July 15, 2016
What We’re Reading this Week
Barclay’s executive Steven McClatchey pleaded guilty to the allegation that he passed information to Gary Pusey from March 2014 to August 2015. Pusey then used that information to make 11 illegal trades in companies that McClatchey worked with in Barclay’s investment banking division. Apparently, the two men bonded over owning identical boats that they both docked in New York’s Yachtmen’s Cove marina – certainly, weirder circumstances have brought people together. I am still fascinated by Pusey, who worked as a plumber. I don’t have anything against plumbers, but he must be a great plumber because docking a boat at a marina in New York seems like an expensive hobby. So it’s not surprising that he made some money on the side from insider trading. According to the SEC, Pusey made $76,000 from the trades, which doesn’t seem like enough money to risk prison time. He paid for the trades with “thousands of dollars” stuffed in gym bags and a free bathroom renovation which really doesn’t seem like enough to risk prison time, either. Insider trading has become harder to define and convictions really revolve around an insider getting a “personal benefit” in exchange for non-public information. Hanging out with a buddy on your boat isn’t enough to qualify as a personal benefit no matter how much you like your buddy, or the boat. But, one can argue that getting duffel bags full of money is a personal benefit. However, the gym bag does seem superfluous. Even if he gave him $2,000 in $20’s, that’s just 100 bills. Use an envelope. But seriously, you don’t need to know the definition of insider trading to now that this falls under that umbrella. A good rule of thumb is: if you’re stuffing money in a gym bag, you’re doing something bad, so don’t do it.
JP Morgan Pay
Recently Jaime Dimon announced (via an op-ed in The Times) that the bank would be raising wages for roughly 18,000 low wage employees – meaning mostly bank tellers. Chase plans on increasing pay for these staffers to $12 – $16.50/hour. In the interest of full disclosure, I used to work at Chase as a branch manager. Jaime Dimon takes an interesting stance with his piece, “A pay increase is the right thing to do. Wages for many Americans have gone nowhere for too long.” He is a real champion for the working man. What he doesn’t mention is that Chase has reduced branch tellers by roughly 12,000 from 2012 to 2015. I left Chase in 2012 and at that time we were already working with reduced branch staff. Since 2009, most banks have been working furiously to move more customers over to online banking and increase ATM usage. Chase has been a pioneer in this space, with many branches now hosting “super atms” that can process most transaction and are overseen by a single individual. Think grocery store self-checkout but with money. By eliminating the need for a money handling skillset the bank has forced itself into a position where they have to hire for a different set of skills. Tellers now serve as a customer service conduit for the bank and its customers. They don’t really need to know how to handle cash. A more sophisticated, interpersonal skillset is worth more money. So the bank is really just responding to a changing marketplace, but wants a pat on the back that they probably won’t get. People still hate banks right? Tighter labor markets and more productive employees result in faster wage growth, that’s not rocket science. There is also an inverse to this that was not in the article. When I was at Chase, one of the most perplexing aspects of my job was how often I was needed to help tellers with transactions. During peak transaction times we were often understaffed. The bank’s answer was not to hire a part time employee but to have myself or the assistant manager run transactions for customers, because we couldn’t afford another teller. I’ve never understood that approach. When I ran transactions for the branch we had effectively hired another teller. A very expensive teller. Ultimately, that’s what made me leave the banking world. As bank branches become more automated and personal finance is handled by computers – online, ATM, mobile – we will see wages move both ways. The lowest paid employees will be paid more and the highest paid employees will be paid less. The skillset needed for Branch Managers used to be more demanding but that is rapidly diminishing.
In the past I’ve observed that self-driving cars aren’t really something that people want, despite all the money being put towards inventing them. Tesla is learning this lesson first hand in the aftermath of a recent fatal accident. The autopilot system was engaged on a Tesla Model S when the driver, Joshua Brown, struck a tractor-trailer at 65 miles per hour. Tesla representatives have since pointed to the responsibility of a car’s driver to use autopilot responsibly, insisting that the feature is safe. This has launched an investigation of Tesla’s autopilot feature and sparked a media backlash. The issue ultimately comes down to marketing. Matt Levine at Bloomberg referenced a paper on “algorithm aversion” in his Money Stuff blog. The study showed participants how humans and computers performed when making predictions and how they compared to each other. The result was that people inherently trust other people to make decisions, even when the computer has a better track record for success. The most concerning aspect of the Tesla story is not that a man lost his life behind the wheel of a self-driving car, but that he chose to put his life in the hands of the car’s computer. The real issue is the hundreds (thousands?) of lives he potentially put at risk by misusing (allegedly!) the autopilot – lives of people that did not choose a self-driving car. Personally, I am not ready for tons of steel racing down the highway next to me being piloted by a computer, and it looks like I’m not alone. Of course, this isn’t the first time a company has developed a product for which the marketplace wasn’t ready and eventually self-driving cars will be the status quo.
This commentary on this website reflects the personal opinions, viewpoints and analyses of the Gainplan LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Gainplan LLC or performance returns of any Gainplan LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Gainplan LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Gainplan LLC provides links for your convenience to websites produced by other providers or industry related material. Accessing websites through links directs you away from our website. Gainplan LLC is not responsible for errors or omissions in the material on third party websites, and does not necessarily approve of or endorse the information provided. Users who gain access to third party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from use of those websites.