Malt Liquidity 11
None of this is legal advice
Robinhood gets caught in the spotlight
On my old site, I documented a case of a $4000 account being leveraged to hold upwards of $1 million of Apple stock, an oversight of Robinhood margin calculation that led to the CNBC wax statues calling the exploiters ‘psychopaths’. This error, while ‘patched’, culminated in the suicide of a 20 year old who couldn’t get a response in time to a visual glitch. It is also a well documented phenomenon that retail traders are generally awful at trading, and I have long maintained that Robinhood’s popularity might end up destroying a generation of savings. Although it seems long overdue, it seems that regulators are finally realizing what has been wrought:
In a 24-page complaint, the enforcement arm of the Massachusetts Securities Division said Robinhood failed to protect its customers and their assets, violating state laws and regulations. Robinhood exposed Massachusetts investors to “unnecessary trading risks” by “falling far short of the fiduciary standard” …
But Massachusetts is claiming that Robinhood violated fiduciary standards by not having their client’s best interests at the highest priority, which is a tough argument to make: if your clients are happy with your offerings, and your offerings literally cannot guarantee profit, what exactly is the duty they are flouting here? There is nothing fraudulent about your product ‘offerings’ - it is just what is available on open markets. Robinhood should have been held more accountable for their incorrect margin calculation, but there was nothing violating fiduciary duty, nor was there anything fraudulent - it was a chud-tier oversight. There is plenty of skepticism and downright accusations of ‘essentially being theft', but none of these people are Robinhood traders! Those traders are happy with what they’re doing! The fiduciary standard is more of a nice platitude - what, are we not supposed to expect financial advisers and bodies to act in our interest - but it is hard to tell what would violate fiduciary duty that doesn’t amount to fraud or embezzlement in some way. If you trust me to give you advice, and I give you honest advice that turns out to be awful (cough, OptionSellers), I can legitimately claim that I gave you advice in your best interest. Now, I am not a licensed financial advisor, so it is in fact potentially illegal for me to give financial advice, but the entire point of getting a license is so that you can give advice that might turn out to be wrong without getting sued for it.
In another example, the regulators point to Robinhood’s rollout of a new cash-management feature, accompanied by a wait list for customers to sign up for early access. Customers were given the ability to improve their position on the wait list by “tapping” a fake credit card in the app up to 1,000 times a day, the complaint says.
Perhaps Robinhood should be forced to get a gaming license instead, or at least be forced to show in some way that day traders’ returns are, on average, worse than playing against the house. At least in a casino, you get comps.
Artistic Bondage…
From an individual house to a "$422 million facility, the principle of refinancing stays the same: when interest rates go down, you want to convert your debt to a lower interest rate. If you’re doing this on the scale of the Whitney Museum, you issue bonds, rather than haggle with a mortgage provider.
The Manhattan art museum, founded in 1931 by Gertrude Vanderbilt Whitney, completed a debt refinancing this week that will prevent a $50 million principal payment from coming due next year by pushing it to 2031 with newly issued bonds, according to Fitch Ratings…
The $73.3 million deal priced to yield 1.13% for debt due in 2031, about 42 basis points more than AAA rated municipals, according to data compiled by Bloomberg. In 2011, bonds due in 2021 were priced with a 3.7% yield.
Bonds are just loans - all the Whitney did was issue more debt at a much lower interest rate to pay off their outstanding debt coming due. The prospectus probably made for a more pleasant reading than most, as references like this are required to be disclosed:
The museum has had to postpone events like a retrospective of artist Jasper Johns’ career, which would have been a boon for attendance, according to the bond documents
It is odd to think that, on some level, if you own a part of a certain bond ETF or fund that you are collecting interest from the Whitney, but if you are invested in bonds for security, then it makes complete sense! After all, the museum is funded by some of the oldest money in American history and extremely wealthy donors - pockets of endless depth are the logically one of the most creditworthy groups short of the US government:
“investors are also willing to pay special attention for the diversification benefits of adding a security like Whitney Museum to their portfolio,”
Yeah, I don’t think I’d mind a little change coming my way from a proxy of old money.
…is more pleasant than government bondage
As the Venn diagram of BoJ assets and the Tokyo Exchange creeps closer to a circle, the Fed continues to buy more bonds:
The Federal Reserve strengthened its commitment to support the U.S. economy, promising to maintain its massive asset purchase program until it sees “substantial further progress” in employment and inflation.
At their final meeting of a tumultuous year, policy makers led by Chair Jerome Powell on Wednesday voted to maintain monthly bond purchases of at least $120 billion …
I wrote previously about how the liquidity is ‘guaranteed’ by the Fed with these type of purchases for issuers and buyers of debt, so it’s logical that they have zero interest in ‘spooking’ the demand that is enabling Whitney-esque refinancing en masse. I see this as the Fed still making sure that there is some appetite for debt yields due to low interest rates forcing people to chase returns elsewhere. I can’t see this policy changing any time soon - much like the BoJ, the Fed creeps closer to becoming the market rather than acting as an indicator of future economy health.
On that note…
