It Was In My Other Pocket

Have you ever been short on money and gone through your clothes, only to find a $20 bill that you had forgotten about? We are sure that you were relieved. The same thing just happened to cryptocurrency exchange FTX, which filed for bankruptcy back in November. FTX attorneys announced that the company had found $5 billion in cash, liquid cryptocurrency, and other liquid investments! Of course, it appears that there may be other pockets to check as the total value of missing customer assets is $8 billion.

Liquidity and Bankruptcy

As investors have learned, like any other investment, cryptocurrency is subject to volatility. The recent bankruptcy filing of crypto exchange FTX shows, this volatility can be extreme. For example, the Ontario Teachers' Pension plan wrote down $95 million due to the collapse. As you probably know, bankruptcy occurs when liabilities are greater than assets. However, bankruptcy can result from a finer distinction between liabilities and assets, namely liquidity. In the case of FTX, the company had $8.9 billion in liabilities and $9.6 billion in assets. So was the company forced to declare bankruptcy? Liquidity. When you look at the balance sheet, FTX had $900 million in liquid assets, $5.5 billion in less-liquid assets, and $3.2 billion in illiquid assets. Think about it like way: You owe $10,000 at the end of the week but your only asset is a $100,000 house. Yes, your assets are greater than liabilities, but you likely won't be able to sell the house and receive the cash for the sale by the end of the week, so you could be forced into bankruptcy. But FTX had other problems as well. John Ray, who was appointed to oversee the FTX bankruptcy and has overseen other large bankruptcies such as Enron, stated "Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here."

It's Bobby Bonilla (Edwin Diaz) Day!

The New York Mets famously deferred $5.9 million in salary payable to Bobby Bonilla in 2000, instead paying the former $1.2 million per year from 2011 through 2035. Now, the Amazing Mets are at it again. The team just signed a deal with relief pitcher Edwin Diaz that was announced as a five-year, $102 million contract. Under the terms of the contract, the team will defer $5.5 million per year in 2023, 2024, and 2025, then $5 million per year in 2026 and 2027. In exchange, the team will make annual payments to Diaz through 2042. To complicate matters, there is an option year for 2028 and if the team picks up the option, none of the salary is deferred. It appears that the Mets like really long-term payments!

Buying An Annuity

While you now know that, in general, an annuity is an equal payment with a finite number of payments, how do annuities work in the "real world"? To give you an idea, check out Charles Schwab's annuity calculator. Notice, the website shows three different payment options. The first option, "For my lifetime (single life)", offers the highest payout per period. Using a mortality table for annuities, the insurance company estimates the number of payments on the expected life of the annuitant. If the annuitant outlives their expected life, payments are still made until their demise. However, if someone signs up for this type of annuity and dies immediately, no payments are made by the company. The second option, "For my lifetime and someone else's lifetime (joint life)", the number of payments are based on the expected number of payments based on the expected life of both individuals named in the contract. Again, if either party outlives their expected life, payments are still made until both parties pass away. Finally, "A set period of time (period certain)", the number of periods that payments will be made is fixed when the annuity is first issued. The interest rate used by annuity issuers in all cases is based of current market interest rates when the annuity is first issued.

Dollar Strengthens

Amid high inflation, rising interest rates, and a faltering stock market, one bright spot has been the performance of the U.S dollar. Since the beginning of the year, the dollar has risen 17 percent against the British pound, 25 percent against the Swedish krona and Japanese yen, and an astounding 40 percent against the Argentinean peso. Two currencies that have strengthened compared to the dollar are the Mexican peso and Brazilian real. 

EVs Raise Cash

EV makers Nikola and Lucid both announced secondary stock offerings today. As we mentioned in the textbook, SEOs often have a negative effect on stock prices, and these announcements were not exceptions. Nikola announced a $400 million stock offering, to be sold at the market price. The stock price dropped about 10 percent on the announcement. For Lucid, the company announced an $8 billion shelf offer to be sold over the next three years. In this case, the stock "only" dropped about 7 percent.

Chinese Companies Go Dark

"Going dark" typically means that a company delists its stock from an exchange. Today, three Chinese companies announced plans to go dark from the New York Stock Exchange. What is interesting is that the companies will still be listed on the Stock Exchange of Hong Kong. The reason for delisting from the NYSE is that American regulators have warned Chinese companies that they would be forced to leave U.S. exchanges unless they allowed regulators to see the records of the company auditors.