For those who are new readers to STUMP, I am a grumpy conservative, but worry not, that does not come (much) into my mortality posts. Other than reminding people that THEY WILL DIE!!!!!! (eventually)
My first blogging love has to do with public finance and other public policy things. If you want to avoid that, you can just click on the “Mortality with Meep” button on my substack; that will give you only the mortality posts. You may click away from this post on taxes and NY politics, and enjoy death in peace.
As a dog returns to its vomit, politicians from high-tax states (including mine) keep futilely trying to use the courts to try to knock down a perfectly reasonable tax change — that state and local taxes are limited in their deductibility from federal taxes.
Here’s the story:
SCOTUS swats away SALT cap challenge that limits tax deductions in New York, Maryland
The Supreme Court Monday rejected an appeal from several states challenging Congress’s cap on state and local taxes that can be deducted from federal taxable income.
New York led a group including Connecticut, New Jersey, and Maryland in trying to strike down the 2017 limit known as the SALT cap, which limits people to $10,000 of their state and local property and income taxes that can be deducted. The states argued that the cap improperly encroached on states’ taxing ability.
This is such a silly argument.
Federal taxes could just not deduct state and local taxes (SALT) at all, as opposed to having a flat cap of $10K. The federal tax regime doesn’t have to acknowledge state and local taxes at all. I will get into more practical detail in a bit.
Given SALT tends to be well below 100% of personal income, that federal income tax caps the amount you can deduct has no effect on the power of states to tax.
(Similarly, federal taxes max out well below 100% of income. Aren’t they generous?)
But, hilariously, the Supreme Court did not even deign to explain its reasoning for rejecting this argument.
The Supreme Court did not provide any explanation for declining to hear the case.
Why do they have to?
It’s that simple.
The issue is that they don’t like the tax law. There is nothing particularly unconstitutional about the law, just that they hate the effect it has on their localities.
Obviously, federal income tax does not have to deduct state or local taxes of any sort. I assume this is not news to the states that were suing.
Even before this change, it wasn’t like I got to deduct all the state and local taxes I paid.
I paid state income tax to both NY and CT. When I lived in New York City, I paid city income taxes. I pay property taxes. I pay sales taxes. I pay extra surcharges/taxes on my energy bills, some of which are local, maybe some are federal? I don’t know. A lot of these, I never got to deduct.
[cue the Beatles Taxman…. but not actually playing it embedded in my post, because I don’t need a copywrite strike]
And at least one year, I got hit by the Alternative Minimum Tax for the federal income tax. The AMT greatly constrains what you can deduct. But no state (or locality) managed to get that knocked down. I don’t think they even tried.
In any case, if they want the SALT cap removed, they cannot go the route of the courts. They actually have to get legislation passed in Congress.
Which the Democrats have not been able to do, because they’ve got a bunch of Progressives pointing out “But hey, we want to tax the rich! Why do the states get all the fun?”
I hope they see that now and will STOP WASTING MY TAX MONEY litigating a losing cause.
Speaking of wasting my tax money, NY Dems have been hilariously hoisted on their own petard with respect to redistricting for Congress (less so in redistricting for the state legislature).
Ballotpedia is your friend for keeping tabs on this sort of thing, by the way. All the redistricting lawsuits for the 2020 census cycle are on this page.
New York lost a congressional seat in the decennial census reapportionment. That was expected.
Back in 2014, somebody got the bright idea of getting a state constitutional amendment passed such that a bipartisan redistricting commission would set districts for the U.S. Congress, and also the state legislature.
Politicians in the state legislature from both parties voted for it! Politicians from both parties sponsored it!
That should have set off alarms right away.
I had completely forgotten about this clause, probably because I almost certainly voted against it. And why? Because of what Blair Horner said at the time in exhorting people to vote no:
…Vote NO not because you think the state’s redistricting system is fine – it’s far from it – but vote NO to send a clear message to Albany: You are sick of fake reforms…
Much has been made that Proposal 1 creates a new redistricting commission and that there are new standards for membership on the proposed redistricting Commission. But will that Commission be truly independent? Proposal 1 lets the Legislature choose the members of the redistricting commission. And here’s the kicker: If these political appointees miraculously act independently, Proposal 1 allows the Legislature to reject their plan and replace it with their own!…But it gets worse. For the first time in New York state history, future mapmakers will have to consider the core of existing legislative districts when drawing future district lines. Despite all you will hear about how Proposal 1 prohibits gerrymandering, it requires future mapmakers to rely on the current gerrymandered districts when future districts are drawn. Currently, there is no such requirement in the state Constitution. Theoretically, mapmakers can start from scratch when drawing district lines. Proposal 1 forces future mapmakers to rely on the “core” of existing districts (an undefined term) to draw future maps.
