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Comment by mcoliver | Hacker News Reader

Simultaneously they are opening up 0DTE options on certain stocks starting with large market caps but don't be surprised when this expands. Currently this was limited to large etfs like SPX. They are also extending trading hours towards 24/7 and eventually 365.

How they square increasing liquidity with delaying information is insane.

I know there is a lot of manipulation to make quarterly numbers and the tax code is convoluted but if companies reported dollars in and dollars out live to shareholders at least we would have an idea of how the company is doing in a general sense. And over time would learn the flow of the company and be able to make informed predictions on the overall health of the company. More information is usually better than less with very few exceptions.

If they want to delay the earnings call to every 6 months to talk about the business I have no problems with that.

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> if companies reported dollars in and dollars out live to shareholders at least we would have an idea of how the company is doing in a general sense.

A former manager used to run his own company, it was a satellite internet company sometime in the 2000s, they were going into the negative, so they had a big TV in the office, showing everyday what was coming in, and how much they made vs how much they owed. They did it to motivate everyone to go back into the green. Really interesting approach. Might not work at larger companies, but in a small shop where everyone knows everyone, it makes sense.

Can motivate the employees to jump ship. Often time as an employee you are impacted dis proportionately on the downside than the upside.

Smart employees understand this dynamic. When leadership hides information - it always means its bad. The first thing I noticed when I had a bout of bad employers was that they claimed "we can't share financial information because of XYZ investor/legal reason."

Those startups all had major financial problems within 6 months to 2 years. Management has strong incentives to hide bad information from employees.

Most startups fail - it's almost definitional.

Trying to connect the dots like you are attempting to, is a foolish game.

ehh there is a common thread that when management becomes convinced either of falsehoods or that lying to employees is the best strategy, the business outcomes won't be the best either.

Yep, I've worked at two startups which started to really emphasise The Numbers in weekly all-hands meetings, and how we're all in it together to improve them, etc. Both of those jobs ended in redundancy.

Reporting sales numbers to employees on a regular interval (along with goals) is extremely common in private companies. Especially when employee bonuses are linked to those sales/goals.

This is a manipulation enabler. I’m surprised no one is mentioning this, but it’ll allow companies like SpaceX and Tesla to avoid scrutiny. The other changes the SEC and NASDAQ are rushing all have donors behind them. That’s how this openly corrupt administration works but it’s also how America has generally operated in the past, only to a smaller degree.

> it’s also how America has generally operated in the past

It's not. That's why we have the rules that they are recinding, and why the US has long had among the the most transparent, safest, and liquid markets in the world.

Saying that 'it's always been this way' is a really concerted effort to bury one's head in the sand.

I was talking about the broader way things work, not necessarily for the SEC specifically - although they’re also subject to this phenomenon. Lobbying in America, and the revolving door between industry and government agencies, is a core part of American politics and economics. Long before the Trump administration.

Again, it was not always this way. It's like saying drownings happened before the tidal wave, so it's always been this way.

People will put up any defense against facing and acting on the reality of their situation.

>This is a manipulation enabler.

One facet of the Trump administration that still manages to surprise me is now some action that is nakedly corrupt, or stupid, or destructive will be undertaken, and people will scramble to come up with explanations for why it might be done in good faith, or as part of some clever plan. We've been watching Donald Trump operate in national politics for over a decade (and seen him in business for far longer). Why on Earth would anyone ever give him the benefit of the doubt at this point?

rubes gonna rube

> if companies reported dollars in and dollars out live to shareholders at least we would have an idea of how the company is doing in a general sense.

Goodhart's law is knocking on your door right now.

Help me understand what you are saying here. For those that don't know this one is "a measure becomes a target, it ceases to be a good measure".

I'm not advocating for a single metric that can be gamed. A business is fundamentally about dollars in and dollars out. Maybe add receivables in there and a few other metrics from the P&L. I'm not trying to be prescriptive here on purely cash in and out.

I do think there is a low friction way that companies could report daily certain metrics that over time would give their shareholders a sense of the company's health and trajectory.

Dollars/receivables in and dollars/deliverables out is just a question of rate, unless I'm missing something.

If a 10 billion dollar company has a per-second dollar out/in rate of $1,000,000 due to actual organic business, a company with $2,000,000 can set up an LLC it buys and sells from, and legally 'swap' $1,000,000 a second back and forth in services "bought and sold" to mimic the appearance of the $10B company, to generate business interest/confidence/investment.

That's an extreme example, but the point is that real-time money flow has nothing to do with the actual 'health' of a company.

I'm fairly certain you're describing fraud.

I'm fairly certain he's describing the economy.

There are so many companies like this which are just moving money around rapidly in and out with little to no actual profit. Finance sector is easily gamed.

