Wild & Crazy

 

There were a few major events that moved markets last week. CPI numbers came in much stronger than expected. Over the next few months we should continue to see these big numbers with the 2020 comparables being so terrible. Whether or not the CPI actually measures inflation effectively is one thing, but the market actually does react to it. Coinbase direct listing was widely followed. It opened pretty strong and rose 30% on the first day, but it didn’t close anywhere near the highs. It closed about 10% off it’s open and 20% off the highs, but still in positive territory from the listing price. The listing seemed to provide steam to Bitcoin, as it hit a new record high of $63,000 coming into the listing. In not so good news, the week it went public, Coinbase experienced an outage as did Robinhood’s crypto services. Perhaps the publicity of Coinbase or maybe the Dogecoin Tweets by Elon Musk drove a huge demand for trading these assets. J&J experienced a setback with its version of the COVID vaccine. The CDC and FDA recommended a pause on the vaccine’s use and that also seemed to put a pause on the re-opening trade.

For this week, I’m watching Existing & New Home sales. With Lumber still on the rise and lack of homes coming to market, I’m interested to see if this slows down the numbers. ECB and BoC both have meetings this week too. I’m also watching Gold, which is approaching an inflection point after bouncing off its recent downtrend. US 10 year Rates have also rolled over and I want to see if they hold their up trend. The Dollar index (DXY) is trading right on it’s 50 day moving average and will be looking to hold on to its roughly four month up trend. Right now, I’m all about technicals on the major global assets.

Earnings Watch

Bank earnings were quite eventful. We got some clarity on the Archegos losses. Trading revenue was strong for both Trading and Banking across the board, but it was even stronger than analyst expectations. Goldman Sach and Wells Fargo were the only ones to end the week higher. A few other names that performed well last quarter and for the week were Alcoa, PPG, and United Health. Delta, Bed Bath & Beyond, and State Street had a rough week.

This week we start to see some more volume. There are 79 names in the S&P 500 reporting, accounting for 13% of the index market cap. The Russell 2000 also has a decent amount of its constituents reporting this week with 142 names or 8% of market cap. A few names I’ll have my eye on this week are J&J, Netflix, and Silvergate.

Equity Capital Markets

On the ECM side of things, two of the IPOs from last week had noteworthy performance. One was good AGL was up 30% and APP was down 18%. Also, ARRY had a decent size unlock and continued its downtrend by ending the week down 7%. This week there’s a bit of a lull with one decent IPO in UiPath and just a few SPACs. On the unlock side, keep an eye on McAfee (MCFE) and Datto Holding Corp (MSP), they both have larger unlocks.

Best of the Week

Here’s an example that shows the craziness going on in the US equity markets right now. Speculators will use any excuse to go nuts and speculate like they’re at the track or a kumite.

What happened? Just after the open Friday morning Clover Health (CLOV.O) started trading crazy heavy volumes. It looks like someone posted on Twitter that S3 was showing a HUGE short interest in the stock of 149%, and then the financial blog website Benzinga posted on it an hour later. The attention to it basically exploded on Reddit. Bloomberg took to posting about the S3 data and the stock ripped again. Hindenburg Research, who’s been a bit negative and short on the name, was a bit miffed that S3 was using incorrect data via FactSet. S3 responded that their numbers & methodology were correct, but later in Hindenburg’s tweet responses they posted a response from FactSet that they were fixing the data. 

The data

• CLOV has two share classes – 145M shares of Class A, which is tradable, and what you see in ownership & 260M class B shares, which is not tradeable and owned by insiders. The total of those is 406M and that’s what you see on Eikon's Ownership page.
• Of the 145M shares that trade, you should remove the strategic holdings of 36M shares to get to the 109M of free float.
• It looks like FactSet took the 83M shares of class B owned by the CEO and combined that with the 36M of class A “insider” holdings to get the float down to about 26M shares.
• Short interest is 39.1 in S3’s daily update (38.5M in the bi-weekly updated data) over the 26M float is where the 149% short interest comes from. 

Here’s what I think is the first Tweet on the topic. This guy has about 130k followers. And notice the first response trying to correct it. Don’t let facts get in the way of a good Reddit squeeze. The other one here deleted their account, but I found this going through some the Reddit threads.

https://twitter.com/ACInvestorBlog/status/1383050941759426562

About an hour later the Benzinga post hits. Notice the bump in the Eikon Social Media monitor.
Why Clover Health Could See A Big Short Squeeze

About 2 hours in Bloomberg picks up the story, even though this totally goes against the data on their own platform.

