China (Paris) fact of the day

Trading volumes of the most-traded steel rebar contract in Shanghai hit a record 1.3bn tonnes today, or enough to build the Sydney Harbour Bridge 24,621 times.

If skyscrapers are the preferred metric, fret not: trades today were also equivalent to approximately 41,401 Burj Khalifas.

…One could construct around 178,082 Eiffel Towers with the above-mentioned volume of steel rebar traded today in Shanghai.

Here is the FT story.  Hat tip goes to the ever-excellent Christopher Balding.


Steel rebar is today's rice. Which of these two phenomena is the more outlandish: the volume on the Chinese steel rebar futures market or Marissa Mayer's $55 million severance package? I don't know anything about the steel rebar futures market, but I would assume that the price is determined at least in part according to the market. Marissa Mayer's severance package is pure fantasy. Markets in everything, except executive compensation.

People will look back on the era of executives looting shareholders and wonder how it came about.

Why did this particular form of smash-and-grab flourish now?

Executive compensation is detached from value in the same way company values are detached from earnings: many companies are valued not based on expected future earnings but on what a bigger fool, I mean investor, will pay for the company sometime in the future. If expected earnings don't matter, neither does executive compensation. Indeed, the higher the amount one is willing to pay today is proof that someone will pay even more tomorrow.

'and wonder how it came about'

Almost as if you have no idea what the general director and chairman of the Mercatus Center writes on his popular web site. A web site where CEOs are treated with all the deference that one could ever hope to see in public.

The answer for why exec comp is so high is the state competition for lenient corporate laws and shareholder protections.

Deleware corporate law changed during the period of greenmail to thwart corporate takeovers, benefiting management.

What has happened to Yahoo's stock price since Mayer was hired?

It went up but I believe it is mostly due to yahoo owning a lot of shares in Ali Baba. These were owned before Marissa got there. Marissa is lucky.

Eh, they were bought before Mayer took over as CEO, but part of being CEO is looking at your portfolio of assets and operations and deciding what to expand, what to acquire, what to divest, and what to just leave alone.

I just think of Mayer as a glorified investment banker whose purpose is to sell the company and then move on to her next job, and any compensation she gets should be compared to the M&A fees instead of to kindergarten teachers' salaries or whatever.

Yahoo's problem is that it was never a technology company. It was a content provider, and we know what happened to all them.

The game in high $$$ CEOs for companies in structural decline is to be figurehead. Good work if you can get it.

Facebook and Twitter are different because they defined themselves as platform and aggressively pushed new customer facing platform technology. What does Yahoo have? Mail?

Admittedly, Twitter tries more than it success. Whether they are a 2025 Yahoo is an open question, one they stare in the face every morning.

USA Today: " Mayer was already paid $36 million in 2015 as her regular annual compensation. That total pay package was down nearly 15% from the prior year, but is still well above the median of roughly $12 million paid by executives in the Standard & Poor's 500."

The stock-watering schemes of the US business community are very little different than those practiced by Jim Fisk, Jay Gould and others at the dawn of the golden age of the robber barons.

Who did Marissa Mayer "rob" to get her compensation? She never robbed me of a dime.

If you think Mayer's bad:

Daily trading volume in forex markets is nearly $6 trillion. That enough to pay for a $5000 foreign vacation for every single human being on the planet, every single week of the year.

In other words, I'm not quite sure why trading volume is important.

It isn't. Most of those contracts will never be delivered. Traders are playing with money.

And presumably they are running a lot of stolen HFT code, generating volume.

Yep. It just means that the market is highly fluid.

It's important because TC is auditioning for a gig at Reddit.

I've traded this contract and others on Chinese futures exchanges.

The trading volumes in commodity futures in China are epic. Steel rebar is the most traded, and indeed it's the most heavily traded commodity future in the world. The volumes dwarf the metals trading volumes in London and Chicago and surpass those of even the might WTI Crude Oil contract.

And yes, there's HFT there. Due to the enormous bias against HFT among media and politicians, of course we'll see articles about how outlandish the volumes are. Of course, there is no evidence to link trading volumes to anything other than low trading costs, but many will assume that additional futures trades, each having both long and short sides, are somehow 'manipulating' the price up, or down, whichever is bad for the little guy.

That's probably Tyler's attraction to the story, that the Chinese are by this measure the biggest capitalists on the planet, rather than something obvious about options trading more than deliveries.

Tyler perhaps has a point. The article itself is very silly as it compares the volume of metal traded to the amount used in various structures. The relevant comparison is actually metals volumes in other markets. The largest being CME in Illinois and LME in England. Those aren't small markets, but the Chinese metals markets are in fact larger. Why is that? Here are my best guesses.

1) Financial repression. These markets are the largest trading venues in China, with the top products each trading some $50B in value per day. That's slightly higher than the most traded contracts in the West (WTI and Brent Crude Oil), but far, far less than Western Equity and Fixed Income markets. For example, futures on USD deposits (short-term interest rates) trade nearly $3T per day. So you have all this pent up demand for speculative trading and even investment that finds its expression in the commodity markets over there due to the lack of liquid, electronic markets in other asset classes. This has everything to do with government interference, or pre-emptive actions by exchange operators out of fear of government reprisals. For example, see what happened with the CSI 300 Equity Index futures.

