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The good old corporate euphemism of exploring new opportunities has been applied to the resignation of CBA CEO Ian Narev. Apparently you are not allowed to say listen mate under your reign we have had a big arse Ponzi scheme, the bank has tried to deny the terminally ill access to insurance they paid for and we seemed to have forgotten to report some 53,7000 transactions that breached money laundering and terrorism laws. So best you piss of and run a milk bar somewhere else. With this in mind I thought I would take a look at the performance of CBA relative to its counterparts.

The chart below compares the relative YTD performance of CBA ot the other members of the big four.


As you would expect over the short term there is not much difference in the relative performance of this cohort – their businesses are highly correlated within a small market. What I also found interesting is the lack of shareholder punishment applied to CBA for yet another transgression particularly given the seriousness of the money laundering charges. Whilst talk of fines into the billions is plainly stupid there will be some form of smack and it appears that politicians sense of self interest will play a part in making certain it is not too large. After all you shouldn’t smack someone you want a board position off when you leave politics. But it also indicates the lack of depth in the local market – there is simply nowhere else to put large sums of money so investors both retail and wholesale are stuck with a limited range of alternatives.

Simply for the sake on interest I wanted to see what the long term relative performance of the four banks was and I was quite surprised.


Since the GFC NAB begins to lag behind quite a bit, so I looked at  all the data had.


NAB has always unperformed the other three and CBA’s level of out performance is a relatively recent phenomena.  It is also intriguing what you see when you begin to compare similar instruments over extended time frames – the history of markets and their instruments is a fascinating thing. As for someone who can take over from Ian Narev I would suggest that the CBA board forget all the expensive recruitment bullshit they go through and just pick someone from the street – they couldn’t do a worse job and they could probably do it for less than the $12M that Narev got paid.

Hedge Fund Managers Don’t Always Beat the Market, but They Still Make Billions

Good performance, mediocre results or even downright ugly returns. When it comes to hedge funds, it scarcely matters. Even as some investors begin to sour on these high-priced stock pickers, the top fund managers still haul in enormous paychecks.

The 25 best-paid hedge fund managers earned a collective $11 billion in 2016, according to an annual ranking published on Tuesday by Institutional Investor’s Alpha magazine.

Even managers who had a tough year were able to cash in. Nearly half of the top-25 earners made single-digit returns for their investors, a lackluster sum in a year when the Standard & Poor’s 500-stock index was up 12 percent, accounting for reinvested dividends.

The top earner of 2016 was James Simons, the former code breaker for the National Security Agency and the founder of Renaissance Technologies, who made $1.6 billion. Ray Dalio, the founder of Bridgewater Associates who is best known for his philosophy of “radical transparency,” came in a close second with $1.4 billion. Further down the list was Robert Mercer, the co-chief executive of Renaissance and one of the biggest backers of Donald J. Trump’s presidential campaign, who earned $125 million.

More here – The New York Times

Note to self I must correlate the total compensation taken by hedge fund managers versus the industries actual return. My guess is that it will show a bunch of greedy bastards making a fortune whilst those stupid enough to invest with them make nothing.

WTF Is All The Fuss About

This article is apparently doing the rounds and it purports to look at the supposedly new development of predatory short selling and uses the attack on Quintix by the US group Galucus as proof of this and along the way we get the usual dose of perceived wisdom from Gerry Harvey. Whenever such a piece on short selling appears it is predicated on a few basic assumptions.

  1. Short sellers drive down the price of instruments thereby engaging in a form of pseudo market manipulation
  2. Short sellers tend to target decent businesses and decent people and are therefore un-Australian
  3. Short sellers know what they are doing and are always profitable.
  4. Knowing which stocks are being shorted will give you an edge.
  5. Predatory short selling is a new development.

The article identifies a series of stocks that are among the most shorted on the ASX and I have reproduced this list below since it gives me a starting point for looking at some of the actual data surrounding these stocks.


What I wanted to look at was some of the performance figures that you might derive from shorting these stocks. The first thing I did was assume that exactly one year ago 1 shorted $1 of each of these stocks. I then valued these stocks as of last nights close and generated the following table.

value of $1

The current value of this basket of stocks is $10.9, so in a year I have made $0.10, if I had simply bought the index and held it passively for the same period I would have made $0.11. Speculation has to be worth the effort, particularly speculation such as short selling that exposes you to substantial risks and can be regulatory and management nightmare. However, this sort of comparison is unfair since short selling is a trading strategy – it requires active management. So it would be more appropriate to look at the peak to trough movements in these stocks over the past year and this is what the table below tracks.


As can be seen some of these stocks have had substantial movements in the past year and there are only three where movement to the upside outpaces the move down. Interestingly, as a statistical fluke the average gain and average loss sits at 31%. From a trading perspective there always needs to be a recognition that stock prices move in both directions – unfortunately for passive investors fund managers only seem to accept that stocks prices move up. The value of short sellers is the knowledge that markets move in both directions and that this provides an opportunity for profit. However, this raises the additional question of whether short selling has both an influence on price and is utilized to make a profit. For this to occur large short selling positions need to be put in place whilst the stock is stagnant and then used to drive prices down. Therefore we should see an increase in the number of shorts before a stock falls and for this number to accelerate as pressure was brought to bear. To test this assumption I looked at some charts from the site which is used as the basis for the first graph in this piece and I have reproduced them below.


