Tremendous

An angel investor's take on life and business

  • Congress Is Investigating Wallstreetbets Over GameStop, But the Law’s On Their Side

    Congress is investigating whether traders on Reddit’s Wallstreetbets colluded to drive up the price of GameStop, possibily illegally. But two major legal precedents are on the side of Wallstreetbets:

    In the DRW case, the CFTC argued the defendants’ orders for a swap contract were “inherently manipulative” because the defendants “understood and intended that their bids would affect the settlement price” of that contract. As the court summarized, the CFTC’s position was that the defendants “had intent to affect the prices, and because they had intent to affect the prices, that means [the prices] were illegitimate, which means that the prices were artificial.” The court rejected that logic as “circular,” concluding the government’s “theory, which taken to its logical conclusion would effectively bar market participants with open positions from ever making additional bids to pursue future transactions, finds no basis in law.”

    More here.

    The way I view this is people saying “You should buy GME!” on an online message board are exercising their free speech. Period.

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

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

  • Short Sellers Lost Almost $1 Billion on Rocket Companies Yesterday

    As Rocket Companies jumped over 70% yesterday, short sellers are feeling the pain:

    A surge in the shares of U.S. mortgage provider Rocket Companies on Tuesday is estimated to have inflicted losses of $813 million on short-sellers, data from financial analytics firm Ortex showed.

    More here.

    Given that this is one of the most shorted stocks in the market and yet has big profits, I could see short sellers losing even more on this one. How long until they give up and frantically cover their bets to avoid the fate of Melvin Capital?

    For more on Rocket Companies and Wallstreetbets, check out these posts:

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    Photo: “Key West, Feb 2012 – 08” by Ed Yourdon is licensed under CC BY-NC-SA 2.0

  • How Bitcoin Could Reach $400,000

    I came across an interesting stat today: the estimated value of all the gold in the world is $7.5 trillion. Gold and bitcoin are often compared as stores of value with a limited supply. What if bitcoin became as widely accepted and highly valued as gold?

    At the current market cap of $949 billion, bitcoin would have to multiply in value eight fold in order to equal the value of all gold reserves. Bitcoin’s price is already heady at over $50,000, up from under $9,000 a year ago. But this stat makes me think it may have more room to run. If it reached parity with gold, one bitcoin would be worth $400,000.

    Bitcoin is much easier to store and exchange than gold. On the other hand, gold has a much longer track record as a store of value and also has some industrial uses.

    I prefer cash flowing stocks, bonds and real estate to either one, but for someone like me who is used to dismissing cryptocurrencies, this information did give me pause.

    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

    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! 

  • 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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    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:

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