Tag Archives: Hedge Funds

Playing the player

It happens, we sometimes meet those players who have it all, and they also have the ego and naive approach, so basically stupidity in a neatly wrapped package. This is not about one of these people, this is about someone who got to be smart about it and even as my psyche is slightly vexed and upset on the game played, I have to admire the fact on someone making close to half a billion playing it. We get to the Australian Financial Review (at https://www.afr.com/business/banking-and-finance/hedge-funds/nintendo-trader-who-made-a-massive-short-bet-against-the-games-maker-revealed-20180730-h13cmo). the title gives the goods with ‘Nintendo trader who’s made a $540 million bet against the games maker revealed‘, the quote “Gabriel Plotkin, head of New York hedge fund Melvin Capital Management, has accumulated a $US400 million ($540 million) short bet against the Japanese game maker, according to regulatory filings” and in normal cases this is not an issue, the market is all about ups downs, I get that (I might not agree).

It is also part of the problem here. You see, the Nintendo Switch has been breaking records since the start and whilst it is about to push Microsoft down into a third position, it is equally breaking several other records. It has surpassed the historic global sales of the first Xbox, the GameCube, the Wii U the PS Vita, as well as the Nintendo 64. It is unlikely to surpass the Original Nintendo Entertainment System (over 61 million) for at least another year, but we see that the Switch has surpassed most of its own lifetime sales except for one console and 4 handhelds. It has done that great in less than two years. With the additional revenue from the software which is also breaking new records, one would think that there is no stopping Nintendo, so when I reported on the issue that I had with the Analyst making those brash announcements on being short by 10%, I was not sure on who is riding the ‘expected sales’ talk and why expectations are so high, were they inflated to be artificially high?

Well, it seems to me that someone made a truckload of money on the work of others. I am honestly unsure how to feel about that. I think I have to accept that this is how the Wall Street game is played; I merely accept that I do not have to like it.

So when I see “Nintendo will report first quarter earnings on Tuesday after the market close. Analysts estimate revenue will rise 21 per cent from a year earlier, while operating profit will jump 58 percent“, I wonder how that game was played. You see, two days ago, I wrote ‘The state of the gaming union‘ (at https://lawlordtobe.com/2018/07/29/the-state-of-the-gaming-union/), and when I was confronted with “even Jefferies’ Atul Goyal, widely considered to be the most optimistic of all analysts when it comes to Nintendo’s prospects on the market, has slashed his price target for the company by more than 10 percent, attributing his depressed outlook on a concern that Nintendo’s sales for the Switch in 2018 may not meet expectations“, which came from https://gamingbolt.com/jefferies-analyst-believes-switch-sales-will-see-a-slowdown-this-year. This is an issue I have raised before. Not in regards to Nintendo, or gaming though. So how come that we see, and merely take for granted the words of an analyst giving us ‘missed target for the company by more than 10 percent‘, that whilst we see the records broken and the forecast is: “revenue will rise 21 per cent from a year earlier, while operating profit will jump 58 percent“, at what point was there any validity on slashing the stock price? Is there an interaction between analysts like Atul Goyal and Hedge funds managers like Gabriel Plotkin?

Am I the only one asking that question?

If it was a bubble and someone shorted on that seeing the bubble is bursting like in the Big Short, I say ‘Yay!’ to the one doing it, or better those making money of stupid people deciding to make bubbles and hypes. People making money from stupid people relying on greed is a nice thing, it is like instant karma watching a Cobra seeing a nice snack, only realising too late that it is a Mongoose and the snake ends up not having any dinner and becoming a meal himself. Yet in this case, we need to accept that Wall Street seems to have its own view on natural selection and that the price of getting mentioned there is that you are merely the next meal for some. Still, when it is a faltering Microsoft, an error full of Facebook, Equifax breaches, they all happen and they will therefor take a few additional hits. In light of all Nintendo issues, apart from one solvable issue, the Switch has been doing stellar and now the issue rises more and more that what analysts predict is almost like selling fairy tales and in that setting pragmatism and realism will never ever win. This makes me wonder on the checks and balances on forecast analysts.