So, Proposal 1 not only is a scheme that seeks to bamboozle the public with the status quo merely masquerading as reform, it actually makes the current situation worse!
New York voters are faced with two lousy choices: keep the awful status quo or approve a so-called reform that makes matters worse.
But a vote NO helps keep the pressure on Albany. The next redistricting is not due until 2022, which gives the governor and the Legislature plenty of time to get it right.
Well, it passed, but it was a 58/42 split. Not close, but there were enough of us suspecting it was entirely bullshit.
Guess what.
Appeals court tosses NY congressional districts, saying Dems gerrymandered
A mid-level state appeals court ruled Democrats gerrymandered New York’s new congressional districts to their favor, setting up a pending showdown in the state’s top court that could sway the balance of power in the U.S. House of Representatives.
The state Appellate Division in Rochester issued a split decision Thursday upholding a lower court’s ruling that threw out the Democrat-drawn congressional districts, finding they violated the state constitution’s ban on drawing district lines to benefit a particular party. But the appeals court reinstated New York’s newly drawn state Senate and Assembly district lines, which the trial court judge had also tossed on procedural grounds.
Here is the nutshell version, which you can dig into details at Ballotpedia:
- The bipartisan commission came to an impasse in drawing redistricting maps, so two complete set of maps were produced
- The Democratic-dominated legislature threw out both sets of maps and made their own, passed them, and the Dem governor signed them into law in February 2022
- Republicans sued
- Lower court threw out the approved maps March 2022
- Dems appealed
- Appeals court threw out the U.S. Congressional districts map, reinstated the state legislative district maps
So this is the first round of appeals, with the lovely deadline of April 30 for new map for U.S. Congressional districts, so that June 28 primaries can still be held.
Fat chance.
I liked this detail about the testimony in this case:
Republicans relied on testimony from Sean Trende, senior elections analyst for Real Clear Politics, who ran computer simulations that created thousands of potential outcomes, concluding that Democrats drew the maps to their favor.
The judges ruled Trende’s testimony, combined with the dramatic Democratic shift in the maps as well as a lack of Republican support, were enough to prove Democrats gerrymandered the congressional maps to their favor.
In most places, this would be a big old “duh”.
For Sean Trende, I cannot imagine this was a particularly difficult modeling job.
It reminds me of a few scenario tests I did once, where all reasonable tests basically showed no losses. I told the people asking for them it might be better that I find a scenario where things would fail, so they could see just how extreme a situation they were seeking. Like, it would require three meteors hitting Earth while supervolcanoes were erupting. And Gamera the Invincible and Yongary were awoken from the ice. That sort of thing.
None of this would have been a problem for the Democrats… if only they hadn’t signed onto what they probably thought was a bullshit redistricting reform.
They probably thought Blair Horner was correct, too — the clause allowed for the NY state legislature to do the redistricting if the commission didn’t give acceptable maps. So that’s what they did.
They didn’t think anybody would call them on this bit:
Districts shall not be drawn to discourage competition or for the purpose of favoring or disfavoring incumbents or other particular candidates or political parties.
Who ever thought that the language they themselves wrote, and got added to the state constitution, would come back to bite them?
I mean, it was supposed to be somebody else who would be prevented from grabbing power, not the good guys!
The Democrats could have had their lovely maps with 22 districts favoring Democrats and 4 favoring Republicans in NY (current Congressional delegation is 19 Dems, 8 Repubs) is they hadn’t gone for what they probably thought was a fake reform in 2014.
But oh well.
You passed the process, and now that’s what you’re stuck with.
If you want to be allowed to gerrymander, then you’ve got to amend the state constitution again.
I have a feeling they’ll have a lot more difficulty in getting voters to agree with allowing them to gerrymander again. They had that power for over 200 years, and they just threw it away in 2014.
You silly politicians.
If you do not like the rules you’re playing by, then there are rules by which you get to change the rules.
If you are an autocrat, the rule can be: one man, one vote. I AM THE MAN: I GET THE VOTE.
(cribbed from Terry Pratchett… too lazy to look up his verbatim quote from Vetinari)
One can pass “fake” rules, but those can be dangerous, as many are finding out.
Passing rules thinking they’ll never get applied to you… I swear, there has got to be some kind of Universal Law. Maybe this (NY language warning).
