> Mr. Son pulled his conglomerate back from the void with a sharp and surprising strategy shift, selling off holdings that have been central to his investment and operating blueprint, and buying back shares.
I somehow get the feeling that SoftBank and Masayoshi Son aren’t great at investing and have managed to throw a whole lot of money aggressively into ventures that any common person would doubt about returns, scaling, etc. At the same time, it has sold off what could continue to be profitable, like ARM Holdings.
I honestly don’t understand SoftBank’s business model and how it expects to generate great returns. It doesn’t even look close to the stock market advice of “if you get 6 calls out of 10 right, that’s great.” It looks like SoftBank has a lot of money (or had). Business sense and agility? Not so much.
> I somehow get the feeling that SoftBank and Masayoshi Son aren’t great at investing and have managed to throw a whole lot of money aggressively into ventures that any common person would doubt about returns, scaling, etc. At the same time, it has sold off what could continue to be profitable, like ARM Holdings.
Case in point: they bought ARM for $32B in 2016 and recently sold it for $41B. The S&P500 performed better over the same time period.
(I don't think they sold at a bad price; I think they massively overpaid for buying it. ARM was a prime takeover target back then and you could see that in its valuation, and SoftBank paid a hefty premium even on that.)
> I honestly don’t understand SoftBank’s business model and how it expects to generate great returns.
Simple: lose money hand-over-fist, forcing your competitors to do the same. Continue this until they've all bled to death. Then declare a monopoly, jack up prices, and make back what you've lost.
This is the optimal strategy if you have more capital than your opponents. It is quite effective.
>Then declare a monopoly, jack up prices, and make back what you've lost.
I often see people posting some variation of this theory. Can anyone point to real-life example of this happening? Where competitors were driven out of business only to have the perpetrator "jack up prices"? I'm not a believer that the market is perfect, but I have more faith in it than that. From my view, it looks like most companies who attempt this strategy end up going out of business themselves.
Mylan and epinephrene in the US comes to mind as the most egregious[1]. The reason we don't see as many clear examples is because, as you noted, reputational effects will usually influence market leaders to try to generate more profit without catching the ire of powerful anti-competitive bodies.
In Canada, our band of oligopolies is well known (telecoms and banks primarily)[2], and past and future attempts[3] are difficult to implment due to our low population density[4].
In the case of Mylan the problem is not the drug which is unbelievably cheap, but the medical device surrounding the drug. (the autoinjector) Mylan has patents on the design of the epipen that don't expire until 2025. Other devices such as the auvi-q were taken off the market due to inconsistent dosages being administered.
Yes. Standard Oil in the 19th century, it drove out the competition with low margins (but still a bit of profit) then, after John D. Rockefeller left the presidency of the company to John D. Archbold in 1896, Standard Oil jacked up prices and made its real monopoly rents.
Well, there's working and then there's working. Neither WeWork nor Uber has ever turned a profit. But their CEOs both got wildly rich selling this dream. And along the way they definitely crushed a lot of competition both potential and actual.
> Can anyone point to real-life example of this happening? Where competitors were driven out of business only to have the perpetrator "jack up prices"?
Facebook. They drowned out everyone else in wide parts of the world: Myspace is dead, German "Lokalisten" and "SchülerVZ/StudiVZ" are dead, even Google Plus is dead, vKontakte is only Russians and a couple of Western conspiracy nuts, and no idea what China is doing.
And now, they (and Twitter, which serves another niche than Facebook) together are raking in almost all of social network ad spending
Carrefour supermarket opened in my block next to a decades old famously local bakery/grocery store and undercut their prices by more than half, with a focus on infrastructure, quality and service, bakery went out of business, one year later all the prices in the supermarket were way up, staff was cut and service went terrible afterwards.
There's a huge war on this with tons of delivery apps/ride sharing as well, in different corners of the world, Uber tried to burn cash to get ahead of taxis with coupons and discounts in several markets, it won in some, but lost big in China(Didi), India(Ola), and Indonesia(Grab).
Another major example was the "Brazilian airbridge", the flights between SDU - CGH airports, when a growing company tried entering that market, three airlines bundled their offerings together to set prices and coordinate flight times, which priced their competitor out of the route, eventually getting them bankrupt.
They've a habit of picking the worst possible markets to do it in though. Logistics operations like Amazon and SaaS have significant lockin, as well as significant economies of scale so your capital isn't doing all the work to undercut the competition. Ride hailing and dog walking apps and spare seats in offices not so much...
It's not Masa that pulled this company from the brink, but the fact that risk capital has somehow been convinced to stay in the game during this recession. Look what corporate bond spreads or IPO/VC underwriting did after March - truly unheard of in the depths of a recession, especially in the depths of the worst recession in living memory.
