April 08, 2021
- If it works, the hope is that the Biden administration will be able to scale the techniques nationwide.
In this week's newsletter: Active trading, corporate taxes, stupidly expensive art, pandemic rebounds, fintech outperformance, and a mea culpa. Plus much more, all in 1,639 words — a 6-minute read.
- An extra reason to subscribe to Axios Pro Rata as of this week: It now comes with a bonus Saturday edition written by the incomparable Kia Kokalitcheva.
1 big thing: The teen-powered resurgence of active investing
Never mind saving for retirement. Gen Z has embraced the stock market as a place to make short-term gains.
Why it matters: Day trading is back, turbocharged by social media and the invincibility of youth. Silicon Valley is paying attention.
What they're saying: "Active investing is a natural extension of hustle culture, in which risk is embraced and failure is accepted (and even celebrated)," write Andreessen Horowitz partners Anish Acharya and Matthieu Hafemeister.
- "The psychology of American exceptionalism," they write, combined with recent technology shifts, portends that "active investing is here to stay."
How it works: The wisdom of crowds can be found on Reddit, where a new paper finds that stock-buying recommendations outperform the market.
- TikTok is full of accounts from teens like stonk.queen, who invested in stocks like Netflix and Tesla (as well as bitcoin, of course), and who claims to have turned $10,000 into $50,000 over the course of the past year.
- Barriers to entry in the stock market have never been lower. Apps can be downloaded in seconds, and many of them, including Schwab, Fidelity, Robinhood, InteractiveBrokers, Public, Stash, Cash App, M1, and SoFi, allow investors to buy fractions of a single share for amounts as low as $1.
- Creating new stock-investing apps has also never been easier, thanks to new behind-the-scenes financial infrastructure. Thank companies like Apex Clearing (soon to go public via SPAC) and Plaid, which just raised $425 million at a $13.4 billion valuation.
Flashback: Boomers grew up in a world of stockbrokers and investment advisers. When the first stock trading websites arrived in the late 1990s, many of them tried day-trading — and then lived to regret it when the dot-com bubble burst in 2000.
- Gen X led the charge away from active management and towards set-it-and-forget-it buy-and-hold strategies, but debt-encumbered Millennials found it hard to accumulate enough wealth to make such a strategy viable.
The big picture: Passive investing is facing a backlash from analysts who say that it makes markets inefficient. "We could all use a little more of that manic stock-picking energy," concludes The Atlantic's Annie Lowrey, "not less."
The bottom line: The biggest winners from a rise in active investing are likely to be passive investors.
- As a true believer in passive investing, I'm all in favor of other people's active trading. It tends to improve price discovery, market efficiency, and ultimately my own passive returns.
2. Corporate taxes go global
As promised, Treasury Secretary Janet Yellen has announced that she wants a global minimum corporate tax rate, to prevent multinationals simply moving their profits to wherever tax rates are lowest.
The big picture: The Organization for Economic Co-operation and Development (OECD), a group of 36 rich countries, has been working on this plan since 2013. Now the U.S. is full-throatedly on board, making it much more likely to become a reality — and soon.
By the numbers: One indication of the power of corporations is the amount of tax they pay on their profits. In 1980, OECD corporate tax rates were generally 45% or higher. By 2000, they had fallen to 32%, and by 2020 they were 23%.
- U.S. multinationals currently pay just 7.8% of their U.S. profits in federal income taxes, while at least 55 of the largest, including FedEx and Nike, pay no federal income tax at all.
How it works: While the centerpiece of Yellen's Made in America tax plan is an increase in the corporate tax rate from 21% to 28%, that only increases the incentive to move to a lower-tax jurisdiction. So the plan ensures that if a company pays a very low tax in one country, it has to increase its tax payments in its home country.
- So-called "inversions," where U.S. companies are bought by smaller foreign companies in low-tax jurisdictions, would also be made more difficult by effectively treating the acquirers as U.S. companies themselves.
The intrigue: Yellen says the changes will result in $2 trillion of profits being taxed in the U.S. that previously would have been taxed elsewhere.
- That's a problem for the IMF, which worries that countries elsewhere will lose out as a result.
- "The revenue collected by 'topping up' taxes on lightly taxed income in source countries accrues not to those countries, often developing countries, but to residence countries, often advanced economies," says the Fund's most recent Fiscal Monitor.
3. The end of paying for quality
Capitalism trains us to believe that there's a positive correlation between price and quality, most of the time. Recent record sales in the art world, however, have made fools of anybody who used to think that way.
By the numbers: The top two most expensive living artists at auction are David Hockney and Jeff Koons — both veterans of multiple museum shows, monographs, and and deeply considered works of scholarship.
- The next two most expensive artists, however, are Beeple and Sacha Jafri, neither of whom commands any respect among art-world cognoscenti.