This is not exactly a tangent, but I just finished this excellent book on the history of Korea, titled, straightforwardly enough, A History of Korea. I think it helps reading history of other countries that you have no real connection to, because you have no emotional response to much. You’re just thinking about the power plays, and how stupid it was for King A to do action B when the same thing happened 200 years before with Queen A’ doing the same action B and the situation was basically the same.
My point is this: politicians, do not assume your empty gesture is empty.
And if you want to take back the laws that you passed, well, there is a process for that.
I’m sure you’ve greased all the hoops you’ve got to jump through, and I wish you well.
]]>I have been extremely annoyed over the past year plus some months. No, it’s not necessarily over people who really don’t think through arguments over counting dead people. It’s not necessarily about brazen requests for undeserved public funds.
It’s about people who are trying to claim certainty where there is nothing but uncertainty.
People who decided that they could simply proclaim some stuff couldn’t possibly be true…. because they don’t like it. No, things they don’t like can’t be true.
And then, most importantly, those who decided they might be able to change the record and then never be called to account.
Back in 2017, I wrote the following: The Murder-Suicide of Expertise
THE SUICIDE OF EXPERTISE
But here are the hallmarks of why “experts” are not being trusted:
- The experts are not all that expert (well-credentialed, but deeply ignorant)
- The experts lack intellectual humility – they hold onto wrong claims far past reasonability as a result, and make overconfident pronouncements
- The experts are intellectually dishonest
- The experts aren’t the people who get hurt by what they get wrong
Does this sound at all familiar to you?
Again, I wrote that in 2017. Not in the middle of the COVID muddle.
“Experts” had already been pissing away their credibility back in 2017, if you were paying attention.
At this point, in 2021, even the normally credulous are asking: why should I trust your “expertise”? You got so many things wrong!
Ah, but some of them are trying their latest “clever” trick: change the past, and you never have to admit you were wrong.
Democracy dies in stealth edits on 15-month-old headlines pic.twitter.com/FW6DoiqXSz
— Greg Price (@greg_price11) June 1, 2021
Why change the headline? Live with it.
— Steven Groves (@stevegroves) June 1, 2021
This is the part that really annoys me in all the behavior of the past year.
People trying to change the historical record, so that they don’t have to be exposed for their blatant wrongness.
It was one thing when it was Stalin literally having history rewritten for his own purposes. And that people are still trying to uphold Stalin’s lies.
But now, in a futile attempt to hang onto relevancy, various media outlets are trying to edit their past in order to deny that there is no reason for anybody to trust them.
Perhaps some people still trust the Washington Post as a source of information. I don’t know such people.
Look, I am willing to allow for mistakes — we are all human, after all. But when I come across people unwilling to admit to any mistakes, well, I am not going to trust them in the future. I’m not that foolish (or young) any more.
I’ve screwed up in my own blog posts, and here is a very good example of such a screw up: UPDATES and REPOST: Public Pension Watch: How Important is the Mortality Assumption? And Other Assumptions? — I will just give you a taste of what I had to do in admitting my mistake:
[original: I believe that’s a comparison of GAM-1971 against RP-2000. I will do a life expectancy comparison in a later post. UPDATE: I was wrong about that, and I will definitely have a few more follow-ups to this post.]
I did a follow-up: Public Pensions Followup: The Effect of Assumptions and Materiality. Yes, it does get into some wonky detail, but it’s about focusing on material error, not minor nit-picking. I was wrong about a large thing in my original post, and I was trying to correct my mistake. Yes, I understand many people think it’s unimportant, but for those paying attention I made a large mistake and I needed to admit that.
I have no problem with admitting I was wrong, and I try to avoid making the same mistake in the future. I made my error in the full view of whoever read my stuff, and I had to correct it in the same place, making clear what had happened.
But now we have people trying to hide their screw-ups. When we remember they screwed up. It was not that long ago, dudes.
Given such behavior, why would we trust such people at all?
Now I’m going to mention once again Actuarial News.
Back in 2014, early on for STUMP (but not early for me keeping a watch), I noted: Public Pensions: Why Keeping a Watch is Important. In 2017, I mentioned again: Public Pensions: Why It’s Important to Keep Watching.
In those two posts, the reason to note items at the time they were reported was because of the long-term evolution of public pension concerns. Indeed, I originally started my watch in the now-defunct Actuarial Outpost in 2008 or 2009 for that very reason.
Now I know I have to do this because some people will go back and try to change the record.