To be completely fair, there exists a justification for (at least some of) the action we're seeing: if developed economies' bond yields are correctly pricing in future nominal gdp, i.e. we will not be back to good times for the next 30-50 years, then owning anything that can grow is tremendously valuable. But it's such a stretch to assume 30-50 years of stagnation, even if the entire bond market agrees with you. I mean do you seriously expect property relationships to not be rewritten in some revolutionary way somewhere along the way if we get 30-50 years of misery?
I feel you, but I do have some respect for the markets no matter what they say. At least enough respect to be cognizant of what is being priced in, despite my personal views.
Oh come on, soverign debt is about as far from being "a market" as possible....
I'll believe the yields mean something when the US Treasury issues a special series of bonds that are forbidden to be owned by the Fed or any entity with access to the discount window.
The benefit of a large, well-equipped military is that you get to tell people whether or not you're/they're going to pay your/their debts. For as long as your population is willing to pay for its prosperity in blood.
There's a lot of countries with lower nominal yields that are not known for their military prowess ... like Greece. Yes, greek bonds have negative yields.
Greece has the miliary power of the entire fucking European Union (and its allies) behind them, for as long as they're willing to suffer for the benefit of France and Germany.
That's really just the Disco Stu Fallacy of economics at play. Assuming that things _will_ get better and passing the buck onto your descendants is madness. Also how much growth has been stunted by the weight of ancestral spending?
Birth rates are declining and the cost of maintaining our infrastructure is at the point in most high-GDP locations (New York, California, etc) where obligations cannot be met and credit status changes were inevitable _before_ Coronavirus. Look at the insanity New Jersey has gone through with the criminal pilfering of infrastructure/development funds to pay pensions (aka, Christine Todd Whitman should have gone to jail).
We're looking at cascading failures in a complex system. Nobody can see enough of the picture to predict what's next or realize that it's already dead. To assume that we'll right the trend with growth will most likely require either war or (a technical) revolution.
Pop music, and pop culture in general, seems to operate on a cycle where fashions become vogue again 20-30 years after. Retro gets hip and nostalgia abounds.
I think almost nobody wants to believe in the picture that bond yields are painting, because that world with all its ramifications is so far outside of what we consider acceptable or even possible. Kind of like the "Minsky moment".
PS. I agree that this is not just a covid problem.
Complete layman's take here, but wouldn't a simpler explanation be that bond yields have been artificially manipulated by central banks for the last 12 years, and that they thus don't truly represent the market's expectations for the future of the larger economy?
People have always been saying that the bond market is manipulated, that it shouldn't be trusted, etc. It's up to you to interpret the data. I think it is actually remarkably accurate. Yield curve inversions work like a charm to detect slowdowns and recessions (not just in the US), and if you think for a second then a yield curve inversion is exactly what the market should price in if there's an "air pocket" ahead in nominal gdp. Then, there's the story of Japan, which was predicted early on (1995) to be in stagnation for decades. And guess what, over 2 decades later it turns out the JGBs were right!
There are times when the bond market is very explicitly manipulated, such as towards the end of WW2 in the US. The country's economy was getting seriously inflationary and rates were pegged at 2% (the rate should have been probably over 10% without the manipulation). Thankfully there was much collective sacrifice and the country managed to win the war in time before its economy imploded. Then the typical post war recession and later the baby boom solved everything.
You can detect such situations by things like: wage freezes, rationing, shelves not completely full in shops, large premium on gold bullion particularly small coins, the politicians' talk of "great effort", things like that
I'd like to learn more about how to understand all of this. Is there some resource you can point me to so I can begin the journey to have this intuition?
The tips I would give are: 1) focus on correlations in hard data, there's a lot of bullshit out there and wishful thinking, but as we know causation means correlation, 2) look at further away situations - your own country 100 years ago, 200 years ago, historic empires, other major economies, minor economies. Human behavior is similar across time and space and political arrangements.
Also, reach out to the source. Want to know if "China is hoarding dollars?" Well try to verify it yourself via Treasury data or IMF data. Want to know how does Apple actually make money? Read their statements at sec.gov
Also, if you want names:
Ray Dalio puts out a lot of good research for free as a means of building his legacy. Robert Shiller wrote a lot of good econ. As far as investing goes it's really tough to beat the common sense logic of Warren Buffett and co. and Benjamin Graham and co. The true masters of speculation include George Soros and Jesse Livermore.
In this case, with interest rates near zero, it may be rational for markets to converge on prices that discount the transient effects of a pandemic recession.
Yup, exactly. Low yields increase the duration of equities. This also means that prices become more random (because who's to judge what will Google ads sales look like in 20 years? or what will the iDevice of the 2050 look like? with low enough yields things like these become more and more important).
