Old Man Yells At New Market
Come gather ‘round people wherever you roam, and admit that the waters around you have grown…
The times they are a-changin’, Great Ones. And like Dylan sang: You better start swimmin’, or you’ll sink like a stone.
OK, I actually have a point that ties all this nonsense into market commentary. In an interview with Bloomberg TV this weekend, billionaire investor John Paulson ripped into the Federal Reserve, the SEC, SPACs and cryptocurrency.
Oh, it was quite the tirade filled with inflation fears and fixed-income panic. But Paulson saved the bulk of his ire for SPACs and crypto — both of which are young enough investing markets to be Paulson’s great-grandkids … I think.
Specifically, Paulson believes that SPACs are a losing proposition. Apparently, the SEC will eventually step in and fix this speculative bubble, which will cause them to fade into obscurity … but we’ll get into exactly what the SEC is doing about SPACs in a sec.
The real humdinger from Paulson was about crypto:
I would say that cryptocurrencies are a bubble. I would describe them as a limited supply of nothing. So to the extent there’s more demand than the limited supply, the price would go up. But to the extent the demand falls, then the price would go down. There’s no intrinsic value to any of the cryptocurrencies except that there’s a limited amount.
Cryptocurrencies, regardless of where they’re trading today, will eventually prove to be worthless. Once the exuberance wears off, or liquidity dries up, they will go to zero. I wouldn’t recommend anyone invest in cryptocurrencies.
Great Ones, I know Mr. Paulson isn’t an idiot. You can’t become a billionaire by being that dumb. But I feel like Paulson might need a refresher on why things have value: Because people believe they have value.
Cryptocurrencies, such as Bitcoin, Ethereum and Dogecoin, all have value because investors value them. And why would investors value something that was created out of the digital ether? There are two reasons:
- Utility: Cryptos are traceable, exchangeable and not tied to any government. They have a built-in ledger via blockchain that allows you to see how they’ve traded before and where. These factors allow cryptos to have a level of security never before seen in currencies.
- Scarcity: Gold, diamonds, etc., have long held value tied to their scarcity. There’s supposedly a finite supply. In the case of cryptos, this is doubly true. There are only 21 million bitcoins in existence. And there will only ever be 21 million bitcoins. Period.
So, where does Paulson think you should put your money — which, ironically, was also created out of thin air — to deal with the inflation boogeyman?
Gold and housing. No, really … gold and housing. In this market.
Now, gold isn’t such a bad idea. The shiny metal did rather well during the big inflation scare in the first half of 2021. But as soon as the inflation trade took a backseat to … well, reality … all those gains evaporated. Sure, it’s making a comeback again, but that’s mostly on the backs of talking heads like Paulson trying to revive the big inflation scare.
Housing, however … oof.
Paulson said that if you have a spare $100,000 lying around, you should buy a house. First, a spare $100,000 just lying around? I guess Paulson has that in his couch cushions. But the rest of us? Not so much.
Second, it’s actually painful for me to listen to someone who knows the market is in a bubble due to excessive easy cash from the Fed advocate buying an asset that will implode in value once this bubble comes down. And come down it must.
Home prices cannot sustain this level of growth much longer. I expect the housing market will peter out right about the time government stimulus runs out and the Fed actually starts reining in easy money on Wall Street.
The bottom line here: Paulson needs to catch up to the way the market works right now.
Cryptocurrencies and SPACs are the future of investing. SPACs aren’t going away, even if the SEC finally grows a pair. And cryptos have way too many applications, uses and major investors at this point to ever “go to zero.”
The future beckons, Paulson… If you aren’t on board, get out of the way. And on that note, a little more Dylan for your Monday:
Your old road is rapidly agin’, please get out of the new one if you can’t lend your hand, for the times they are a-changin’.
What do you think, Great Ones? I know y’all run the gamut from crypto crazies to gold bullion Gatsbys, which is why I make sure to present both seemingly opposing viewpoints. Either way, we’ve got your next investment steps covered:
Are you a gold-buying holdout, clutching your shiny, golden coins (or stocks)?
Or are you stumbling headfirst into the crypto-verse? Click here to learn more.
