From the Trader’s Desk: Winning Ugly Billions S3 Ep4

Happy Earnings Season from the Trader’s Desk!

This week’s episode of Billions was aptly named “Hell of a Ride”, and it certainly was one (maybe not so much for Craig Heidecker!!). We’ll also see how a win’s a win, even if it’s ugly.

Before I get into the meat of my recap (Axe and Taylor) some observations: Wendy’s look at the Yale reunion was amazing! I have never thought this about her before, and I guess it’s why it stood out for me. Her hair and make-up was great. She should keep that look – get that hair outta your face girl!

The sub-plot in the episode was Wags and his final resting place. It was a total “Wags” type of story and you just knew he would win out in the end! I always love when I can make a personal connection in the show, and this week it was Wags offering the ambulance chaser a place in a mausoleum at Green-Wood Cemetery in Brooklyn.  This historic cemetery is located in the neighborhood I grew up in, Sunset Park. All the guys in the neighborhood (even my Dad) worked at one point or another for the cemetery when they were teens, seasonally cutting grass and taking care of the grounds. It is a beautiful place, filled with unique monuments, and is the final resting place of historical figures like Boss Tweed and Leonard Bernstein. It sits on 478 acres of rolling hills in Brooklyn, overlooking New York Harbor, with gorgeous views of lower Manhattan. They offer historical tours during the spring, summer and fall. If you are looking for something very unusual to do on a visit to New York, I would highly recommend it. (It’s 20 minute subway ride from mid-town Manhattan). One other observation on this sub-plot: Wags asks Axe if he could use Axe’s “ninjas” to help find the person who pinched his plot; Axe hesitates, but then says yes. It made me think back to Axe’s birthday party, when he said no one at the party was his friend. Well, Axe, are you theirs? A real friend wouldn’t have hesitated, especially to a man like Wags who is without a doubt 100% loyal to you. You demand loyalty and complete obedience. That usually doesn’t result in friendship.

We find Axe at a World Aid Foundation charity reception. A contribution of $10 million gets him on the Board, so if he can’t trade, he might as well schmooze!

At the reception, he meets Oscar Langstraat. Langstraat is hoping Axe can help him get the Board of World Aid to get into venture philanthropy, by way of investing in Rayveon Solar, a company that manufactures solar panels that can be used to cool tents in Africa, and help with famine on the continent. (Foundations are just beginning to get into the venture philanthropy, in which the foundation invests in small companies or start-ups not just for profit, but that directly help the cause they sponsor. It’s a way to not have to continually seek donations. Since investing in start-ups can be risky, foundations are very cautious on where they place their money.)

“Toxic” Axe is not the most influential member of the Board right now, and can’t offer much in the way of helping Langstraat. However, Axe is the man with a plan, so he’ll see what he can do. If he can convince the Board to invest in Rayveon, the stock will rise.

Never one to let an opportunity to make money go to waste, Axe decides he wants Rayveon in the main fund at Axe Capital. The only issue is how he gets the idea in front of Taylor without them knowing it was his. Wags suggests Ayles pitch it, as it will look like it is coming from the Axelrod Foundation, therefore trying to do “good” instead of just making money. What if Taylor does not take the bait?

“Well, all depends on what has the greater pull – fear or money.”

When it comes to Axe, we already know the answer: money. Axe is essentially fearless right now. Yes, he is covering his tracks on all his behind the scenes moves, but just the fact that he is making those moves proves he’s willing to take the risk of getting caught, which could mean going to jail, paying huge fines, and most of all, giving up his ability to trade ever again, shows the greater pull is the money. I don’t necessarily think it’s the actual dollars, but making the moves that make the money that is the pull. I hope that makes sense. Is Axe testing Taylor? Eventually, all will become clear.

