The Robinhood Factor
“Yesterday we saw retail, message board traders, stop-out shorts from institutional investors” - Goldman Sachs
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THE ROBINHOOD FACTOR.
For those who aren’t familiar, Robinhood is a mobile equity trading app.
It’s really easy to use.
And w/ the cocktail of shelter-in-place orders, no sports (therefore, no fantasy sports), & stimulus checks, Robinhood has been filling America’s gambling void.
*In Q1, Robinhood added 3MM users*
The effects on equity markets have been profound:
“By every metric we track retail activity is the largest since 99/00. I have been tracking cross asset flow-of-funds for past 16-years. I could never imagine typing the following. ‘Yesterday we saw retail, message board traders, stop-out shorts from institutional investors’” - Goldman Sachs, per Modest Proposal
What GS is likely referring to is Hertz, which rallied after it declared bankruptcy.
The day before the rally, Carl Icahn sold his stake.
“Robinhood traders can remain irrational longer than hedge funds can remain solvent” - Nate Geraci
In fact - last night - Hertz asked a bankruptcy judge for permission to do an equity offering.
160,280 Robinhood users held shares in Hertz on June 10th…
OK, back to oil, and the Robinhood Factor.
…so, what is the Robinhood Factor?
note: Total Return is small/mid cap; data save here
The lower the share price, the higher the return.
With this cavalier crew of rookie investors… we’d venture to guess that the primary reason a low share is attractive to them is simply that they can buy more shares.
Therefore, expect companies w/ low share prices to have significantly increased volatility.
So, yeah… to wrap it up -
The 3x things to pay attention to in equities in 2020 are:
The Fed / Bailouts
And rookie traders
We don’t know about you - but to us - the silliness of the infamous 17th century Dutch Tulip Mania now appears to be much less absurd -
Trafigura reported their interim financial results…
… and those results show that they saw COVID coming:
“…our market intelligence on the impact of COVID-19 & of the decisions by OPEC & other oil producers on demand & supply, enabled us to act efficiently & effectively. This superior market understanding, combined with our physical infrastructure & our supply chain management capacity, were key in balancing the oil market during these unprecedented times” Christophe Salmon, Trafi CFO
Goldman’s commodities business was in the news for the same reason:
“…Goldman’s early gains from the turmoil were under Qin Xiao, a Singapore-based partner known as QX… as stockks ticked towards record highs, he anticipated the risk of an economic meltdown” - Bloomberg
Though a 2nd wave looks probable, we don’t see the opportunities seized by Trafi & Goldman repeating themselves -
Michael Mauboussin published what could be described as a take-down of multiples, specifically the P/E multiple. We recommend the read.
Moody’s downgrades pipeline sector
Exxon is trying to sell its North Sea Assets (again)
Fighting words from Ian Lundin
Protests in Lebanon
Ian Taylor passed - his legacy rivals, & perhaps eclipses, that of Marc Rich & Claude Dauphin
That’s it for this week - we’ll be back on Tuesday - we like the Bundesliga over Robinhood… either way, place your bets -