Tremendous

An angel investor's take on life and business

  • Bitcoin Is Worth More Than Double All US Gold Reserves

    When it comes to storing value, what could be more iconic than Fort Knox, where the US keeps a large portion of its gold reserves? It’s heavily guarded and contains gold worth over $290 billion.

    But that along with all other US reserves, at $456 billion, are worth less than half of the value of all bitcoin, at $948 billion.

    The value of all bitcoin worldwide still pales in comparison to the value of gold, however. Were they to reach parity, bitcoin’s value would have to multiply many times.

    (I arrived at the value of all US gold reserves by taking the reserve amount here and multiplying it by the price per metric ton here.)

    For more on cryptocurrencies and financial markets, check out these posts:

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    Photo: “Bitcoin, bitcoin coin, physical bitcoin, bitcoin photo” by antanacoins is licensed under CC BY-SA 2.0

  • Rocket Companies Is One of the Most Active in the Options Market

    Shares in Rocket Companies jumped over 70% today, and that optimism is also reflected in the options market:

    RKT stock was one of the most active stocks in the options market yesterday with total volume of over 365,000 contracts. Call option volume outpaced puts by a ratio of 6-to-1. Overall volume was nearly three times higher than normal.

    More here. This is particularly striking given that Rocket Companies, while a substantial company, is tiny compared to giants like Apple, Amazon, etc.

    For more on the Wallstreetbets phenomenon, check out these posts:

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    Photo: “Dan Gilbert (left) and me” by Moondog Mascot is licensed under CC BY-NC-ND 2.0

  • Big Profits And Lots of Short Sellers Could Make Rocket Companies a Winner

    Rocket Companies, a mortgage originator, has returned solid profits in 2020’s hot real estate market:

    Boosted by the boom in mortgage refinancing activity, the company had $15.7 billion in total revenue, or more than triple its $5.1 billion revenue in 2019.

    Its net income, or profit, skyrocketed to $9.4 billion from just under $1 billion the year before. And the company increased its closely watched gain on sale margin by 127 basis points year-over-year to 4.46%.

    It’s also the number 2 most popular stock on Reddit’s Wallstreetbets.

    And yet, short sellers are betting against the company: 37% of shares are sold short (measured as a percentage of the float). This is comparable to money losing companies like Tanger Factory Outlet Centers.

    It’s true that Rocket does face risks from increasing interest rates, but big profits along with a not-outrageous valuation for a high growth company mitigate that. Add in the possibility of a short squeeze and things get interesting.

    I prefer a more diversified portfolio, but compared to other Reddit darlings like GameStop, Palantir and Sundial Growers, Rocket looks a lot more attractive.

    For more on the Wallstreetbets phenomenon, check out these posts:

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    Photo: “ATREX – Sounding Rockets” by NASA Goddard Photo and Video is licensed under CC BY 2.0

  • Australia Takes the Lead As Governments Move to Reign in Interest Rates

    Government bond yields are increasing in many countries, including the US. Australia is already taking action. Europe and Japan also appear to be close:

    This morning, Australian three-year government bond yields reached as high as 0.15% at the market open, far above the 0.1% ceiling established by the Reserve Bank of Australia last November under its yield curve control policy.  The RBA accordingly pledged to buy up to A$3 billion ($2.3 billion) in three-year paper in an unscheduled operation just one day after undertaking the largest purchases since March, successfully pushing yields back down towards that 0.1% bogey by day’s end.  

    In a report predicting that the RBA will wait until July before deciding whether to tweak its existing policies, Andrew Boak, Goldman Sachs chief economist for Australia and New Zealand, noted yesterday that “there are no modern day precedents for a central bank exiting yield curve control.” 

    A similar struggle is underway in the Land of the Rising Sun.  Japan, which instituted yield curve control back in 2016 with a targeted 0% yield on the 10-year government bond, is now facing a test of its resolve:  The yield on 10-year government debt reached 0.175% this morning, the highest since the debut of that program.  “I want you to understand that we aren’t aiming to raise our target from around 0%,” BOJ governor Haruhiko Kuroda declared in an address to parliament this morning, a message surely intended for Mr. Market as well. 

