A few Entrepreneurial thoughts on July 4th:
1. No matter how good the tech or idea is – an entrepreneur’s ‘trust and hand-shake’ are much more important and valuable.
2. An idea that can be explained in 5 to 7 words is good – but an idea that ‘sticks with you’ is amazing.
3. Being asked to participate in a new forum is good – but being told that the platform would be better with you on it, are words worth waiting for.
The Market – Robinhood is going Public:
Robinhood:
- Is a stock-trading platform that everyone loves to hate,
- Is facing dozens of class-action lawsuits,
- Is under investigation by regulators, state attorneys general, the SEC, FINRA, and the U.S. Department of Justice,
- Just settled a wrongful death lawsuit filed by the family of a 20-year-old trader who committed suicide after seeing a negative account balance of -$730,000.00,
- Just paid a record-breaking $70m fine to FINRA “for systemic supervisory failures and significant harm suffered by millions of customers”, and
- Just filed to go public.
There are billions of reasons to dislike HOOD, and you need to go no further than Reddit / #WallStreetBets to read all about them. But I would like to bring your attention to a piece written by Howard Lindzon (howardlindzon.com). Howard is himself an entrepreneur and a seed investor in Robinhood. Very seldom do you get an honest, insider’s view on team, timing and technology. Some excerpts from the full article [ https://howardlindzon.com/the-robinhood-s-1-staggering-growth-and-financials-and-fines/ ] are below:
“When we (Social Leverage and myself) invested in Robinhood, I had met the founders Vlad and Baiju. When we invested in late 2013, there was no cool wait list, no FINRA or SEC license/approval, no worry or thought about a business model – let alone any inkling that there would ever be 18m funded accounts. There was a hypothesis that people would trade from their phones if the UI was fantastic. I knew this because of Stocktwits and Twitter. And I was the knucklehead in the first meeting who told Baiju and Vlad that the trades did not need to be free (and of course they are not). I remember many first- and second-year conversations with Baiju about growth, Robinhood Gold, API integrations, hiring, and fundraising. Robinhood grew very quickly from the start, raising a tremendous amount of capital by 2016 – allowing us as a firm to mostly sit back and watch.
Onward to the S-1. What stood out to me were the growth numbers:
- $18m funded accounts.
- $959m in 2020 revenue, and on pace for $2B in 2021.
- $81B in assets under management.
- 17% of 2021’s Q1 revenues came from crypto, and 1/3 of that from Dogecoin.
- 28% of Robinhood’s revenue comes from options.
- 34% of revenue comes from the market-maker Citadel.
- Then there was the $70m fine from FINRA.
The numbers tell me: (a) people in their 20’s and 30’s love to trade and invest, (b) Dogecoin is a bubble and everyone knows it, and at least for now (c) Robinhood is in the options brokerage business. The $70m FINRA fine is the largest ever, but there is no comparing Robinhood’s actions to the banks in 2008. Our government is printing money like drunks so the only way for FINRA to prove a point is to make their case, and make it public. No better time for our government to make things public than right before a company’s IPO.”
Matt Levine wrote: “Robinhood is the brokerage for fun and gambling on meme stocks and meme cryptocurrencies. Arguably the main theme of financial markets for the last 20 years has been boring and extremely low-fee index-fund investing. Robinhood to some extent represents a bet that the tide has turned, that people are sustainably bored with investing, want more fun in their investing lives, and are willing to suffer some slippage from risk-adjusted expected rewards to get it. And yes, some of that slippage ends up becoming income to Robinhood.”
Legendary Berkshire-Hathaway investor Charlie Munger had this to say about Robinhood: “Robinhood is beneath contempt. It is a gambling parlor masquerading as a respectable business.”
The coming out party for Robinhood will not lack in volume, velocity, and/or volatility. It’s never the acquisition of knowledge that’s the tough part, but rather recognizing when you have enough, and knowing when to pull the trigger on a consistent basis. Anton Chekhov said it best: “Knowledge is of no value unless you put it into practice.”
InfoBits:
- A federal court dismissed the FTC’s antitrust complaint… against Facebook, as well as parallel cases brought by 48 state attorneys general.
- Duolingo, a Pittsburgh-based language learning business… filed to go public with a valuation over $2.5B.
- Rising home prices… have led FED-heads to call for reducing mortgage-bond purchases as part of a plan to scale back easy-money policies.
- Starbucks is selling special drinks through Instagram and Facebook… it's like a secret menu that everyone knows about.
- DSW can't find enough workers. It’s hoping that self-checkout can fill the void.
- United is buying $30B worth of flying metal… in the largest aircraft deal in a decade. Results: 100 new flights/day, 30% more seats, and 25k new jobs.
- Apps bring scale, but community brings relevance... Bumble is building out restaurants, because building community with a physical presence could help it get its groove back. That's one reason companies like Warby Parker and AllBirds keep opening physical stores, despite having successful eCommerce businesses.
