The Daily Alpha: Real Talk on Minimum Wages, Rajat Gupta and the Surge of CEO Departures

Jul 10 2017 | 11:09am ET

On Monday, we discuss Gupta’s responsibility, the rise in activism and Seattle’s minimum wage challenge.

Hair of the Dog:

Shot: Trump Vows to Work “Constructively With Russia” after Putin Denied Election Hacking

Chaser: U.S. Officials: Russian Government Hackers Penetrated Energy Firms' Business Networks

Quotes of the Day

"While I continue to fight the injustice in my case, I have to candidly admit I made errors and misjudgements and for that, I take full responsibility."

That’s former Goldman Sachs director Rajat Gupta.

It’s unsure on the disconnect between saying he made errors and misjudgments and then pleading not guilty to such errors and misjudgments. He was convicted of leaking boardroom secrets to a hedge fund manager.

There have been books and movies written about this subject as a warning for decades. Yet, his claims are that all of the evidence brought against him at trial was circumstantial.

What are you talking about?

This is the timeline laid out from DealBook in 2012 after his conviction. Full attribution to DealBook and writers Peter Lattman and Azam Ahmed.

September 23, 2008

  • 3:13 p.m. to 3:53 p.m. “From his office at McKinsey & Company, Rajat K. Gupta participates in a Goldman Sachs board meeting via telephone to approve Warren Buffett's $5 billion investment in Goldman during the depths of the financial crisis.”
  • 3:54 p.m.: “Sixteen seconds after the Goldman call ended, Gupta called the direct office line of Raj Rajaratnam at the Galleon Group hedge fund, which was available to a limited number of people.”
  • 3:56 p.m. “Rajaratnam ordered one of his Galleon traders to purchase 100,000 shares of Goldman. One minute later, he ordered another trader to buy an additional 250,000 shares. The combined purchases equaled roughly $43 million, an outsize amount of Goldman stock for Galleon to trade. Gupta's was the only call that came into Rajaratnam's direct line during the final 10 minutes of trading that day.”
  • 5:29 p.m. “Goldman announces that Buffett's Berkshire Hathaway invested $5 billion in the bank, lifting its shares.”

Sept. 24, 2008

  • 7:09 a.m. “On a wiretapped call from his cellphone, Rajaratnam tells his trader, Ian Horowitz, that a day earlier he had received a call minutes before the close of trading "saying something good might happen to Goldman."

Circumstantial…

"Boards are becoming more independent and knowledgeable about activism and therefore less tolerant and more demanding of management teams."

That’s Jim Rossman, managing director and head of Lazard's shareholder Advisory team.

CEOs are on heading out the door at a fast rate thanks to the pace of activism in corporate America. So far this year, we’ve seen executive departures at General Electric, AIG, Arconic, CSX Corp., Pandora, Perrigo andBuffalo Wild Wings.

The Street tackles each of these stories.

“Seattle shows the way to higher pay.”

The New York Times is bad at math and extrapolating information.

In a weekend editorial called “Seattle shows the way to higher pay,” they basically offer a crash course on how now to engage in journalism while citing a report on the impact of the city’s minimum wage hike on employment.

There is just a major problem with the headline. The study that the New York Times praised ended up stating that the wage hike to $13 an hour did “more harm than good.”

But, the New York Times simply dismisses this issue. If one engaged in simple journalism, they would have called Jacob Vigdo, who led the survey that explored the impact of minimum wage hikes on small businesses.

Five hundred small businesses, actually. Turns out that they were more likely to slash hours of workers.

Once again, few journalists are economists, and few economists are journalists. So, it’s not surprising when we see little attention or thought around the details. One of the more frustrating stories out there today is on the impact of the soda tax in Berkeley.

Certain economists are cheering the fact that since the tax has been implemented, sales of soda in Berkeley are down 10%, while sales of juice, tea and vegetable drinks are up 20%.

Of course, there is little discussion of causation versus correlation. Here are three things that seem to go undiscussed on Berkeley – or they're simply explained away into mumbling.

1)    California is a far more progressive state when it comes to health drinks, and the study naturally ignores this.

2)    The study ignores that sales of soda drinks outside of the city limits are up.

3)    The study ignores the fact that health drinks have a faster-growing category growth rate across the country than traditional soda drinks.

But none of the writers challenge this at mainstream outlets. They read the introduction to the studies, but never the methodologies or the limitations.

Monday’s Hedge Fund Reading List

·      Financial Times: From Brexit to fake trade deals — the curse of confirmation bias

·      C&EN: Activist investors attack Clariant-Huntsman deal

·      Money Management: Smaller Hedge Funds Are Doing Better

·      Washington Post: The fascinating legal argument at the heart of the Martin Shkreli ‘Pharma Bro’ trial

·      European Supermarket Magazine: How Whole Foods CEO Mackey Sought Amazon Lifeline

Grab the Newsletter 

The Daily Alpha is published on FINalternatives. Signup here for the daily FINalternatives Newsletter, which includes the Daily Alpha. 

Follow @FINalternatives  Be sure to check out the award-winning Modern Trader and a very special offer for first-time readers and follow @moderntradermag. You can also pick up a copy of the June Hedge Fund issue at Barnes & Noble.

Garrett Baldwin is the voice of the The Daily Alpha, the features editor for Modern Trader magazine, and the author of The Man with The Big Red Balloon.


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