For example, anyone can become a billionaire; just start a company, issue 1 billion shares at slightly above $1 each, keep most of them for yourself; release just 10K shares to the market and then let traders trade those same shares back and forth among themselves at high frequency... With just over $10k each, they can keep moving 10k shares back and forth 10k times per day... They call it "High frequency trading."

There you have it; now you have a billion dollar company with a healthy trade volume of $100 million per day... Your stock is in-demand! And you just needed to find two traders with just $10k in the bank and a trading platform with low fees... Becoming a billionaire is not that difficult.

You can apply the same principle to revenue... Just increase the velocity of money in and out of your company and you can hit any financial target you want.

Doesn't mean it's a solid scheme but everyone likes the numbers they're seeing. Nobody is paying attention to actual buying power.

While I agree that "billionaire" is a stupid word that 99% of the population don't understand, but can be manipulated with, it is not true that investors only look at market cap. Lots of analysis goes into IPOs.

That's what all these accounting rules exist to stop. No, you can't pretend that equipment breaking doesn't happen. No, you need to account for fixing the roof etc.

It's not actually fraud if there is some ostensible service they're performing. Business units within businesses 'pay' each other for 'services' all the time. Ditto for subsidiaries. Whether something is fraud might come down to intent alone.

The line between legal and illegal business transactions can be murky as hell.

For it to not be fraud you'd have to actually exchange services proportional to the line items. That isn't what was described. Falsifying line items to juice your numbers is fraud plain and simple.

Yet we see it happening all the time with various AI deals.

I thought in that case nvidia was (approximately) purchasing stock in exchange for hardware? Which AFAIK is the entire point of stock - selling it to raise needed capital.

And if they actually constructed the deal that way, it would be fine. But by essentially creating a sham sale where they return the cash back to the customer in return for equity, Nvidia can book revenue and claim non-existent cash flow. The key is that the sale would not have happened without the corresponding equity deal. Nvidia had no discretion to use that cash any other way, so the "cash flow" in that case is illusory.

I don't see the issue. Goods valued at that amount changed hands. Why shouldn't bartering be booked as cash flow? The regulator is going to require you to value it for them regardless.

Wall Street places a value on sales, on the assumption that the sale means a customer had the money and the desire to buy the company's goods. In this case, OpenAI had the desire but not the money---Nvidia basically gave them the money to buy the product. So that "sale" should be devalued in the market. What if Nvidia paid more for the stock than the chips were worth? Now they're essentially paying people to buy their product and hiding the bribe in an equity deal by overvaluing the customer. The market sees the big growing sales number and buys Nvidia stock on the assumption that the growth is organic. It also sees Nvidia putting a big valuation on OpenAI, driving up that company's value at well. At some point, OpenAI ends up with more chips than it needs and Nvidia ends up holding a bunch of overvalued OpenAI stock instead of cash. And both stocks eventually crash as a result.

Does that clarify the situation?

Not really. Or rather I think we both agree and disagree. Dysfunction is always possible (that's why we have regulation) and if you want to make a case that what happened between OpenAI and Nvidia ought to be against the rules that could certainly make for an interesting discussion.

However it's not at all uncommon for large sales agreements to come with additional strings attached. On its face I don't see how this example is any different.

If my company wanted to barter with another company to exchange equity for infrastructure how would you expect that to be reported? Did this situation differ from that expectation?

> What if Nvidia paid more for the stock than the chips were worth?

I'm not sure. It's an interesting question. Were the unit prices (ie chip and stock quantities) made public?

>If my company wanted to barter with another company to exchange equity for infrastructure how would you expect that to be reported? Did this situation differ from that expectation?

As I mentioned, I would have no problem if that's what happened. But it isn't. Nvidia recorded the cash as ordinary income. They did NOT record the stock as income. Cash has a clear value; stock does not. You keep reducing the transaction to its effective outcome, which is not where the problem lies, as I outlined above.

I haven't reduced it rather I've asked you why you think it shouldn't be reduced.

So your objection is the way in which they did the accounting? This is not an area I'm particularly familiar with. Does the way they went about it fall outside of the norm for the US? Or is your objection a more general one regarding the US regulations on the matter?

I understand you object but I don't quite follow why. When it comes to manipulating the OpenAI valuation couldn't Nvidia have intentionally overpayed for the stock in cash? Wouldn't that have provided the exact same quantity of capital, the exact same investment, the exact same valuation?

Maybe it would be different if their GPUs weren't in such demand but they are. Even in such a case, they could have structured the transaction as a series of smaller independent ones. Same ultimate outcome.

>So your objection is the way in which they did the accounting?

Yes, the accounting is the problem. As I said from the outset, if they actually just traded chips for stock, it would not be an issue.

