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Posted May 18, 2021

Sean Ring

By Sean Ring

Elon is Why People Cry Out for Regulators

Its Tuesday!

Before I get into the meat and taters of todays edition, Id like to thank Beau John and Margaret for writing to the Rudes mailbag. Once I figure out how to access the mailbag to reply - which should be later today, I hope - Ill write you back individually. Its a transcontinental logistics thing, not a laziness thing!

Ok, lets get into it.

Make Sure You Regulate the Water!

Every weekend for years, as small boys, my cousin and I would sleepover at my grandparents house in Ridgefield, NJ. I loved staying over there, as my grandma was a lovely woman and a great cook! My grandfather was your typical World War II veteran, except he seemed to love the war experience.

If it wasnt for World War II, Id have never left New Jersey!

Both were proud Italian-Americans and celebrated any athlete, celebrity, or politician whose surname ended with a vowel.

Later, my parents would arrive for our usual Sunday spaghetti lunch and then drive us back home afterward.

Besides watching all the episodes of The Incredible Hulk and The Dukes of Hazzard, I have many fond memories of that time.

And one very odd one.

I distinctly remember whenever I was getting into the bathtub, my grandmother would shout, Make sure you regulate the water!

Are you the type of person who remembers where they were when they learn a word?

I am. (Besides regulate, mercurochrome and Coca-Cola syrup spring to mind.)

Its funny because even as a 6-year-old, I immediately understood what she meant. Regulate, as in to make regular. Or to iron out the extremes. The first definition that comes up what you Google regulate is control or maintain the rate or speed of (a machine or process) so that it operates properly.

As Americans who lived through FDR and his New Deal, regulate was a commonly used term for my grandparents. Regulation was de rigeur. FDR was all about flow (and socialism, if youre a free marketeer).

At that point, regulation did not mean, Lets get fully armored police knocking on your door to collect taxes. It wasnt extreme. It was an action taken to smooth out processes, rightly or wrongly.

Of course, Henry Hazlitt destroys the regulation argument in Economics in One Lesson, Chapter 26. Except the public hasnt read that book, and the politicians who have read it ignore it.

But bear with me.

The public will never tolerate a financial regulator getting abolished. Im sorry to all those libertarians whose hearts Ive just broken. But its time for some home truths. And that may be the most important one.

This brings me to Elon Musk.

Elon has been tweeting away like my favorite Orange Man on uppers about Doge, Bitcoin, and all manner of things he purports to know better than the public.

Elon STFU

Peter Thiel, PayPals CEO after they ousted Musk, surely snickered... Or chortled. Or guffawed upon reading that tweet, Im sure!

But the problem is real, if little, people are losing big money when he opens his gob. Or tweets like a 16-year-old girl.

They cry out for help. That help usually comes in the form of our distinguished no, extinguished... regulators.

This is a perfect opportunity for the SEC, who currently dont have any regulatory powers over crypto, to take Elon quietly aside and say, Elon, we know youre brilliant and youre just thinking out loud. But for right now, STFU. Since its not in our powers to do so, we cant do anything to you, so you can choose to ignore us. But one day, I promise you, Elon, we will able to do what we like to you with impunity.

I think thats all it would take.

Because what youve got now is an SEC thats doing nothing and a public wondering why BTCs and Dogecoins volatility is on par with Charlie Sheens drug binges.

This is what leads to stricter, market-distorting, regulation. And yes, the public asks for it. No, the public demands it! And like HL Mencken says, they get it good and hard.

Before you call me a statist, which is the worst smear ever, there is a private solution to all this.

Back in the old days, if a trader on the London Stock Exchange ever got out of line, or welshed on a deal, they got the cold shoulder. Its a formal term meaning no one will deal with them. Theyd literally be met with other investors turning their back on them. Giving them the cold shoulder, so to speak.

Some things were just better in the old days. Nowadays, theres no way to enforce a cold shoulder. Oh well.

AT&T Decides Its a Phone Company

Just 3 years into its entertainment foray, AT&T made the biggest u-turn in corporate history.

AT&Ts WarnerMedia will be combined with Discovery in a new, publicly-traded entity. WarnerMedia owns HBO, CNN, TNT, and TBS as well as the Warner Bros. television and film studio. Discovery owns the eponymous network and HGTV.

AT&T shareholders will hold a 71% stake in the new entity, while Discovery shareholders own a 29% stake. In exchange, AT&T said it will receive $43 billion of cash, debt securities, and WarnerMedias retention of certain debt.

AT&T also signaled it will cut its dividend.

I dont usually talk about individual stocks here, as macro and gold are the prime game here at the Rude. But goodness, I hate mergers.

They almost never realize synergy at the highest levels and are usually just a way for investment bankers to dupe CEOs bent on some sort of prestige into ludicrously expensive deals.

NYUs most excellent Professor of Finance, Aswath Damodaran - one of the few academics worth your time - has this to say about mergers and acquisitions:

I firmly believe that acquisitions are an addiction, that once companies start to grow through acquisitions, they cannot stop. Everything about the M&A process has all the hallmarks of an addiction.

If you look at the collective evidence across acquisitions, this is the most value destructive action a company can take.

Do you know half of all mergers are reversed within 10 years of the merger? The company that did the acquisition phase finally shows up and says, Didnt work.

I have 53 stocks in my portfolio, and I have one trigger that will lead me to sell the stocks right away. You do a big acquisition, Im out of your stock. I dont care what justification you give me. Because I know my history. If you do a big acquisition, the odds are loaded up against you.

Thats one great, definitive sell signal. If you have time today, read the whole article. Its well worth 8 minutes of your time.

And Finally, Yet Another Kick to Credit Suisse

It seems a bunch of Managing Directors (usually the top rank at an investment bank) have had enough of covering up for their more incompetent peers in the wake of the Archegos disaster. (If you didnt read my take on Archegos, jump here later.)

According to The Wall Street Journal, at least 10 managing directors in the Swiss firms U.S. investment-banking division have internally disclosed plans to leave. Unfortunately, theyll head to rival firms, according to people familiar with the matter. Other bankers are considering their options, and more are expected to depart in the coming weeks.

Not unexpected.

Gold Update

Ok, now I love this chart. Next stop: $2,020 or thereabouts.

Gold update

Ok, thats all Ive got for this morning.

Have a wonderful Tuesday!

All the best,

Sean

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Posted November 15, 2022

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