Meanwhile at S&P, I don’t know enough about the inner workings of the S&P 500 membership selection committee to be really confident about this, but it also seems psychologically implausible to me that those people are sitting down saying like “here are 10 companies that qualify for the index, we can only pick two, let’s pick the two who pay us the most.” The S&P 500 index is run by a joint venture called S&P Dow Jones Indices LLC, which is majority-owned by S&P Global Inc. (the credit rating firm) but not identical with it. Do the index people at this joint venture have access to S&P’s ratings revenue information? I have no idea but it just seems weird to me to imagine that they’d think this way. Again I absolutely do not reject this sort of conflict of interest as a general matter! Just, here, it seems real weird. Also S&P says:
“S&P Dow Jones Indices and S&P Global Ratings are separate businesses with policies and procedures to ensure they are operated independently of one another,” S&P Global said in a statement. “Our index governance segregates analytical and commercial activities to protect the integrity of our indices. For 64 years, the S&P 500 has provided an independent, transparent and objective benchmark of the US large cap equity market.”
Anyway I did enjoy the paper, and if you want to believe that S&P sells index membership I have no real problem with that. I do not believe it though.
NFT Stuff
This is not technically a non-fungible token, but it does reinforce the very NFT-related idea that the most lucrative thing you can do to a work of art is to destroy it:
A painting that British street artist Banksy purposely shredded during a previous auction sold Thursday to an anonymous Asian collector for $25.4 million at Sotheby’s in London, setting a new record for the artist at auction. ...
Now, the anonymous buyer of that $1.4 million work has had the last laugh—by reselling the ribboned work on Thursday for 18 times as much. Sotheby’s only expected it to sell for as much as $8 million, but at least nine bidders in the sale pushed its price even higher, with the director of Sotheby’s private sales in Asia, Nick Wood, fielding the winning telephone bid. “I can’t tell you how nervous I am to drop the gavel on this one,” said auctioneer Oliver Barker in the moment, glancing at the work hanging behind him. Nothing followed but applause.
If I were a painter, and I painted a painting and showed it to my dealer and she was like “really nice work Matt, good effort, but let me make a teeny suggestion, why don’t you SHRED IT INTO TINY BITS, those shreds will be worth more than this painting,” I would be … really offended? Like there I was putting all that work into the painting? But the incentives are what they are.
In “Animal Crackers,” Chico Marx quotes Groucho a rate of $10 per hour for playing music. “What do you get for not playing,” asks Groucho, and Chico says $12 an hour.
Chico: Now, for rehearsing we make special rate. That’s fifteen dollars an hour.
Groucho: That’s for rehearsing?
Chico: That's for rehearsing.
Groucho: And what do you get for not rehearsing?
Chico: You couldn’t afford it.
Sure Banksy can make money by selling his paintings, but he can make even more by shredding them. How much could he get for not painting them at all?
Things Happen
Goldman Sachs Traders Deliver Surprise Surge in Firm’s Best Year Ever. Wall Street Bosses See Windfall Lasting, Fueling Pay and Hiring. China Breaks Silence on Evergrande, Says Risks Controllable. Will We Work Work? Oil Hits $85 a Barrel With Global Energy Costs Soaring. Italy Nears Deal to Split Up Monte Paschi. Hundreds of Banned Crypto Miners Were Siphoning Power at China’s State Firms. U.S. SPAC Frenzy Inspires a Reboot in Asia. Dead-End SF Street Plagued With Confused Waymo Cars Trying To Turn Around ‘Every 5 Minutes.’ ‘Sophisticated’: ancient faeces shows humans enjoyed beer and blue cheese 2,700 years ago. Iowa haunted houses struggle to open amid lumber prices. Crypto Traders to Blame for Surging Sales of Small Tungsten Cubes.
Matt Levine is a Bloomberg Opinion columnist covering finance. He was an editor of Dealbreaker, an investment banker at Goldman Sachs, a mergers and acquisitions lawyer at Wachtell, Lipton, Rosen & Katz, and a clerk for the U.S. Court of Appeals for the 3rd Circuit.
Footnotes:
1. We have talked about ETF creation and redemption mechanics here. Basically for tax reasons, you *don’t* give the ETF cash; you give the cash to an “Authorized Participant,” some big market-making firm, who goes out and buys the underlying basket of 500ish stocks and delivers it to the ETF in exchange for shares of the ETF. For our purposes here there is no reason to care about this mechanism.
2. This answer comes from the registration statement for the ProShares Bitcoin Futures Strategy ETF, page 4: “The Fund generally seeks to have 30% of the value of its portfolio invested in bitcoin futures contracts and 70% of the value of its portfolio invested in money market instruments. The Fund does not invest directly in bitcoin.” The Invesco version is slightly more complicated but basically similar (page 4 here).
3. The main alternative ingredient that they could use to manufacture the synthetic Bitcoin is: someone else’s desire to be short Bitcoin. If you want to bet against Bitcoin, you can just bet that the price will fall by taking a short futures position against the Bitcoin ETF (or whoever). And in fact ProShares has applied for a short Bitcoin ETF that would do that (along with the long Bitcoin ETF that would take the other side). If ProShares ends up raising a billion dollars for the short ETF and a billion dollars for the long ETF they could just make offsetting bets against each other and nobody would have to trade any Bitcoins at all.
4. For simplicity I am writing this in units of one Bitcoin. Actually CME Group’s mainBitcoin future trades in units of 5 Bitcoin; the margin requirements are currently a bit more than$100,000 per contract, or around $20,000 per Bitcoin.
5. Actually Bitcoin futures trade in lots of weird places too, but the Bitcoin futures used by these ETFs will be the ones trading on regulated U.S. exchanges.