washington Post op-ed titled “Deficits Do Matter”, accusing Krugman of a crude interpretation of Keynes. Specifically, they say that short-term stimulus spending hasn’t achieved increased growth. (Krugman, by contrast, has long called the stimulus too small.) Sachs and Scarborough warn that things will only get worse as the US population ages, and healthcare costs increase. Keynes wouldn’t have approved, they say:

from Felix Salmon:

Counterparties: (NO) VACANCIES

Ben Walsh
Mar 7, 2013 23:18 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints toCounterparties.Reuters@gmail.com.

Who controls how hard is it to get a job in America? The next few jobs reports, including tomorrow’s, Mohamed El-Erian says, will give us some insight into the answer to that question. If the Federal Reserve is effectively in charge, rolling “out one untested measure after the other”, that could help create new jobs. But if our dysfunctional, austerity-inducing Congress has the upper hand, expect job growth to sputter out. Neil Irwin sees things similarly, although he identifies a booming housing market, a rising stock market, and deleveraging consumers as the key forces pulling the American economy forward.

There may be, however, a simpler way to give the economy a shot in the arm: hiring the unemployed to fill vacant jobs. Sounds sensible, right? Here’s Catherine Rampell:

from Felix Salmon:

Counterparties: Ending capital punishment

Ben Walsh
Mar 6, 2013 23:27 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints toCounterparties.Reuters@gmail.com.

Apple may want to keep its capital, but big US banks want to return some of theirs. Tomorrow the Fed will release the first set of data from its stress tests. Bank execs will have to wait until next week to find out whether they’ll finally be allowed to return more capital to shareholders.

Bloomberg’s Dakin Campbell and Hugh Son write that US banks may return $41 billion to investors over the next year, using the average of estimates from research analysts at Barclays, Credit Suisse, and Morgan Stanley. As David Benoit notes, this is a turnaround from last year, when Bank of America and Citi were forced to keep their payouts at a pro forma cent a share.

Jamie Dimon, consistent flip-flopper

Ben Walsh
Mar 1, 2013 15:47 UTC

He’s alternatively demonized and deified, but Jamie Dimon is rarely called a flip-flopper. You wouldn’t know it from recent reporting, or ego-revealing anecdotes and quotes, but he’s been surprisingly inconsistent on the issue of financial regulation.

He’s famously said some very negative things about financial regulation reform: accusing regulators of undermining economic growth; predicting that increased capital requirements would be “pretty much putting the nail in our coffin for big American banks”; comparing regulation of Wall Street pay to communist Cuba; and graphically condemning the organizational complexity of JP Morgan’s regulators.

But there’s also a mellower side to Dimon’s views on regulation. He doesn’t want to do “do a bunch of stupid stuff” (who does?), but he’s fine to “wait and see” what the impact of the Volcker Rule is. He agrees that higher capital ratios are an important factor in decreasing systemic risk and thinks increased liquidity requirements are, on balance, positive for markets (cut to the 1 hour, 50 minute mark). Dimon has even gone as far as saying that Dodd-Frank will help JP Morgan gain market share.

from Felix Salmon:

Counterparties: Bigger slices, bigger pie

Ben Walsh
Feb 26, 2013 23:10 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

Right now is a lucrative time to be a banker. Profits at US banks rose almost 20% in 2012, to a post financial-crisis high of $141.3 billion*. The securities industry, while still unable to match its record-setting 2009 profits, is also doing well, earning $23.9 billion last year, up from $7.7 billion in 2011.

Despite America’s persistently high unemployment and tepid growth, its financial employees are doing well. New York State’s Comptroller Thomas DiNapoli, in his annual report on the state’s financial industry, reports that securities firms increased cash bonuses 8% to $20 billion in this bonus cycle. As the WSJ's Brett Philbin notes, that’s down 42% from the lofty levels of 2006 -- but it still comes to more than $122,000 per banker. What’s more, the comptroller's annual estimate is conservative: it fails to capture many types of deferred pay. For instance, $6.3 million of Citigroup CEO Michael Corbat’s $11.5 million 2012 pay is deferred.