I don’t know what google’s ad sales or idevice will look like in 20 years, but I am betting the US government will do whatever it can to keep broad market equity index values rising.
Ugh, I hate it when PNL is reported in pure dollar terms with no reference to capital. I get it, the writer/editor wants to make the title punchy, and $4 billion is certainly punchier than say 4%. However, FT is in some way supposed to cater for professionals and I would expect better from them.
For actual informed use, the dollar numbers is largely meaningless. For a $100 billion fund, losing $4 billion is painful, but not the end of the world. For a $10 billion fund, it is likely game over.
>For actual informed use, the dollar numbers is largely meaningless.
You might have this backwards. Actual informed people have a good idea of the scale that these funds are operating at, and can understand without context whether $3.7bn is a lot.
>For a $100 billion fund, losing $4 billion is painful, but not the end of the world. For a $10 billion fund, it is likely game over.
Losing $3.7bn trading stocks in a tech bull-market the likes of which we've never seen is...not good, regardless of the fund size.
>You might have this backwards. Actual informed people have a good idea of the scale that these funds are operating at, and can understand without context whether $3.7bn is a lot.
Even "actual informed people" won't necessarily know how much much any given fund has in AUM.
>Losing $3.7bn trading stocks in a tech bull-market the likes of which we've never seen is...not good, regardless of the fund size.
Actually, fund size is very relevant. Losing $3.7b as a $10b fund will put you in at least 37% drawdown which can put you past a board-controlled threshold at which trading might pause or a re-evaluation of the trading strategies might be triggered. Losing $3.7b on a $100b account is 3.7% which is business as usual really.
If you have a machine learning background this analogy might be useful:
if you're building an algo trading strategy then training your model on absolute dollar returns data will be nonsense. What makes more sense is calculating the relative returns or even log-returns because then we're encoding an actual relative change.
You have a good point. But anyone following the SoftBank story within the context of Elliot’s activism is thinking about SoftBank Corp. from an earnings perspective and Vision Fund from a returns perspective. (The latter being easy to translate given its Fund 1 $100bn base.)
I don't believe I have it backwards. Without trying to appeal to authority, I work in the industry and except in very specific cases where it is clear how much AUM a particular fund runs, people will quote percentage returns because it tells you immediately what is the severity.
I'm sorry but nobody can keep all the different AUMs in their head. There are thousands (tens of thousands?) of funds in the world, I really can't be bothered to memorize all their assets. The headline was clearly written to elicit an emotional response, at the expense of information content.
> Losing $3.7bn trading stocks in a tech bull-market the likes of which we've never seen is...not good, regardless of the fund size.
It's not good, but again the dollar figure is completely meaningless: if the fund has an AUM of $100bln, this is a largely inconsequential -4%, which may compare unfavorably to their peer group and may elicit management changes down the line. For a $10 bln fund this is pretty much game over and they would be gearing for a fire sale of office equipment.
In a lot of cases, reporters do not have access to AUM or want to extrapolate from potentially misleading sources in order to construct a percentage return that does not exist publicly. You don't see reporters attempt to extrapolate dollar returns from percentage ones when percentage ones are all that are available; even if dollar returns might make a better headline like you claim. A headline with an extrapolated percentage return would have to be phrased in an awkward manner like "could be down as much as" and an editor is not going to greenlight that. This isn't even broaching the subject of gross vs net percentage returns which isn't possible to succinctly address in a mere headline.
I think this is a different arm of SoftBank though, not the vision fund.
Also, even capital is sort of irrelevant because of gearing. I can go to the futures market and take the same risk with a $10m fund that you can with a $20m fund in the cash equity market.
Depends on the use. If you're evaluating the fund from an ROI perspective, sure. But the mental math I'm doing is how many perfectly good entrepreneurs could have gotten funded with that money.
But this is exactly what I mean: the title is worded to elicit an emotional response - and it clearly succeeds at that.
This is FT however, I'd expect them to be professional enough to avoid this crappy game of clickbait titles. If the NY Post wrote a headline like "SoftBank suffers a massive $4 billion loss!!!111" I wouldn't bat an eyelid.
From a purely informational perspective, this headline doesn't tell me anything about the actual severity of this loss for SoftBank.
Sorry, I don't agree. Billions of dollars lost are still billions of dollars lost. I agree that some people will want to know in percentages of this or that, and you are clearly one of those people. But you're not their only reader, and I think it's reasonable and appropriate for people to have an emotional response to somebody gambling and losing the equivalent of the lifetime earnings of a couple thousand people.
Context is very important because otherwise you can't claim that the money could've been feasibly spent better and can't even distinguish between loss from gross incompetence or just normal fluctuations.