I might be jealous that Gabriel Plotkin made close to half a billion, but the setting does not make sense. Many who are actually in this field might laugh out loud, and that is fine. Still, logic no longer applies here, 3+3 is no longer 6 and that offends my logical way of thinking. Apart from me having been pro-Nintendo for the better part of two decades, the math does not add up on the Nintendo Switch. Consider the parts

  1. At Amazon recently, the top 10 sales chart for games was 90% for Nintendo
  2. Nintendo Switch is still breaking records, still on a firm route to be the second largest next gen console, surpassing another player, which it had not been able to do since they entered the market.
  3. Seven Switch games published by Nintendo have sold over 1 million copies each. And “Super Mario Odyssey” has sold nearly 10 million copies. For a system this short on the market, these are stellar achievements. In addition “Super Mario Odyssey” is bought by almost 60% of those owning a Switch that is nothing short of exceptional, it might not have been in the old days where everyone with a PlayStation had Tomb Raider, especially with the large game market nowadays, but it is still quite the achievement.

When we see the demand for Nintendo Switch continuing, the sales racking up and the records that are currently being broken, how unrealistic were the forecasts from analysts? That is where my mind is at. So whilst we saw the 10% drop given two days ago, where was the reality there? That is what makes the issue for me, so when we see someone walking away with half a billion at the expense of Nintendo, the question becomes

Was the Market played, were both played and how was this play possible?

My mind tends to go towards the inside job equation. I cannot say that this is an accusation, mainly because I do not know or comprehend that market. Yet, I do know games and consoles and in all this, the setting of Nintendo does not add up. So whatever Melvin Capital Management and Gabriel Plotkin did to make this play out the way they have shown that they are really intelligent, no one denies that. Yet, in light that Nintendo got slammed because of this, in light of all the gains they have made does not add up for one iota.

Yes, many graduate from the London School of Economics will have a laughing field day on this, I get that, but the sentiment form me stands, the numbers do not add up because the forecast is set in a too unrealistic way from my point of view and that is where the people behind the screens create turmoil that seems unacceptable to me.

In this, the funny part is that Yahoo Finance actually gave me something that I do not agree with, but the phrasing is actually important here. With ‘Massive Short Bet Against Nintendo After Shares Drop‘, we see (at https://finance.yahoo.com/news/sac-alum-plotkin-makes-massive-050808098.html). the quote “There’s a new villain in the world of Nintendo Co. Gabriel Plotkin, head of New York hedge fund Melvin Capital Management, has accumulated a $375 million short bet against the Japanese game maker, according to regulatory filings. The former star trader at SAC Capital Advisors accounted for as much as 7 percent of Nintendo’s daily volume in recent weeks, contributing to stock declines since May that have stunned analysts” starts funny, because I am not certain if Gabriel Plotkin is a (or even ‘the’) villain, or the new Warrio. You see the part that we see is ‘contributing to stock declines since May that have stunned analysts‘, that was not the case, analysts started the 10% drop that started it all, the question is whether this was an intentional play to decrease the value of Nintendo, and if there was intent, do any of those analysts have any connections to Microsoft? If there is a villain Microsoft is a much more likely one than the facilitator Gabriel Plotkin seems to be.

the other quote that seems to be important here is: “Many analysts were bewildered when shares began dropping sharply in May, leading to the biggest gap in a decade between brokerage targets and the actual stock price. Goyal called the declines “shocking” at the time“, the quote seems to be in opposition to “the most optimistic of all analysts when it comes to Nintendo’s prospects on the market, has slashed his price target for the company by more than 10 percent“, which I commented on two days ago. Something made him slash the prices, so there was no shock. Now we get to the part on how Atul Goyal got from one place to the other. Did Gabriel Plotkin play Atul Goyal, or did they play the market together?