    Meanwhile, a scaled-down bond selloff on the Old Continent looks to spur the powers that be to further impose their will on the market. Yesterday, German 10-year yields reached minus 0.23%, near a one-year high and up from minus 0.53% one month earlier, three days after ECB president Christine Lagarde declared she is “closely monitoring the evolution of longer-term nominal bond yields.”  

    In light of that dizzying ascent to minus 0.23%, one of her colleagues appears ready for action. “In my view, there is an unwarranted tightening of bond yields, so it would perhaps be desirable for the ECB to accelerate the pace of [asset] purchases to ensure favorable financing conditions during the pandemic,” Greek central bank governor Yannis Stournaras told Reuters this afternoon.

    More here (see the Feb 26 post).

    Higher interest rates on government bonds tend to lead to higher interest rates throughout the economy. This can be a problem for stocks, since it can make it more expensive for companies to borrow to fund expansion, etc. It can also make bonds more attractive compared to stocks, which hurts the stock market.

    If we see sustained upward pressure on US rates, I expect to see the US follow Australia and try to get the rates back down.

    For more on interest rates on markets, check out these posts:

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    Photo: “Pebbly Beach Kangaroos Australia – 095” by Kyle Taylor, Dream It. Do It. is licensed under CC BY 2.0

  • This One Fact Could Drive Dogecoin Up 100X

    I started this post planning to write about how silly Dogecoin is. For the uninitiated, Dogecoin is a cryptocurrency based on a meme of a Shiba Inu. Its price has risen by more than a factor of 20 in the last year. Some recent gains have come from Elon Musk and other celebrities promoting the coin on social media.

    But then I read that Dogecoin has basically the same underlying technology as Bitcoin:

    It was a find-and-replace job.

    Ctrl+F ‘Bitcoin,’ replace with ‘Dogecoin.’

    The total value of all Bitcoin is $900 billion. The total value of all Dogecoin is $6.4 billion. If the code behind them is essentially the same, why is there such a huge disparity in value? I would expect these coins to converge in time, whether that means Bitcoin going down, Dogecoin going up, etc.

    So, will I be loading up on Dogecoin? No. Like other cryptos, I don’t see any fundamental value there. Unlike a stock or bond, there’s no income stream. Unlike major currencies, they’re incredibly volatile and accepted practically nowhere. Nor do they have much of a track record. For Dogecoin’s $6 billion, you could buy Huntsman Corporation, a chemical company with profits of over $200 million/year, outright. I like that a lot better than a speculative crypto with no income stream.

    That said, if you’re a believer in Bitcoin, I think you have to be a believer in Dogecoin also. I’ll be interested to see where it goes!

    For more on Dogecoin, meme stocks, and the Wallstreetbets phenomenon, check out these posts:

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    Check out the Stuff I Use page for some great deals on products and services I use to improve my health and productivity. They just might help you too! 

    Photo: “Полный обзор криптовалюты Dogecoin” by dmitriyshustovb3 is licensed under CC BY-NC 2.0

  • Bots Are Pumping GameStop And Dogecoin

    Buy GameStop!

    New research indicates that bots are pumping GameStop shares on Twitter, Facebook, and Instagram:

    PiiQ said it identified very similar daily “start and stop patterns” in the GameStop-related posts, with activity starting at the beginning of the trading day, followed by a large spike at the end of the trading day. Such patterns are indicative of bots, said Aaron Barr, co-founder and chief technology officer of PiiQ.

    “We saw clear patterns of artificial behavior across the other four social media platforms. When you think of organic content, it’s variable in the day, variable day-to-day. It doesn’t have the exact same pattern every day for a month,” he said.

    The research firm, PiiQ Media, also found signs of robot activity in other stocks favored by the Wallstreetbets community, along with Dogecoin cryptocurrency.

    Reddit claims it has seen no sign of bot activity, but anecdotally, I notice so many posts there that have basically no content. They just say “GME to the moon!” or what not. My gut tells me a lot of these are bots, but I can’t prove that.