Hindenburg is probably feeling the burn and post to try to bring everyone back to reality. Silly rabbit, realties are for adults.

https://twitter.com/HindenburgRes/status/1383137796504879115

S3 responds that their data is correct.

https://twitter.com/S3Partners/status/1383142111273496584

Hindenburg posted this to end the day, but it seems the damage was done. CLOV ended the day up 20% on 245M shares traded or 21x it’s normal. Look for some volatility this week.

https://twitter.com/HindenburgRes/status/1383163753622036480

Finally, one of my colleagues showed me another Tweet pointing towards the options. Notice the huge volumes to open on Friday. Open interest only increased by about 10k contracts from the previous week, but that looks like it may have doubled on Friday.

Best of the Rest:

This article has gotten me thinking that this has been one of the most frustrating times to be “the guy I know on Wall St''. Most of my friends have no idea what I actually do, and really have no idea even when I try to explain it. I’m just the guy they know that used to trade and they think of me as having secret tips that I’m not sharing. So in the last 6 months or so, I’ve gotten questions about nearly every asset that’s running. One thinks he’s getting rich off Dogecoin and another two got a tip on ENZC from different people within a week of one another. I don’t know what to tell them. I try to warn them, but it falls on deaf ears. This article starts with that but also takes us into the intersection of Main St and Wall St and all these new tools of finance.

There’s Nothing to Do Except Gamble Welcome to the non-fungible, memeified, cryptodenominated, degenerate future of finance.

A great article about a fascinating company, Susquehanna International Group (SIG), and its founder. This company has always amazed me, and hearing the story behind its start further increased that. Millennium Founder, Izzy Englander, helped Jeff get his start in Philly. Some of this story sounds like it’s straight out of a movie.

How Trader Jeff Yass Parlayed Poker And Horse Race Handicapping Into A $12 Billion Fortune

Speaking of successful hedge fund managers, Visual Capitalist put this chart out last week.

The World’s Top 10 Hedge Fund Managers by Earnings

How will Bitcoin impact the fixed income markets? Greg Foss is a 30 year veteran of the bond market. He tells a few stories of the events that have helped develop his opinion on Bitcoin. The story around trying to sell the bonds of Rogers Communication to an asset manager in Canada is both hilarious and disturbing. There’s so much to unpack in this interview, but here are some best points I took out of this interview:

• With rates so low this means that changes in price are much more impactful.
• The move lower in rates has not pushed that many out further on the risk curve.
• Credit markets are the dog and the equity markets are the tail. There are 4 dollars of equity capital to every 100 dollars of loans.
• Global GDP is not growing fast enough to support the debt and we are in a debt spiral.
• Bitcoin is less risky than it was a few years ago, because of its size. As the market size grows, it becomes eligible for more investors
• CDS rates are mispriced for Sovereigns
• Oil & Gas will eventually be priced in Bitcoin

Bitcoin and Bonds w/ Greg Foss - Listening time: 100 minutes

Coke vs. Pepsi, Chevy vs. Ford, DC vs. Marvel, Wendy’s vs. everybody, Great Taste vs. Less Filling, these are some of the great American brand battles. I’ve been listening to many of these stories on the Business Wars podcast. Looks like we’ll be adding NASDAQ vs. IEX to that list. IEX is the exchange that made its name from the book Flash Boys, by Michael Lewis. Since it went live in 2013, its market share has slowly been climbing, but it’s only up to about 2.4% of listed volume in the US. Now, it seems to be on the radar of some over at NASDAQ after releasing its D-Limit order type. NASDAQ published a negative piece criticizing IEX and IEX published a response. The problem for IEX is that they’re trying to shake up the big boys game.
IEX is All-In on Data Revenues, Quote Fade and (Virtual) Rebates
How Do You Measure a Fill? Nasdaq Attacks with a Dull Knife
D-Limit vs D-Scriminatory
The IEX D-Limit Proposal: It’s Good…But What If It’s TOO Good?

The SEC seems to have a habit about speaking up about popular topics, but long after their opinions would hold any weight. They warned about SPAC a couple of weeks ago, and now they’re recommending caution about ESG products. ESG assets are estimated at nearly $2T. So they might be a little late to the party and warning everyone that the punch is spiked. I still think it's a good warning, because like some companies did by adding Blockchain to their description, there are some funds greenwashing.   

Statement on the Staff ESG Risk Alert

It was all over the news Thursday, when David Einhorn’s latest investor letter came out. There were two big themes from his comments. His blasting Chamath and the deli comment. CNBC did a whole feature on the deli. I don’t know advertising, but I’d have to think the value has to be in the hundreds of thousands of dollars from this coverage. I like this summary of the note from MSN.
David Einhorn calls out Elon Musk and Chamath Palihapitiya, defends GameStop champion Roaring Kitty, and blasts market regulators in a new letter. Here are the 11 best quotes.

There’s a single New Jersey deli doing $35,000 in sales valued at $100 million in the stock market

Thanks for reading. Have a fantastic week.

Michael