Citi’s bold new compensation plan replaces one adjective with three bullet points

Ben Walsh
Feb 25, 2013 21:39 UTC

The last time Citigroup tried to pay its CEO, shareholders freaked out, albeit in a ceremonial way. This time around, Citi has made some changes to the way it pays its CEO. Antony Currie thinks the “broad structure [of the plan] looks good”. The problem is that structure is basically a compilation of cosmetic changes that won’t do much to prevent the exact kind of decisions that got shareholders so enraged last year. Despite that, they’re probably probably just enough to discourage the intense criticism the bank faced last year.

Here’s Nathaniel Popper and Jessica Silver-Greenberg’s succinct characterization of the new status quo:

[Citigroup] announced on Thursday that part of the $11.5 million in compensation awarded to the new chief executive, Michael L. Corbat, would be closely tied to performance.

from Felix Salmon:

Counterparties: All loans are risky loans

Ben Walsh
Feb 20, 2013 23:27 UTC

Welcome to the Counterparties email. The sign-up page is here, it’s just a matter of checking a box if you’re already registered on the Reuters website. Send suggestions, story tips and complaints to Counterparties.Reuters@gmail.com.

What if boring banking is actually dangerous? James Surowiecki, citing research by Christian Laux and Christian Leuz, argues that it wasn’t high finance that pushed banks to fail during the financial crisis. Instead, banks simply “lent themselves right into insolvency”. Anat Admati and Martin Hellwig make the case in their book, “The Banker’s New Clothes”, that traditional lending can be just as risky as more as complex trading strategies -- it also didn’t help that banks borrowed excessively. Their solution: banks should fund themselves with more equity and less debt.

Tom Braithwaite thinks that’s already happened and that the desire to increase return on equity, which is well below its pre-crisis peak, will make banks safer. “They are channelled away from [riskier activities] because Basel III puts tough ‘risk weights’ on riskier businesses... safer businesses such as advisory work or retail brokerage are being preferred because they are ‘capital light’”. That placid view, however, is countered by the role that reducing risk-weighted assets seems to have had in spurring JP Morgan’s London Whale debacle.

The key to unlocking shareholder value: Mayonnaise tweets

Ben Walsh
Feb 15, 2013 14:07 UTC

Attempts to explain why markets move are generally pretty silly, as proven by qualitative case studies. Just look at this master class from CNBC, which spends five minutes offering a dozen different explanations for why the market might be doing what the market is doing. All twelve reasons could be right, or they could be wrong, or the truth might lie somewhere in any one of the millions of permutations of those dozen explanations.

That of course is why people believe these explanation, because they’re stories. For instance, here’s an amusing theory: Groupon stock rises because the petulant CEO tweeted his displeasure about the way mayonnaise is dispensed at sandwich stores. It exists — George Anders has written it at Fortune. First, here’s the rundown of Mason’s comments:

Mason deplores some sandwich shops’ habits of putting mayonnaise on their lunchtime creations, regardless of whether customers want mayo or not. Mayonnaise by default “makes no sense,” Mason asserts. It would be much better if sandwich shops let customers decide for themselves whether to put mayo on their bread. Abstainers would enjoy a mayo-free meal; indulgers would savor their spread on less soggy bread.

An economic minister, a banker, and a hedge fund manager walk into a meeting

Ben Walsh
Feb 13, 2013 18:14 UTC

The first sentence of this Bloomberg story about Russia’s latest investor charm offensive could be real conspiracy fodder, if it weren’t in fact so mundane: “Goldman Sachs has been hired by the Russian government to burnish the nation’s image overseas and attract more institutional investors”. Goldman Sachs makes millions convincing community banks to buy mortgage securities backed by Black Sea housing projects! Or something else that a Matt Taibbi column auto-generator would spit out.

What’s actually going on is pretty simple, and not that unusual, even if it is buried almost halfway through the story. Goldman Sachs has an agreement with Russia “similar to a corporate broking arrangement”, which are very common. The services provided here are pretty nondescript — setting up meetings with investors, handling the logistics of getting executives or government ministers from city to city, providing a modicum of input on what should and shouldn’t be said.

For a company or country, the value is pretty clear. They get to meet with investors, which they were probably going to do anyway. With a bank involved, the head of investor relations has an easier job: he gets someone else to blame when a meeting with a mildly unsavory hedge-fund that is probably short the company’s stock gets onto the day’s schedule.

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