Why Millions of People Have Dived Into Day Trading

He's also an editor and publisher of the Daily Dirton app and investment strategists at Malden Economics based in Myrtle Beach, South Carolina. Jared, thanks so much for joining us here. Interesting column you had about mom and pop trading, this robin Hood app. This reminded me of kind of the late nineties when we had a lot of individual retail investors get in there really speculating at what turned out in hindsight in March of two thousand to be the

peak and the bubble, particularly the dot com boom. Give us a sense of kind of what's happening now with these mom and pop investors and all the trading apps that are out there. Yeah, I wouldn't even say it's really modern pop. I mean these are young people. I mean, these are people in their twenties and early thirties, and I think people underestimate the scale of what is happening. I mean, you saw that robin Hood had three million

accounts opened in the first quarter of a loan. You're talking about You're talking about just millions of people that have dived into day trading. And the interesting thing about this is that you know, for the last ten years there were a lot of retail investors that um jumped into the market, but they did it the right way. They did it slow, they did it with index funds, they paid low fees, and just over the last six months,

everything has gone out the window. Jared, before we get to why no one should blame the FED for robin Hood and it's its sins and the sins thative emanated promis users, talk to us about what you can actually do on robin hood financials up because it seems like you can do some really sophisticated financial trades. You're not talking about just buying stocks and not even just shorting stocks. There's plenty of other things that you can do, and there doesn't appear to be a limit to the amount

of leverage you can take. Yeah, I mean, robin Hood is a platform that allows options trading, and you know, I used to work in the options industry, That's where I started my career. And if you look back at you know, back then, total options volume in a given day across the Fork exchanges would be about two million contracts. Now it's up to about twelve million contracts. And these

people are, you know, very uneddicated when it comes to options. Uh, they don't really know anything about option pricing at all, and they're just buying upside calls in stocks just for extreme amounts of leverage, just under the idea that stocks always go up. So, um, I think this is not going to end too well. Jared. I'm trying to get a sense of kind of what's driving this move into this retail trading in the in the you know, the robin Hood apps and all of that, and a lot

of these young folks coming in into the market. And I've read it might be simply the fact that we're all stuck at home, we're all quarantined. Uh, there's no sports to bet on, there's no casinos to go to and to satisfy that speculative urge. Maybe folks are turning to the stock market, particularly the options market. Does that have value in your opinion? Now, that's that's absolutely what's going on. People are at home and board you know.

I actually, um, you know, for five years I taught at the local university and I checked in with one of my former students and he's, you know, living in his mom's basement, quarantined and he's trading you know. Um, So it's a it's a function of it's a function of boredom. It's a function of getting no action on sports betting. I think it's also partially a function of the stimulus and unemployment money that's been going out because

people are speculating with very small amounts of money. You know, I get questions about people with you know, they have a thousand dollars to put the work, and they're asking about how to trade stocks. And this goes to the kernel of your column because you say that rather than it brings with liquidity out there and thanks to the Fed, the real villains here are the discount brokers who have

caught trading commissions to zero. Explained that Jared, Yeah, I mean, you know, commissions were never a huge portion of the discount brokers revenue. They were about or less. Uh, And these were competitive forces that drove commissions lower. I mean, it wasn't anything finister, It wasn't really a marketing employ to try to get more people to trade. It was just competitive pressures that drove commissions lower. So that's really

you know, it's it's just like supply and demand. You know, if you lower the price of something, there's going to be more demand for it. And you've seen trading volumes just absolutely explode since there's no commission. Now, I've always been of the view that commissions and fees are not necessarily a bad thing because they shape investor behavior and

then encourage buy and hold strategy. Just briefly, Jared, how much has this to do with Dave Portnoy, whose course Barstool Sports is founder and really hyped Robin Hood Financial and his day trading. I think it has quite a bit to do with it, actually, I mean, he has a pretty large following, and I think, you know, I think people take him a bit too literally and a

bit too seriously. You know, he's gone after people like Warren Buffett, and Jim Simons and stuff like that, and he says he's the greatest day trader in the world. But you know, he's given confidence to a lot of people that they can do the same thing. Yeah. Man, it's just not that easy. As of course anyone who's done it for a living it can attest to Jared Dillion,