In Actuarial News, I try to capture salient info, such as the headline (at the time), authors, date of publication, date when I accessed (if relevant), etc. I wasn’t expecting people to go back and try to change the record a la Orwell’s 1984, but now I know better.
Many years ago, I knew that the original sources may get moved or removed from the internet, just because not everybody would keep up websites.
I wasn’t expecting people to completely change what was there. This is gaslighting in the original sense, making one question one’s own memory.
In many of the cases, the people trying to change their own record of what they said in the past are not nefarious Stalins trying to hide mass murders, but ordinary schmoes simply trying to cover over their mediocre mistakes.
I’m not disappointed. That would mean I had expectations of better behavior. I can’t say I did.
I’m not really angry. I save my anger for when I need energy to get things done. My energy is not going to do anything about this.
I am annoyed.
If these people just admitted they were wrong in the past, and will try not to make such mistakes in the future, will go a long way in establishing future credibility.
That many people have decided to take the “nuh uh, I never wrote that” route has made it much easier for me to carve down who I will actually pay attention to.
So, “experts”?
If you wonder why people aren’t paying attention to your profound pronouncements after you have scrubbed your past?
You were the ones who decided your credibility was really most sincerely dead. Not me. Not others.
You did that.
I don’t want to hear any whining about what you did to yourselves.
]]>GameStop Corp. shares skyrocketed in the final hour of trading Wednesday, finishing the day with a rally reminiscent of last month’s blockbuster gains.
Shares of the videogame retailer finished 104% higher to close at $91.71 after hovering below $50 for most of the day. The stock, which was halted twice on Wednesday for volatility, closed around that level on Feb. 3. It climbed further in after-hours trading.
Options activity tied to GameStop also hit the highest level in two weeks, with bullish contracts significantly outpacing bearish ones, Trade Alert data show.
I am not involved in trading in any of this stuff, as my main market exposure is through index ETFs and similar investment strategies. I am leveraged, in that I do have debt in my life (mortgage, credit card debt), but other than that, I don’t short any securities.
When I first wrote about GameStop at the beginning of February, I noted multiple investment/finance themes that came immediately to mind for me in a video, one of which was the first thing I explained to my kids: long vs. short positions.
(look, they came to me and asked)
If you don’t want my explanation, you can go to Investopedia: Long Position vs. Short Position: What’s the Difference?
Let’s start with the easiest thing to explain: a long position in a stock.
You buy a stock. That’s it. That’s the long position in a stock.
Okay, okay, let’s get into it a bit more and think about how stocks work. You have a publicly-traded stock, meaning that people can buy and sell these shares at places like stock exchanges, through brokers, brokerages, etc. There are only so many shares of these stocks on the market, representing fractional ownership of the company that issued the stock.
Once you own the stock, you may get a variety of benefits, such as the right to vote in shareholder elections (voting on board of directors, and there may be other shareholder actions), and perhaps the company pays dividends on the stock, which you would get as investment income. Some people automatically reinvest the dividends back into the same stock, or perhaps they invest in other stocks.
The worst that can happen to a shareholder is that the company goes kerflooey, and you lose all the money you initially put into the stock. The great thing about this kind of corporate structure is that if the firm goes bankrupt, the creditors of the bankrupt firm cannot go after the owners’ personal wealth to get paid back for what the firm had owed them. Lenders beware (and they do).
So here is your equation: you pay X to buy the stock. Let’s pretend there are no dividends, and later you sell the stock for Y. Your gain/loss equation is Y – X.
Your potential downside is -X — that is, losing all your initial investment. The value of the stock can hit zero, but doesn’t go negative. So 0 – X gets you the -X maximum downside.
What about the upside? Well, there is no theoretical limit to the price you could sell the stock at. Y can go to the moon, baybee!
So maximum downside: -X
Maximum upside: infinite
(KFC, wallstreetbets guys?! Come on, where’s the love for Popeye’s?)
Let’s get these tendies
WSBMod</a> <a href="https://twitter.com/GameStop?ref_src=twsrc%5Etfw">
GameStopAMCTheatres</a> <a href="https://twitter.com/nokia?ref_src=twsrc%5Etfw">
NokiaBlackberry</a> <a href="https://twitter.com/hashtag/Tendies4Yall?src=hash&ref_src=twsrc%5Etfw">#Tendies4Yall</a> <a href="https://t.co/Pwisbqpfoe">pic.twitter.com/Pwisbqpfoe</a></p>— Popeyes Chicken (
PopeyesChicken) February 1, 2021
Hey, Popeyes! I love your #7 spicy! Mardi Gras mustard! With seltzer and cajun fries!
