Happy Friday!
I was about 5% of the way through writing about dogecoin until throwing in the towel. I just came to the realization that if I spent too much time on this subject that I would come out the other side dumber, and I can’t risk that right now. Not in my mid 40s with two kids that will be going to college in 14 years.
So, yesterday I pulled a Crazy Ivan to the starboard and pivoted to three subjects that are getting almost no media attention. But they are critically important to investors over the next 18 months. The first is COVID and how recent data suggests that we are headed towards herd immunity faster than many expected.
But even if this is right, don’t expect a ticker tape parade anytime soon for two reasons. First, COVID has become a religion for many people, and the one thing that has been proven time after time is that when you tell someone that their religion isn’t real (or in this instance going away soon), it only increases their faith (Robert Cialdini’s Influence chronicles one striking example of this phenomenon).
A major source of fear is about to be stripped away from a lot of people who like to have something to worry about. I’m curious how this cohort will respond. Will they believe even more or will this worry and fear will be redirected elsewhere?
Second, there are a lot of scientists, doctors, and other pundits who became famous overnight, and I doubt all these “experts” will be ok with losing this attention and notoriety. My bet is they will do and say whatever they can to keep this ride going – no matter how sensational and/or extreme. Don’t ever forget the most basic economic principle, which is that we are all self-interested.
Now on to something I found this week that makes dogecoin look like splitting the atom on the relative intelligence scale. This is a website that will text you once Elon Musk tweets about a stock: https://elonstocks.com
I guess the idea is that Elon tweets something about a stock OR not even a stock but a company/idea/pet that shares the same name as a publicly traded company. This website immediately shoots a text to subscribers.
Loyal minions of Musk can then go to Yahoo! Finance to type in the name of the company. Then, whichever ticker shows up first in the auto-populate feature of the search box is the one that will be the next meme stock because everyone else will see the same ticker. So, you can then presumably buy that stock (and call options if contracts trade), sit back, and wait for GameStop 2.0.
Here’s the only tiny little wrinkle with this strategy. You need to trade faster than all the other lemmings who are presumably doing the same thing. In the world of high frequency trading (HFT), this is referred to as “latency.” How quick you can get that order to the exchange and fulfilled is often the most important driver for alpha.
Think about it this way. It’s a 100m race, and if you’re not Usain Bolt, you aren’t going to win. Admittedly, you don’t have to take the gold to make money, but the risk of being late to the party increases exponentially as every fraction of a second goes by.
On a closely-related subject, it was only a matter of time. There is simply no way that marketers in the ETF world could sit on the sidelines and ignore meme stock mania for any longer, and this week we finally got news of what we all knew was inevitable – a new social media buzz ETF.
The glaring irony in this announcement is that Robinhood became popular because it was marketed to democratize markets by metaphorically taking from the rich to help the poor. Well, the ETF industry has a tenured history of doing the exact opposite. They consistently steal from the poor and give to the rich (one of no fewer than 12,000 examples that come to mind here is levered ETFs).
Said another way, if Robinhood is Michael Knight and their app is KITT, then the ETF industry is Garthe Knight and this new fund is KARR. But given that most of Robinhood customers have no idea what that analogy even means, I’m sure this ETF will raise a few billion overnight.
Enjoy the long weekend…
Mike on Markets 