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To investors,
Something very unique is happening in the public markets. The S&P 500 has hit a new all-time high every day for the last 7 days. The Nasdaq also sits at an all-time high as well. Look at this chart — everything is up and to the right. The bull market rages on.
This is all happening while millions of Americans are still experiencing pandemic-related issues. It seems like the complex beast known as the economy has broken all preconceived notions of how it is supposed to work. Gasoline prices have increased $1 from a year ago, which brings the national average to $3.13 currently. The prices of commodities have increased so rapidly that home builders are throwing their hands up and refusing to participate in the market until they can better forecast their cost structures (read this epic thread for context).
This is not a problem specific to the United States though. The Washington Post had a great article highlighting the exploding food prices around the world. In the piece, Adam Taylor writes:
“The U.N. Food and Agriculture Organization said its food price index, which measures the global price of select foods, had in May hit highs not seen since 2011, up 40 percent year-on-year.
A variety of factors are to blame, including a surge in orders from China, fluctuating oil prices, a sliding U.S. dollar, and looming above all: the pandemic, and in some places, reopening.
But experts say that in the face of growing populations, globalization and climate change, higher prices may not be a blip.”
So what about the United States? Surely we couldn’t be experiencing the same thing in the most developed nation in the world, right? Wrong. Take this opening from Jaewon Kang’s article in the Wall Street Journal this morning:
“Supermarkets are stocking up on everything from sugar to frozen meat before they get more pricey, girding for what some executives anticipate will be some of the highest price increases in recent memory.
Some supermarkets said they are buying and storing supplies to keep their shelves full amid stronger demand. Grocery sales in the U.S. for the week ended June 19 rose about 15% from two years earlier and increased 0.5% from a year earlier, according to Jefferies and NielsenIQ data.
Stockpiling by food retailers is driving shortages of some staples, grocery industry executives said, and is challenging a U.S. food supply chain already squeezed by transportation costs, labor pressure and ingredient constraints.
The move is a reversal from last year when consumers hoarded groceries because of concerns about food availability, disrupting the food industry. Now, retailers themselves are stockpiling to keep costs down and protect margins.”
There is a level of insanity at the moment that is hard to comprehend. Grocery stores are acting like hedge funds through their speculation on future food prices. Think about that for a second. The current economy is so out of whack that the grocery stores are speculating.
Speaking of speculation, Robinhood revealed quite a bit of information in their S-1 filing. Here are a few statistics that stood out to me:
Robinhood has 18 million funded accounts
Almost 100% of the funded accounts are active monthly (17.7 million)
Robinhood has $81 billion of assets under custody
This is an incredibly large business, but there are some nasty sides to it too. For example, Tanay Jaipuria correctly identified one issue:
“The DAU/MAU ratio is ~47%. For context, the very best social networks tend to be in the 50-65% range, so it’s quite crazy that the daily usage rate for Robinhood is that high.”
Given the research around less trading historically equating to higher long-term returns, this level of activity is a big negative for the user base’s economic outlook. But that isn’t even the worst part. Check out this insanity:
Approximately 6% of Robinhood’s total revenue comes from users trading Dogecoin.
Approximately 37% of Robinhood’s total revenue comes from users trading options.
Over 6.5% of Robinhood’s total revenue comes from providing margin loans to users.
These statistics scream SPECULATION! to me. Speculation isn’t necessarily a bad thing on its own, but when you add in the context of the broader financial markets and economic calamities, the current situation is alarming to say the least.
But as I mentioned at the top of this letter, the S&P 500 and Nasdaq continue to hit all-time highs. That means the wealthiest people in our society continue to get richer and richer, while things like rising food costs continue to eat away at the financial well-being of the economy’s most vulnerable.
Rather than spend time complaining about the situation, my suggestion to every person is to get educated about how the economy works and position yourself to benefit from the macro economic forces. You, nor I, will be able to change the current situation. There is literally rumors of $6 trillion infrastructure bills being floated inside the current administration, so we actually may see things get even more crazy over time.
Education is the great equalizer in uncertain times. While it can be fun to speculate, remember the most common investment strategy of the world’s greatest investors: Buy good assets at discounted prices. That is it. Easy to understand, hard to execute.
Hope each of you has a great start to your day. I’ll talk to everyone tomorrow.
BONUS: We are running our 5th cohort for the Bitcoin and Crypto Training Course starting tomorrow, Tuesday July 13th. Graduates have already been hired at Coinbase, BlockFi, Gemini, Kraken, and many other great companies. Want to increase chances of being hired? Apply here: https://pompscryptocourse.com
-Pomp
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THE RUNDOWN:
Coinbase to Woo India Recruits With $1,000 in Crypto: Coinbase is looking to hire “hundreds” of recruits for its new hub in India, and is offering an incentive of $1,000 in crypto. The aim is for recruits to "leverage this offering to learn about crypto," Pankaj Gupta, VP of engineering and site lead in India, said a blog post Friday. The exchange is looking to tap the country's "world class community" of engineers, tech builders and entrepreneurs, Gupta wrote. Read more.
Fed’s Powell May Have Met With Coinbase CEO in May: U.S. Federal Reserve Chairman Jerome Powell was scheduled to meet with Coinbase CEO Brian Armstrong on May 11, according to an entry on the central bank’s calendar. It was unknown what the subject of the planned half hour meeting was or that it even took place. Former Speaker of the House Paul Ryan was also to have been in attendance. Read more.
UK Bank Barclays Blocks Payments to Binance: U.K. bank Barclays said Monday it is blocking customers from using their debit and credit cards to make payments to crypto exchange Binance. "With effect from today, Barclays intends to stop credit and debit card payments to Binance," Barclays said in an email to CoinDesk. "This action does not impact on the ability for customers to withdraw funds from Binance." Read more.
Revolut in Talks With SoftBank for Investment at $30B+ Valuation: U.K.-based digital bank Revolut is in “detailed talks” with SoftBank about a fundraising round that could value the firm between $30 billion and $40 billion, according to a Sky News report. Revolut and its advisers have asked investors at SoftBank's Vision Fund 2 to submit proposals for an investment of between $750 million to $1 billion with a deal expected to be “some weeks” away. Read more.
Digital-Asset Investment Funds See Net Inflows of $63M: Digital-asset investment funds attracted net capital inflows in the week to Friday after four consecutive weeks of redemptions, as bitcoin, the crypto-market leader, consolidated its quick recovery from sub-$30,000 levels. Data tracked by the U.S.-based CoinShares show crypto funds registered a net inflow of $63 million last week, of which nearly 62%, or $39 million, went into bitcoin-dedicated funds. Read more.
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I really enjoyed this conversation with Patrick. Hopefully you enjoy it too.
LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE
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The World Is So Crazy That Grocery Stores Are Speculating Like Hedge Funds Now