This articles is from @SahilBloom who is one of the best mentor about finance that willing to share all of his knowledge for free. So if you like the post, please give him a follow and share his lessons.

What is Fund Rebalancing? If you’re following financial twitter or the financial news this week, you’ve probably read commentary calling for significant selling due to “quarterly fund rebalancing.” But what does that mean exactly?

Funds (pensions, sovereign wealth funds, etc.) typically have a target portfolio weighting across stocks and bonds. Let’s say that target weighting was 50/50. You start a quarter at that level, but if stocks appreciate much more than bonds, you may be at 60/40 at quarter end.

So to get back to your target weighting, you have to sell stocks and buy bonds. This groundswell can move markets. Given the appreciation of stocks relative to bonds in Q2, many expect this action to drive a wave of selling of equities.

I posted yesterday about the slick move by $MRNA raising money on the back of their vaccine progress announcement. Incentives are everything, so I worried openly about the perverse incentives it highlighted. Well...

Let’s look at a simple story of these perverse incentives at play. Imagine you are a biotech CEO and are developing a vaccine. It’s not going well and you are running out of cash. More money might help, right? “Wow, Moderna played it well,” you muse. So what do you do?

You issue an overly-optimistic, non-peer reviewed release on progress, of course. You need cash to continue working for the greater good, so it feels morally sound. Now you sit and watch as your share price soars. You go on @CNBC and @business for your victory tour.

At market close, you announce a share offering. Naturally, this will be at your, now much higher, share price. “We need the money to save the entire world,” you tell the markets. You might even be inclined to sell some of your stock at this new share price. You deserve it.

You might even tell your buddy on the WH task-force that he should probably divest his shares, as it seems like a real conflict (it wasn’t at the lower share price). You sit in your chair and marvel at your CEO superpower - a strong balance sheet and some $ in your pocket!

So now we have a juiced balance sheet, a rich executive, and a public that is no closer to a cure. “Modern capitalism is bloody brilliant,” you might say, “I think I’ll go play 18.”

The fall of payments darling Wirecard ($WDI) due to allegations of financial fraud has been swift. I love a funny fraud, and this one is very funny, so I'd like to try to break down a simple version of what seems to have happened. Who's up for a story?

You are the CEO of an Icelandic ice company - FreezeCard. Your business is pretty simple - you manufacture and sell bags of ice to retailers within Iceland. Business is good, not great - the market for ice in Iceland is ironically small. But then, you have an idea!

You'll take FreezeCard global! Ice demand in Iceland is pretty weak. The world is a big place, and ice demand in hotter regions must be better. But it's hard to take a business global. How would you set up manufacturing, supply chain, and distribution? Why not fake it?

You open a subsidiary in Dubai. No employees, no office, but FreezeCard Dubai is now official! You find retailers in hot locations, claim them as customers (they don't know you), and book revenues. FreezeCard Dubai suddenly has $100M revenue (not really, but who cares!).

So now FreezeCard is global (kind of?) and you'd like to profit from that. You're a global ice kingpin, after all! You sell stock to the public, raise debt from institutions, and become rich. "I'll use my money to do some good," you say, as you slip into your new McLaren.

Sadly, your wealth and fame is short lived. Those pesky short sellers and journalists, who you managed to keep at bay for years, catch on to your scheme and out you. You are ruined. "I guess this was all a melting ice cube," you say to your lawyer through the glass divide.

While I'm certainly simplifying some parts of the Wirecard story, the funniest part is, according to the allegations, it was almost that simple. Fake customers, fake profits. A short seller's dream. My first "Friday Funny Fraud" story - I might have to make it a tradition.

This articles is from @SahilBloom who is one of the best mentor about finance that willing to share all of his knowledge for free. So if you like the post, please give him a follow and share his lessons.