[Market Madness] May 2021 Edition
New format, who's this?
Administrative topics and an introduction
Well folks, I’m going to be trying some different things with this platform moving forward. I’m not sure where I will land, but I am excited for it. This edition, I am going to highlight a handful of posts that I’ve made over on Bookshlf. This will create a nice palette of topics that I’ve been paying attention to.
Did you miss the last edition? No worries! Get it right here and catch up on the madness.
What’s been on my radar
Below are some posts I’ve made on Bookshlf (oldest to newest) that highlight some of the bigger picture topics that I have been paying attention to over the past weeks. I tend to enjoy the daily posting on Bookshlf, as it is more digestible for readers. During the weekdays, I will post one or two articles with commentary on Bookshlf. I will do a summary of those articles here. Let’s get into it.
Maybe a ‘Better’ SPAC
We (or maybe just I) had not heard a lot in the SPAC universe, especially since the potential for increased scrutiny and regulation by the SEC.
Now, we're seeing a real big deal coming on the horizon. The disruptive mortgage startup, Better, is merging with a SPAC (blank check) company, sponsored by Novator Capital. The deal is putting the lending startup with a value over $7 billion.
There appears to be a good deal of appetite for the company, as investors start to pile in through the PIPE (private investment in public equity) function of SPACs. It will be interesting to see how the second big-name mortgage company (behind Rocket by Quicken Loans) to go public via a SPAC.
A little about Better. Better was founded in 2014 and provides home mortgages to home buyers through its own website and some partner banks, like Ally Financial. Its past has been layered with some high-profile investors, including Goldman Sachs, Kleiner Perkins Caufield & Byers, Healthcare of Ontario Pension Fund, and, more recently, SoftBank Group.
The ‘Labor Whale’
I will dub this "the labor whale" -- this was expected to be THE BIG ONE for labor market resurgences. Wall Street was expecting somewhere in the ballpark of 1 or 1.5 million new jobs to be created last month, and we only materialized 266,000. It was a huge whiff, yet we saw markets rise today, and the S&P 500 touch near all-time highs yet again.
This is a really interesting crossroad. Particularly because we've continued to look at and discuss the divergence we're seeing between the financial markets and the health of the underlying economy. This is a major divergence between what was expected and what Wall Street was looking for, and then for how Wall Street actually reacted to the news.
I had expected markets to sell off following the shockingly bad announcement, yet we saw the opposite. It could be that there was some shell shock, and we might see a reversal on Monday.
Credit Card Debt on the Decline
A positive consumer economic trend shows that more Americans are paying down on their credit card debt at the fastest rate in years. The additional cash in hand from the stimulus checks could be a helpful push for people to repay some debts. When you’re stuck at home and without job income, it is nice to see that folks had looked to make situations better for themselves in the future.
Something that has me a little concerned in the article is the idea that these credit card companies are looking to get those cards into more hands and loosen credit standards. These are the things that unwillingly get people into trouble with credit cards. People who aren’t privy to the rules of the road for credit cards can easily get into financial trouble.
Corn is Popping
Corn is literally popping! The common cash crop in American markets are nearly double their price just one year ago. This price jump has followed suit with other commodities that have also been jumping high (following input metals such as aluminum, copper, and other inputs like lumber).
Some of the concern or importance around this topic is the notion that when raw materials see price increases, producers need to increase costs of finished goods to compensate for their additional raw material spending. That cost is then passed onto the consumer in the form of higher prices for finished goods. Did someone say inflation?
Some of the inflation scare story is starting to materialize, as a handful of major commodities start to see unexpected price increases, manufacturers of mid-stream goods like computer chips are seeing shortages, many finished goods will cost more to produce. What costs more to produce will cost more for a consumer to purchase. Depending on how long the raw materials stay elevated in cost, the cycle continues.
As we start seeing this happen more, it would not surprise me to see some kind of Fed statement on potential conditions affecting their inflation target. It might still be a bit too early to tell right now. I've heard some rumors of the start of a new commodity super cycle, but I admittedly have not looked into that too much, so I will not comment on this directly right now (but will post on this later).