I might not have noticed if they had played Microsoft with their bungles on the Xbox and Surface fields, I might not have noticed on the PlayStation reaching certain levels of saturation, or even IBM, who got the ‘tits up’ claim from the Register. There would be an impact, especially with the ‘troubling storage underperformance‘ that their cloud had. Yet in opposition the Nintendo setting did not add up and I wonder if it ever will add up, unless certain analysts are proven to have set the stage of (intentional or not) creating an anticipation bubble that was too unrealistic. That was merely my view and I believe that I am not the only one having certain questions in all this.

Merely ask yourself on how stock drops 10%, that whilst operating profits are set to be jumping 58 percent in the last year alone and more profits are clearly in the sights of all who see what Nintendo is doing, creating, as well as achieving.

#SwitchIsLife (or so they allegedly say at Nintendo)

 

 

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As we seek options

There is a clear delight in looking a little longer at the Greek comedy that is about to become a tragedy, but I reckon that their loss is now a certainty to so many that the blogs and the news as it is released is no longer truly in the interest of many to watch.

Instead of that, it might be more interesting to take another look at what should be regarded as the shifting trend of danger as it hits on a global scale. It is an opinion piece by George Monbiot, which was published 3 days ago. The article called “‘Wealth creators’ are robbing our most productive people” (at http://www.theguardian.com/commentisfree/2015/mar/31/wealth-creators-klepto-rewards-bosses). George is touching on several issues I have written about and many have known for a long time. The following quotes are at the centre of the issue “A report by the Resolution Foundation reveals that two-thirds of frontline care workers receive less than the living wage. Ten percent, like Carole, are illegally paid less than the minimum wage. This abuse is not confined to the UK: in the US, 27% of care workers who make home visits are paid less than the legal minimum“. So here is number one. Mr President, your claims on healthcare for everyone, in this view, did you intentionally set it up to be affordable through the use of what might be regarded as slave labour? There are heaps of jokes involving slave labour and African Americans, but then, I am not sure how many of your involved advisers fit that bill. Yet, it is not about health care, it is only a factor in a larger scheme of things, so up to the next part. “As the pay gap widens – chief executives in the UK took 60 times as much as the average worker in the 1990s and 180 times as much today – the uselessness ratio is going through the roof I propose a name for this phenomenon: klepto-remuneration“, this is an interesting view. You see, ‘klepto’ implies what is ‘not theirs’, yet the system had been destabilised to maximise exploitation by those in charge. What George sees as ‘klepto-remuneration’, I see as unbalanced unaccountability. Because the board of directors has a clear responsibility, to ensure the future of the corporation that they are heading. It seems to me that these board members are doing whatever they can to fill their need for comfort. When people doubt that approach then take a look at the mediocre collection of bundled fiascos. Tesco, RBS, Northern Rock, Polly Peck and the list goes on for a decent time. The US is not innocent their either, it is a global problem.

The interesting part is that these events have been known for a long time and in some cases there was a change to the UK Corporate Governance Code and other laws, but overall the massive need for change to ensure (read: force) fairness to the corporations and the bleeding of revenue (read solvency) towards their own board of directors is nowhere near the changes that are required, which is shown on a near global scale. The issue will only increase over the next two years as we see mergers and therefor non-taxable solutions for certain moguls TEVA, Horizon Pharma and linked to this there is Deerfield. Yet, Deerfield has other options, so what will they do, will they drown their board into a group of massive commissions, or will they exploit their centre position and grow larger into the need to corner the pharma and generic patent market. Deerfield could grow its market from 4 to well over 11 billion if the right patents are acquired. So the question becomes, where is the cut-off point? When will we see the appropriate response of those boards, not for profit, but for opening markets and allow taxability to become a true value of restoring its government’s coffers, whether it be US or Commonwealth? Yet the proper laws to truly state the changes are not in place. The draconian shift would not just be unacceptable, it will result in a change that could choke a commerce, but the current unchecked options are equally non-working and equally devastating, all due to the lack of accountability, so how to change the setting?