The Norwegian Govt Pension Fund manages $1 trillion of assets. It's value is likely to fluctuate by billions each day. Would you level the same accusations against them?
Nobody is saying that the percentage change should never be spoken of again. Nobody is saying that context is irrelevant. Nobody is saying that the topic doesn't deserve a full article, which it got.
>One recent development at SoftBank that worries some in Elliott is a new asset-management arm Mr. Son announced in mid-August as cash piled up, to which he will contribute himself. He now personally directs a team of traders using $20 billion of the cash pile to bet on daily moves in tech names including Alphabet Inc., Amazon.com Inc. and Netflix Inc., said people familiar with his trading.
It's ~$20B, though they had market exposure of over ~$50B.
I'm from outside the industry, but this seems outright bonkers to me, like completely unprofessional. Mega fund managers using $20B like a Robin Hood account for day trades?
Unless he literally has quasi inside information, this seems wrong.
I'd have to think the internal risk team at SoftBank is not going to do anything but 'warn' the partners. If the parnters believe in their own koolaid ... (hey, we are 'world class investors, look how much money we raised') it's an easy trap for them to fall into.
Paradoxically - even just being a 'true series D/E fund before IPO' is a really great concept, they should stick to it. WeWork, Uber etc are actually good investments if managed properly. If they reigned in Adam at WW it might have worked out better.
Softbank has gone from 0 to $20Bn day trading in 6 months. I doubt their riks management is up to scratch to be honest. It's one thing to be evaluating single large long-term investments with seats on the board etc. It's quite another to be day trading options.
Seems many of the replies below this are referring to this post, so I'll reply here:
1) FT seemed to have changed the headline, it used to be "SoftBank’s Northstar tech unit racks up $3.7bn in losses" (refer to archive link below), which was much more specific.
The article contents are the same however - many comments below refer to $100B, however the article does not refer to Vision Fund $100B; it refers to their new "speculative trading" division, which was officially announced back in August.
2) Since this is FT, probably most people don't have access to the article due to paywall - the article itself:
When Northstar started, Softbank announced it started with $555 million; however as of Wednesday announcement now they say Northstar manages 21B of Softbanks 43B cash pile.
3.7B quarter loss is 17.6% of 21B
4) FT has been reporting on Softbank trading for some months now - it was one of the first (or the first) to break the news about Softbank large speculative call options trades back in September (https://www.ft.com/content/75587aa6-1f1f-4e9d-b334-3ff866753...)
5) Finally, this is my personal opinion.
Softbank seemed to have built up a reputation for throwing money at companies at high valuations, with some disastrous consequences (Wework etc).
Now, it seems they are approaching trading with the same cowboy attitude; these high risk trades may work some of the time, when the market is in your favour, but when the wind changes, big losses may incur - this FT report is one indication of such losses.
> risk capital has somehow been convinced to stay in the game during this recession
The Fed messaged its willingness to buy bonds. They never had to. The market took the message and ran with it. But it’s a tool borne out of Bernanke’s work the last time around which was borne of his scholarship on the Great Depression.
> It's not Masa that pulled this company from the brink, but the fact that risk capital has somehow been convinced to stay in the game during this recession. Look what corporate bond spreads or IPO/VC underwriting did after March - truly unheard of in the depths of a recession
> the fact that risk capital has somehow been convinced to stay in the game during this recession.
I believe tales of our "recession" are greatly exaggerated. Since COVID-19 took hold, roughly around March 2020, the market hasn't really been depressed, has it?
> Since COVID-19 took hold, roughly around March 2020, the market hasn't really been depressed, has it?
That's because the Fed said "money printers go brrr!". If it weren't for massive massive massive repeated cash injections into the market to maintain liquidity, we would have had a crash.
Could somoene explain to me how a company can trade so far below the value of it's assets. It seems crazy to me. I understand that the assets are illiquid and you wouldn't get the full value in a fire sale, but doesn't this situation essentially put the board in the position where just by firing Masayoshi Son they'll practically double the value of the company overnight. Does anyone seriously believe that Masayoshi's investments could possibly return that much value to shareholders?
The idea is that firing Son would also signal that all of the assets need to be revalued immediately.
The difference between the on-paper value and the real value of these assets is so vast that everyone involved is in a Mexican standoff.
They're all hoping that if nobody blinks, the economy will get better and their investments might actually become good unicorn bets.
It's a similar reason to why properties can stay vacant with no tenants for years and years and years. I'm almost convinced that we need a law that forces unproductive assets to turn into write-downs after some window of time.
As an aside, I really want to know how much grease has been paid to get tech/investment journalists to write positive stories about WeWork during Coronavirus lockdowns.