2) Commercial demand. The Chinese economy uses enormous quantities of commodities as inputs. This contrasts with a somewhat deindustrializing West. Now the trading volumes are plainly much larger than the actual commercial hedging interests, but that is true everywhere. Liquidity provision in modern markets rarely involves direct trading between hedger and speculator. Rather, what you have is a class of market participants (hedgers, investors) willing to "pay to trade". That is, they aren't professional traders so they expect to achieve fill prices that are worse than (volume-weighted) averages. If they were able to trade at above average prices they would be running a profitable HFT. The professional traders are looking to make money and compete with each other while offering better and better pricing. Most trading happens between the professionals on anonymous exchanges. This is a normal, healthy state of affairs that facilitates price discovery and low transaction costs.

So if we trade back and forth enough times we can build an infinite # of Eiffel Towers?

What I admire about Ms. Mayer is the transparency of her hucksterism. The value of Yahoo isn't the sum of its parts because the value of its stake in Alibaba must take into account the large tax cost of selling it; the net effect of which is to give the remaining parts a negative value. How much does one pay a CEO of a company with a negative value? So being the clever CEO she is, she proposed a tax-free corporate division under section 355, spinning off the stake in Alibaba to the Yahoo shareholders. The problem is that section 355 has a five-year active business requirement for the spun-off business, and owning shares in Alibaba is not an active business. So then Ms. Mayer proposed to reverse the transaction so that its Yahoo that's spun off. The problem is that section 355 has a five-year active business requirement for both the spun-off company and the company doing the spinning. Of course, she knew that, but what she was doing was buying some time to sell off Yahoo's core business before the restless shareholders demanded the stake in Alibaba. While searching for a buyer for a business with a negative value she is paid tens of millions in annual compensation; and once she finds the buyer, she is paid an additional $55 million. Not bad work if you can find it.

Investors are free to shun the stock and invalidate her strategy. Why do they keep investing in a company with "negative value" and a "huckster" for CEO ?. They don't have access to the correct information ?

Yahoo is in the NASDAQ Composite Index. If you own that, you might own Yahoo.

Presumably all kinds of algos own Yahoo.

add the Nasdaq composite ( ^IXIC) to the Yahoo chart ( using comparison) you can see they don't move in lockstep{"range":"2y","allowChartStacking":true}

Not sure what you are saying, you can look up component stocks. I did before commenting.

@anon. the Nasdaq composite has over 3000 stocks. Yahoo is not in the Nasdaq 100. When you plot The Nasdaq composite together with Yahoo, you see basically no correlation. If Yahoo is so over valued, why can't investors act upon it and dump it ? Otherwise you're basically saying , there is some automated investing that keeps Yahoo overvalued.

Households own 34% of the stock market as individual shares. I am thinking that pretty much everything else is an algorithm, one way or another, these days.

On the buy side for Yahoo? I am thinking more algo, less traditional value investors. don't seem to know very much about stock markets.

They're called institutional investors, not "algorithms".

How Algorithms Have Changed the Face of Wall Street

Again I reiterate, you're not addressing the question here.

They're called institutional investors. The decision rules they follow to pick stocks may very well be carried out by an "algorithm". Everything is done through some "algorithm". But it's not "algorithms" that own the stocks. It's investors.

And by definition, the question stephan asked isn't answered here. Presumably, investors are still picking stocks that they think will give them the highest return (regardless of the time window or reason). So what does saying "algorithms"...change anything here?

The "automatic" kind is still based on decision rules build into it for a specific purpose, and they are for all intents and purposes, an extremely small part of ownership here, and by definition they are also trying to play through price arbitrage...which makes no difference to the...compensation of the CEO (or the value of the firm other than in minute-by-minute trading)

Here you have your Yahoo ownership breakdown:

8% insiders
71% institutional holders

Index funds are about 7% ownership. But there's no logic here as to why index fund ownership would "distort" the firm's value, or even less so affect the compensation of the CEO (index funds are passive investors usually, and they could care less). You seem to be confusing individuals buying index funds, with the index fund ownership of firms. The two are not the same thing.

Who is confusing terms? Individual sand institutions are investors, they both use algos. An index fund owning Yahoo, where I started, is an algo. Institutions have their own quants and trading code.

That link says 75% of trades are algorithmic.

You are in the position of arguing that 25% of trades in particular, a declining legacy investment are of greater importance.

Fine, but we both know it is 25% of trades.

"That link says 75% of trades are algorithmic."

The point is...that means nothing, nor has any significance in answering the question Stephan asked. Not at all. It means nothing for the price, and it means nothing for the compensation of the CEO.

Quite the opposite: 71% institutional ownership means there's probably quite a bit of oversight and scrutiny from some powerful block-holders.

Anybody ever notice that Ms. Mayer looks exactly like Amber "Cut-throat Bitch" Volakis on House.

"steel rebar contract"

Is it similar to the gold contract where "There Are Now 293 Ounces Of Paper Gold For Every Ounce Of Physical"

"One could construct around 178,082 Eiffel Towers" Virtual reality Eiffel Towers.

how the chinese steel rebart price change in 2016?

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