How does it feel?
This week's title is a tribute to one of my favorite artists of all time. Bob Dylan wrote many of the songs of an entire decade. The title comes from his famous 'Like a Rolling Stone', if you listen to the lyrics they are a little similar to that which a trade might feel when they've blew out their account and are starting from scratch. I also reference Mr. Dylan because I'll cover him below in the best of the week, which is actually a group of links this week on alternative investments in the music industry.
Many of you saw the news around the highly publicized Airbnb and DoorDash IPOs. They weren’t the only names to price last week. There were 28 IPOs and 20 SPACs that went public last week. Four of the IPOs finished 100% above their offer price. It’s going to stay very active through year end with at least two dozen names still expected to price. Disney ended the week with a monster day after their investor day. Disney+ subs were the story here, and honestly I think it’s all about the Mandalorian. If you’re in any way a Star Wars fan, I cannot recommend this show more. I hate to even write this, but we’ll continue to watch across the pond for a Brexit deal or no-deal. This story is getting exhausting.
As mentioned last week, quad witching is this week along with year end index rebalances. This means a ton of volume on Friday, especially around the close. According to Goldman Sachs, there are $2.5T of SPX linked options notional expiring on Friday, but this is not as large as the typical December. Also, of note is the drop in options volume after this week closes. That’s probably the biggest event affecting markets this week, but today we have the 538 members of the Electoral College placing their official votes for the President. Also today, the first vaccine doses are being handed out. Fedex & UPS trucks rolled out of Kalamazoo, MI moving 3 million doses over the next few days. The final Fed meeting is on Tuesday and Wednesday.
Earnings Watch
Last week, I didn’t share any names to watch, but that doesn’t mean there wasn’t any action. I took a look at all 90 names that reported last week in North America regardless of Market Cap. Below are the top & bottom ten names for the weekly price performance. I also included a few other metrics to follow how the last report went from a numbers perspective.
For this week, we have a limited lineup again, but I do have one name I’m watching, Fedex (FDX). There is probably not one person reading this that doesn’t see a FDX truck in their neighborhood every day. The stock has been on an epic run, up 93% YTD. Last quarter they beat EPS estimates by 81% and revenue by 10%. Estimates for this quarter jumped in the days after the call. Their EPS grew YoY by 60% after six quarters of negative growth. This next quarter is expecting similar numbers on the growth side. Options are pricing in a big move in either direction. The 30ATM implied vol is elevated, but the weekly options are even more pricey. This is a risky name to bet on this week. With Earnings on Thursday and the S&P index change Friday, there should be a ton of people involved in the stock this week.
Best of the Week:
Listening to the Viewsroom podcast from Reuters News, I heard about Bob Dylan selling his music catalog. There has been a lot of news around this sort of transaction of late, one of the most covered has been Taylor Swift’s battle with her former manager. Never in a million years did I think something I saw while my wife was watching her after dinner entertainment shows would find it way into this blog. Turns out this space is trending of late. It’s one of the new alternative investment classes along those like farmland and art, which I’ve shared before. The NY Times wrote an excellent piece around Dylan and some of the more recent deals. Then I heard the Absolute Return podcast with David Vankka. David, is the portfolio manager for the ICM Asset Management Crescendo Music Royalty Fund. He walks through how the royalties work and how they invest in these.Viewsroom: Davos in Singapore, Bob Dylan sells out - Listening time: 22 minutes
Bob Dylan Sells His Songwriting Catalog in Blockbuster Deal
Investing in Music Royalties with David Vankka - Listening time: 51 minutes
Best of the Rest:
Last week the IPOs of DoorDash and AirBNB dominated screens. Both posted amazing performance from their IPO deal price. DASH +86% on a $3.4B raise and ABNB +113% on a $3.5B deal. According to the Renaissance Capital newsletter, ABNB was the highest pop for a billion-dollar IPO. I wanted to look back at one of the all-time best IPO days ever. VA Linux December 9th, 1999 original price range was $11-13, then priced at $30. The stock opened at $299 (that's not a typo) and closed the day at $239.5. Below is an entertaining quick video talking with the CEO & some CNBC highlights that I saw on the Market Huddle podcast Youtube version. Below is the chart for the first two years. Let’s hope for those buying into DASH and ABNB their first week post opening trade is not an indication of similarities with VA Linux. The Acquired Podcast covered the history of both of these companies before they came to market. These are both very long, but well done and useful if you want to learn more about their history and their business models.