It was a nuclear disaster before the lockdowns. Corporate real estate is about to see a biblical correction and lease terms are about to become the friendliest they've ever been. I keep seeing one positive article about their prospects after another and yet I can't find anyone rational who agrees with any of it.
> we need a law that forces unproductive assets to turn into write-downs after some window of time
We had one, it was called the "law of compound interest". Back when it was in effect, it bled these writedown-refusers to death.
Unfortunately it got repealed by Zero Interest Rate Policy.
In a sense, that's what interest rates are: they're the penalty function applied to stuborn-refusal-to-write-down. If rates are too high a bunch of startups get killed needlessly by capital asphyxiation. If rates are too low (like now) you get zombies.
2) Because the assets are not liquid the “value” of the assets is highly debatable. (Value of your stock portfolio vs private equity holdings).
3) Some assets are not free to own. Simple example being property. It’s worth a lot but also costs a lot (taxes, Maint, ...) to own it. This is in theory valued into the asset value but really on a point in time basis. If the asset isn’t “productive” in earning income then having it on your books with those expenses just keeps eating away at funds elsewhere. Think owning a paid off rental property that doesn’t earn enough to cover its annual costs. Worth a lot in a fire sale, but terrible item to have on the books long term.
4) Companies can have negative goodwill on their balance sheet, especially if there are questions about the quality of the fundamental business or management team. Outsiders may say the company owns a lot of stuff but it’s so poorly managed that that that stuff isn’t worth what it’s normally worth. Yahoo had this issue where the market cap of the company was less than the stock Yahoo owned in other companies. “Yahoo the company” and its team was literally considered to be worth negative dollars.
Liquidity doesn't begin to explain the valuation question. SoftBank's market cap was once 110bn vs their stake in Ali Baba at 150bn [0] . Even if you marked all the Vision Fund nonsense to 0, SoftBank is still a real company that does stuff outside of being a bad PE/VC/HF firm.
I think the market was factoring in SoftBank's 160B of debt. Even if their Alibaba stake is 150b, if it's tied to the company holding 160B in debt, it's actually only offsetting a huge debt load...
I.e. I can incorporate a company, borrow 100m, and buy 100m of Alibaba. It doesn't mean my company is worth anywhere close to 100m...
>Companies can have negative goodwill on their balance sheet, especially if there are questions about the quality of the fundamental business or management team
That's not what goodwill is. Goodwill is the difference between book value and purchase price of assets to make the numbers work. It's nothing to do with the quality of the business or management team.
>Could somoene explain to me how a company can trade so far below the value of it's assets
At least part of that is accomplished by never marking your assets to market. In other words, the assets simply aren't worth what the balance sheet states. One of the oldest tricks in the book.
And yet not as astounding as peoples' desire to see him succeed.
Actions should have consequences.
Keep in mind that this is a man with a history of making enormous bets and losing, having previously lost $70 billion out of $78 billion of his own assets in the dotcom crash.
This is other peoples' money he's doing this with. There's that old saying about fool me once...
And yet SoftBank is still carrying all of that debt it has. Softbank has more debt on its books due in the next three years than many countries do period. Its current debts in that period are roughly the yearly GDP of Iceland.
Continuously risking it all is not investing, it's gambling.
Normal people and normal companies can't invest the way he does. Nobody reasonable has that risk tolerance. If you were trading margin on like that, you'd get margin called before you even got started.
Son can get away with what he does because he's risking the wealth of nations. SoftBank's debts are so big that they risk taking Japan and Saudi Arabia down with them.
It's not that he's a savvy investor, it's that his clients have guns.
“GMV” or “Gross Merchandise Value” are to the value of confirmed orders of products and services
on our marketplaces, regardless of how, or whether, the buyer and seller settle the transaction.
^^Definitions of core metrics like that make people nervous.
108 comments
[ 3.0 ms ] story [ 202 ms ] threadI somehow get the feeling that SoftBank and Masayoshi Son aren’t great at investing and have managed to throw a whole lot of money aggressively into ventures that any common person would doubt about returns, scaling, etc. At the same time, it has sold off what could continue to be profitable, like ARM Holdings.
I honestly don’t understand SoftBank’s business model and how it expects to generate great returns. It doesn’t even look close to the stock market advice of “if you get 6 calls out of 10 right, that’s great.” It looks like SoftBank has a lot of money (or had). Business sense and agility? Not so much.
Case in point: they bought ARM for $32B in 2016 and recently sold it for $41B. The S&P500 performed better over the same time period.
(I don't think they sold at a bad price; I think they massively overpaid for buying it. ARM was a prime takeover target back then and you could see that in its valuation, and SoftBank paid a hefty premium even on that.)
In any case, unless they got truckloads of money for that, performance would still be under S&P500.