How? "AI fincancing bad" is starting to seem like a new non sequitur meme. There's no imaginary thing being traded for indefensible valuations in AI dealings. Stock units at a certain valuation exchanged for an equivalant value in hardware is just a standard payment-in-kind transaction.

If the valuation turns out to change in the future, that's the hardware seller's risk.

It's not the same thing as buying a $20 million banana from a bahamian llc secretly owned by yourself, which is fraud.

No, there is no proportionality aspect to the law. Once you’re in the support and software subscription realm, quite vast amount of “value” can be charged for with nothing being done.

Only if you ignore the concept of fair market value. There are going rates for these things. If what you said is true you could trivially launder money by selling a single copy of an arbitrarily expensive piece of software that did nothing more than print "hello world". In practice that's not how the law works. Regulators and judges aren't drooling idiots.

Sure, you could inflate your numbers a bit and likely get away with it. But it's still fraud (getting away with it doesn't make it not a crime) and you will likely be caught if you overdo it.

The company I'm a director for licenses IP from my company. The company wouldn't exist without my IP (I'm one of the founders). Yet, I'm also a customer of the same. Dollars in/out, we're all kosher. This isn't fraud, it's just how companies work.

So long as the prices are fair and reasonable, sure. But that doesn't enable you to run up an arbitrarily large bill without either doing an arbitrary amount of actual work or committing fraud.

Yes. This is called “transfer pricing” and is tightly regulated in almost every country.

it's only fraud if somebody finds out

It's only fraud if one doesn't keep enough cash on hand to b̵u̵y̵ ̵a̵ ̵p̵a̵r̵d̵o̵n̵ make a campaign contribution.

The difference between fraud and not fraud is if you can reach an agreement with auditors that it’s not fraud.

Extreme? Almost every AI related stock is investing in companies that then buy their product, efectively just giving stuff for free in exchange for better quarterly numbers.

And thus we keep talking about AI bubble and when it bursts, not if it bursts

... and how much of the stonk market and the actually legitimate economy it will take down with it.

My personal opinion? The bubble burst will make 2007ff look harmless in comparison.

Correct. These kind of metrics invite fraud exactly because they are not rooted in reality. "Money circulation" is a bad metaphor. https://oleganza.com/all/money-does-not-circulate/

Isn’t the ‘circulation’ or ‘rate’ question a misinterpretation of the model of P&L analysis the OP was suggesting…?

When you realize companies can borrow against receivables and payables also....

But it eventually comes out, so while you can do it short-term, it's a terrible long-term strategy. Your stock will eventually crash and burn if you do too much of it.

All data that is externally visible about a public company will be consumed by traders and used to inform their market behavior.

Companies know this, thus every action they perform that affects an externally visible number is calculated both for the actual intent of the action, and how that action effects the number and the consequent market behavior.

This is why you see all sorts of moves that aren't strictly helpful for the business itself like being overly picky about which fiscal quarter certain expenses are taken in, etc. The more numbers about a company that are publicly visible, the more the company has to play this game.

Of course, visibility for traders is important for market efficiency too. But there is a balance there where you don't want to turn the functioning of a business too much into a perceived popularity game where it spends too much of its effort just making the numbers "look right" orthogonal to what's best for the business's functioning.

in other words, they know how data impacts stock price and do their best to game the data.

The data is how much money do you make in profit, companies try to game that already.

You can't just handwave assume a mechanism that games a real time system. Your 3rd paragraph explains how the current system adds another layer for gaming. Management can't predict what real time traders want to see, they can predict that less earnings this quarter are better than more earnings next. Your "balance" creates the problem in the first place.

Companies can already make press releases whenever they want yet non fraudulent ones fail to move the market in a predicable way. If someone is committing fraud I want to know about it instantly not in 3 or 6 months. This is just a gimme to Elon's scam empire from an organization he "has no respect for".

SPY is an ETF and SPX is an index. The distinction is material.

/ES does not trade between 5pm and 6pm ET. SPX options aren't marked until 8:15 PM ET.

It's more plausible that large caps see MWF, then MTWHF possibly.

Good additional info. I used a shortcut I figured most people would understand without getting into the weeds.

[flagged]

Please don't post snarky comments like this on HN. We're here for curious conversation. If you don't fully understand someone's comment, politely ask them to clarify.

https://news.ycombinator.com/newsguidelines.html

Thanks.

T+0 all-year-round trading is good in many ways bad in others —like losing the real investor liquidity spawning window at 09:30 EST as opposed to pure market making.

Quarterly earnings were already a bad fit for many businesses so I agree with the measure to do away with them in principle. Someone proposed real-time and I think that would be a net positive if not very feasible. Yearly is a good compromise.

Companies that are not profitable YoY usually have a story so they probably can avoid having to rob Peter to pay Paul.