his columnist for Bloomberg Opinion. He's editor and publisher of The Daily Dirt Nap also investment Strategists Add Mold than Economics, And of course he's the author of that book that I'm sure you've all read, Street Freak, Money and man as At Lehman Brothers, and another novel, All The Evil of This World. Jar Dileona, thank you for joining Paul. Can I ask you if you have a robin Hood trading account. I do not, absolutely do not. I wouldn't be allowed to. I'm not like Tom Keene. I'm not

long the triple leverage all cash fund. But I'm also not day trading. I'm also not a gamer, which doesn't help. Apparently, if you're a trainer, you've got faster fingers. Some of the stocks that has performed exceptionally well during this pandemic is Amazon dot Com. The stock is up forty five percent year to date. It sports a market cap of one point three four trillion dollars. With a t company got and the stock got a new supporter this week

on Wall Street. Law Martin senior analysts that need him, a company based in Los Angeles, initiated coverage this week with a by rating a thirty price target. Stocks currently trading at HUDD eighty three. Laura, thanks so much for

joining us here. Give us your thesis on Amazon right here. So, I think the most important thing we're saying that's new on this name fall is that this is really a services company and not a product company, which is to say, because consumers relationships with with Amazon is from a consumer pacing where they think of it as an e commerce company. But today of his company's revenue comes from services, and they have an eight percent profit margins compared to e

commerce which is a three percent profit margin. So when you look at contributions to actually operating profits, it really comes from services like prime video, like music, like advertising a huge here. We think they do eight billion of advertising. So together we value what we call the media businesses at five billion, which is about the same size as aws, which together means it's about eight services are about eight percent of the value here at Amacle, Laura, this is

something that's an Amazon's DNA. You talk about Amazon having a track record of expanding total addressable market decisions, so it's just constantly, constantly expanding the people that it reaches, and all of those decisions are driving higher profitability and lower shareholder risk. So it feels like this may never end. I think that's possible. I think one of these things I cover oppur as well, and I think both Apple and Amazon they're about the same size of company, two

seventy billion dollars a year of revenue. I think they both generate sixty billion dollars a free cash flow a year. Apple turns around and buys and shares and so it

drives higher earnings for share growth with that. I think what Amazon does, by contrast, it takes creean of that and invest in what you just characterize as these can expanding you know, new verticals that are non visible, and it turns them into a WUS or advertising or groceries or delivery last mile delivery innovations, and then it reports out much lower free cash flow and much lower margins to apprentices of the incometry. So I think might never

end because this is how Basis is wired. They have grown in these ways that for the last twenty years under the CEO Jeff Basis. So Laura talked to us a little bit about the uh cloud business that's really been a you know, a profit driver for Amazon for years and years. Investors were, I guess used to our conditioned to little to no profitability coming out of the core e commerce business, but once they really started building out the cloud business, it's been a real profit generator

for them. How do you view the growth and the profitability of that business? You know, I think that it's important they break out the cloud business is separately financially,

so there's been a lot of good financial analysis. What we would say of our value added in this messaging is that we think this is a playbook that you should look at Amazon repeat they're doing it now and advertising and what happens is when Amazon gets big enough it's something they're successful at, they break it out separately so you can value it separately. So um, we think that they do about eighteen billion dollars of advertising today, which has a profit margin and that business is soon

going to get big enough. We think it is. Together the services businesses are almost as large as a WS. So we think at some point in the next two years they will break out these what I would call their media businesses or their media revenue streams into a separate business, and you will be able to value it and it will be more profitable than a WS. But right now it's hidden in this massive, you know, conglomerate.

So I always call that. What's important about AWS is it is a playbook for how Amazon runs businesses and then uncovers it's hidden value over time so that Wall Street can more easily value it. You know, you talk about Amazon also having media asset values about five billion dollars. What happens there where a dollars going Laura, So there's advertising in their subscription. That prime subscription product has a

profit margin. Let's remember that Netflix decieted at nine times revenue, and it loses money prime which is mostly for shipping, but twenty of prime subscribers stay there. There for the media, which is Twitch, which is really important, music and video. All of those assets are bundled in that prime subscription and that makes turn lower. It breaks the average revenue for user of the lifetime values higher UM and then

they have advertising as well. So all of those businesses have much higher margins than the average, even higher than clouds by a lot, a much higher margin than cloud and that's you know, three times as higher margin as the e commerce business. So these media businesses, I think not only are they growing faster, they're helping churn fall for the commerce part of the Amazon's and they have

much higher profitability in which was on capital. So, Laura, what does this mean for the i'll call them traditional media companies that you and I grew up covering. There's been a lot of consolidation. Is that enough or is there really not a boolk case to be made for

some of these traditional vertically integrated media companies. UM, So I think Amazon is trying to Amazon is doing something, dear prints in our traditional media companies with you and I started in the world covering, And what I would say is they have a bigger they have a bigger they're thinking globally for one thing, um and and their margin structure is different. They're very much data and technology driven. UM.