Now, let’s go to the other side: shorting a stock.
Instead of buying a stock and then selling it later (taking a long position, and then closing it out), shorting is the opposite: selling a stock and then buying it back.
Now, it’s a bit more than that. Initially, you don’t own the stock. Then you borrow the stock at price X, promising to give the stock back at a future date (there are transaction costs, and issues re: dividends, voting rights, etc., but I am going to ignore all those right now). At that initial time, you sell that stock at price X. Later, you buy back the stock at price Y and return the stock to the original owner.
Your profit here (ignoring all the other costs) is X – Y: you get the proceeds from the initial sale X and then have to pay Y at a future date.
Note: the values of X & Y in my example are the same as the long position, and now we start seeing issues. Someone shorting a stock is betting that Y will be less than X — that is, they’re betting the price of the stock will go down. The most it can go down is all the way to zero, so the maximum upside is X.
What about the downside? Well, as I said before, Y can theoretically go infinitely high…. so X – Y can go infinitely negative.
Here are your limits on the short position:
Maximum downside: negative infinity
Maximum upside: X
Needless to say, there is a lot of danger in shorting stocks.
John Maynard Keynes learned this the hard way: Keynes The Speculator
John Maynard Keynes began his career as a speculator in August 1919, at the relatively advanced age of 36 years.
Keynes traded on high leverage – his broker granted him a margin account to trade positions of £40,000 with just £4,000 equity.
He traded currencies including the U.S. dollar, the French franc, the Italian lira, the Indian rupee, the German mark and the Dutch florin.
His work as an economist led him to be bullish on the U.S. dollar and bearish on European currencies and he traded accordingly, usually going long on the dollar and short selling European currencies.
These aren’t stocks, but the dynamics are essentially the same: by short-selling European currencies, if they went up in value relative to the dollar, Keynes would lose money. And given he was trading on margin (not explaining in this post – that will be later), his losses would get amplified.
Keynes soon learned that short-term currency trading on high margin, using only his long-term economic predictions as a guide, was foolhardy. By late May [1920], despite his belief that the U.S. dollar should rise, it didn’t. And the Deutschmark, which Keynes had bet against, refused to fall. To Keynes’s dismay, the Deutschmark began a three-month rally.
Keynes was wiped out. Whereas in April [1920] he had been sitting on net profits of £14,000, by the end of May these had reversed into losses of £13,125. His brokers asked Keynes for £7,000 to keep his account open. A well-known, but anonymous, financier provided him with a loan of £5,000. Sales of Keynes’s recently published book The Economic Consequences of Peace had turned out to be healthy and a letter to his publisher asking for an advance elicited a cheque for £1,500.
Keynes was thus able to scrape together the money he needed to continue trading. He had learned a valuable but painful lesson – markets can act perversely in the short-term. Of this, he later famously commented:
“The market can stay irrational longer than you can stay solvent.”
And this is the motto all short-sellers have to remember as they ply their trades. The wallstreetbets crew decided to make an offensive paraphrase of the sentiment, but the sentiment is the same.
Another thing to note is that the long and short positions meet in the middle: the short position can’t exist without somebody to borrow a share from (okay, we’ll ignore the naked shorts for right now).
But the long position can exist without any short-sellers. And the long position can be held indefinitely — you never have to sell your stock. On the other hand, the short seller can’t borrow the long holder’s shares indefinitely. They have to get them back.
I don’t know if “long” and “short” positions were so-named because of not only their opposing positions, but also that you could hang onto short positions for only a very short period, relatively, while long positions are for the long-term investor. Here are people discussing the etymology on Stack Exchange, but I really don’t know.
One of the things that annoys me is people injecting morality into financial transactions where both sides of a trade have the same opportunities to take positions. There are iffy things in shorting — naked shorts (now illegal), but also certain leveraged strategies. Here is a piece on whether shorting should be legal at all: Should Shorting Stocks Be Illegal?:
We’ll start by defining the proposal’s scope. One can profit from investment losses by: 1) shorting directly, 2) selling call options, 3) buying put options, 4) selling futures contracts, or 5) entering swaps. This article addresses only the first tactic, that of shorting directly, and only for individual stocks. Such a rule would not prevent investors from trading options on S&P 500 futures, selling Thailand White Rice contracts, or engaging in credit default swaps.
I received four reasons for abolishing the practice of stock shorting:
1) Profiting from company failures is immoral.