Simple: lose money hand-over-fist, forcing your competitors to do the same. Continue this until they've all bled to death. Then declare a monopoly, jack up prices, and make back what you've lost.
This is the optimal strategy if you have more capital than your opponents. It is quite effective.
I often see people posting some variation of this theory. Can anyone point to real-life example of this happening? Where competitors were driven out of business only to have the perpetrator "jack up prices"? I'm not a believer that the market is perfect, but I have more faith in it than that. From my view, it looks like most companies who attempt this strategy end up going out of business themselves.
In Canada, our band of oligopolies is well known (telecoms and banks primarily)[2], and past and future attempts[3] are difficult to implment due to our low population density[4].
[1] https://www.goodrx.com/blog/epipen-price-change-since-mylan-...
[2] https://this.org/2018/11/30/canada-has-an-oligopoly-problem-...
[3] https://financialpost.com/opinion/the-crtcs-proposals-for-wi...
[4] https://www.statista.com/statistics/271206/population-densit...
https://ilsr.org/walmart-charged-predatory-pricing/
Facebook. They drowned out everyone else in wide parts of the world: Myspace is dead, German "Lokalisten" and "SchülerVZ/StudiVZ" are dead, even Google Plus is dead, vKontakte is only Russians and a couple of Western conspiracy nuts, and no idea what China is doing.
And now, they (and Twitter, which serves another niche than Facebook) together are raking in almost all of social network ad spending
Carrefour supermarket opened in my block next to a decades old famously local bakery/grocery store and undercut their prices by more than half, with a focus on infrastructure, quality and service, bakery went out of business, one year later all the prices in the supermarket were way up, staff was cut and service went terrible afterwards.
There's a huge war on this with tons of delivery apps/ride sharing as well, in different corners of the world, Uber tried to burn cash to get ahead of taxis with coupons and discounts in several markets, it won in some, but lost big in China(Didi), India(Ola), and Indonesia(Grab).
Another major example was the "Brazilian airbridge", the flights between SDU - CGH airports, when a growing company tried entering that market, three airlines bundled their offerings together to set prices and coordinate flight times, which priced their competitor out of the route, eventually getting them bankrupt.
Also, in case you haven't read this PG classic: http://www.paulgraham.com/submarine.html
Due to this - "SoftBank racks up $3.7bn in losses at tech stock trading unit": https://www.ft.com/content/0edb7c17-58e6-4ded-acfa-1822440a9...
Bwahahahahaha....
Oh wait I fell of my chair laughing.
I feel you, but I do have some respect for the markets no matter what they say. At least enough respect to be cognizant of what is being priced in, despite my personal views.
I'll believe the yields mean something when the US Treasury issues a special series of bonds that are forbidden to be owned by the Fed or any entity with access to the discount window.
Birth rates are declining and the cost of maintaining our infrastructure is at the point in most high-GDP locations (New York, California, etc) where obligations cannot be met and credit status changes were inevitable _before_ Coronavirus. Look at the insanity New Jersey has gone through with the criminal pilfering of infrastructure/development funds to pay pensions (aka, Christine Todd Whitman should have gone to jail).
We're looking at cascading failures in a complex system. Nobody can see enough of the picture to predict what's next or realize that it's already dead. To assume that we'll right the trend with growth will most likely require either war or (a technical) revolution.
Disco music in various forms is immensely popular today. It dominates global streaming charts. Rock is the loser.
Stu was just an early adopter facing the through of disillusionment.
It took decades for the industry side of Disco music to recover from Disco Demolition Night. Italo and Hi-NRG notwithstanding.
The music might have stayed four on the floor but the names and the people all changed.
Also Kylie Minogue doesn't set trends, she rides them. Most of us realized Disco was still alive 10 years ago.
PS. I agree that this is not just a covid problem.
There are times when the bond market is very explicitly manipulated, such as towards the end of WW2 in the US. The country's economy was getting seriously inflationary and rates were pegged at 2% (the rate should have been probably over 10% without the manipulation). Thankfully there was much collective sacrifice and the country managed to win the war in time before its economy imploded. Then the typical post war recession and later the baby boom solved everything.
You can detect such situations by things like: wage freezes, rationing, shelves not completely full in shops, large premium on gold bullion particularly small coins, the politicians' talk of "great effort", things like that
Also, reach out to the source. Want to know if "China is hoarding dollars?" Well try to verify it yourself via Treasury data or IMF data. Want to know how does Apple actually make money? Read their statements at sec.gov
Also, if you want names:
Ray Dalio puts out a lot of good research for free as a means of building his legacy. Robert Shiller wrote a lot of good econ. As far as investing goes it's really tough to beat the common sense logic of Warren Buffett and co. and Benjamin Graham and co. The true masters of speculation include George Soros and Jesse Livermore.