I do not pretend to have the answer. I am not sure what the best course is to properly adjust the law, but as we saw in the article written by George, he had one final part I did not mention yet “There is no end to this theft except robust government intervention: a redistribution of wages through maximum ratios and enhanced taxation. But this won’t happen until we challenge the infrastructure of justification, built so carefully by politicians and the press. Our lives are damaged not by the undeserving poor but by the undeserving rich“, you see, here I slightly disagree, not with his statement, which is fair enough, but in this view ‘a redistribution of wages through maximum ratios and enhanced taxation‘, will never be a proper long term solution, it is a flim flam approach to a non-working premise. It is like the additional taxation of the rich, now consider that this money comes from less than 10,000 people, how can we see a redistribution on fairness, whilst only a small part of these rich are undeservingly so? If we cannot bolster their move, or tax their efforts, the only part remaining is to limit their actions. I had seen several moves in the past, which are still ignored by nations (and their taxation offices at large). I reckon that corporations are unwilling to receive taxation, in addition, several tax sheltering governments (Ireland & Netherlands) are unwilling to let go of the little advantage they have, but it is that unwilling part that is hurting all.

Laws to ‘maximise’ industrialisation have become anchors, minimising wellbeing, none of these elements are dealt with by ‘enhanced taxation’. It can be achieved by removing tax write offs. What if there is no longer a benefit for merging? What if Teva Pharma (TEVA) was not allowed to Acquire Auspex Pharma unless there is full taxability? So no tax write-off, no benefit for either. Why give tax breaks to companies making millions/billions? In addition, some of these mergers are done to allow for some patents to be prolonged. I believe in patents, I truly do, but I also believe in an end date of that exclusivity, so that the innovators of generic solutions can make a product that is affordable for all, solving more than one issue in one go.

Was that so hard to begin with? The solution providers only had to let go of a little greed!

 

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Changing the rules of Democracy

An interesting thought isn’t it? It was CNN that gave me the idea in the first place. It all started with the article on the upcoming Argentinian default (at http://money.cnn.com/2014/07/25/investing/argentina-default/index.html). I have skin in the game here. Part of my family comes from there, which is why it caught my eyes in the first place. This is not the first time that Argentina has been in such a problematic state. The last time was in the late 90’s when it faced the great depression.

So, why is this event such a big deal?

Let us not forget that apart from soccer, many regard Argentina, no matter how beautiful it is, as a third world nation. So why is it allowed on the International Capital markets in the first place?
That was not an offensive question, but I need to ask it so that I can answer the questions many of us have in the first place. Argentina is in second place when it comes down to South American GDP, after Brazil (who is in first place by a massive margin), it is followed by Colombia and Argentina has a GDP that is 50% better than the nation holding position three, Colombia. So, within the ‘third world’ Argentina is pretty high up there. The second fact is that Argentina has the 21st position in regards to GDP, so this gives a massive view to how big its economy is. So why is it about to default on a 1.5 billion bond?

Well, Argentina is playing hard ball, a statement that seemed weird, because in the light of Argentina it seemed like worrying about a shave on route to the guillotine (a fake fear many former French Aristocats had, pun intended).

My first thought was the ‘worry’ why the IMF was not speaking out on all this. It seems so outspoken on a little place like Cyprus (no insult intended), yet is remains silent on an economy a hundred times larger?
What gives?

Well, my faithful old Yahoo had a nice part on this (at https://au.finance.yahoo.com/news/impact-argentine-default-100849473.html).
I particularly liked the following quotes: “The IMF proposed an international debt restructuring mechanism in 2003 but the plan was abandoned under pressure from the United States, the institution’s largest stakeholder, and the major emerging-market economies“, so the USA needed to keep Argentina as a cash cow or what?

The second one was “Under a US court order, Argentina has until Wednesday to either pay hedge funds demanding full payment on of its bad debts — or face a default that could have serious economic consequences“. So is this another USA hedge fund game?