2) The practice is damaging because it artificially lowers stock prices.
3) It’s a privileged investment tactic that is not available to everyday investors.
4) Short sellers manipulate the market, by conspiring.
He addresses each of these arguments, understanding the reasoning behind some of them. One certainly can have markets where short-selling is not allowed, and I’m fairly neutral on the situation. The only thing I question is the suitability of pension funds shorting stocks. But it doesn’t bug me if other people decide to take on the risk of shorting with their own money.
One from 2018: Why Short Selling Can Make You Rich But Not Popular
Dutch traders were shorting as long ago as the 1600s, including during the tulip bubble. Napoleon labeled short sellers of government securities “treasonous.” Short selling stocks — as opposed to, say, tulips — is particularly challenging because equity markets have a long-term track record of moving up rather than down. Still, it can be done. Jesse Livermore, known as the “King of the Bears,” made a fortune shorting railroad operator Union Pacific shortly before the 1906 San Francisco earthquake. The collapse of Enron Corp. in 2001 marked a notable scalp for shorts including Jim Chanos, who had been among the first to question its accounting. Starting in 2011, Muddy Waters’ Carson Block raised the profile of the new breed of activist shorts by taking aim at under-the-radar Chinese companies listed in North America, including the now bankrupt Sino-Forest Corp. The practice can be perilous: Block said he stopped shorting Chinese companies for a time because “tattooed gangsters” came looking for him. Short selling remains legal in most stock markets, unlike so-called naked short selling — shorting without having first borrowed the shares. When markets go bad, governments and regulators sometimes impose restrictions in an effort to help stem the slide. The U.S. targeted short selling during the Great Depression and joined the likes of the U.K., Germany and Japan in limiting short selling or banning it during the financial crisis that erupted in 2008. China’s regulator blamed “malicious” short selling in part for a stock market crash in 2015, placing limits on the practice as well as arresting traders. …..
Often vilified as market outlaws, investors betting against the housing market were portrayed as the good guys in the film “The Big Short.” Shorts have some backing from researchers: One paper found that the practice discourages the manipulation of earnings reports, while another showed that shorts made more accurate predictions of the share performance of U.S.-listed Chinese firms than stock analysts did. A third concluded that activist shorts were usually “factually right.”
Let’s think about that last one, because you need to understand the meaning of “activist investors”.
While some “activist investors” are literally the same groups that are political activists, this means that these are folks who are demanding specific actions, whether by a company’s board, management, or even regulators.
Those who are activists on the long side may be someone with a hefty bunch of shares, demanding that the company sell off unprofitable arms of itself (I see this happen in insurance). These are people who think that value for the shareholders can be increased if this action were to occur. They hope the value of their investment, that of the shares they hold, would appreciate in direct reaction to this action.
Activist short-sellers are different in the types of actions they advocate. These are people who are shorting the stock, and are arguing the current market value for the shares is too high. They may claim something is stinky about the financial reporting of results, and that regulators should audit the books. They may point out that management is engaged in some value-destroying activity that shareholders were unaware of. The activist shorts aren’t trying to destroy value — they claim that the true economic value was already much lower than the stock price would indicate, and that’s because the information the market has about the company is just plain wrong.
They’re being activists not because of altruism, obviously, but that the faster the market prices adjust to what they think the true value is, the less they’re exposed to the risk of getting squeezed out of their short position before they can profit.
Let’s say there is a non-dividend-paying stock for a company, that starts out at $100. One month later, the stock’s market price is $200 after there is an announcement that the company signed on a new, big client. A month after that, the stock is back at $100 once that new client has gone bankrupt. And then at month 3, the stock has dropped to $50 after an audit shows that the company has been improperly booking revenue, and that the execs have been over-spending on fancy art for their HQ.
If you bought stock at the beginning (at $100), what is your gain or loss?
From a cash point of view, you’ve neither gained nor lost anything. Not until you cash out, at any rate.
In a balance sheet point of view, you have unrealized losses of $50 at the end of month 3, if you still are in the long position of the stock. The key term is unrealized.
Let’s say that you knew there was something up w/ the company’s financial reporting, and you know that people haven’t realized it yet. Assume you short at time 0, at $100, given your knowledge. Again, the stock price goes up and down, and at month 3, the stock is at $50.
There is no realized gain or loss yet, not until you close out your short position. At month 3, the short position has a $50 unrealized gain.
Those with the long position are never forced to sell their stocks. The only time they’re forced to realize a loss is if the company goes bankrupt and their equity is wiped out.