Ugh, I hate it when PNL is reported in pure dollar terms with no reference to capital. I get it, the writer/editor wants to make the title punchy, and $4 billion is certainly punchier than say 4%. However, FT is in some way supposed to cater for professionals and I would expect better from them.
For actual informed use, the dollar numbers is largely meaningless. For a $100 billion fund, losing $4 billion is painful, but not the end of the world. For a $10 billion fund, it is likely game over.
You might have this backwards. Actual informed people have a good idea of the scale that these funds are operating at, and can understand without context whether $3.7bn is a lot.
>For a $100 billion fund, losing $4 billion is painful, but not the end of the world. For a $10 billion fund, it is likely game over.
Losing $3.7bn trading stocks in a tech bull-market the likes of which we've never seen is...not good, regardless of the fund size.
They lost 4% of their unmanageable capital, big deal.
Even "actual informed people" won't necessarily know how much much any given fund has in AUM.
>Losing $3.7bn trading stocks in a tech bull-market the likes of which we've never seen is...not good, regardless of the fund size.
Actually, fund size is very relevant. Losing $3.7b as a $10b fund will put you in at least 37% drawdown which can put you past a board-controlled threshold at which trading might pause or a re-evaluation of the trading strategies might be triggered. Losing $3.7b on a $100b account is 3.7% which is business as usual really.
If you have a machine learning background this analogy might be useful: if you're building an algo trading strategy then training your model on absolute dollar returns data will be nonsense. What makes more sense is calculating the relative returns or even log-returns because then we're encoding an actual relative change.
I'm sorry but nobody can keep all the different AUMs in their head. There are thousands (tens of thousands?) of funds in the world, I really can't be bothered to memorize all their assets. The headline was clearly written to elicit an emotional response, at the expense of information content.
> Losing $3.7bn trading stocks in a tech bull-market the likes of which we've never seen is...not good, regardless of the fund size.
It's not good, but again the dollar figure is completely meaningless: if the fund has an AUM of $100bln, this is a largely inconsequential -4%, which may compare unfavorably to their peer group and may elicit management changes down the line. For a $10 bln fund this is pretty much game over and they would be gearing for a fire sale of office equipment.
Fun fact, this is called "apophasis". https://en.wikipedia.org/wiki/Apophasis
I'm not attacking the OP (or is this another apophasis?), especially since they expand on what they mean later in their reply; I just like the word.
These days, I'm ok with any headline that isn't a complete fabrication or at best, completely misleading.
Also, even capital is sort of irrelevant because of gearing. I can go to the futures market and take the same risk with a $10m fund that you can with a $20m fund in the cash equity market.
This is FT however, I'd expect them to be professional enough to avoid this crappy game of clickbait titles. If the NY Post wrote a headline like "SoftBank suffers a massive $4 billion loss!!!111" I wouldn't bat an eyelid.
From a purely informational perspective, this headline doesn't tell me anything about the actual severity of this loss for SoftBank.
The Norwegian Govt Pension Fund manages $1 trillion of assets. It's value is likely to fluctuate by billions each day. Would you level the same accusations against them?
Size matters tremendously for these things.
It's ~$20B, though they had market exposure of over ~$50B.
Unless he literally has quasi inside information, this seems wrong.
Paradoxically - even just being a 'true series D/E fund before IPO' is a really great concept, they should stick to it. WeWork, Uber etc are actually good investments if managed properly. If they reigned in Adam at WW it might have worked out better.
1) FT seemed to have changed the headline, it used to be "SoftBank’s Northstar tech unit racks up $3.7bn in losses" (refer to archive link below), which was much more specific.
The article contents are the same however - many comments below refer to $100B, however the article does not refer to Vision Fund $100B; it refers to their new "speculative trading" division, which was officially announced back in August.
2) Since this is FT, probably most people don't have access to the article due to paywall - the article itself:
http://archive.vn/8NAW7
3) The loss is significant, it is not 4%.
When Northstar started, Softbank announced it started with $555 million; however as of Wednesday announcement now they say Northstar manages 21B of Softbanks 43B cash pile.
3.7B quarter loss is 17.6% of 21B
4) FT has been reporting on Softbank trading for some months now - it was one of the first (or the first) to break the news about Softbank large speculative call options trades back in September (https://www.ft.com/content/75587aa6-1f1f-4e9d-b334-3ff866753...)
5) Finally, this is my personal opinion.
Softbank seemed to have built up a reputation for throwing money at companies at high valuations, with some disastrous consequences (Wework etc).
Now, it seems they are approaching trading with the same cowboy attitude; these high risk trades may work some of the time, when the market is in your favour, but when the wind changes, big losses may incur - this FT report is one indication of such losses.