As you and I have seen from the past. You know, data alone does not good content make UM, So I don't necessarily think of Amazon as a core competitor. I think it is much more likely that if they decide to really go into the media business, they buy the Walt Disney Company or they buy Fox. They can buy these traditional media companies because their margin profile is globally

scale much more profitable. But I gotta tell you, Paul, I think this man, this this company really thinks that much bigger total addressable market like we think he's going after the logistics market next. That's this one point six trillion dollar total addressable market like media is too small for him. But I don't think he's going to look backwards.

A go ahead, Paul, Sorry, no, no, no, that was good. Uh. I guess we should ask a really about Apple on Monday as well, because it's the first virtual w WDC conference in in ever. Is there anything that you're anticipating that will blow us away? I think the most important thing we're waiting to hear from Apple is what's going on with the five get phone, because I think the stock has been running on the hopes that we have a five get phone this year. Um, it's going to

be late. All of their products. We're going to be late because of the COVID pandemic shutting down factories, um, And so we're waiting to hear what's the new five get phone going to be? And I think I think then our next step is after we know what their product mix is gonna be and when it's coming out, when it's gonna they also usually announced when things are going to be hitting the market, shelves available for purchase, um, then we're gonna all have to go do surveys about

does any consumer care? Is anyone buying a new Apple phone this year? I mean, I think that's a separate question. But first we need the data on what is Apple delivering to the marketplace and when all right, Laura's thank you, We will eagerly await that on Monday. But also just a very happy to chat with you about your initiation of coverage of Amazon. The company's a hidden value multiplier

and so on. Looking for Amazon to hit thirty two hundred dollars in the next twelve months and obviously has a by rating on it. That's Laura Martin there, senior media analyst at Needham and Company, and of course Paul as soon as she said Disney, I I heard you park up exactly. Yeah, you have to just really think about the future of these traditional media companies, including Disney. Exactly.

Let's get back to our market coverage now. We have Dave Pudla joining us and David Couldla of course as founder, CEO and chief investment strategist of Mainstay Capital about two point seven billion dollars in assets under management and named my Baron as Barons as one of the top financial advisors, one of the top twenty five over the past six years. David,

great to speak with you again. We've been asking participants here of show to tell us why exactly stocks continue to reach new highs even if we see some volatility, and even if today is quotruple witching, it's a bit of a bit of an exception. Well, we've been in Good Morning, Bonnie. The mantra that I think all investors need to heed all professionals, uh, that somehow I think have forgotten and are remembering now is that the mantra

of don't fight the Fed. And we've seen some professionals, some bears that have thrown in the town recently and come back to a bullish dance. But This has been our mantra on this rally all the way back up, and I think that it continues to push stocks higher. You can't. It's just very difficult to justify these levels and even certainly continued advance on fundamentals of uh some of these companies, fundamentals of the market and the economic reality.

But it's it's essentially fed stimulus and central bank stimulus. Um this continued continuing to put push asset prices higher and specifically stocks higher. So, David, you know, it's kind of my thought here and what what I read in here and talk to folks like you, that a lot of this market movement, particularly the rally off the bottom, which we're you know, roughly four off the bottom, has been driven literally by a handful of stocks, the fang

plus kind of names. How broad based is this? And if to the extent it's not broad based and the depth is not there, the breath is not there, how concerning is that to you? It's not concerning At this point. We've seen, really, we've seen that kind of advance for

that kind of narrow leadership for quite a while. We were seeing that in ten and early before we had the bear market decline, and I think a lot of that is a function of, you know that there was this a lot of concern about the fang stocks, a lot of concern about big cap tech that you know, and specifically the fang stocks either you know, those stocks that are big cap tech or retail stocks that are being enabled by technology, that it was a house of

cards that was eminently going too far, eventually going to crumble. And you know, our our school of thought on that has been that, you know, technology is changing the world, technology is eating the world. And if you look at what happened, what's happened through the pandemic, some of these um, the cloud stocks, I T stocks, you know, those have been the enablers for uh, the different businesses that have done quite well through the pandemic. It's just another another