- Nearly 19% of all office space in Manhattan (highest on record)… has no tenants as companies shed leases and embrace remote work.
- TikTok is now giving users up to 3 minutes of airtime… amid heightened competition for eyeballs.
- We added over 850,000 jobs this June… the largest increases were in leisure and hospitality, government, and professional/business services. Only two industries posted net losses: financial activities and construction.
- Even the U.S. Dept. of Justice is now probing Lordstown Motors.
- Kaseya, a global software company that provides services to more than 40,000 organizations… says it's been the victim of a cyberattack.
- IBM shares fell… after announcing that its president has chosen to step down after just 14 months on the job.
- A space balloon… featuring WiFi and a lounge – has open seats available for $150,000 per seat.
Crypto-Bytes:
- The rise of the Alt-Coins... In January 2021, Bitcoin (BTC) made up 70% of the total crypto market, and now it makes up only 40%. Alt-coins like Ethereum, Binance and Cardana have picked up market share – dimming BTC's spotlight.
- Billionaire Ricardo Salinas Pliego… is working to make Banco Azteca the first bank to accept bitcoin in Mexico.
- Cryptocurrency exchange Binance is pulling out of Ontario… due to the area’s strict security laws.
- Iran has granted permission… for 30 crypto mining farms to start operating.
- Crypto investments in India are exploding… with the country’s share of the crypto market surging to $40B compared to $200m last year.
- "Regulators are telling the world that the era of unregulated exchanges is coming to an end" … PWC Global Crypto Leader Henry Arslanian
- Cathie Wood’s ARK Investment Management Fund… submitted an application with the SEC for a new bitcoin ETF.
- The Deutsche Börse Group is buying 2/3 of Crypto Finance AG… allowing exchanges to offer custody and other crypto-related services to clients.
- Morgan Stanley has bought 28,289 shares of GBTC… moving deeper into the cryptocurrency space after seeing increased demand from its clients.
- Tom Brady and Gisele Bündchen now have equity stakes in FTX… with Brady serving as a brand ambassador and Bündchen becoming a social initiatives adviser.
- NYDIG will bring crypto to 650 banks and credit unions… through enterprise payments provider NCR – introducing crypto to 24m customers.
- Illinois Democratic Bill Foster said that crypto needs a ‘backdoor’… that would be able to reverse transactions with a skeleton key. Excuse me Bill, but where’s the ‘back door’ for cash – you know - that ‘other’ ransomware alternative?
- "We're seeing an extraordinary amount of velocity and innovation in public blockchain infrastructure”… Circle co-founder and CEO Jeremy Allaire.
- The internet's original source code was sold as an NFT artwork for $5.4M.
- A new German law could send up to $415B into crypto. Germany’s Fund Location Act will allow Spezialfonds to invest up to 20% of their portfolios in crypto.
- Some popular DeFi tokens… like Maker (MKR = $2,484), Compound (COMP = $333), and Aave (AAVE = $225) are surging in 2021.
- Coinbase has started offering institutional customers… access to more trading pairs and payments options through fiat currencies.
Last Week:
Monday: So, the question of the day is, are we investors or watchers? The answer is – if something looks good and seems like it might have some legs, we will take a nibble here or there. Some that look interesting are: NTLA, ROKU and TTD.
Tuesday: This morning Morgan Stanley issued a $12B stock buyback, and doubled its dividend to $0.70. Wells Fargo issued a $18B stock buyback, and doubled its dividend to $0.20. And Goldman Sachs boosted its dividend by 60% to $2. Also, in the last 2 weeks insiders at RIG have bought 26m shares. U.S. home prices jumped the most in more than 30 years in April. I realize that our FED thinks that all of these price increases are transitory, but how is housing inflation temporary when Blackrock is buying up single family housing, paying 20% over asking price in cash, and on the same day as the closing – turning them into rental properties. I’m looking at QS and PLUG.
Wednesday: CLF over $21.45 looks like a bounce. QS over $31.25 looks tempting. And HL over $7.50 could lure me in.
Thursday: Yesterday, the S&P closed the quarter at new all-time highs with only 22 components making a new high. In other words, this market rally is awfully narrow. I still like financials and energy, and am watching: GS, MS, JPM, RIG and SLB. I like RIG over $5.10, MRO over $14.30, and TJX over $68.15.
Friday: This morning’s Jobs Report told us that we gained 850k jobs. The unemployment rate ticked higher a bit, and hourly earnings rose three tenths. Markets are closed on Monday for this 3-day weekend.
Crypto Microscope…
Per WC…
- Bitcoin continues to build a significant (+15%) capital base between $32k - $40k.
- As a result of the China miner migration, the mean daily Hash Rate has continued to drift lower.
- Younger coins continue to sell, without any major uptick in new whales.
- Life is flowing back into stablecoins, and exchange flows showing sideways flow is a bullish sign.