The Fed messaged its willingness to buy bonds. They never had to. The market took the message and ran with it. But it’s a tool borne out of Bernanke’s work the last time around which was borne of his scholarship on the Great Depression.
Which means they are insane
I believe tales of our "recession" are greatly exaggerated. Since COVID-19 took hold, roughly around March 2020, the market hasn't really been depressed, has it?
One would hope that the stock market reflected actual economic activity, but that doesn't really seem to be the case anymore.
That's because the Fed said "money printers go brrr!". If it weren't for massive massive massive repeated cash injections into the market to maintain liquidity, we would have had a crash.
The difference between the on-paper value and the real value of these assets is so vast that everyone involved is in a Mexican standoff.
They're all hoping that if nobody blinks, the economy will get better and their investments might actually become good unicorn bets.
It's a similar reason to why properties can stay vacant with no tenants for years and years and years. I'm almost convinced that we need a law that forces unproductive assets to turn into write-downs after some window of time.
It was a nuclear disaster before the lockdowns. Corporate real estate is about to see a biblical correction and lease terms are about to become the friendliest they've ever been. I keep seeing one positive article about their prospects after another and yet I can't find anyone rational who agrees with any of it.
I say this about pretty much everything in the mainstream media nowadays, whether it's WeWank-related or not.
We had one, it was called the "law of compound interest". Back when it was in effect, it bled these writedown-refusers to death.
Unfortunately it got repealed by Zero Interest Rate Policy.
In a sense, that's what interest rates are: they're the penalty function applied to stuborn-refusal-to-write-down. If rates are too high a bunch of startups get killed needlessly by capital asphyxiation. If rates are too low (like now) you get zombies.
The scale and negative follow-on effects of unproductive landholding is much worse than this problem isolated to the tech industry.
2) Because the assets are not liquid the “value” of the assets is highly debatable. (Value of your stock portfolio vs private equity holdings).
3) Some assets are not free to own. Simple example being property. It’s worth a lot but also costs a lot (taxes, Maint, ...) to own it. This is in theory valued into the asset value but really on a point in time basis. If the asset isn’t “productive” in earning income then having it on your books with those expenses just keeps eating away at funds elsewhere. Think owning a paid off rental property that doesn’t earn enough to cover its annual costs. Worth a lot in a fire sale, but terrible item to have on the books long term.
4) Companies can have negative goodwill on their balance sheet, especially if there are questions about the quality of the fundamental business or management team. Outsiders may say the company owns a lot of stuff but it’s so poorly managed that that that stuff isn’t worth what it’s normally worth. Yahoo had this issue where the market cap of the company was less than the stock Yahoo owned in other companies. “Yahoo the company” and its team was literally considered to be worth negative dollars.
[0] https://www.reuters.com/article/us-softbank-group-alibaba/a-...
I.e. I can incorporate a company, borrow 100m, and buy 100m of Alibaba. It doesn't mean my company is worth anywhere close to 100m...
That's not what goodwill is. Goodwill is the difference between book value and purchase price of assets to make the numbers work. It's nothing to do with the quality of the business or management team.
At least part of that is accomplished by never marking your assets to market. In other words, the assets simply aren't worth what the balance sheet states. One of the oldest tricks in the book.
Actions should have consequences. Keep in mind that this is a man with a history of making enormous bets and losing, having previously lost $70 billion out of $78 billion of his own assets in the dotcom crash.
This is other peoples' money he's doing this with. There's that old saying about fool me once...
Both companies had notoriously terrible business practices and were for the most part loathed by their own customers.
In the '90s, Sprint was somewhat famous for rampant billing errors to the tune of 4 or 5 digits and then fighting people in court for it.
2) The challenges faced by those two businesses make their restoration an even greater achievement.
Keeping a company from failing is not a virtuous act.
Continuously risking it all is not investing, it's gambling. Normal people and normal companies can't invest the way he does. Nobody reasonable has that risk tolerance. If you were trading margin on like that, you'd get margin called before you even got started.
Son can get away with what he does because he's risking the wealth of nations. SoftBank's debts are so big that they risk taking Japan and Saudi Arabia down with them.
It's not that he's a savvy investor, it's that his clients have guns.
It’s a bunch of Arab royalties’ money with some tech companies and employees to boot. Not a sympathetic bunch.
And the fundamentals of that company and its accounting are in question...
I don't know what other things you might be referring to.
^^Definitions of core metrics like that make people nervous.
Hilarious to think he's basically treating his corporate treasury as a Wallstreetbets Robinhood account.
If you owe the bank $1000, then you have a problem. But if you owe the bank $100 billion, then the bank has a problem.