scenario where we've seen how technology has mattered. And so we think that, uh, it's it's a secular grows story that remains and that these stocks are going to continue to trade at high multiples, are going to continue to do well, and we're continued well, we will continue to see that leadership. We saw a rotation back into value stocks here recently, and it was just another head fake, the the tech stocks I t cloud, all those came right back into leadership positions, and you know, we we

have been uh overweight growth stocks. We continue to be. We don't fall for those value stock head fakes. And except for we've taken a Barbell approach in our portfolios here more recently over the past couple of months because

the we call it the lockdown rebound plays. But basically some of these cyclical areas, whether it's the airlines, travel, leisure, uh, energy, construction, housing, you know, there's been some some good plays on those on the rebound, but we're staying with these secular growth stories, specifically technology. Dave, how long does this narrative play out for? Though? I mean it seems like nothing can go wrong for these companies. I mean Amazon put on a four hundred

billion dollars worth of market capitalization during the pandemic. Well that's just it. I mean, we we say that nothing can go wrong, and I think it's that they're just in a place where, you know, everything is right for them. Amazon, you know, Amazons being a category killer for years and will continue to be, you know, coming back to what's happened during the pandemic, Um, there was an e t F that we invested in called Clicks that was it

was just it was a slam dunk. It is an e t F along short et F that is, it was long uh, e commerce and short brick and mortar. The government was closing down brick and mortar stores. Even people that weren't accustomed to shopping online. We're being compelled or almost forced to do so. So that was a boost to Amazon and other online retailers. But in some of those habits have changed forever um and and so

people are continuing to move more and more to shopping online. Uh. That trend will continue, So the Amazons of the world, and specifically Amazon will continue to do well. So, David, if I believe that the economy is going to slowly rebound in the back half of this year, then have a much stronger I want to go along some cyclicals.

Do I want to go along some transportations? Something in the rails, the truckers, the you know, the cargo ships that are gonna be shipping all that cargo around the globe? Is that a play? If I believe in a stronger yeah, I think so. You know, I think you need to be careful. You know, you need to look at the charts. Uh. You know when we look at the airlines, for instance, you know there is an opportunity because they took such a plunge down as much as sixty on the downside,

you know when they come back to their pre COVID levels. Um. You know, we look at the chart of the airlines and it's it's like an e KG with noise in it. And you know that's an industry that operates and razor thin margins with an airline going out of business every filing for bankruptcy every year or two. We look at construction and housing that was on a nice upward slope

that got interrupted. It's had a nice rally back. All those other cyclicals you're talking about though, um, some of them have a long runway left in this in this rebound, and I think that you, you know, investors need to look at those areas to include in portfolios as we moved through this recovery in the economy, but not just here but globally. David couldla thank you so much for joining us. David's the CEO and chief investment strategist at

main Stake Capital Management. About two point seven billion dollars under management. We always love speaking to David, very thoughtful analysis of the market and Vannie. You know, I love how he talked about don't fight the FED. That was literally the first lesson I learned on Wallstreet. When I was on the pain Warber block trading desk back in the mid to late eighties, managing director came up to

me and said, why are you selling stocks here? Said, well, you know, and I said, he said, the rates are going down, kid, buy stocks, you know. So that's one that is stuck with me. And well, do you have a photograph of that time? No, I do not, thankfully. Yeah. It was a lot of fun, but so but it's atually interesting. I think David's right spot on here. We've had central banks around the world, UH and you know, led by the US Photo Reserve pumping liquidity into the marketplace.

And some someone we had on the show coined a great phrase which I love, which is back stopping. The markets are back stopping risk assets here, and that's kind of what it feels like. You get a little bit of a pullback in the market, but investors still have confidence to come back in uh and buy that dip despite some of the economic conditions we are facing. It

is Juneteenth. It is perhaps also the first time that nationally this is being recognized, and companies are actually recognizing junetee, some of them offering employees who so wish to take a day off Morgan's down, the Target and Uber among them. But whether the moves will be scrutinized as enough, or whether companies will also be forced to devote resources actually make concrete, measurable changes in areas such as hiring, vendor diversity,

