“The leak in ‘Speculative Frenzy / Unprofitable’ stocks has now accelerated,” Nomura’s Charlie McElligott said Thursday, weighing in on the missing “stimmy” bid.
I say “missing.” That’s a misnomer. Nothing is really “missing.”
Rather, we’re all learning that hypotheses about what twentysomethings will be inclined to do when you hand them $1,400 are even more speculative than the GameStop calls we assumed they’d buy.
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Although I have no kids myself, I imagine any parent would tell you it’s a fool’s errand to make predictions about where money will end up if you deposit it in the accounts of young adults.
Little wonder, then, that Joe Biden’s “stimmy” didn’t appear to flow into corners of the market where many expected it to manifest.
McElligott ran through some numbers. A “bankruptcy risk” basket was down 5% over the recent trading window. The ARKK Innovation ETF was off 7% this week through Thursday morning. A “Retail Red Alert” basket (which sounds like something that crawled out of a risk manager’s feverish nightmare) dropped -7.2%. A basket of recent IPOs logged a similar stumble, while a “post-SPAC merger” gauge sank 10% in just a handful of days.
So, what’s behind this demonstrable “de-frothing”?
Well, according to McElligott, clients say the speculative frenzy is “now succumbing to three factors.”
The first is straightforward: Logging into a retail brokerage account and seeing a red arrow beside the big number displayed prominently at the top of the screen isn’t fun.
“Many of these popular speculative names [are] meaningfully lower over the past few months and bleeding PNL, particularly in YOLO Retail trading accounts,” Charlie said.
And don’t forget about the taxman. Although the filing deadline was pushed back, there may be some retail selling ahead of tax bills, McElligott remarked, adding that this could be “particularly” true if some folks are anticipating a capital gains tax hike. The only thing I’d note is that the Robinhood crowd probably isn’t thinking that far ahead, but I suppose it could be a consideration for “seasoned” retail investors, assuming that’s not an oxymoron.
“The most salient point,” though, is that stimulus money isn’t going into equities. McElligott suggested that,
This latest round of ‘stimmy’ checks are being re-routed away from speculative assets (which were previously obsessed over during the ‘Work From Home’ screen-time era), but now instead, are transitioning back into the real world consumer economy, as we reopen and get back to work in the post-vaccine paradigm shift.
All of this may help to explain an apparently disinterested and/or disheartened “YOLO” base. When you think about, for example, less call-buying, do consider that when unsophisticated gamblers dabble in deep out-of-the-money calls, it typically results in a total loss.
As Charlie wrote Thursday, “the retail ‘weaponized Gamma’ horde [is] step[ping] back after lighting so much premium on fire with deep OTM upside purchases over the past 1.5 months, much of which has expired worthless.”
Meanwhile, Bitcoin (the purest market-based expression of the greater fool theory), is down nearly 10% from the highs.
Younger investors might love their crypto, but when it’s 2 AM and you’re buying the next round for three friends and five mask-less strangers you met two hours ago at the last bar, it’s still easier to buy Jäger shots with dollars.
My only advice would be to ditch the hangers-on, find a quieter place and let night turn to morning over a snifter of cognac.
It’s good to have a younger generation join the financial markets community. Despite what old farts say, present company, and author excluded, it matters that a new generation of buyers and sellers are brought in. Doesn’t matter that it’s been quiet the last month. Longer term, like decades, this matters. It’s the beginning of a new cohort. We need them.
I suspect, among other lessons, this generation has started to learn that no one gives a shit about you, people will, mostly, scrw you over, given the chance, and that the financial markets are rigged against you.
The lack of perspective of the wheel of life turning among older market participants is astounding. That we were all the age of this younger generation at one time seems not to be able to penetrate the minds of financial market thought leaders.
The sages of the financial markets all thought the “stimmys” would go into the market, or bid for crypto. Again, shows just how myopic, or manipulative, many are. I didn’t see any ensemble of polls, that used scientific data gathering techniques, that concluded with some confidence that money was going into the market and cryptos.
One aspect of the younger generation that we should feel sorry for is their children; their children will perhaps be the second, or third, generation in American history that will have less opportunity, and be less wealthy, than their parents’ generation. Let that kill the “stimmy” bid.
Without the kids playing the market, might turn into the boring numbers game . It was fun buying some stocks that I looked upon as “at this price, maybe someday” and then the kids showed up.
Thanks for the freeos kids.
Spring and summer change everything.
I just talked to my mailman about last batch of stimmy and this batch. He did not notice it yet, same as last time. I read that a big paper batch went out March 19, so….