If we consider the generic statement “Hedge funds are made available only to certain sophisticated or accredited investors and cannot be offered or sold to the general public. As such, they generally avoid direct regulatory oversight, bypass licensing requirements applicable to investment companies, and operate with greater flexibility than mutual funds and other investment funds“, we see the fear that governments are financially no longer run by governments but by those holding the credit bill behind the scenes.

This gives us a lot more fear then we should have to deal with and as such, it seems that democracy is no longer in the hands of the people, but in the hands of those managing the hedge funds. As such, did US District Judge Thomas Griesa buckle under internal pressures or is there something else in play? We should ask this question as we see that the response we see (at http://www.irishtimes.com/business/economy/us-judge-orders-argentina-and-bondholders-to-agree-deal-1.1875547), which is quotes as “Jonathan Blackman, a lawyer for Argentina said even with around-the-clock talks ‘it would be unlikely, if not impossible, to result in settlement. It simply can’t be done by the end of the month’ he said

This feels like a game played with millions of households on the butcher’s counter, with the meat cleaver already raised up high. There is not enough information in these sources to clearly state how the game was played up to now, or the involved players behaved and how the international justice courts (not just the US) as such have been behaving on the given facts. The fact that the IMF has warned that an Argentine economic default could not only hurt the country’s economy, but also the global financial system is another fact in the entire game as this is currently playing out. What is FACT, is that we have seen hedge funds cash in at the expense of close to a billion people, they played a game that made them wealthy and left the rest in destitution, yet now we see more and more that these players are implied not to be held to rules of oversight and it can bypass licensing in apparently too many flexible ways. Yet, it must also be clear that Argentina is not blameless in this game either.

Not unlike the USA, when we compare debt to GDP (governments seem to love that comparison) USA is currently set to 101.45%, whilst Argentina is only at 45.6%, which implies that Argentina has an economy twice as solid as the US has (a false statistic, I know!). So when we play the numbers game, this default, or even to allow for this event to occur seems massively stupid in my books. The question becomes why Argentina is continuing to play such a level of hardball, the debts will not go away, Argentina would lose its place as a G20 member and beyond that the foundations of the Argentinian economy will be shaking for a long time to come, opening additional doors for investors to bail out of Argentina, take the first row boat across the Rio de La Plata and set up shop there. This in the end will be a massively good thing to Uruguay and the economy of Montevideo for the next 10 years.

So, how is this all affecting democracy?

In my view if we want to remain true democracies, then it is time to regulate Hedge Funds and their managers. It will require a level of oversight that is beyond reasonable, as the economic fall of the USA in 2008 has proven to require. In that regards the term ‘Vulture funds‘ seem very appropriate. The US and in particular its FBI are all about hunting down Loan Sharks, whilst at the same time they ignore a 2.4 trillion dollar market right under their noses.

Yet, in all this Argentina is not without blame either. Someone approved these debts. If we accept, no matter how repulsive that these funds, referred to the behaviour of vulture birds “preying” on debtors in financial distress by purchasing the now-cheap credit on a secondary market to make a large monetary gain, is as such opening a market, which is high risk and also at time high yielding, then we must accept that Argentina stepped, willingly or not, into a field with their eyes wide open, as such they largely have themselves to blame.

If these are matters of fact then we see the acts on both sides of the isle to allow and even mandatory pursue the need for a change to the democratic standards we see in monarchies and republics. If you wonder why I made the reference to the Guillotine, than consider the History of France, its bankers and the change as it brought order through Napoleon Bonaparte. The statement ‘War never changes‘ seems highly appropriate here, it is a quote from a Videogame, yet the truth behind it is as solid as the writings of ‘von Clausewitz’ and ‘Sun Tzu’. The question remains in these economic wars, who are the warring parties and who are the people behind the screens. You can be certain that those names are not the names of any elected official. Does that not change the premise of both economic war and democracy?

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