Then again, maybe everyone adapts and yearlies turn into the next quarterlies.

Can you enumerate some examples of when it having less information is better than having more?

For the company it doesnt work well, you’re leaking too much info to competitors

Maybe. I'l am also not saying they need to say where the dollars came from, went to, or what they were for. Aggregate daily flows. Could you do some deductive reasoning to make an informed guess especially when large sums are involved? Perhaps.

I am also of the (perhaps wrong) opinion that the majority of the important stuff leaks anyways, just not on a level playing field.

If everyone is legally required to share it then we're all in the same boat.

Financials aren't like technology or IP where having the information open to all (perhaps with limited monopolies on usage a la patents) is essentially for the betterment of all mankind, they can be more like order of battle in a war zone.

If your competitors know that your Florida subsidiary is running inefficiently and being subsidized by your successful business elsewhere, they can target their own operations in Florida, undercut you more than you can possibly sustain, force you to exit that market entirely, so that they can monopolize there.

Sure, but others can also do that to your competitor. Hence my comment that everyone's in the same boat. The playing field would be level and the players would adapt to the new environment.

Of course I realize it's possible it might introduce systemic problems that I'm unaware of.

Isn't this exactly what we should want from a market system? If your division in Florida is inefficient, then from the market perspective we should absolutely want competitors to enter the market and crush them.

I think the problem is that people have gotten so used to seeing capitalism from the companies' perspective (i.e.: profits good), and forgot that it is supposed to be all about the collective good. So if you think sustained high profits are good... then you have missed the whole point (the market should always be driving them towards near-zero).

I think thats the “nothing to hide” argument. Im not saying its wrong but its a philosophy

When your decisions are driven by fear, anxiety and FOMO, knowing less can lead to fewer irrational reactions.

That’s why people hide information from bad bosses.

It’s a common complaint of value investors that boards (especially in this post-Sarbox world) are solely focused on quarterly earnings reports, to the detriment of long term strategy. One way to talk about the added and persistent value of some companies is to note that many of them have powerful, recalcitrant, or somehow anti-quarterly-cadence founders: buffet, zuck, you could make a list.

I mean those personalities are also hyperfocused on share price.

Yes, but focused on it being the highest it possibly can _tomorrow_ or the highest it possibly can be in ten years is a huge difference. Only some executives have the ability to take actions based on a long view without being replaced by the board. Usually founders and near-founders.

Right so if you are already hyperfocused on tomorrow then focus on the end of the quarter is pretty much a wash in terms of short- versus long-term decisionmaking.

I wouldn't say so - the ones I mentioned seem to be focused on long term value -- big difference.

Delisting and going private is always an option if you want to go at your own pace and talk to your investors 1:1.

They would not be allowed to do so - too many shareholders. That’s why e.g. SpaceX will be going public even though Elon Musk would want to keep it private

Musk absolutely does not want SpaceX to stay private

Musk wants liquidity. And SpaceX wants more cash right now than can be raised privately. Which is a pretty shocking amount of cash.

So, the answer to "when having less information is better" is "when YOU have less information".

There are multiples examples that are easy to see once you realise presenting information has a cost.

For example having daily morning 2 hour long stand ups provide more information for everyone involved. It's also worse for productivity and work atmosphere.

From a company perspective, compiling a quarterly report is a non-trivial amount of effort.

The company is employing additional resources (accountants) and distracting leadership (prepping talking points).

I'm not firmly in one camp or the other, but it is a substantial amount of effort to release on whatever cadence the SEC mandates.

Well, that's a whole area of active research, referred to as "info hazards":

https://www.lesswrong.com/w/information-hazards

No legitimate business needs to settle trades more than once a day.

Maybe just allow "insider trading".

Homework - What does Shannon Information Theory say about too much info beyond channel capacity?

I give up, what does it say?

Sure but I should add I'm not saying this should be done in place of current reporting. It should be done in addition to. I'm advocating for more transparency augmented with periodic storytelling. Over time that noise becomes the pulse of the company.

Wrt Shannon, the channel capacity today vastly exceeds that of 1934 when quarterly reporting became standard. Give me more data and a filter any day over a once every 6 month black box. 6 month reporting is undersampling.

How do we discuss Shannon if you dont tell us what your channel capacity is and how you compute it?

Don't invest in companies that disclose enough information.

They aren't banning quarterly reporting, they'd just no longer require it.

there is no F500 company that likes quarterly filing.

this is why they've been lobbying for it, and with Trump in power they pushed and got it.

once it is gone none of them will do it, or at best will do it half-heartedly for a while.

5 years after its repeal there will be no large company doing it regularly

I'm definitely curious to see what happens

My guess is that most report quarterly, my question is what they report. But we will see.

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