Those with the short position, though… well, various things can force them to have to close their short position. If the short-seller couldn’t hang on to month 3, they might have had to realize a loss at the end of the first month. For short-sellers, the path the stock price takes can force them to realize a loss even if, only they could have hung on a little longer, they could have made large gains.
That’s why Keynes noted: “The market can stay irrational longer than you can stay solvent.”
You can be an activist shorter – you short, and then try to publicize the financial reporting problem. You try to get the SEC to take a look at the books. You point out that the company booked the revenue for the newly-signed client, even though none of the fees had been actually earned (or received) yet. After you have taken your short position, the sooner you can get the market to agree with you, the sooner you can reap your gains and move on to your next short.
But margin requirements can force someone in a short position to have to close out their trade. Even though you were correct, if you had to close out after a month, you just lost $100.
In a future post, I will explain how margin requirements and a short squeeze can force short-sellers to take a loss.
But for now, understand how risky shorting stocks and other securities can be.
I know Melvin Capital knew, and I have no sympathy for them and whatever losses they may have taken. That’s the risk you take when you short.
]]>(Also, to note in passing, I’m no Thomas Sowell. But then, who is? Excepting Tom Sowell.)
So let’s get to it.
Okay, maybe this isn’t the absolute dumbest. I’ve forgotten some bad ideas at this point, I’m sure.
But this: A new GOP bill would give each taxpayer $4,000 to take a vacation anywhere in the US through the end of 2021 prompted the following exchange between three people I know:
Person 1: LET’S SEE JUST WHEN MR. BOND MARKET SAYS HE HAS HAD ENOUGH!!!!!
Person 2: Is it bad that I’m picturing “Mr. Bond Market” as being like “Mr. Slave” from South Park?
Person 3: No Mr Bond Market, I expect you to die.
[that three-person reaction is why this post exists]
Okay, there are too many of these happening on news programs.
— Mary Pat Campbell (@meepbobeep) June 23, 2020
I would love to know how they make their graphs. Give it to an intern, they draw individual rectangles, and then put numbers on them?
Excel would be a step up. https://t.co/6PAep4iG5s
I really have seen some nutty media graphs, and there really is no excuse for this crap.
FFS, I can teach you guys to do customized Excel templates so your graphs can look “cool” – whatever on the colors, the dtupid effects, background colors, whatever – and at least they’ll look right.
While the dataisugly subreddit has this covered, my favorite themed site for this is Viz.wtf. (And yes, they’ve got this graph).
Reminder: The math you (and journalists) need to know
The actuarial profession in the U.S. has a Code of Professional Conduct, with several precepts. My favorite one is Precept 2, which says:
An Actuary shall perform Actuarial Services only when the Actuary is qualified to do so on the basis of basic and continuing education and experience, and only when the Actuary satisfies applicable qualification standards.
Now, most just read this as to having actuarial credentials for a particular field, but that’s really not sufficient for certain work.
We usually refer to the higher standard as the look-in-the-mirror test, which general doesn’t work for incompetent actuaries [and yes, some exist].
Anyway, this isn’t what they had in mind:
(thanks to the unnamed actuarial type who sent that to me)
(also, if you’re interested, I do spreadsheet best practice webcasts at Actex. You can see some linked here.
In response to my last post, somebody told me they had been following the site using the blogtrottr service.
That reminded me — I had a similar service via feedly, which aggregates all the blogs I like to read. I actually “subscribed” to STUMP via feedly, and there are others, too.
So consider using those services if you don’t like substack.
I do have this atom feed, which I believe both blogtrottr and feedly use. So feel free to use it in any other blog aggregator!
There was no way I was going to steal a title phrase from Sowell without sharing a Sowell quote.
"One of the most important reasons for studying history is that virtually every stupid idea that is in vogue today has been tried before and proved disastrous before, time and again. Do we need to keep repeating the same mistakes forever?"
— Thomas Sowell (@ThomasSowell) November 28, 2018
I would also argue this is the reason to read Dickens:
This time it’s different?
Nope, this time it’s exactly the same. And you can look to Dickens to see what that sameness is.
How do we prevent new frauds and asset bubbles? One may take a technical approach, but at the heart is human nature—how people behave, how people have particular goals, and how some will try to get what they want fraudulently. Many of these frauds are successful due to the perpetrator’s own knowledge of human nature. It’s hilarious how often we hear “This time it’s different!”…. and it turns out people’s greed, envy, pride, and pretty much all the mortal sins, come into the mix in the same old way.
