Wall Street’s Shadow Boxers

Plus: If you sell stuff on Amazon, they’ll keep half, thank you very much. ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

February 14, 2023

Read in Browser

TOGETHER WITH

Good morning.

Nettie’s House of Spaghetti, an Italian restaurant in Tinton Falls, New Jersey, is sticking its fork in your kid’s birthday balloon. The eaterie announced on social media it will no longer serve customers under the age of 10, citing noise, not enough room for high chairs, and “crazy messes.”

The Facebook post received national attention and more than 30,000 reactions, with one commenter reminding the Nettie’s naysayers, “There’s always takeout.” Many hotels, resorts, and cruises have become “kid-free zones,” but if Nettie’s House of Spaghetti wants to be seen as a fine culinary atmosphere for the mature, maybe they should think about changing their name first.

Morning Brief

•

The Ever Given just keeps on giving.

•

As if Wall Street wasn’t dark enough already.

•

Vendors are losing more and more to Amazon.

Shipping

Maersk Sues Evergreen Over That Suez Canal Incident

(Photo Credit: Alpsdake/Wikimedia Commons)

Two years later, the Suez Canal drama is still unfolding the way it did back then — very, very slowly.

Danish shipping giant Maersk filed a lawsuit against fellow titan Evergreen over the Ever Given, the 1,300-ft cargo ship that got wedged in the Suez Canal for six days in March 2021. A Maersk spokesperson confirmed to The Daily Upside the company is suing Evergreen over the losses it incurred while the canal was blocked.

Prosecutey McSueface

As a refresher, the big boat became a one-boat supply-chain wrecking crew and held up an estimated $9.6 billion in marine traffic every day it was stuck. There were 400 vessels behind it by the time it was finally refloated by some heroic tugboats. ShippingWatch reported 50 of those ships belonged to Maersk (although it did not cite its sources) and said the company is seeking around $45 million in damages. Maersk’s spokesperson would not comment on the amount it wants in damages when contacted by The Daily Upside.

Evergreen’s retort is that Maersk has got the wrong guy, as it was merely leasing the Ever Given. That may seem incongruous given the boat had the word “Evergreen” emblazoned in giant letters down its side, but the complex dynamics of international shipping do muddy the waters. There was already some confusion over who exactly would pay a $916 million fine demanded by the Suez Canal Authority; the ship’s Japanese owners, its German management company, or Evergreen. The owners eventually struck an undisclosed compensation deal with the SCA.

Fittingly, Maersk’s case will likely take a very long time to play out, but nonetheless it could set an uncomfortable precedent for Evergreen at a particularly sensitive moment for the shipping industry as a whole:

•

While Maersk made a record-breaking $31 billion profit last year, it predicted this year that figure could sink to as little as $2 billion. Maersk’s CEO blamed the unsnarled global supply chain, as retailers who over-ordered in the face of pandemic-era shipping congestion are now spending less.

•

At the end of last year, Evergreen handed out an average annual bonus worth 50 times one month’s salary. Meanwhile, Barclays predicted Monday that shipping rates could well dip below pre-pandemic levels.

The Perfect Storm: In two weeks’ time shipping industry professionals will head to Long Beach, California, for the TPM23 conference (cue some awkward networking brunches for Evergreen and Maersk execs). As if macroeconomics and geopolitics weren’t enough to put attendees on edge, there’s also anxiety over fraying labor relations with West Coast port workers. “We’re in the calm before the storm,” one supply-chain risk assessment firm CEO told Bloomberg. If the shipping companies notice port workers singing “Leave Her, Johnny,” they’ll know the storm’s upon them.

– Isobel Asher Hamilton

Trading

Shadow Trading Accounted for $2.75 Billion in ETF Trades for More Than a Decade

Wall Street watchdogs may have to start chasing shadows.

Via “shadow trades” conducted through anomalous exchange-traded funds, US investors with insider information completed at least $2.75 billion worth of deals between 2009 and 2021, according to a new analysis from academic institutions in Latvia and Australia detailing the latest trick to sneak past regulatory oversight.

What They Trade in the Shadows

First, let’s break down shadow trades. It’d be too obvious for top executives with insider information to trade directly in a company’s stocks right before a major development like an M&A announcement. So instead, they trade stocks in competing businesses that are likely to be impacted by the news, or they throw money into an ETF focused on a particular sector that possibly includes the target company itself.

While insider trading can result in, you know, just a mere $5 million fine and up to 20 years in federal prison, the legality of shadow trading is a lot more ambiguous. America’s first case on the matter is still going through the courts. With no legal precedent and barely any scrutiny, those at the top had found a clever way to manipulate the system even more in their favor:

•

The report, which was conducted by the Stockholm School of Economics in Riga and the University of Technology, Sydney, found that in roughly 3-6% of cases involving M&A announcements, ETF trades increased significantly in the five days before the news broke.

•

The billions worth of shadow trades were mostly conducted in the health, tech, and industrial sectors through ETFs such as iShares Expanded Tech Sector, Vanguard Health, and Vanguard Industrials.

