Andy Kessler

WSJ: A Stock-Trading Dupe Is Born Every Minute

Follow @andykessler

https://www.wsj.com/articles/a-stock-trading-dupe-is-born-every-minute-11613933258

Michael J. Meehan and friends started buying a tech company’s shares, but from each other, driving up the price on each trade. Others noticed the rising stock and started buying too, sending shares to more than $100. Then everyone piled in until it hit around $500 at its peak. Sound familiar? GameStop ? AMC? Nope. It was RCA, pumped by the so-called Radio Pool in 1928-29.

Pump-and-dump schemes and roving gangs of investors are an age-old problem. In the 1930s, Congress made these stock pools illegal. Problem solved, right? Ha ha, sure—just like last week’s Roaring Kitty congressional hearings will “fix” the latest iteration. To be fair, RCA was successful and radios really were the future. No matter, after the crash the stock hit $10.

For a pump and dump to work, you need a certain type of investor—specifically, the type P.T. Barnum said is born every minute (on platforms like Reddit and Robinhood, more like every nanosecond). To be nice, let’s call them dupes. “Greater fools” works too.

On Feb. 2, Barstool Sports founder Dave Portnoy tweeted, “I have officially sold all my meme stocks. I lost 700kish. Vlad and company stole it from me and should be in jail”— Vlad Tenev being the founder of the stock-trading app Robinhood. Let me gently suggest what he meant to tweet: “Robinhood limited trading of GameStop and AMC so even bigger fools from Reddit couldn’t bid up the price further and let me dump my shares on them.”

Here are a few things Congress missed:

• GameStop had a float, or shares available for trading, of about 50 million. Yet there were 71 million shares sold short. This can happen but shouldn’t. Prime brokers, like Goldman Sachs and Morgan Stanley, are supposed to make it very difficult. It’s a form of leverage. But they looked the other way. Their securities-lending business is too lucrative—fees, fees, fees—and replaces stock-trading profits lost long ago to high-frequency traders like Citadel and Virtu.

WSJ: Mediocrity Is Now Mandatory

Follow @andykessler

https://www.wsj.com/articles/mediocrity-is-now-mandatory-11612724198

Has an era of American mediocrity begun? In January the College Board announced it would eliminate the essay portion of the SAT, as well as all of the separate SAT subject tests. Their stated purpose was “reducing and simplifying demands on students.” Such a burden.

One high school near me just dropped freshman advanced-standing (honors) English “to combat the effects of academic ‘tracking’” because it “ultimately separates students of different socioeconomic and racial backgrounds.” It turns out that middle schools from lower-income areas aren’t adequately preparing their students for high school. So rather than fix that problem, they dumbed down high school.

Then again, when the University of California system did away with racial preferences in 1996, it moved to holistic admissions. What does holistic mean? Anything you want. The Association of Public and Land-Grant Universities defines it as “assessing an applicant’s unique experiences alongside traditional measures of academic readiness.” Grades are only a suggestion—and SAT scores are biased, supposedly. And here you thought smart students got into good colleges. Yes, mediocrity has crept into our self-proclaimed elite colleges. Job recruiters understand this.

Virtually all universities and now many companies have D&I departments, for diversity and inclusion. Sounds worthy. But as far as I can tell, the No. 1 job of a D&I department is to hire more people into the D&I department. No one ever mentions excellence.

Many schools, like Hampshire College, Antioch University and Reed College, don’t even bother with meaningful grades—feelings might get hurt. Yes, the same Reed College Apple co-founder Steve Jobs attended for six months. He took courses in calligraphy, dance and Shakespeare. Reed students do receive a loosey-goosey grade-point average, but “papers and exams are generally returned to students with lengthy comments but without grades affixed.” Out in real life, Jobs was graded every day by customers, employees and investors.

And why push students to think?

WSJ: Behind the Bitcoin Bubble

Follow @andykessler

https://www.wsj.com/articles/behind-the-bitcoin-bubble-11612125537

To figure out if you’re in a bubble, you need to find the source of the hot air. Obvious for GameStop, but for bitcoin, not so much.

In July 2018, we wrote about the cryptocurrency company Tether, which issues tokens called tethers that trade under the symbol USDT and should be valued at $1—making the currency a “stablecoin.” Tether’s creators might have manipulated bitcoin, a University of Texas paper suggests, by issuing tokens willy-nilly unbacked by real dollars and then buying bitcoin to jack up its price. (The company claims the research is flawed.)

At the time, Tether’s total value was some $2.7 billion, and its website claimed: “Every tether is always backed 1-to-1 by traditional currency held in our reserves.” So somewhere there should have been $2.7 billion in real money—that’s how a stablecoin is supposed to work. In November 2018, New York state Attorney General Letitia James invoked the Martin Act to begin an investigation into iFinex, which owns Tether and the Bitfinex cryptocurrency exchange, “in connection with ongoing activities that may have defrauded New York investors.” The company has disputed the attorney general’s claims, denied it misled customers, and said it will fight any action. An appellate court last year rejected its challenge to the probe.

Bitcoin peaked at the end of 2017 at $19,000 and over the next year collapsed to $3,200. Well—they’re baaack! On Friday Elon Musk was the latest to pump Bitcoin, which briefly reached almost $38,000. And there are now some $26.4 billion of USDT tokens, $18 billion of which were created since March 2020. Why the increase? No one has a good explanation.

All that glitters is not gold. In 2019 Tether subtly updated its claim to say reserves “may include other assets and receivables from loans made by Tether to third parties.” Tether has even admitted it only has 74% of the cash or cash equivalents to back its stablecoin. Hmmm. Basically unbacked.

In October 2019, a separate lawsuit was filed against Bitfinex claiming the exchange’s alleged market manipulation “likely surpasses $1.4 trillion,” which Bitfinex denies. Yes, that’s trillion with a T.