See y’all later!
]]>Let me start with this idiocy:
Health workers that volunteered to come to NY during pandemic have to pay state income tax: Cuomo
Health care workers that came to New York to help fight the coronavirus pandemic at its epicenter will have to pay state taxes, according to the governor.
He addressed the issues Tuesday at a news conference.
“We’re not in a position to provide any subsidies right now because we have a $13 billion deficit,” Gov. Andrew Cuomo said. “So there’s a lot of good things I’d like to do, and if we get federal funding, we can do, but it would be irresponsible for me to sit here looking at a $13 billion deficit and say I’m gonna spend more money, when I can’t even pay the essential services.”
Yes, that makes a lot of sense. Beg people from other states to come help you… and then hit them with the sky-high New York taxes.
I hope for New York’s sake there isn’t a second wave. Because this is a trick you can play only once.
Even though the state government asked thousands of people to come to New York from out of state to help fight coronavirus, they will have to pay New York state taxes, even on income they might make from their home states that they’re paid while in New York.
Cuomo said he needs help from Washington in order to cover budget deficits from COVID-19, let alone subsidize state income tax for essential workers that flocked to New York’s aid.
“If we don’t get more money from Washington, we can’t fund schools, right, so at the rate we want to fund them. We are in dire financial need,” he said.
This is not the winning argument you think it is, Cuomo.
Taking it out of the hide of healthcare workers who are endangering their own lives in caring for COVID-19 patients is not going to win any friends.
Yes, I know this is standard NY state taxation practice, but the NY legislature could take care of it. And no, this is not much leverage against congress members from other states.
I’ll let Elizabeth Bauer explain the stupidity of this one.
Your face mask WT* moment of the day
Third, an item originally shared on twitter as a photograph, which I then had to find the reporting for, via WIVB in New York:
.
NYGovCuomo</a> unveils hundreds of masks sent to NY from concerned Americans. <a href="https://t.co/QJ2EqHGNGk">pic.twitter.com/QJ2EqHGNGk</a></p>— Jesse McKinley (
jessemckinley) April 29, 2020…..
According to the account at WWNY, Cuomo’s purpose was not merely to warm the cockles of our hearts. It was to make a political statement in support of more federal money for states harder hit by the pandemic:…..
What an idiot, what a *!@, to take the result of someone else’s hard work, intended to meet needs of New Yorkers, whether healthcare workers or ordinary people going about their days, and turn them into a display instead, and, what’s worse, to try to score political points with it.
So, a little bit of an aside here. In one of the pictures I saw, what Cuomo did may not have been as bad as you think. Link to the Flickr page for the photo, because you can really do a close-up and see what I’m talking about.
I want to point out the three circular masks you can see. They’re crochet [looks like the hotpads I used to crochet]…. and do I have to tell you that crochet is particularly ill-suited for these masks?
When I did a close up on other masks, I saw… shoddy construction and other problems. I have a feeling that all the masks being used for the wall were basically unusable by anybody. But the governor could not have been so crass as to point that out.
But he and his aides did not think through how this alternative looked: like a stupid stunt.
No, I don’t have a better idea of what to do with a bunch of unusable masks people have sent as a photo-op. My thought: maybe have your interns do handwritten thank you notes to the people.
I will link to the piece that Elizabeth Bauer linked to: Cuomo to Washington politicians: ‘follow the American people’
Gov. Andrew Cuomo has a message for Washington politicians: “Try to be half as good as the American people.”
At his coronavirus briefing Wednesday, the governor lashed out at U.S. Senate Majority Leader Mitch McConnell and Florida Sen. Rick Scott – both Republicans – who have said they don’t want to bail out the predominately Democratic states that have been hardest hit by the coronavirus.
You can watch the full briefing in the video.
To illustrate his point, Cuomo unveiled a display of thousands of face masks sent to New York from across the country, which he called “a self-portrait that was done by American people.”
“This is just people’s way of saying ‘we care and we want to help.’”
He advised politicians to “follow the American people, look at what they’re doing, look at how they’re reacting.”
Yeah, this is not the route I would go, by highlighting poorly-made masks.
Also, that someone would take their own time to make a mask is not the same as indicating they are willing to pay thousands in taxes to bail out profligate states.
Likewise, just because some people are willing to leave their states to help the New York COVID-19 patients does not mean they are all that willing to pay New York income taxes.
There is a case to be made for a partial bailout for reduced state revenues, but this is a ham-handed way of going about it. Do better, Cuomo.
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