From The Trader’s Desk: Don’t Kick the Hornet’s Nest!

Billions Season 7 Episode 10 ‘Enemies List’

by Lady Trader | Fan Fun with Damian Lewis | October 20, 2023

They cursed and buried him along with shame
And thought his timeless soul had gone
In empty burning hell, unholy one
But he’s returned to prove them wrong, so wrong
Bark at the Moon – Ozzy Osbourne

Hello and welcome to this week’s From the Trader’s Desk. What an episode this week! Billions sure has been bringing it the last few weeks. And if these last two episodes are any indication, we are in for a wild ride the next two weeks!

I wait for this episode every season – the one when Axe wears his metal shirt, and an accompanying song plays during the scene. I have a whole post talking about the significance of the shirts and songs and have tried to make predictions for the upcoming season. Sometimes I was right (Black Sabbath in S3, Rainbow in S5) and sometimes, like this season, I was wrong. Slayer was not on my metal bingo card, and I go into why in an updated “Bobby Axelrod – a Man and his Music”.

Although Slayer’s “Angel of Death” was the outro song this week, I still chose to use lyrics from Ozzy Osbourne’s “Bark at the Moon” because I thought they were much more fitting: Prince thought Axe was buried and dead, but oh, did he comeback and prove him wrong. (Also, “Angel of Death” is about Josef Mengele, and I can’t bring myself to have lyrics like that associated with my writing.)

Before I get into the Axe/Prince cage match, I want to address and explain some financial questions I got on X (formerly known as Twitter) and then go into some observations.

A few readers wanted to know why at the end of the episode, Prince tells Scooter, Kate, and Philip to go to all cash and clear the portfolio of every position. He is doing this because now that he knows his enemies are circling, it will be much harder for them to hurt him financially if the fund is in all cash. No companies that they can buy out, no insider trading claims, etc. However, there are several downsides to this strategy.

Prince Capital just sold all the fund’s holdings in foreign investments and in fully invested in US-based assets. Going to all cash in such a short turnaround time would cause people to ask, “What does he know that we don’t?” and “Why is he getting out of American investments?” For someone running for President of the United States, bailing on the country you want to lead is not a good look. Also, the selling of all those assets at once would cause enormous market fluctuations. Prince Capital has billions of dollars of assets under management – you don’t just unwind that number of stocks, bonds, and private equity investments without causing havoc to the markets. Additionally, you are not going to continue to be the best performing fund on the Street if you are all cash. You can place your money in high yielding bonds and treasuries, but you are still not going to get nearly the kind of returns you would if you were fully invested; I also don’t think your clients will be willing to pay a 2/20 fee for cash positions. They are paying for active management, not fixed income. Finally, you have a staff of traders, analysts, and portfolio managers – what are they supposed to do all day if they can’t trade?

Last week in my own Q&A, I asked why Rian didn’t know Mental was controlled by Prince through a shell company. Well, this week we know why – it was a set up by Prince the whole time. The financials both Wendy and Rian saw were fake. They were numbers that Prince wanted both to see in order for the offer to be tempting enough for Wendy, and to be endorsed by Rian. How could this happen?

Mental is a private company, which means there is less public information published about it. If it were a public company, it would be required to file various reports to the SEC, like 10-K and 10-Q reports that would state the company’s balance sheet, income statement, and cash flow. It would be much harder to fake the numbers on a public company. No doubt it has been done (like Rian states about Enron) but I do think Rian would have been able to spot it.

This got me thinking: who was the one who told Wendy to open her folder of job offers? Wasn’t that Dr. Mayer?

Read the rest of the original article at Fan Fun with Damian Lewis