The Good: Amazon’s Blue-Light Special
Anyone else remember the days when you could set aside Christmas presents in August … put them on layaway, make payments and have a roaring good time come Christmas morning? (That is, assuming you made all your layaway payments.)
Those days kinda died with the arrival of online shopping, but Affirm (Nasdaq: AFRM) is looking to change that. And it starts with Amazon (Nasdaq: AMZN).
In case you didn’t hear, it just got a whole lot easier to buy the expensive headphones, the 17 books and the random assortment of cat — or dog! — toys sitting at the bottom of your Amazon cart.
Danger, Will Robinson. Danger!
Shopaholics in the U.S. rejoiced on Friday when Amazon announced its partnership with lending company Affirm. The pairing gives certain lucky — or unlucky, depending on how fiscally disciplined you are — Amazon customers the ability to finance purchases over $50 using Affirm’s “buy now, pay at your own pace” flexible loans.
Lending companies like Affirm, Afterpay and Upstart have all gained popularity with younger shoppers as alternatives to traditional credit cards and their high interest rates.
While traditional lenders all but promise to break your kneecaps and drown you in debt if you miss a payment, Affirm offers zero hidden fees or penalties for missed payments … only adding to its siren’s call.
I’ve had my eye on Affirm and other alternative-lending companies since the start of 2021, as they benefit from the need-rich environment created by the COVID-19 pandemic.
Now that Affirm’s partnered with Supreme Retail Ruler Amazon, its future earnings and revenue look bright indeed — especially with the holiday shopping hullabaloo right around the corner. Wall Street clearly agreed, sending AFRM stock more than 50% higher in premarket trading this morning.
What do you think, Great Ones? Will you use Affirm to spread out those larger Amazon purchases? Will you stick with your main credit card provider? Or will you flex and pay everything up front with debit? Let us know at GreatStuffToday@BanyanHill.com.
The Bad: Modern … Naaaah, Brah
If modern medicine man Moderna (Nasdaq: MRNA) had any hope of catching up to rival drug lord Pfizer (NYSE: PFE) in the great vaccine race, those dreams grew further out of reach this weekend as 1 million more contaminated COVID-19 shots were pulled from Japan.
Two people already died after receiving Moderna’s shot last week, which prompted an initial recall of 1.63 million doses of the vaccine.
The “it wasn’t me” game commenced almost immediately, with Moderna and its domestic distributor Takeda Pharmaceutical (NYSE: TAK) issuing this joint statement Saturday:
Oh, you don’t say… Clearly, drug-related deaths from a vaccine designed to protect people aren’t a laughing matter … so I’ll save my usual snark for something that’s actually funny.
What I will say is this: The latest backlash surrounding Moderna’s vaccine is coming at a critical time for the company. America’s inoculation rates have already slowed down, as most people who wanted to get vaccinated in this country have already done so. Moderna’s potentially contaminated doses don’t exactly raise confidence about the vaccine for everyone else.
Unless booster shots become a thing (which, surprise, surprise … government regulators are already in disagreement over) Moderna’s meteoric growth could stall out. And that’s bad news bears for Moderna investors.
Now, if it turns out the drugmaker or even one of its distributors was mishandling Moderna’s vaccine … and that mishandling led to multiple fatalities … I shudder to think what it could do to Moderna’s stock. At this point, only time and formal investigations will tell.
The Ugly: Support Authority
If you heard of Support.com (Nasdaq: SPRT) before last week, then congrats! You get today’s prize of … ummm … my appreciation.
It’s worth something if you believe it is … just like crypto, gold, faith, Pop Figures and the rest of our modern society.
Anyway, for those of you who don’t work in tech support, Support.com is just that — tech support.
The company specializes in homesourcing enterprise solutions — remote help desks, security software and the like, particularly for at-home workers.
Thankfully, none of that jargon-filled mess is important today … not when a new short squeeze is underway.
SPRT shares traded around $4 up until around July 21. By Friday, August 20, SPRT had more than doubled to $9 per share. Still not much attention in the press. But by last Friday, August 27, SPRT shares hit a high of $59.69 — up about 1,392% from mid-July, all told.