As for Taylor, they are at Axe Capital watching the countdown of the launch of Farpoint’s Manticore 2 rocket (I’m going to guess the name of the rocket is a nod to Dungeon & Dragons)  and its mission to the International Space Station (ISS). Farpoint CEO (and Wendy one-night stand) Craig Heidecker is manning his own rocket from the Mid-Atlantic Regional Spaceport (MARS) in Virginia, in the first step to an eventual manned mission to Mars. Taylor believes in Heidecker’s vision, but not in his business plan. They believe his charm is his liability – people will believe whatever he tells them, overlooking, or not bothering to care about the facts (Elon Musk, anyone?). Farpoint has scrapped the last three attempts at a launch due to issues with the guidance and navigation systems. No corrections were ever found. Another failed attempt will put the program back two years, and the stock will plummet. Taylor looks past the “charm” and emotion, and places a short on the stock. They are rooting for an eventual success (their t-shirt speaks for itself), but for now, the money is to be made on a launch failure. The bet is against the business model, not the vision. It is hard for investors to sometimes see the difference. Here is an example:

Whole Foods (WFM) was a great idea: everyone should eat healthier, organic fresh fruits and vegetables. The stock ran up to about $65 a share, with high P/E of 49x earnings. However, not everyone could afford the higher prices for organic food, and once local supermarkets were able to get into the organic game, the growth of WFM slowed. The stock fell, as the company had to start cutting back on projected store openings and  earnings growth; in August of 2017, it was bought out by Amazon. WFM: nice concept, niche business.

Wags’ mission to get Rayveon in front of Taylor starts by him singing the praises of the Axelrod Foundation and all the good it does. Taylor is not biting. They feel the Foundation is inefficient, even if it means well. Taylor will choose the charity they give to. Wags convinces Taylor to meet with Ayles, so he can tell them just how different the Axelrod Foundation is.

Ayles meets with Axe to give him the bad news that the World Aid Board will be voting him out at the next meeting. This puts his play on Rayveon in jeopardy. He needs to figure out a way to either stay on the Board, or still have the Foundation invest in Rayveon. If he is anything, Axe is resourceful. He gives Ayles his marching orders: get Taylor to invest in Rayveon.

At lunch, Taylor is voicing skepticism to Ayles about the Axelrod Foundation. Ayles tells Taylor something they already know: Axe “demands maximum efficiency in all pursuits”, and the Foundation is no exception. This is the reason Ayles and the Axelrod Foundation believes in Rayveon. The solar panels will help keep the people and crops of Africa cool and help with famine and disease. I think it is at this point Taylor realizes this is an Axe call and not the Foundation’s. They are too smart for the likes of Ayles (and Axe in this case).

The head of the World Aid Foundation Board meets Axe to give him the heads up that he will be voted off the Board at the next meeting. Since Axe already is aware of this, he is prepared. He threatens to expose the Board for what it truly is: a bunch of lazy, arrogant, elitists who take advantage of the benefits of being on the Board. The head of the Board is not phased: even if they are “exposed” it won’t matter. This is how things have always been, and will always be. Everyone’s getting a piece of the action, so no one really cares. Then, the guy makes the BIG mistake – don’t ever insult Axe personally! Calling Axe a “t-shirt billie” is lobbing a grenade. When you piss off Axe, he’s coming at you with a MOAB!

Back at Axe Cap, Manticore 2 and Craig Heidecker are ready to launch. The whole firm is gathered around watching the countdown. The last aborted launch happened with 8 seconds left on the countdown. With the clock ticking down, Mafee is convinced this will not be like the other attempts; success means the stock will skyrocket, killing the firm’s short position. When the countdown reaches 0, the rocket starts its liftoff. Taylor’s expression says it all – yes, the firm will lose money, but they could very well be viewing history. Pride and admiration are on their face.

Seconds into the mission, Manticore 2 explodes. For a brief moment, there is stunned silence. Everyone is just trying to process the tragedy they just witnessed. While the wreckage is still exploding, of course it has to be Dollar Bill to state the obvious: the stock will tank! Axe Capital will have a massive payday on the short. The employees all high-five and hoot and holler. It seems cold and heartless, but the responsibility of the firm is to its investors and to make them money. It cannot be forgotten that this firm, Axe Capital, was started from money made from the death and destruction of the 9/11 terrorist attacks. (I write about that here) Was the reaction over the top? Yes. But, it’s not personal, it’s just business, and for a firm that is just getting back on its feet, it’s a huge win. When you short a stock, you are betting the price decreases. That may mean a company reports poor earnings, may have to lay people off, and hurts anyone who has the stock in their 401K; but you can’t think of that. A trade means there are two side of the transaction, and someone will win, and someone will lose. It is how this game is played. It’s not always pretty, but if you choose to do this for a living, you need to place emotions at the door.