VA Linux IPO in Review - Watch time <5 minutes
DoorDash - Listening time: 178 minutes
Airbnb - Listening time: 156 minutes
Siren Songs: IPOs & SPACs
Jesse reviews some of the recent articles and commentary around the exceptional amount of exuberance for equities currently. It’s a quick article with other links you can get into, but you can get the sense of his point just reading through the Tweets and commentary on the article headlines. He basic point, which to be fair has been the same for a bit now, is things are frothy.
One For The Ages, Part Deux
This is not a short read. At 58 pages, this report from Vanguard is a long read, but it will give you some excellent insights on the American investor. They look at data from 2015 to 2019 and look at portfolio construction and trading. You can get a quick idea by reading just the summary in three pages. I do recommend just flipping through, because you can really get a sense of how clients of one of the largest firms in the country are handling their investments now compared to the previous five years.
How America Invests
I’ve been sharing some articles and podcasts around changes to investor portfolios by investment type. There have been lots of changes the types of products investors own. From mutual funds to ETFs to Active Non-Transparent funds to direct indexing, things are changing. This is giving advisors more flexibility for their clients, but also causing them to have to keep up with all the new products and technology. In this post, Patrick O’Shaughnessy walks through Canvas, which is his firm’s custom indexing platform. This was a good post to share for me, because Patrick goes over the reasons they started the platform and why it’s important to the future investing for individuals.
Custom Indexing: The Next Evolution of Index Investing
Apologies for the language here, but I’m just quoting the posts title. I wanted to share this, because we’ve all probably seen the posts around the crazy options volume lately. This post shares a couple of charts from Goldman Sachs’ research on the less than helpful liquidity profile of the E-mini SPX futures and the average Russell 3000 constituents. They also noted that options notional value was $267B/day vs. equities of $317B/day. Also, the top 50 names make up 85% of total options volume, but 40% of equities.
Liquidity remains shitty
I normally write up my own summary of these, but Colby Donovan wrote this great summary and it basically covers my thoughts, so I figured I’d save time and take this. Find Colby’s recommendation here. Sorry for being lazy.
“Palihapitiya is the founder and CEO of Social Capital, where he invests in private and public companies. He’s been very open about his personal struggles and maturing as a man before (this episode is a great listen on that), but this is the best I’ve heard about his professional journey and what he hopes his legacy will be from a business perspective. He talks about what it was like to be an early employee at Facebook and early days as an angel investor and the genesis of Social Capital, which he hopes to be Berkshire Hathaway 2.0. He talks about the process of doing both public and private investments, funding emerging managers, and why he’s embraced the SPAC as much as anyone. At the 54 minute mark, he talks about being bullish on companies that can disrupt the utilities sector (which he predicts will happen in the next few years) and why he thinks we’re in a renaissance of biotech.”Chamath Palihapitiya – The Social Capital Flywheel - Listening time: 64 minutes
Institutional Crypto Fund Inflows Surge; MicroStrategy Plans $400 Million Infusion in Bitcoin (BTC)
I found this one interesting because of the way that the Demand Derivatives team is funding their new exchange. Crowdfunding a new futures exchange and a clearing house. Minimum investment is only $105 and does not require you to be an accredited investor. They’ll be starting with six major instruments looking at realized volatility. It’s something different in the space, and they have two giants to go up against that own 99% of the market. Their new approach and lower fees might be able to attract some traders.
Quantamental investing is the wave of the future. It allows firms to use quantitative inputs to limit the number of names that would require a fundamental and quality deep dive. Liz discusses why the current idea of ESG might need a little revamp. This is an excellent look into how the process works. At Refinitiv, we think our Starmine models lend themselves to adding a quant overlay to an investment or trading strategy. I loved Liz’s enthusiasm for ESG and her firm’s strategy.
Environmental + Social + Financial = Governance with Liz Simmie, Co-Founder and CIO of Honeytree Investment Management - Listening time: 68 minutes
Just a hilarious written remake of the famous Christmas song.
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