Alternative Thinking - 09.10.15

Alternative Thinking - 09.10.15

Garrett Baldwin

We’re ramping up content at the Alpha Pages in September to build a site dedicated to Real Talk on Alternative Investments, Business & Finance.
Part of that is discovering a number of different stories that you might have missed. But you’re probably eating lunch at your desk right now...
So here’s today’s top Alternative Investment news in just five quotes a day.

1. "It's clear that a federal ban on traditional sports betting outside of Nevada is failing."

                 - Geoff Freeman, president and CEO of the American Gaming Association
Readers of the September issue of Modern Trader already know that sports-gambling is a massive industry. But most of the hundreds of billions in dollars wagered are done so on black markets due to a federal ban that limits sports wagering to just four states.

With football season kicking off tonight, perhaps it is unclear just how badly the federal ban on sports gambling has been working, and how badly the U.S. needs reform.

As noted in an interview with former Cantor Fitzgerald co-CEO Lee Amaitis this month, sportsbooks are hoping that states around the country recognize that legalized sports gambling has the capacity to generate billions in tax revenue. In addition, it will move sports gambling out of the shadows and into a regulated, controlled environment.

Gambling is sewn into the national fabric, but it seems like many in Congress and in the top ranks of certain professional leagues have their heads in the sand.

Even ESPN now openly discusses gambling lines on the air and partners with “One Day Fantasy Football Leagues.” FanDuel and DraftKings’ one-day leagues define the definition of gambling in a dictionary, but not according to the linguistic gymnastics found in a law passed by Congress in 2006 that effectively banned online slot machines – something that would never come close to touching sports gambling in terms of volume.

Yesterday, ESPN’s David Purdam wrote a blunt assessment – even for the network’s standard – of what legalized gambling could do for the United States in the wake of a report by the American Gambling Association (AMA). The AMA says that – in this season alone – more than $95 billion will be wagered on NFL and NCAA football combined.

As we noted in our interview with Amaitis, just $4 billion was wagered on all sports combined last year in the state of Nevada, which tells you something about the size of the black market. And it’s especially curious that both Major League Baseball and the National Basketball Association – two leagues that had horrible public relations problems over gambling thanks to the now-banned Pete Rose and former referee Tim Donaghy, respectively – want reform to federal gambling laws.

Meanwhile, the NFL and the NCAA – two “non-profit organizations” that already have enough money to buy their own Greek islands – are vehemently opposed to such reform. For anyone watching the NFL today, it’s terribly ironic that Roger Goodell has opposed gambling legalization because of his concerns over the “integrity” of the game. If that is really his stance then Commissioner Goodell is the 21st century’s Captain Louis Renault.

If you haven’t read it yet, pick up a copy of Modern Trader at Barnes and Noble for interviews with Hall of Fame Blackjack player Edward O. Thorp, CG Technology chief Lee Amaitis, and commentary from former poker pros turned Wall Street hedge fund traders. You can also read select articles from the issue at Futures Magazine or at The Alpha Pages online in the links listed in this paragraph. 

2. “He was a visionary who embodied our culture and was truly the heart and soul of BlackRock.” 

On Wednesday, BlackRock co-president Charles Hallac passed away at the Memorial Sloan Kettering Cancer Center in Manhattan. He was 50 years old. 

In a stirring statement released by the firm, BlackRock Chairman and CEO Larry Fink offers a wonderful tribute to his friend and business partner, highlighting his remarkable leadership, family life, and passion for his career since the mid-1980s. 

3. “…a move that also shows the increasing importance of electronic dealing in metals.”

Modern Trader chief editor Dan Collins, who worked on Chicago's futures trading floor from 1989 to 2000, highlighted the “End of an Era” after CME Group announced the closure of its trading pits in Chicago and New York.

Now, Reuters reports that JP Morgan Chase will quit open outcry trading on the London Metal Exchange after it reduced its exposure to the commodity industry. In a story that was big enough to be in The Fiji Times – yes, on the remote island – Reuters highlights the impact of JPM’s decision on the world’s oldest and largest market for metals trading.

4. “Their buying is eyebrow-raising.” 

The Wall Street Journal reported on Wednesday that Jeffrey Talpins’ Element Capital has been buying billions of dollars in U.S. Treasury debt over the last few months.

“The buying is part of an apparent effort by the fund to use borrowed money to exploit small inefficiencies in the world’s most liquid securities market, a strategy that is delivering sizable profits, said people close to the matter,” the Journal writes.

Just how sizeable? In a presentation in November 2014 to the Wharton Investment and Trading Group, the firm boasted it “has delivered exceptional returns to investors over its 9+ year track record, with annualized performance greater than 20% and a Sharpe ratio greater than 2."

But ZeroHedge really dug deep into Talpins' fund last night, and raised concerns about its leverage strategy. That’s because both the Journal and the Financial Times have compared its fixed-income relative value trading strategy to the notorious practices of none other than Long Term Capital Management.

ZeroHedge raises several interesting questions about Element Capital’s role in buying Treasuries in recent years. This might be a trip down the rabbit hole before that second cup of coffee, but the lessons from LTCM’s collapse in the 1990s are in back in focus.
So… is this time different?

5. “There’s a reason that Shark Tank is the highest rated show on TV... It’s like a modern version of medieval serfs petitioning their lord.”

Finally… a must read. 

Tucker Max, author of I Hope they Serve Beer in Hell, has gone from writing popular       short stories on debauchery into a successful Angel investor over the last decade.

Now, Max has a warning for wannabe Angel investors…

Don’t do it.

“I have completely quit angel investing, and I’m telling you to never start,” Max says.

In August, Max wrote a fascinating reflection on his experience as an early investor in Austin-based Deep Eddy vodka and how his views have changed as a start-up investor.

The reasons why he’s walked away?

It all starts with people.

Max makes an argument on why he likes investing more with younger female CEOs and older CEOs of either gender. Though we can’t recommend walking away from Angel investing, Max makes an interesting case and provides a few honest lessons for readers.

Editor’s Note: Remember, the Alpha Pages is boosting its contributor list, and we’re actively seeking content from individuals with original views on the alternative investment industry. Be sure to visit the Alpha Pages and scroll to the bottom for a list of topics that we are regularly covering and take part in the conversation.

Also, be sure to check out today’s top hedge fund and private equity news at FinAlternatives, and visit FuturesMag.com for daily updates on all things trading.

Finally, be sure to read the first issue of MODERN TRADER, which was recently nominated for the prestigious EDDIE award for the BEST ISSUE in the Business and Finance category.

See you tomorrow…


About Garrett Baldwin

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Garrett Baldwin is the Managing Editor of the Alpha Pages and the Features Editor of Modern Trader. He has covered the financial markets since the onset of the RBS collapse in 2007. An author and Baltimore native, he earned a BS in journalism from the Medill School at Northwestern University. He holds an MA in Economic Policy (Security Studies) from The Johns Hopkins University, an MS in Agricultural Economics from Purdue University and will finish an MBA in finance from Indiana University in 2015.

Twitter: @garrettbaldwin, @alphaeditors, @TheAlphaPages


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