Coinbase’s First Public Company Report
Coinbase filed its first earnings report as a public company with revenues soaring to $771 million (up from $32 million). The rise, of course, comes in the wake of a total boom in cryptocurrencies, both from an individual investor level as well as institutionally. Appetite for this space continues to increase as the market continues to grow, ebb, and flow. I think it is too early to be 'top-calling' or predicting cycles in those markets, but interest continues to grow.
The public trading of Coinbase begs an interesting question: what is the point of owning the company when you can invest in the underlying currency. I understand that Coinbase facilitates the exchange of the currency and operates within the blockchain ecosystem. Coinbase a cylinder in the engine, and bitcoin is the oil.
Regardless, I think it is an interesting "chicken and the egg" kind of situation when it comes to deciding to own the currency or the stock of Coinbase. Since, as noted below in the notable quote, Coinbase's profitability is completely tied to the market for bitcoin and other cryptocurrencies, which are 'inherently unpredictable.'
Notable quote: "The company was cautious about the rest of the year, noting in a letter to shareholders that the crypto market is “inherently unpredictable.” Its trading volume and active users are driven “potentially materially” by changes in bitcoin’s price and the market’s volatility. The company said for the second quarter it expects its key business metrics to meet or exceed the first quarter. It noted that the number of active users have continued to increase and at the current pace, total trading volume would match or slightly exceed the first quarter.”
Wages on the Rise
Bank of America looks to make big labor moves by 2025. Today, the bank supergiant announced that their minimum wage to $25 by the year 2025. Gradually, we're seeing the national averages creep up, but is definitely not keeping up with rising costs of living across the U.S.. It is not the same everywhere, but there are considerable cost increases everywhere, in part due to the rising input costs to production.
In some places, a raise like this could be disruptive to local businesses who are unable to keep up. However, it signals to the larger market that employees should be making a wage that allows them to have a sustainable and prosperous living.
I imagine this wage increase trend to continue, along with some spot sign-on bonuses, to help encourage people to return to work following the pandemic.
‘Dangerous Complacency’ or Dangerous Commentary
Part of my general discontent with financial news and media currently is the level of red alarm waving there is. Everyone is misinterpreting and misjudging everything no matter how you interpret the market, the economy, or a single financial event. And this is not across political ideations either. There is just such a growing disconnect between prominent figures in finance that it’s become something of a mudslinging contest for the people in charge currently. No one has faith in the fed it seems. There seems to be a general dismay over the financial market recovery, and there are skeptical calls on the housing market. Of course, there are counter claims to all those too.
It seems to me that the news and prominent minds are too afraid to admit that this time, there is a degree of variability that we've maybe not seen before. There are potential new outcomes that we've not seen in crashes and recoveries of the past. We must learn from them so that we do not repeat them again, but it’s also worth noting that its likely possible that we've not seen every configuration of a market crash and recovery.
Especially with this pandemic, there are many intricacies that are uncommon with prior downturns that makes me think that a similar recovery pattern is just not in the cards.
I think this last post is a good one to end on. This is where I have been spending a lot of my time thinking. I don’t like the ‘shot calling’ from the players in the market who have high influence. If you look back, you’ve made erroneous claims when the pandemic began as compared to where we are now. Some of the same people calling everything “rosy” now were the same people touting the end of days when the pandemic began (and vice versa). We should just admit that there are much different elements that make up the circumstances this time and we’re not ultimately sure what’s going to happen next.
Please let me know what you think of this new style. I really enjoy posting on Bookshlf. The community over there is strong, and I’ve gained a strong readership over there. The social media site itself is growing and tends to lend itself nicely to honestly curated and factual information.
I plan to keep this newsletter refreshing with different styles and reporting methods. I was complacent for too long but am excited for this next chapter.
Well done. You’ve made it through the madness. I’ve worked hard to ensure that you leave this page having learned something, and I hope that it benefits you in your daily adventure. Thank you again for checking in.
[Market Madness] Edition 0143