Other than a stinker of an earnings report, there’s been no news for Support.com since March, when it announced a merger with bitcoin miner Greenidge Generation. Other than that news … nada. Just massive amounts of short interest — upward of 67% of SPRT’s float was shorted as of mid-August.
Short squeezes are no longer the rare retail-trading unicorn event they once were; the template has been created, a method to kickstarting the madness. Finding the next meme stock short squeeze is just the trade du jour, and Support.com is just the latest.
We keyed into this way back in January of this year, when retail’s fascination with the short squeeze was still but young, exuberant lust:
As @redditinvestors specifies further: “Any short interest above 25% will get people interested,” and that’s exactly the range that GameStop, Beyond Meat and countless other meme stock short squeezes have hit before they took off.
All had the setup (thin float, high short interest), and all collapsed the same. So, if you’re still wondering why this is today’s “ugly,” just wait a few trading days. Or go check the charts of GameStop, AMC, BlackBerry, Nikola et al. … and I’ll bet you a bottle of bourbon that SPRT follows suit in short order.
Have you noticed that there’s one darkened corner of the market that hardly anyone’s mentioned? Nary a whimper, hardly a peep. Obviously, it’s up to Great Stuff to break the silent streak.
The SPAC market has slowed down to a thick, molasses-esque morass. Y’all remember SPACs? The backdoor IPO shebang that was absolutely hijacked by electric vehicle and battery companies earlier this year?
From January to March, there was a new basketful of SPACs to scoop up each week … if you were into that sort of thing. But come April, the SPAC wave crashed — check it out in our latest Chart of the Week:
2021’s first quarter saw 298 deals, but that dropped to just 64 SPACs in the second quarter. So far this quarter, there have been 51 SPACs.
Thanks for spelling out the obvious on the chart, bub.
Quiet, you. I’m just sayin’ … if you noticed an abrupt drop-off in SPAC smack talk this year, you’re not crazy. (Well, who am I to judge, really?)
But the SPAC market’s screeching halt wasn’t due to the shoddy performance of SPACs earlier this year — that’s beside the point. Nor was it due to the SEC clamping down on everyone’s fun by banning SPACs outright, as the anti-SPAC crowd wanted.
No, SPACs slowed down because of an April 12 statement, which declared that all ye SPAC issuers shall henceforth not classify warrants as equity.
Put simply, SPAC deals usually have some combination of equity and warrants when they go public. Many SPAC deals — depending on how early you get in — offer fractional warrants in addition to however many share “units” of the SPAC you buy.
The warrants act as a kind of call on the future public stock, with a share-redemption feature baked in where you can get more shares if the stock trades above a certain, preset price.
So … are these SPAC warrants equity like stock? Derivatives like options? Are we human? Or are we dancer?
Well, that’s what the SEC wanted to decide. I mean, you can’t just file potentially exercisable warrants you issue as equity all willy nilly — that’s barbaric!
Mainly, the SEC was asked to weigh in on one specific (but unnamed) SPAC deal, didn’t like how the SPAC’s warrants were classified and then promptly changed how it wants all SPAC warrants classified from now on.
Understandably … there was a holdup in new listings as all but a handful of new SPAC filers and prospective SPAC filers changed gears to restate their finances. The slowdown’s real culprit is just simple, boring old paperwork … same as it ever was.
And after that data-reporting backlog slog is finished, it’s game-on again for SPACs. Plus, the busy SPAC market could use a breather as it’s “digesting a really long period of over-exuberance, and there’s an oversupply in the market,” according to SPAC Research founder Ben Kwasnick.
Whether you hate to love SPACs or love to hate them, don’t you worry: SPACs will be back … better (or worse) than ever. And with restated finances and revised warrant filings to boot!
What about you? Are you ready for the SPAC slowdown to cease? Are you still waiting on past SPAC plays to bear fruit? Do you agree with Paulson (up at the top) that SPACs are a speculative bubble?
Tell me all about it in the inbox: GreatStuffToday@BanyanHill.com. We’d love to hear from you! In the meantime, here’s where else you can find us:
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Until next time, stay Great!
Joseph Hargett
Editor, Great Stuff
