Earlier this month, the Wall Street Journal ran a prominent piece called “As Dow Tops 25000, Individual Investors Sit It Out“, that garnered quite a bit of attention.
Part celebration of Dow 25,000, part requiem for a time when retail investors were “involved” in historic rallies, the piece featured a series of anecdotes from those who “missed out” on the gains logged since the bull market began following the crisis. The people the Journal interviewed gave a variety of reasons when asked why they remained on the sidelines, ranging from crippling student debt to not trusting CNBC.
That article got a lot of criticism and for good reason. For one thing, the Journal made only passing reference to the fact that what’s come out of actively managed funds made its way back into stocks via ETFs and on top of that, the authors didn’t seem to fully grasp what institutional money represents. Ultimately, the piece was more interesting for the anecdotes than it was for anything else.
Well needless to say, flows into equities in the new year have approximated a tsunami. We’ve hit full-on, FOMO, fuck-tard as stocks race higher, blowing past nearly half of Wall Street’s year-end targets on the way to trading in overbought territory for an incredible 17 straight sessions and returning 6% YTD.
According to BofAML, some $33.2 billion flowed into equity funds in the week through Wednesday, a record in data going back to 2002.
In light of that, WSJ is out with what amounts to a follow-up piece to the one mentioned above and they’re sticking with the notion that “individual investors sat out most of the nearly nine-year bull market”. Whether you believe that or not, the rest of the Journal’s new piece is hard to argue with because the gist of it is that everyone is now buying hand over fist.
Here’s the scariest excerpt (and the part that’s getting some attention on Saturday):
Discount brokerages TD Ameritrade Holdings Corp., E*Trade Financial Corp. and Charles Schwab Corp. reported surges in client activity at the end of 2017 that have accelerated in January.
The firms attributed much of the activity to retail, or individual, investors who are opening brokerage accounts for the first time, some of them lured by the boom in cryptocurrency and cannabis investments .
The Journal goes on to quote E*Trade’s Chief Executive Karl Roessner from the Friday Q4 call. If you go and you listen to that call, it is rather disconcerting. Here’s one funny soundbite:
Talking in general about securities on blockchain or blockchain-named stocks, in the cannabis trade, I mean, the cannabis trade for us obviously represents a new type of market high, which is interesting. But when you look at crypto and cannabis, yes, the volumes have been up big in January.
Yes, the cannabis trade represents “a new type of market high”. I certainly hope that was meant to be funny.
Now consider all of that with the following, also from the WSJ piece:
At Ameritrade—among the first to give retail clients access to bitcoin futures—new account openings hit a record at the end of its latest quarter, driven by a 72% rise in new business among millennials. Chief Executive Tim Hockey said in an interview that most of the influx of younger, first-time investors was due to interest in the highly speculative areas of cryptocurrencies, including bitcoin, and cannabis.
So, yeah – millennials are opening up brokerage accounts in order to pile into the cannabis craze and the crypto mania.
Obviously, that is all kinds of dangerous, especially given the sheer absurdity we’ve seen over the past six or so months with regard to companies “pivoting” to blockchain in an effort to capitalize off the very same interest that’s now manifesting itself in retail brokerage flows.
As a reminder, the digital gold rush that unfolded late last year as Bitcoin exploded higher transformed iced tea bottlers into tech enterprises, made crypto companies out of bra manufacturers and in one particularly hilarious case, prompted the maker of a bedwetting inhibitor called the “UrinStopper Patch” to get out of the piss prevention business in favor of blockchain.
Those are the types of scams that are luring in millennials on the crypto side of the equation.
On the bright side, it’s safe to assume that a non-negligible percentage of these Johnny-come-latelies aren’t completely clueless when it comes to knowing what they’re investing in. After all, quite a few of them have probably been “investing” in cannabis for years.