- Any BTC move over $36k will bring new buyers back to the table.
- The vast majority of this ‘W’-shaped recovery in new users is coming from retail.
- It would be fascinating to know how much of the 34,000 new crypto-users / day move is coming from the Latin American countries.
Next Week: Markets are ALL Bull and NO Bear
Market Update: The S&Ps (in particular) smashed thru their expected move yet again. The pros are looking at this marketplace, shaking their heads, and wondering when any reality is going to set in. The SPX, QQQ and other indices have shown their inefficiency by breaching their expected moves 3 weeks in a row. It’s interesting to note that while the S&Ps were screaming higher, the financials (XLF) and the energy sector (XLE) both ended the week unchanged. This week was all about watching the ‘Monsters of Tech’ (Apple + Google + Microsoft + Facebook + Amazon) climb higher.
What about the VIX? In the middle of this massive upside move, the volatility index (VIX) was also moving higher. This flies in the face of conventional wisdom, and is often a warning sign of a ‘blow-off’ top.
- The August VIX futures are trading a full 2 points higher than July. That is a huge discrepancy, and says that the pros are continuing to buy hedges out into August and September – at a fairly serious rate. Tip #1: FUTURE volatility (out into September) is substantially higher, and often that foreshadows a much lower market. The SKEW is reinforcing that, as it remains at all-time-highs.
Why are interest rates falling? I believe that interest rates over shot their mark (early in the year) moving all the way up to 1.76%, and are now simply pulling back into their normal 1.5% zone. If rates (TNX) continue to decline, it will impact the financials and energy in a negative way, and we need the financials (XLF) and energy (XLE) for the S&Ps to move higher.
- Bond Outlook: It won’t take very much to nudge the Bonds into breakout territory, which again will drive interest rates and the financials / energy lower.
Strategy Session: The S&Ps are up 17% YTD. The QQQ’s are up 16% YTD. The IWM is up 18% YTD, and the financials (XLF) are up 27% YTD. I’m worried about the Bonds (/ZB). If the bonds move higher – that 27% YTD return in the financials could get cut-in-half virtually overnight.
- Tip #2: Sell out-of-the-money Premium: because the SKEW along with the VIX futures (/VX) are telling us to do that.
- Tip #3: Begin to shift your risk to Selling Premium against higher implied volatility (IV) products such as the TLT.
- Tip #4: Mitigate downside exposure by buying out-of-the-month Call-Spreads in the VIX.
SPX Expected Moves: We’re seeing volatility and the marketplace both move higher. We’ve seen 3 consecutive breaches of the expected move calculation. We are still inside of a ‘risk on’ marketplace.
- Last week – we were to only move $53 in the SPX, and we left that in the dust.
- Next week – they are predicting a $42 expected move (due to the 4-day trading week). I expect we will shatter that like we did last week and the week before that.
Tips:
HODL’s: (Hold On for Dear Life)
- AMC – Bought more on principle,
- Bitcoin (BTC = $35,550 / in at $4,310) & buying
- Bitcoin Cash (BCH = $520 / in at $170) & buying
- Peabody Energy (BTU = $8.53)
o Sold July $8 CCs for income
o Sold Aug $10 CCs for income
- CTI BioPharma (CTIC = $2.34)
- Electramericcanica Vehs (SOLO = $4.36)
o Sold Sept $4 and $5 CCs for income
- Education New Oriental (EDU = $7.57)
o Sold July $10 CCs for income,
- ENG (ENG = $3.20 in at $2.86)
o Sold Aug $5 CCs for income,
- Express Inc (EXPR = $7.10)
o Sold July $5 & $6 CCs for income,
- Ethereum (ETH = $2,330 / in at $310) & buying
- Franks International (FI = $3.11)
o Sold Oct $5 CCs for income,
- GME – Bought more on principle,
- Grayscale Ethereum (ETHE = $20.82 / in @ $13.44) & buying
- Grayscale Bitcoin Trust (GBTC = $28.58 / in @ $9.41) & buying
- Grayscale Trust (GDLC = $22.50 / in @ $22.75) & buying
- Hecla Mining (HL = $7.46)
o Sold Sept $9 CCs for income.
- Hyliion (HYLN = $11.00 / in @ $0.32)
o Sold July $13 CCs for income
o Sold Aug $13 CCs for income
- Infinity Pharma (INFI = $2.86)
o Sold $3 CCs for income
- Litecoin (LTC = $140 / in @ $191)
- Transocean Limited (RIG = $5.08)
o Sold Aug $5 CCs for income.
- SOS Limited (SOS = $3.12)
o Sold July $3.50 / $4 / $4.50 CCs for income,
o Sold Aug $4 CCs for income.
o Sold Nov $4 CCs for income.
- Tellurian (TELL = $4.42)
o Sold July $5 CCs for income.
o Sold Oct $5.5 CCs for income.
Thoughts:
Follow me on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm.
Please be safe out there!
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