Again, Taylor’s feelings are written all over their face. (It is usually Damian Lewis who is the best at letting every emotion his character is feeling be conveyed through his facial expressions – this week it was all Asia Kate Dillon.) Taylor had the right call, but for the wrong reason. Are they comfortable profiting off of the death of someone they thought so highly of? This is winning ugly.

Taylor seeks advice from Wendy, who is also processing Heidecker’s death. Wendy tells Taylor that Heidecker understood that perfection is unattainable, no matter how hard you try. Taylor has trouble with this concept as they can see things better than others, in a more “perfect” way, like in math. However, there is always going to be an unknown, an X factor. You can try to plan for it, but you can’t anticipate everything. Taylor realizes that Heidecker knew the risk of his mission, but was willing to take it because the reward was worth it. Taylor realized the risks as well, but just took the other side of the bet, that’s all. Taylor is right to be conflicted about profiting off of the death of someone, but the conflict must be resolved. In order to be the best CIO they can be, Taylor needs to move forward, and as Wendy tells them, their “truth that makes you money” must be the focus when you are inside the glass house of Axe Capital. I found it kind of ironic that Taylor buys the exact same watch Heidecker had at a price tag of $164,400 with money made from profiting from his demise.

Axe is ready to drop his MOAB on the World Aid Board, and is telling Wendy his plan. He’s an “army of one, and is fortified!!” Wendy questions his approach – maybe he shouldn’t fight head on. He should retreat, preserve, and defend (all things Axe is not good at). She tells him to accept taking some losses until he clears his name. As we know, Axe may be willing to take a small loss, only if the other side’s losses will be much greater.

At the World Aid Board meeting, Axe walks into the boardroom with only the bluster that Bobby Axelrod can. He gets the Board to delay the vote that will cast him out, and instead has Langstraat pitch his venture philanthropy idea, with Rayveon Solar being the first investment. The more Langstraat talks up Rayveon and investing, the more Axe shoots him down. The more Axe is against this investment, the more the Board loves it. In a unanimous vote, World Aid will invest $50 million in Rayveon Solar. The use of reverse psychology is brilliant! At this point, Axe actually wants the Board to vote him off, so it won’t look like his firm would benefit from the Foundation’s investment. Axe keeps having to make these dazzling moves; how many more of these does he have in his bag of tricks?

Taylor confronts Axe at an Ethiopian restaurant about the Rayveon play. They knew it was Axe’s idea, even if it was coming through Wags and Ayles mouths. In order to make sure the investment in Rayveon doesn’t look fishy, Taylor buys other solar companies as well. Taylor may not like how the game is played, but if they are going to play, they are going to play to the best of their ability and to win.

Langstraat joins them at the table, telling Axe it took him a while to catch on to Axe’s plan at the meeting, but eventually got it and is grateful. Perhaps they can do more business in Silicon Valley?

A tray of food arrives for the table to share. Taylor explains to Axe and Langstraat the reason Ethiopian’s eat in this manner: it’s to foster a sense of community, with everything out in the open, and everyone knows they got their fair share. It keeps everyone honest. Taylor thinks the men would be better suited dining at a steakhouse where “everyone gets their own plate.” (Side note: at our FanFun summit at Keen’s Steakhouse, we all shared!)

Taylor is not interested in breaking bread with these men, so they leave. Taylor seems disturbed by how everything went down, but they still participated, and even went that extra step by bundling Rayveon in a basket of other solar stocks to help cover any traces to Axe. Taylor will play the game to win, but it doesn’t seem they like how they got that win, and certainly won’t celebrate over it. I do believe these types of conflicts are going to become harder and harder for Taylor to reconcile.

Will there finally be a breaking point for Taylor? At this point, what could that be? And, will Axe see it before it becomes a problem for him and be able to control it?