    For more on AMC and the Wallstreetbets phenonmenon, check out these posts:

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    Photo: “Robot” by andreavallejos is licensed under CC BY-ND 2.0

  • For AMC, The Rent Is Too Damn High

    As COVID forced AMC to close all its movie theaters in the spring of 2020, it played hardball with its landlords in order to survive. From a letter to landlords:

    “Without revenue from its theatres,” the letter continues, “AMC will cease paying rent and charges under the lease effective as of April 1, 2020.”

    Even with rent relief, the company lost $900 million in the first 9 months of the year, per their latest quarterly report. Things are looking a little brighter these days with many theaters reopened and people being vaccinated, but one small matter remains…

    AMC owes almost half a billion dollars in back rent to landlords:

    Getting through 2022 will require theater attendance to rise and that landlords further delay or reduce outstanding deferred rent owed by AMC, totaling $450 million.

    AMC expects to negotiate these payments, but is still looking at a big expense increase. From its latest quarterly report:

    commencing in 2021, absent further negotiations with landlords, the Company’s cash expenditures for rent will increase significantly following periods of agreed deferrals

    And landlords may be less willing to give AMC a break since it just raised $1.3 billion in additional capital. But having lost $100 million a month last year, plus owing $450 million in back rent, how long will it take AMC to chew through that $1.3 billion? I question whether that cash hoard can last through 2021, especially since studios are giving AMC less time to run each movie exclusively before the studios stream it themselves:

    AMC was able to negotiate an exclusivity window with Universal Studios before new movies hit Peacock, owned by Universal’s parent company Comcast. AMC wanted 75 days of exclusivity, they got 17. That’s only one major studio.

    However, AMC does have two things on its side: a great management team that even furloughed itself to save money, and a high stock price that could let the company raise more capital.

    That said, given the company’s big obligations and increasingly diluted stock, I’ll be cheering for them from the sidelines.

    For more on AMC and the Wallstreetbets phenonmenon, check out these posts:

    If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

    Photo: “The Rent is too Damn High.” by TenSafeFrogs is licensed under CC BY 2.0

  • Forget GameStop, Treasury Yields Are The Thing to Watch

    Treasury bonds have been falling hard lately. Their interest rates are up significantly as a result:

    The yield on the 10-year note, a bellwether for borrowing costs on everything from mortgages to corporate loans, has jumped to near 1.5% from around 1% in a matter of weeks, lifted by increased expectations that vaccines and government stimulus efforts will accelerate growth and inflation.

    And the sell-off is making its way into the stock market today:

    The sell-off in the bond market ricocheted into equities, pushing the broad S&P 500 down 2.3 per cent and the tech-heavy Nasdaq Composite down 3.3 per cent by afternoon on Wall Street.

    A lot of this is the side effect of something good: people are getting vaccinated, new vaccines are coming, and economic stimulus could boost the economy further. That picture is leading investors to expect greater economic growth in the future, along with greater inflation (see the Feb 22 post):

    Signs of a renewed economic boom, in tandem with pockets of price pressure, color that move in rates. Bianco Research notes today that Wall Street economists now expect U.S. real GDP growth of nearly 5% this year

    But higher rates on Treasury bonds could affect other markets negatively in several ways:

    • Higher Treasury yields tend to mean higher rates in other areas. This could make it more expensive for companies to borrow to fund expansion, etc. That would hurt their shares.
    • If Treasuries offer more interest, that makes stocks less attractive by comparison.
    • Treasury yields, especially the 10 year note, tend to drive mortgage rates. Higher mortgage rates mean a weaker real estate market.

    Nonetheless, the Fed remains committed to low interest rates and a loose monetary policy:

    In his remarks to the House Financial Services Committee, [Federal Reserve Chairman Jerome] Powell said it could take more than three years before inflation reached the Fed’s target of 2%. That helped to reiterate the message that the central bank was in no rush to pare back on stimulus anytime soon, Deutsche’s Reid said.

    I think that if rates spike too high, Powell will probably get the Fed in there buying lots of bonds (with printed money, if necessary) to get the rates back down. He doesn’t want to see higher rates derailing the economic recovery.

    A slower rate rise may be less problematic:

    “If it is stable and steady, it is easier for equities to digest,” O’Rourke said in an interview. “A quick spike has the potential to create a shock.”