To be honest I am buggered if I can see a relationship between the lift on the number of short sellers and a decline in price. What I see is a mixed bag of short sellers being late, being early, not being there at all and getting lucky. Granted using the old Mark 1 eyeball is a dangerous thing and I cant extract the data to look at the true correlation between short sellers and price. But if it isn’t obvious then crunching it statistically to find some form of relationship isn’t reliable. So we come back to the basic questions I posed above and it is worth summarising an answer to each –

Short sellers drive down the price of instruments thereby engaging in a form of pseudo market manipulation

Not from what I can see. In fact if anything short selling is a boon to the market since it aids in liquidity, price discovery and as ASIC found much to its chagrin during the GFC it dampens volatility.

Short sellers tend to target decent businesses and decent people and are therefore un-Australian

People who complain about short selling fail to understand the basic mechanics of all trading is to elicit price discovery. The marekt then votes on its future view of this discovery – markets look forward not nackswards. So when you see the price of groups such as HVN get the wobbles it is the market voting about what it perceives to be the future prospects of this company in light of changes in technology, consumer bahvious and competition.

Short sellers know what they are doing and are always profitable.

Not from what I have seen

Knowing which stocks are being shorted will give you an edge.

See above – also consider the most you can make is 100% and that is functionally impossible. Simply Google best performing stocks of 2016 and this will give you an idea of the side of the market you want to be on.

Predatory short selling is a new development.

From my historical perspective I would say that short selling now is harder than it used to be. There are restrictions on naked short selling and the settlement system we operate under makes it hard to game the system. Back in the day when we had 14 day settlement you could short sell a company and buy it back before settlement and if you were careful no one was any the wiser. With instantaneous settlement this is actually very hard to get away with. As I said from a simple back office perspective short selling equities is a pain in the arse.





The Culture Principle – Ray Dalio And Bridgewater

At one of the gyms I used to frequent there was a trainer who used to do some very odd things and initially I could not work whether he was a mad genius or just a dickhead. In the end he turned out to be just a dickhead, my guess about Ray Dalio and the odd culture at Bridgewater is that many on the outside face the same opinion paradox as I did about this trainer.



The 100 Most Overpaid US CEOs

This piece by the Harvard Law Review is wonderfully comprehensive and can be downloaded from here. There is a summary posting here if you want the Readers Digest version. However, I would suggest downloading the entire thing. This charts stands out as highlighting the miserable performance of the most overpaid CEO’s .


Once you read the entire report you will realise that Australian CEO’s I listed last week when adjusted for size are able to compete on a global scale when it comes to over payment and under performance…

Another Great Australian Tradition

In Australia we have a number of traditions. The long weekend, a sausage sizzle at Bunnings and the latest – the whinging billionaire. The leaders of this pack of privileged complainers has to be Gerry Harvey who in the past two weeks has suggested that his stock in the grip of an evil an unidentified cabal of evil short sellers and that Amazon should be banned from coming to Australia. These short sellers are apparently akin to a secret society who have in tow numerous journalists all of whom conspire together to do him some form of harm. The interesting thing about making statements about short sellers is that it is easy to track short selling since it is reported daily by the ASX and can be found here.  As you can see HVN comes in at about number 23 in the list of companies with outstanding short sales. You will also note the the percentage of stock held by short sellers is 0.43% of the issued capital – not the 4% reported here. What fascinates me is that if HVN is under attack by short sellers they are doing a really bad job of it and might want to think  about a career change. If you had invested $1.00 into HVN two years ago it would now be worth about $1.69 – if you had short sold the stock you would be in a world of hurt.

As to the notion of banning Amazon from coming to Australia this requires a little bit of context and HVN’s aversion to online shopping does seem to have a deep history. I  seem to remember some years ago they trumpeted that HVN had moved online. What they had done was put a pdf version of the catalogue they stuff into your letter box on a website and called that online shopping. Amazon does present a unique threat to Australian retailers for two simple reasons – pricing and service. Australian retailers have for years gotten very wealthy by doing very little and this capacity to charge excessively  extends across all retail sectors. You only need to read this blog for a week and you soon realise that I am a car nut, I childishly change cars regularly. As such, I am keenly aware of the pricing differential between cars locally and overseas. The most depressing thing I can do when travelling overseas is to visit a Porsche dealership and ask how much a brand new Porsche Carrera 4 will set me back. For those who dont know the drive away price in the US is around $93K. Locally the same car will set me back somewhere north of $320K – a staggering and wholly unjustified differential. Much has been written about the pricing of cars locally and you get all sorts of reasons as to why. Generally you get the old chestnuts, distance and small market. Intriguingly Porsche are prone to bouts of Teutonic honesty and in the last piece I read which looked at why they charged so much more for their cars locally than overseas the answer was simple – because they can. And it is here we get to the nub of the problem with retailing in Australia – it doesn’t take much to do very well and anything that disrupts this gravy train is viewed with extraordinary hostility and appeals to government to do something about the big bad foreigners.

As to service, I am writing this on a keyboard I coincidentally bought from a HVN store less than an hour earlier. You could have fired a cannon in the store and not hit one of their sales people – they appeared to all be playing with a new set of Bluetooth speakers that had hit the showroom floor. I should be thankful if I had gone into JBH I would have been confronted by the same lack of interest but it would have been dressed up as a hipster wanker or some peanut who thought that a bright purple mohawk was the height of fashion.

I will drop dead in seat the moment I hear an Australian retailer of let alone any Australian billionaire say – we dont need government to do our business for us, thats our job…..bring on the competition. But my guess is that the chances of that happening are near zero and in the meantime we wait gleefully for the arrival of Amazons local distribution hub.

CEO Salaries

Whilst looking for something completely different I came across this list of domestic CEO salaries. I thought it would be interesting to strip out some of the data and look at those CEO’s who are paid the most but whose companies lose the most money. Its remarkable how well you can do when your company is not doing that well….

CEO Salaries


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