“One can get a direct exposure to the company’s share price via the ETF, but in a vehicle that is more subtle than trading the company shares directly, helping reduce scrutiny from law enforcement,” the report said.

A Well-Timed Trade: ETFs aside, the Securities Exchange Commission is soon due to establish new rules to limit another oft-used avenue for insider trading: the 10b5-1 loophole. To prevent executives from trading shares of their companies with the benefit of nonpublic information, 10b5-1’s were established to set timelines for trades far in advance to divorce them from major developments. But the plans are mostly hidden from the public, easy to adjust or cancel, and easy for executives to plan stock-shaking business moves around. By that nature, it’s hard to prove when insider trading occurs.

The maneuver accounted for at least 60% of insider trades in recent years, according to a Wall Street Journal analysis. Beginning April 1, the SEC aims to close the loophole by beefing up mandatory disclosures and requiring delays on when executives can start and modify their plans. Something tells us Wall Street will just find more loopholes.

– Griffin Kelly

Sponsored by Feather

Feather — your one-stop solution to analyze any investment.

Wall Street’s biggest institutions depend on tools like the Bloomberg Terminal to instantly discover compelling investments. But at over $25,000/year, these tools are out of reach for the rest of us.

That is, until Feather came along.

Feather provides the institutional-quality data you need to take your investing to the next level, for just $39 per month.

Discover insider trades, analyze financials, check analysts’ growth expectations, and compare valuation multiples.

Feather’s coverage includes every major asset class you can trade, including companies, options, bonds, commodities, and currencies.

Feather even provides data on 11,000 institutions (holdings, transactions, etc.) and 10,000 individuals (insider purchases/sales, transaction histories, etc.).

Backed by top investors like Y Combinator, Feather is excited to launch early access to The Daily Upside’s readers.

Take your portfolio to the next level and sign up here.

E-Commerce

Amazon is Taking a Bigger Cut of Third-Party Sales Than Ever, Study Finds

What’s Amazon’s cut for selling stuff on its platforms? Well, for over 2 million third-party vendors, the answer is half. Literally.

Between commission, fulfillment services, and other fees, the e-commerce giant is now claiming an average of just over 50% of sales from small businesses that sell their products on the massive online store, according to a new study from Marketplace Pulse. The uptick is perhaps no coincidence.

The Punishment Fits the Prime

Included in the study’s calculations are both final sale commissions — which can vary greatly depending on the type of product — as well as logistics services such as warehouse storage and shipping and advertisement costs to keep products from getting buried in pages and pages of search returns. While the latter two categories are technically optional, most businesses find them necessary or unavoidable (and, according to Amazon itself, its logistics services cost on average 30% less than competitors).

So while selling on Amazon has long been viewed as good business for small merchants, the marketplace has been upping its share of final sales, increasing every year since at least 2016 — a trend that could continue as the company struggles to navigate life after e-commerce’s pandemic boom:

•

Amazon’s final cut has grown steadily from 35% in 2016 to nearly 52% in 2022, according to the study.

•

The tradeoff may be increasingly difficult to stomach for vendors witnessing slowing sales on the site. E-commerce sales fell 2% in its most recent quarter, and were down 0.3% overall in 2022. Coupled with high spending, Amazon suffered a $2.7 billion net loss last year, which would have been over $10 billion without Amazon Web Services.

Past Its Prime: “Amazon might be tempted to keep increasing fees because it’s in a tough spot, but you have to reach some kind of equilibrium,” Juozas Kaziukenas, founder and CEO of Marketplace Pulse told Bloomberg. If you’re an Amazon shopper still angry about last year’s Prime membership price hike to $139 for the year, perhaps now you can at least take solace in knowing the company is squeezing everyone.

– Brian Boyle

Extra Upside

•

Big Purple Uncanny Valley: Mattel reboots Barney the Dinosaur with CGI.

•

Coffee Spritz: startup raises $2 million to bring a sprayable caffeine device to market.

•

The 60/40 Is Old Hat: Clinging to the “buy, hold, and hope” investing method just won’t cut it anymore 一 the 60/40 portfolio’s regrettable performance in 2022 made that abundantly clear. It’s time for a refreshing path to growth, which Percent delivers via the once-sheltered world of private credit. These privately negotiated loans command much higher interest rates and offer uncorrelated returns to an overcooked market. Discover high-yield (up to 20% APY), short-duration offerings on Percent’s cutting-edge platform for the growth-oriented investor. Future-proof your portfolio with Percent.*

*Partner.

Just For Fun

Free solo.

Cringey throwback.

ADVERTISE // CAREERS

No longer want to receive these emails? Unsubscribe here.

//campaignmonitornewsletter.everestengagement.com/ea/BntD2QJCyg/?e=postie@btcnews.com.au’ width=’1′ height=’1′ style=”margin-top:0 !important;margin-bottom:0 !important;margin-right:0 !important;margin-left:0 !important;padding-top:0 !important;padding-bottom:0 !important;padding-right:0 !important;padding-left:0 !important;border-width:0 !important;height:1px !important;width:1px !important;-ms-interpolation-mode:bicubic;” />