    Overall, this situation concerns me and it’s one I’m going to watch. But I am pretty confident that Powell will put a stop to extreme increases in Treasury yields.

    For more on recent developments in financial markets, check out these posts:

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    Photo: “Jerome H. Powell, governor of the Federal Reserve Board, discusses how markets currently function” by BrookingsInst is licensed under CC BY-NC-ND 2.0

  • Second Short Squeeze Is On As GameStop Triples in 1 Day

    GameStop shares have tripled in under 24 hours. Naturally, the blue chip investors behind the rise had a solid case for their optimism. After all, what about the ice cream cone?

    Believe it or not, a GameStop board member posting a picture of a McDonald’s ice cream cone is one theory being bandied about to explain the red hot rally. Maybe it’s a sign? Or…maybe he just likes ice cream.

    Also, the CFO was pushed out shortly before this rally, but it’s entirely unclear what that means for the company’s strategy.

    There is no case for this rise based on the fundamentals, but there may be a technical one. I wrote about the possibility of a second short squeeze recently, and it may be happening. Shares short as a percentage of the float (stock that can be traded without restrictions) remains at 78%. Short sellers are losing a fortune:

    Short-sellers are estimated to have lost $818 million on Wednesday from their bearish bets on videogame maker Gamestop

    That’s losses of around 6.5% of the company’s entire market cap, in a single day. Ouch. (If you’re unfamiliar with short squeezes, check out this post for a quick explanation.)

    But with repeated halts in GameStop trading and the fact that Robinhood could block buying again, it’s going to be hard for Wallstreetbets to wring the most out of this trade.

    And either way, buying into a company with weak fundamentals just because there may be a short squeeze and the price could head higher is a very risky proposition. You don’t want to be caught holding shares in a moribund company once the short squeeze dissipates. And that could happen at any time.

    If you’re interested in GameStop and the Wallstreetbets phenomenon, check out some of these posts:

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    Photo: “GameStop” by JeepersMedia is licensed under CC BY 2.0

  • AMC Stock Is Acting Like COVID Never Happened

    AMC burnt over $900 million in the first 9 months of last year*. That presented a bit of a problem.

    They had just $429 million in cash left going in the fall of 2020, and that would be gone in a matter of months. So, to stave off bankruptcy, AMC went into fundraising mode, big time.

    AMC got a surprisingly good reception from investors and was able to sell over $500 million in new stock and borrow a further $400 million. Since then, additional stock sales have boosted their cash hoard to over $1.3 billion.

    This fundraising bought AMC at least a year’s worth of breathing room, even if 2021 is no better than 2020, which seems unlikely. But there’s one little problem…

    AMC had just over 100 million shares outstanding in the fall of 2020, per their latest quarterly report. It now has close to 500 million shares outstanding. So, every dollar AMC makes in the future (if it makes any) is now 20 cents as far as shareholders are concerned. Each dollar of profit is only worth 1/5 as much if your shares represent a portion of the company that’s only 1/5 as large as before. This is called dilution.

    So this must have cratered AMC’s stock, right? Wrong. In fact, it’s actually up! On December 30, 2019, the stock traded at 7.32. It’s at 8.27 as I write this.

    Investors are saying that a share of AMC is actually worth more than it was before COVID annihilated its business and dilution took away 4/5ths of the ownership rights in each share. That makes no sense.

    I suspect this stock is being traded on the basis of memes and pure speculation. Indeed, it’s currently mentioned on Reddit’s Wallstreetbets more than any other stock. The price is pretty much impossible to justify rationally unless AMC suddenly makes far greater profits than ever before. Why would that happen all of a sudden, even as COVID is still with us?

    That said, I have to applaud CEO Adam Aron and everyone at AMC for doing whatever it takes to save this company. Even the CEO was furloughed in March 2020 to conserve cash! That’s what I call leadership. However, it doesn’t make their stock a good bet at the current price.

    I’m going to leave this one to the crowd at Wallstreetbets.

    For more on the Wallstreetbets phenomenon, check out these posts:

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    *See 11/4/20 10-Q report cash flow statement, cash used in operating and investing activities.

    Photo: “AMC Theaters” by JeepersMedia is licensed under CC BY 2.0