MoneyFitt

21 November 2022

☀️☕️Happy Monday! Five days to 🛍Black Friday📦!

US large-cap S&P 500 closed 0.48% UP ▲ Tech-heavy Nasdaq Composite closed 0.01% UP ▲ Pan European STOXX Europe 600 closed 1.16% UP ▲ HK’s Hang Seng Index closed 0.29% DOWN 🔻 Japan’s Nikkei 225 closed 0.11% DOWN 🔻 

📝 FOCUS

🫡💙 #RIPTwitter #TwitterTakeover… and @RealDonaldTrumpTheranos 🔄 Enron 🔄 FTX, greed, lies, scandals and sultry wood nymphs

📖   MoneyFitt EXPLAINS

🎓 The 2001 Enron Scandal and Accounting Fraud

📊 IN THE MARKETS

An uninspiring end to a week which saw US markets down, largely on hawkish comments from various members of the Fed. We mentioned in Friday’s MFM that the head of the St Louis Fed suggested interest rates possibly heading up to 7%, but Friday then saw Susan Collins, head of the Boston Fed, also a voting member of the Federal Open Markets Committee (FOMC) this year, saying that she wouldn’t rule out another 75 basis point (0.75%) hike in December, which would be the fifth of that size in a row. (Four in a row was “unprecedented,” so what adjective should we use for five?) 

The general belief in the market since the last FOMC meeting, which is when the US central bank meets to set interest rates, has been that interest rate increases would go up in smaller bites of 50bps (0.50%), but–depending on how the economy is doing–may potentially peak out a bit higher than was then expected, which the market assumed to mean it could go as high as about 5% vs the current 3.75%-4% range. So the mere mention by one voting member of possibly hiking by 75bp was a bit disturbing, especially in the same week that the 7% big figure was mentioned by another. (The minutes of the last FOMC meeting will be released this Wednesday.)

📝 FOCUS

🫡💙 #RIPTwitter #TwitterTakeover… and @RealDonaldTrump

“Anyone who actually writes software, please report to the 10th floor at 2 p.m. today. Thanks, Elon” – a Friday email to Twitter staff, as reported by the NY Times, when Twitter offices were shut for the day.

Rather than sign up to new boss Elon Musk’s “extremely hardcore” culture of “long hours at high intensity”, reports are coming in that about 1,200 workers, including many key software developers and engineers, have taken him up on his offer of 3 months’ redundancy and quit. Starting with 7,500 employees, and having sacked half of them, losing 1,200 would leave about 2,500, a third of the number employed just a month ago. This may be more than he’d bargained for, particularly in key positions. One engineer (who quit) Tweeted: “Wednesday offered a clean exit and 80% of the remaining were gone. 3/75 engineers stayed.”

Meanwhile, guess who’s (probably) coming back:

(Musk had earlier said that such reinstatements would be done by a content moderation council.) 

Trump said he had no interest in returning to Twitter, preferring to stick with Twitter-clone Truth Social, in which he has a personal stake and which he said was doing “phenomenally well”. Before being banned in January 2021, he had over 88 million followers (fewer than Musk’s 117 million.) We shall see.

Theranos 🔄 Enron 🔄 FTX, greed, lies, scandals and sultry wood nymphs

Elizabeth Holmes, the 37-year-old one-time darling of Silicon Valley “smart money” investors everywhere, was sentenced last week to more than eleven years in prison for fraud in deceiving investors with claims about her blood-testing start-up, Theranos. She dressed like Steve Jobs and raised US$945 million from high-profile FOMO investors who didn’t do enough due diligence on what turned out to be a bunch of lies and coverups. The technology basically didn’t work. Interestingly, her mother was a political insider in Washington DC while her father was a VP at Enron 🎓.

Enron  🎓 was one of the biggest business and stock market scandals of all time, again exposing the greed and self-dealing that’s possible when investors get stars in their eyes and get caught up in hype and excess. Enron was a hyper-aggressive natural gas trading company that, under CEO Jeff Skilling, a Harvard MBA and one of the youngest partners in the history of McKinsey, was supposed to disrupt multiple industries by expanding into trading energy and almost anything, including the weather and internet broadband capacity (where it nearly helped make Blockbuster a streaming video pioneer.) It was a Wall Street darling but ended up spectacularly bust in a massive case of accounting fraud, with John J. Ray III the insolvency specialist coming in to helm the complex bankruptcy.

Two decades later, Ray is now referred to as the ‘turnaround titan’ for successfully cleaning up after some of the biggest corporate collapses in US history. And as the newly-appointed CEO of cryptocurrency exchange FTX, which is now bankrupt, with the loss of billions of dollars of customer funds, Ray recently said:

Meanwhile, the WSJ reported on Friday that former FTX CEO Sam Bankman-Fried cashed out US$300 million when the crypto exchange raised US$420.69 million from exactly 69 investors late last year, meaning he sold them his shares (while sniggering at the meme culture numbers.) In other words, money that was supposed to go into the company to help it grow just made it into SBF’s (real, not crypto) wallet.

Thank you for spending a few minutes of your time with us. Remember to take time for yourself and be thankful for what you have.

📖 MoneyFitt EXPLAINS:

🎓 The 2001 Enron Scandal and Accounting Fraud

Enron was one of the largest companies in the US but became one the biggest accounting frauds in US history, and directly led to the Sarbanes-Oxley Act, a 2002 federal law reforming business financial practices for accounting firms, corporate management and boards of directors at publicly held companies.It started as a natural gas trading company in Texas that expanded into trading energy and almost anything, including the weather and internet broadband capacity (where it nearly helped make Blockbuster a streaming video pioneer.)Enron used an SEC-approved (“mark to market”) loophole to book future revenues on contracts into current year earnings to massively inflate profits and also caused blackouts in California from 2001 by rigging newly-deregulated markets to create shortages to drive up the price of energy it sold to the California utility, PG&E. (PG&E eventually went bust and California’s governor was replaced by Arnold Schwarzenegger.)And it used derivatives to offset risks (known as hedging) with special purpose entities which it owned, taking the risks “off-balance sheet” (i.e. invisible.) It was like secretly insuring itself against trades going against it. And using them, the CFO hid billions of dollars in debt from failed deals and projects. But because it always met or beat the forecasts of Wall Street’s highly-paid analysts, the value of the company soared to US$70 billion (back when that was a lot of money) as investors piled into the ridiculously complex machine run by “the smartest guys in the room.”

A Fortune Magazine journalist exposed the scandal in 2001 after the CEO couldn’t explain to her how Enron made money. Skilling quit before everything fell apart (having sold his stock while telling employees to pile in), but was jailed anyway. His boss, who was at least as culpable for destroying jobs, lives, investment dollars and the accounting firm Arthur Anderson, died before sentencing.

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MoneyFit Morning Archive (to 07-Nov-22)