Written by Michael Forrester – Founder, President, and CIO of High Note Wealth
Happy Fri-YAY, peeps. Super Bowl week is here which means that spring must be close? Okay, maybe not officially, but let’s say spring is a mindset… and it’s spring at High Note.
It was a somewhat reserved week in the world of investments, but that’s no surprise given the craziness of the past couple. 2021 needed to catch its breath. We will finish our GameStop screenplay story from last week, but first a couple of other quick things.
The titans of tech started reporting earnings this week for the fourth quarter and they were massive. The expectations were high going in and they still delivered. We talked back when the pandemic started that big tech not only had more insulation to the financial mess than others, but also opportunity to increase their market share and profitability. That really started to show up in Q4 numbers.
While we were actually living the fourth quarter, all we heard in the financial media was that the rally in the tech companies was over and it was time to rotate into the re-open sectors like travel and energy, etc. The great growth-to-value rotation, they said. Maybe that worked out for some, but those comments are nowhere to be found at the moment. A little patience can go a long way. We continue to be long-term holders in the space.
This week in pandemic news we did get some positive reports. Johnson & Johnson officially have their vaccine submitted to the FDA for approval. You can read more about that here. Also, scientists in Tel Aviv think they have a medicine to successfully treat those with severe cases. That would be helpful. Here’s the story. Lastly, the White House rolled out a plan to authorize pharmacies on February 11th. Each state will still get to decide who gets how much, but it should increase the overall footprint. Here.
On the not-so-positive side, this little blurb isn’t great….
And not to pile it on, but those enthusiastic about getting back to their global travel schedule may be waiting a little longer than expected. Or maybe we all go to Abu Dhabi??? Seems like a good time. This article from Bloomberg paints a pretty bleak picture about the near future of travel. Those who were jumping into airline stocks when the first vaccine was announced should probably sharpen their pencils and re-run the numbers. Just a thought.
The Week the Stock Market Made a Movie: GameStop Act 3
Act Three: With the ability to purchase shares of GameStop locked on the Robinhood platform, there were more sellers than buyers this week. As we know, that’s not helpful to the price of anything you own. And so, yes, the price has come crashing down (fall down go boom). This isn’t the happy ending that many were hoping for, so our story arc has evolved from a feel-good-underdog story to much more of a suspense thriller. A financial who-dun-it if you will.
What we know now is that upstart brokerage firm Robinhood was put in a position where they had to decide to protect the company or to protect the customers. They chose the former. Because of the amount of trading they allowed on the platform and because much of it was being done on margin, they had a liquidity crisis. Brokerage firms are required to maintain a certain amount of cash on hand to cover the trades their clients are making. They claim “record volume” caused the problem. Others may say that if they were watching their books it wouldn’t have been a surprise.
The CEO has been called to testify in front of Congress. The regulators are looking into other things like hedge fund involvement and market manipulation, so the story is far from over. Reports today indicate that the FTC is overwhelmed with complaints filed against the company by customers. It could be a long and bumpy road back to stability. However, they do have a flashy Super Bowl commercial scheduled that really plays to the idea of them being a place for the “little guy.” Apparently, they aren’t familiar with the concept of irony.
Our protagonists, the Wall Street Bets crew, certainly got beat up. As sellers in the marketplace overtook buyers, the bottom started falling out. Even with calls all over Twitter and Reddit to “hold the line,” it predictably turned into every person for themselves. If you don’t have 100% solidarity, you have nothing. The losses are spread from those who invested a little to those who invested a lot, so it’s too scattered to really know the extent.
Will these “outsiders” continue to stay in the market? Are they now jaded from this experience? Time will tell. Hopefully, the majority got out with at least the shirt on their back and will use it as a learning experience. The more participants in the market, the merrier.
In a cruel twist of fate, apparently there is now infighting among the Walls Street Bets community as a few moderators are looking to sell the rights for a movie (not kidding). That story is here.
Another interesting tangent, one of the main participants and cult-hero of the movement happens to have a securities license. So…hopefully he profited enough to hire the best lawyers money can buy, because he will certainly be having a few coffees with the Feds. Here is the story.
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Welcome to Planet Crypto – Bitcoin$$$
We always get a few questions about cryptocurrency as an investment opportunity. It’s a giant planet of its own, so consider this more of an introduction to which we will expand on in the weeks to come. In terms of base level comprehension of the asset, John Oliver’s quote does a great job of summarizing….
“Everything you don’t understand about money combined with everything you don’t understand about computers.”
John Oliver
So, the actual explanation of what the heck it is and why anyone would want to own it is too much for now. What’s important to know today is that much of the huge increase we have seen in the last six months has been driven by companies (not individuals) loading the boat. For many years, the majority was held by tech-savvy-financial-outsiders. As larger financial institutions explored the potential value, it’s truly gone mainstream.
Similar to the cash reserves needed by Robinhood, institutions that want to offer cryptocurrency trades must have a certain level of back stock sitting on their digital shelves, so they have been buying and building positions.
One of these institutions is long-time High Note holding, Paypal. Through their Venmo app, clients can hold and use Bitcoin so they are now large holders of the position. In addition to reporting fantastic fourth quarter numbers, Paypal received a bump due to the cryptocurrency holdings. This indirect exposure allows participation without all of the volatility associated with the space.
Oh, and if you want to sound smart chatting with friends and family about it, simply say “Bitcoin is the gold and Ethereum is the oil” of cryptocurrencies. You will surpass nine out of ten people’s knowledge of the topic with this statement alone.
High Note Wealth LLC is registered as an investment adviser with the Securities and Exchange Commission (SEC). High Note Wealth LLC only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.