- Both sell directly to collectors and eschew museums, galleries, connoisseurs, or, really, any desire to be placed within the history of art. They just make pictures that certain rich folk like to look at.
Driving the news: A ridiculously large canvas by Jafri recently sold for $62 million, despite (or perhaps because of) the fact that, as art critic Blake Gopnik tells me, "no one who cares about art cares about Sacha Jafri. His art is laughably lame."
- Beeple's work is similarly unimpressive to critics.
Why it matters: I wrote in 2019 about how "the minimum level of sophistication that an artwork needs in order to fetch 8 figures at auction has clearly been falling."
- What's new is that crypto gazillionaires are now getting into bidding wars over objects that confer status only by dint of how expensive they were.
- Wear it on your sleeve: Overpriced, which describes itself as "a social commentary on the madness of money meeting art," is auctioning off an NFT hoodie. If you have a high degree of self-loathing and a minimum $25,000 to bid, head here.
The bottom line: Art is becoming a consumption good, rather than a store of value, bought just because the collector likes it. Mostly, there's nothing wrong with that.
4. The world's pandemic rebound
The global economy is going to end 2021 2.5% larger than it was at the end of 2019.
- That's according to the latest forecast from the IMF, which has upgraded its economic projections by about half a percentage point since its last forecast in January.
Why it matters: The overall growth rate of 6% in 2021 masks a huge range between countries. India is projected to grow at a 12.5% pace this year, for instance, while Nigeria will only grow by 2.5%.
The big picture: Europe is going to end 2021 with a smaller economy than it had at the end of 2019. Asia, however, is seeing torrid growth, led by both China and India.
- The U.S. is doing extremely well by developed-country standards, with tailwinds from both widespread vaccinations and more than $5 trillion in economic stimulus.
5. The age of fintechs
Increasingly, many banking products, such as payments and certain forms of deposits, are moving out of the banking system. In addition, lending in many forms – including mortgage, student, leveraged, consumer and non-credit card consumer – is moving out of the banking system.— JPMorgan CEO Jamie Dimon, in his annual shareholder letter
Banks are finding it hard to compete with less-regulated fintechs.
- That's the message from JPMorgan CEO Jamie Dimon, and also from the market.
By the numbers: When payments company Square went public at the end of 2015, it was worth just under 6% of the combined value of storied giants Credit Suisse and Deutsche Bank.
- Today, it's worth more than twice their combined value — although it's still a very long way from JPMorgan's $473 billion valuation.
Of note: Dimon mentions "as an aside" that JPMorgan Chase moves $8 trillion every day in the form of more than 52 million payments.
- Payments unicorn Stripe, worth $95 billion, moves about $400 billion per year.
6. My dumbest prediction
Boy was I wrong. In my final newsletter of 2020, I looked forward to 2021 and wrote that "the SPAC explosion will probably not make it into 2021."
- "While there will still be many SPACs looking to acquire companies," I added, "the number of new SPACs will surely be much lower than in 2020."
To his credit, Axios' Dan Primack immediately phoned me up to tell me he saw no end in sight to the SPAC boom.
- Dan was right: The total volume of SPACs in 2021 surpassed the 2020 total on March 16, just 74 days into the year.
The SPAC boom really does seem to be over at this point, but I'm not making any more predictions.
7. Coming up: Coinbase goes public
Coinbase's direct listing is on Wednesday, writes Axios' Courtenay Brown. It will be the first cryptocurrency exchange to be publicly traded.
Why it matters: Coinbase debuts on a high note thanks to record cryptocurrency prices.
- Coinbase made $1.8 billion in revenue in Q1 — more in a single quarter than all of last year ($1.3 billion). Net income was given only in a range, curiously, of $730 million — $800 million.
- Goldman reported around $12 billion in revenue and $4 billion in profit in Q4. Its Q1 numbers arrive on Wednesday, as Coinbase goes public.
The big picture: Coinbase will likely be valued above $100 billion — quite possibly eclipsing Goldman's market cap of $111 billion.
- That would be bigger than the Nasdaq and NYSE parent Intercontinental Exchange combined.
Coinbase took in roughly 0.54% of every transaction as commission last quarter. The Nasdaq and NYSE collect around 0.01% of volume in fees, per Bloomberg's Matt Levine.
8. Building of the week: The De La Warr Pavilion
In 1932, the English seaside town of Bexhill elected the 9th Earl De La Warr as its mayor. He decided to build a culture center in the modernist style, and commissioned Erich Mendelsohn and Serge Chermayeff to design it. The structure was completed in 1935.
- The concrete and steel pavilion features large windows and cantilevered balconies — both frightfully new at the time.
- The pavilion was refurbished and reopened in 2005.
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