Margin Calls, Location Tracking and a Hot Ferrari

Here’s some new material to chew on!


Not gonna talk about that stupid ship blocking the Suez Canal because clearly that ship has sailed, heh heh.[1]


Imagine you’re an Investment Banker at Credit Suisse (CS). You worked your ass off all year, working insane hours to generate fat fees through SPAC deals, etc. You’re looking forward to a juicy bonus at the end of the year, your reward for all those all-nighters. Maybe you’ve even decided on a Rolex to buy, and the Rolex AD has reserved your piece for you - all you need to do is head down to the shop to pick it up.

Then on Monday you learn that some dope in CS’ Prime Brokerage (PB) unit lent a bunch of money to a guy who’d been fined once for insider trading, and who was leveraged 5-to-1 (i.e., with $16 billion of capital, dude had bought $80 billion worth of paper). The gent in question was unable to pay back his debts, and CS was one of those left to pay the tab - to the tune of $4 billion dollars, although some say that the loss might go as high as $7 billion. So you might have to say bye to that Rolex.

Several PBs (Goldman Sachs, CS, Nomura, UBS, Morgan Stanley, Deutsche, BNP and Citi) were involved in servicing the fund in question, named Archegos Capital. The story we’ve heard so far is this:

  1. Archegos was unable to pay a margin call.
  2. Because Archegos had bought swaps, the shares that the banks had bought could not be held by the PBs
  3. These shares would be sold to make good any demands the PBs had over Archegos, and the rest would have to be made up by the collateral Archegos had placed with the banks.

But if so many PBs would’ve sold so many shares at once, the market for those shares would’ve collapsed, and the PBs would have ended up losing more money - which is why all the PBs tried to organise an orderly sale of Archegos’ swap shares to minimise damage for all involved. That initiative failed when one bank (hint - the film Margin Call was made on the same bank, when it had done something similar - it got out of the market before anyone else woke up) just straight up pressed the “Sell Everything Now and Screw The Rest” button, leading to a panic. CS is still figuring out exactly how much they lost, Nomura announced that they lost $2 billion, even Mitusbishi UFJ said that they might take a hit of up to $300 million. They’re still figuring out how much money they’re losing, so these amounts might change.

This is not a good sign - if one family office hedge fund was running around with so much leverage, are there others out there? What if banks decide to ask the others to cut down on their leverage - will the combined selling that’ll happen cause problems in the markets? What if this episode is just a prelude, and there’s a bigger, more leveraged fund out there that’s gonna get fried, Long-Term Capital Management style? Who knows?


Turns out cars track A LOT of your data with you not even realising it. There are several telematics sensors in cars, which transmit data to manufacturers / data-providers quite regularly. A company called The Ulysses Group claims it has access to a fair bit of that data, and it can provide any paying customer with the ability to find the location of cars in every country except North Korea and Cuba on a near-real-time basis. Which is why I think I’m gonna stick to buying old cars that were completely mechanical and did not come with any creepy location tracking sensors.


Which reminds me, one asset class that’s taken off quite well is old cars. If you’re looking for a good car to park your savings in and also avoid creepy telematics tracking, might I recommend this 1978 Ferrari 308 GT4. Last I checked, someone had bid $51,000 for it. Which is a lot, considering the fact that in 2005, the 308 was featured in an episode of Top Gear, where one of the presenters had bought a 1979 308 GT4 for around $17,000. That works out to an annualised return of approximately 8%. Not too bad.

Older Ferraris have suddenly become ‘hot’, with some Ferraris (like this Dino) going for an insane $350k! The 308 in question is also a Dino, technically. Ferrari had released the 308 as a Dino in 1973. In ‘76, they dropped the Dino moniker and slapped the prancing horse badge on it instead. I think the price will only appreciate further as the original Dinos become more expensive and people turn to collecting the cheaper ones.


Enjoy the long weekend ahead!


1 I will say one thing, though. This is exactly why countries have navies. While this was an accident, it is entirely possible for some country to lose its marbles (I mean, look at the neighbourhood the canal is in) and block the canal wilfully.