There are perhaps fewer things in investing more terrifying than retail investors armed with derivatives. It's like giving a monkey a shotgun in a crowded room. The influx of retail investors into the market at the onset of COVID-19 shutdowns has added an unpredictable element to the market. An abundance of naked call buying has unbalanced things, and could lead to trouble. The Economist explains: Who bears most responsibility for the volatility? First, small-trader flow is much larger in size, although it was likely dispersed among more listed companies. Second, and more importantly, … [Read more...]
NYC Hotels’ ‘Temporary Shutdown’ Turns into Permanent Closure
Since the beginning of COVID-19 shutdowns in March, New York City has been suffering. At the top of the list of those businesses worst affected is the hotel industry. What were planned to be only temporary shutdowns have turned into permanent closures for many locations. Patrick McGeehan reports for the New York Times: Many of New York City’s biggest hotels closed their doors in March when the coronavirus wiped out tourism and business travel. The shutdowns were supposed to be temporary, but six months later, with no potential influx of visitors in sight, a wave of permanent closures has … [Read more...]
Nikola Founder’s Exit a Reminder of How Manias Can End
The mania in electric vehicle stocks has been nothing short of spectacular in 2020. Tesla has become the 7th largest company in the United States based on the anticipation of what might be many years in the future. Nikola, an electric-truck startup that doesn’t yet produce anything, was larger than Ford Motor Company for a few weeks over the summer. Manias are like wild parties. Both are a blast while they last, but the hangover you wake up to makes you swear you’ll never do that again. William Boston and Ben Foldy report in The Wall Street … [Read more...]
Ford’s Existential Project
The Ford F-150 is the second-highest grossing branded product in the world. It is second only to the iPhone. Ford did $42 billion in sales of the F-150 in 2019. Morgan Stanley has estimated that the F-150 may be responsible for 90% of Ford’s total global profit. Ford and GM own the light-duty truck market in the U.S., but new competitors are emerging. Electric vehicle drive trains are all the rage in the stock market today. Not so much in the actual market for trucks just yet, but that may change. If it does, Ford and GM will have to stay on top to survive. Ford understands the stakes if … [Read more...]
Biden Wants to Gut the Tax Benefit of 401K Plans
Joe Biden wants to gut the tax-benefit of 401K plans. Americans have $6.2 trillion in 401K plans with another $11 trillion in IRAs that are partly from “rolled over” 401K assets. Over 42% of American families participate in 401Ks and plans like them. What is Biden’s beef with the 401K plan? Biden doesn’t like that higher-income Americans get a bigger tax deduction on 401K contributions than lower-income Americans. He says it isn’t fair. Why does fair always mean you need to pay more taxes to a federal government that delivers the same services to every American? Biden wants to … [Read more...]
A Look at the Future of Main Street America
That’s no joke. Amazon is planning to open 1,000 mini-warehouses in suburbs and cities around the country. How long will it be before Bezos decides to expand to rural towns across the country? Amazon became a behemoth on the back of a special provision that allowed it to charge consumers no sales tax when all of its brick and mortar competitors had to charge sales tax. Amazon has now grown to a scale that has allowed it to put the mom-and-pop brick-and-mortar stores which define the character of many towns across the country out of business. How does a small retail operation survive … [Read more...]
Ever Heard of Snowflake?
Snowflake is a technology company that develops database architecture, data warehouses, query optimization, and parallelization options. The company came public yesterday and the stock doubled from the IPO price. Snowflake, a firm we would guess many investors have never heard of, is now worth more than household names including Colgate, Deere, and TJX Stores (TJ Maxx and Marshalls). As of its closing value yesterday, Snowflake can be purchased for a mere 175X trailing 12-month sales! Despite a modest correction in technology shares this month, exuberance toward tech, cloud, and electric … [Read more...]
The Government is Coming for Facebook
The FTC is preparing a possible antitrust suit against Facebook report Brent Kendall, John D. McKinnon, and Ryan Tracy at The Wall Street Journal. They write: WASHINGTON—The Federal Trade Commission is gearing up to file a possible antitrust lawsuit against Facebook Inc. FB -1.09% by year-end, according to people familiar with the matter, in a case that would challenge the company’s dominant position in social media. The case preparations come after the FTC has spent more than a year investigating concerns that Facebook has been using its powerful market position to stifle competition, … [Read more...]
Apple Built Itself on Simplicity. Now it Is Confusing Customers.
What are Apple customers' best options? They can't tell. That's the problem facing Tim Cook and the Apple team. Nicole Nguyen reports in The Wall Street Journal: Apple AAPL -1.20% made three significant product announcements Tuesday—the Apple Watch Series 6, the redesigned iPad Air and the new Apple One service bundles—and managed to create more confusion about the best way for its customers to spend their money. When it comes to Apple Watch and iPad, the choice is no longer simply “Should I upgrade?” Apple, in trying to prove that its gadgets and services are for everybody, now offers a … [Read more...]
The Casino Market
Stock options volume now exceeds the volume of underlying shares. Speculation is rampant in the stock market. “Investing” in stocks is being treated more like a roll of the dice than it is a long-term strategy for building wealth. Gregory Zuckerman and Gunjan Banerji report for The Wall Street Journal: The two strategies show no signs of fading despite big declines in the past week. Taken together, they will likely continue boosting volatility in markets already grappling with an uncertain economy, the coronavirus pandemic and a presidential election that may not have a conclusive result … [Read more...]
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