that's still up for grabs. Let's bring in Bloomberg Finance reporter Laana Nuyon has been looking at what companies have been doing and whether it's going to be enough to satisfy public impressions. Right now, Lana, and thanks for joining first give us an idea of just how widespread the moves have been, particularly the juneteenths recognition. Thanks Fohnnie, it's nice to speak to you. So, I think the widespread factor of this is very interesting because it's more about

the major companies that have done it. So from Nike to Target, we're seeing very large household names give employees a day off in recognition of June teams. So I think there's an element of corporate leadership on top of which you have banks like JP Morgan, which is closing branches early, and other banks, Bank of America and City which basically told staff that they could take a day,

a personal day, um to to commemorate junetein. So we are seeing a lot of really really big companies try to mark the moment in some way, and so that's just having a ripple effect across corporate America. York City to make Juneteenth city school holiday next year, that's according to mayor the Belasia. So just another example and had

to lean on. I have to admit, I'm I always consider myself a fairly well read student of American history, but I have to admit I had never heard the term Juneteenth or its significance until a couple of days ago. What's the phenomenon behind this? Is this just a recognition of the racial inequality in this country and ways to kind of, uh, you know, kind of call it to attention. Yes, Paul, And I think that you're not alone in in being new to this. I think, um, it's lesser known outside

of the black community. Um, and it has suddenly kind of jumped onto the agenda of many people, including ourselves as business reporters. UM. And so the movement is similar to Martin Luther King Day to commemorate the end of slavery UM and to recognize and fight against um, you know,

racial inequality. UM. One of those sources I spoke to for the story said that she and her family and her network used the day as a day of service and reflection to be with their families or to participate in the community service events and so UM you know, there there is a push here by the corporate sector to acknowledge that people in the black community, UM, you know, take this seriously, and also people outside of that community as well, and so UM you know, the marketing consultant

I spoke to said, last year, nobody did anything for Juneteenth, and now suddenly this wave of companies is doing UM events and and commemorating in some way. Yeah. I was on air when Nike announced thought it was going to take juneteenths as a vacation date for employees who wanted to observe it. And I actually thought, in some ways it was I don't want to say a joke, because it's an important thing and it's it's nice that a company would recognize that, but it also does feel very

much like lip service. Lannan, I mean, when are we going to see actual you know, corporate mandates devoting resources to making measurable changes, doing things like fixing their hiring practices, making sure that there's vendor diversity. So for a recently was one of those vendors that signed up to what's been called a fifteen percent pledge. The founder of brother is talking about the fifteen percent pledge, so that at least fifteen percent of products and stores are from black

owned businesses. We need more of this, No, Ronnie, that is a very important question because a lot of the sources I spoke to said this is extremely important. That people are not just going to be sort of pleased with a an announcement for one day or an observance

for one day. This is supposed to be part of a lasting change, and people in the community are looking at UM, at these companies to see, first of all, what is your record in the past, what are you doing to UM, you know, fix any previous problems, and then what are you doing going forward to hire black people, elevate them in management and UM you know, enforced policies

that are going to help to rectify racial inequality. Um. Another person that we suppose to in a brand consult or brand strategy firm said, if it's just this day and the company doesn't do anything else, more broadly, it's going to ring hollow, and consumers and and other business partners are going to see that. So, UM, everyone is looking to see that the Juneteenth actions are backed up with broader measures in order to correct racial inequality. Interesting.

I mean, you know, employees Lennon are certainly like reflecting the broader populous, you know, more sensitive arguably just in the last couple of weeks months to racial inequality. Uh. Is this a reflection companies trying to do really the right thing, or again, as Vannie suggested, maybe it's just a little bit of lip service. I think the jury

is out, Paul. I think there are some companies that are really trying to listen and do the right thing, and others that just want to make sure that they're covering themselves and having the optics of you know, commemorating the day. So the marketing firm that we spoke to said that employees in companies that they surveyed UM really do support anti racism protests. Two percent of them support their protests, and fifty five percent say that their employers

should respond directly to racial issues. So there's a conversation that's taking place in worth places right now that has is much more open about race than every husband before. Hey, Len, and thank you so much for joining us and sharing this reporting that you had Lennon new and Bloomberg Financial reporter, uh talking about Juneteenth and again just coming across the Bloomberg terminal headline New York City to Juneteenth a city and school holiday next year, and that's according to Mayor

Bill Deblasia. So again falling along what we've seen a lot in corporate America. Uh, as we tend to deal with this racial inequality. This is Bloomberg. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever a podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio