Former Fed Reserve Chair Alan Greenspan in Nov. 2018
https://www.bloomberg.com/multimedia/api/embed/iframe?id=a72b6a4a-9365-4f6f-80d2-dabd0dd8709a
Tag: Finance
Softbank Telecomm Unit IPO
Shares closed nearly 15% below the ¥1,500 initial offering price
The IPO raised ¥2.65 trillion ($23.6 billion), second only to the 2014 listing of China’s Alibaba. (WSJ article)
SoftBank Group has larger debt and commitments – investment as an obiligation.
Cash is the paramount consideration, especially in an interest rate rising environment.
Connection with huawei and uses of its equipments added to the hit.
Does US have 3% Checking Account?
Robinhood recently prepared to launch its stunning checking & saving offering for cash management with a 3% rate.
That is an astonishing number compared with regular checking accounts (and saving accounts). Industry average is 0.08 percent yield on U.S. checking accounts and the 0.1 percent average on savings accounts (find more about rates here on bankrate.com).
However, the comparison didn’t last long… as Robinhood pulled back and slowed down it official launch. The center question is that “accounts look like bank accounts, (but) they aren’t.” Below is the description at the bottom of the website.
Robinhood Financial LLC and Robinhood Crypto, LLC are wholly-owned subsidiaries of Robinhood Markets, Inc. Equities and options are offered to self-directed customers by Robinhood Financial. Robinhood Financial is a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC), which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org. Cryptocurrency trading is offered through an account with Robinhood Crypto. Robinhood Crypto is not a member of FINRA or SIPC. Cryptocurrencies are not stocks and your cryptocurrency investments are not protected by either FDIC or SIPC insurance
It is not FDIC protected and it is reported that – “the head of the Securities Investor Protection Corp. (SIPC) told CNBC on Friday that the start-up didn’t contact his office ahead of the product launch, and to his knowledge Robinhood had not contacted the SEC, either.”
While regulation is an issue, another question is – whether 3% reasonable / doable?
US has been through years of low-interest environment; people are not familiar with 10% or 5% interest rate back then. But after Fed’s meeting this week, it is highly likely that there is another 25bp raise, pushing fed funds rate into a range of 2.25 to 2.50 percent.
Here is a brief history of four increases this year (updated in Jan 2019)
| Date | Increase | Decrease | Level (%) |
|---|---|---|---|
| December 20 | 25 | 0 | 2.25-2.50 |
| September 27 | 25 | 0 | 2.00-2.25 |
| June 14 | 25 | 0 | 1.75-2.00 |
| March 22 | 25 | 0 | 1.50-1.75 |
And a history – Intended federal funds rate change, 1990 to present.
I should say 3% in 2019 is not undoable. But the core difference is a marketing issue. Robinhood could invest in higher yield products.
But in consumers’ view, it is truly disrupting and may level up the playground for all players in this field.
The time of easy money is gone. The startups or new initiatives with better and sustainable solutions (usually tech-oriented) are attacking the incumbents. Robinhood may or may not be the one (and this may not be the exact right approach), but the industry needs to be prepared.
Very Interesting Statement from Running on Empty by Peter Peterson
Democratic – there is no limit to how much they can take from government
Republican – there is no limit to how little they can give to government
where “they = voters”
It seems that the swing between two parties causes the constantly larger promises that are asymmetric in terms of what voters get – no one would promise more restrictive policies to gain votes.
IPO Party in 2019
See who is joining and their IPO targets –
- Lyft, ~$18-25 bn
- Uber, ~$120 bn
- Airbnb, ~$40-60 bn
- Slack, ~$10-15 bn
- Palantir, ~$40 bn
Other tech companies include – Pinterest ~$15-20 bn, Robinhood ~$10 bn
A Good Report on Next-Generation P&C Insurance
A CB Insights report, a good summary.
Ohio Accepting Cryptocurrency for Tax – Pure Personal Interest or A Move to Future?
Ohio is becoming the first state to accept crypto as tax payments on https://ohiocrypto.com/.
The move is made by Ohio State Treasurer Josh Mandel. Born in Sep. 1977, he had made several moves after being elected as Ohio State Treasurer in Dec. 2010, including OhioCheckbook.com that posts all state spending information on the internet for better government transparency.
The current cryptocurrency accepted is Bitcoin, with more to come. A third party cryptocurrency payment processor, BitPay, will serve between taxpayers and Ohio State Treasury, so that the former will pay crypto and the latter will receive dollar.
Although the State Treasurer himself is said to be an enthusiast of cryptocurrencies and blockchain, it might as well be seen as a state-level move to differentiate itself and embrace the future tech world. According to TechCrunch, Ohio has other moves to become tech-friendly including a technology hub forming in Columbus, home to one of the largest venture capital funds in the Midwest, Drive Capital. And Cleveland (the city once called “the mistake on the lake”) is trying to remake itself in cryptocurrency’s image with a new drive to rebrand the city as “Blockland”, etc. Columbus also reported last year that its Smart Columbus program had an expanded $417 million in resources to turn Columbus into the testing ground for intelligent-transportation systems.
Politics and future development is more interconnected than ever. Policy makers are becoming smarter and seeing/learning the tech future as others. “Policy infrastructure” played an important role in the past and will continue to do so. Each city/state may have a specialization and leveraging its hub effect. Blockchain is one of those “specializations” that many are going after. China and US are no different in terms of this strategy of development.
Moderna’s Long-waited IPO Filed, Raising $500+ Million
Moderna filed S-1 with SEC last Friday and will become the largest biotech IPO in history.
The record amount of raise ($500 million in current version of documents; I will expect more) just surpassed $421 million (HK$3.3bn) IPO by Innovent. In the past years, the typical size of the largest biotech IPO is around $200-300 million.
Since October, we have seen a series of large biotech IPOs that might also contribute to the money pulled from other biotech companies.
Here is the list of ever-increase IPOs in size since October:
– Guardant Health $238 million
– Allogene $324 million
– Innovent (in HK) $421 million
– Moderna (proposed) $500 million
Two Reflections from Physics on Investing
1.
What Physics says
Intense sub-planck undulations are seen as glimmers of distortions when zooming out, and are smoothed out on a higher level. Vice versa, seemingly flat world could be surprisingly dynamic if viewed in a sufficient close manner.
In the investment world
Fluctuations in prices within a short time frame, however dramatic, could be (at least partially) smoothed out in a longer period of time. Vice versa, more details or clues of changes could possibly be found behind the scene even if prices stay the same in a week/month/year.
2.
What Physics says
While sub-planck variations are cancelling out with each other, some changes are constant and going in certain directions, although might be immaterial/unsensible on a daily basis – e.g. our universe is ever expanding.
In the investment world
Certain underlying trends (company, industry, economy, society, species, planet, etc.) are happening definitely in the long run. Trying to uncover those trends and making investments according to those should be an effective long term approach.
Nasdaq Composite and Value Creation
[This blog post is mainly focused on NASDAQ]
1. How big is today’s loss & Are we really panicking?
The market rout on 10/24 (NASDAQ Composite dropped 329.14 points to 7,108.40) made it the largest retreat so far this year, surpassing the previous 316-points loss merely 2 weeks ago (10/10).
While the 4.43% retreat is widely “touted” as the biggest one-day loss since August 2011, it’s also the 3rd largest daily point loss in NASDAQ history (the other two happened in 2000 during the dot-com bubble).
| Top 10 NASDAQ Largest Point Decrease as of 10/24/2018 | |
|---|---|
| Date | Point Change |
| 04/14/2000 | -355.49 |
| 04/03/2000 | -349.15 |
| 10/24/2018 | -329.13 |
| 10/10/2018 | -315.96 |
| 04/12/2000 | -286.27 |
| 02/08/2018 | -274.82 |
| 02/05/2018 | -273.42 |
| 04/10/2000 | -258.25 |
| 01/04/2000 | -229.46 |
| 03/27/2018 | -211.73 |
| Reference: NASDAQ Largest Point and Percentage Decreases in the NASDAQ Composite Index | |
However, in percentage wise, we could see NASDAQ’s 10 biggest single day decrease ranging from -11.35% to -7.23% (3 of which related to the 2008 financial crisis, 3 related to the dot-com crash, another 3 related to the 1987 crash).
“-4.43%” is not a big deal & that’s not how investors react if they are really panicking.
2. All about inflation?
It’s crucial to incorporate inflation into analysis.
NASDAQ climbed above 5,000 in Mar. 2015, and it took another 7 weeks before it reached the dot-com bubble peak of 5048.61 (intra-day record was 5,132.52).
However, when we adjust for inflation, things are different.
Doing a simple math – U.S. CPI (urban, all items ex. food & energy) is 181.3 in 2000 (annual average) and 256.5 in 2018 (H1 average); so a 8,109.69 peak in August should be around 5,732 in 2000-price-level.
So NASDAQ Composite spent more than 18 years to grow 13.5% (from peak to peak), while fundamentally technology has gone through tremendous evolutions.
Similarly, WSJ reported in January this year that “Nasdaq Tops Inflation-Adjusted High [7269.89] from Dot-Com Boom”; and the chart below shows the inflation-adjusted path.
Why did we wait for 18 years just for a come-back? So value creation has little to do with the price? Is this all about inflation in the end?
3. Sit back and relax – It’s NOT all in vain
It’s a sure thing that companies can be over- or undervalued over time. But the benefits and growths are also real.
We have (unprecedented) iPhone in 2007 and (finally) massively produced Tesla Model 3 in 2018; we have 1 TB cloud storage for $9.99/month on Dropbox/Google Drive and unlimited storage of business account for $15/month on Box or $10/month on OneDrive.
Development in biotech is equally impressive. Sequencing cost dropped from ~$100 million per genome in early 2000s to ~$1,000 in 2016; and we are curing/curbing more types of cancer with unprecedented success rate and less harmful methods. Other advancements, for example those in neuroscience or surgical robots, are no less exciting.
And we can see their reflections in stock price (e.g. AAPL TSLA ILMN ISRG).
While the NASDAQ Composite in 2000s may be overvalued, comparatively in 2018 it is more supported by concrete revenue and earnings. Promises and expectations are still built in the price, but things are a lot better.
From a similar discussion in Mar. 2015 when NASDAQ reached 5,000 again after 15 years – P/E is not even close to insane levels.
When we call it a bubble (e.g. dot-com bubble), it is usually characterized by an increasing [absurdly large] difference between price and actual value created.
Revenue or earnings can rarely be doubled consecutively between regular quarters but prices can. That’s what happened in 1999 when Nasdaq Composite rose 85.59% (vs. 28.24% in 2017) and 13 large-cap stocks rose over 1000% (vs. Amazon +56%, Netflix +55%, Facebook +53%, Apple +46%, Alphabet +33% in 2017).
While a 10-fold rise in stock price is tough to catch up by revenues and earnings, I see a 50% rise doable and reasonable (e.g. could be a combination of 80% EPS growth + 20% P/E decrease, 50% EPS growth + P/E unchanged, or 25% EPS growth + 20% P/E increase), as long as the new P/E is justified by the future prospect.
I am not saying we shouldn’t anticipate a correction; but NASDAQ Composite hasn’t been super crazy neither.
I would like to conclude this post here by saying that – I believe in the future and the real benefits of tech [if correctly used]. Some areas might seem to be more over-promised than others, and some risks are looming on the horizon [to negatively impact global economy in a nontrivial manner], but true value creation should and will always be valued.
Appendix – what does S&P look like
