PPP Was a Jack & Coke - Imperfect but Effective
December 20th, 2020
Good Sunday. In case you missed it, here's what happened in the market this week.
Crazy Anecdote: Coinbase, the Bitcoin exchange that filed for its IPO this week, has more accounts (35 million+) than Charles Schwab.
Market Liked PPP: PPP was a government bailout program for small businesses. It was basically free money to small companies to keep employees on payroll instead of letting them go.
It’s true that many companies manipulated the system to unfairly participate. Imperfect as it was - kinda like a jack and coke - it was highly effective. Most experts believe this form of Keynesian economics (money printing) paid off.
Chasing Market Highs: The markets have been a bucking bull this year but, at least in terms of direction, we are closing on highs. The market tends to be an accurate predictor of the future. The truth though, is that the market is less a crystal ball than a catalyst; more causation than prediction. If investors believe the next six months will be good, they invest.
Balance is Good: After a dramatic swing this year from a deep recession and bear-market decline to a budding economic recovery and sharp stock-market rally, we’ve had a few straight weeks of steady balance. That’s a really good sign.
Vibrant Rebound 2nd Half 2021: The pace of the economic recovery is slower again as surging virus cases have incited lockdowns. We don't anticipate a return to deep recessionary conditions, but we think the economy will endure a soft patch in early 2021 before finding its footing as the vaccine is widely distributed.
Thus in this dark year, as we hunker down for the holidays, take at least this silver lining: the stock market, which is a fantastic predictor (or catalyst) of the future, says better times are indeed ahead.
And that’s your one minute weekly market scoop.
Company of the Week
Coinbase filed to go public this week. If you haven’t followed the cryptocurrency market (e.g., Bitcoin), or really don’t understand it, don't worry. Neither do we :) Just kidding. Basically Coinbase is an electronic wallet to store your Bitcoins and then trade them. It was the first to get substantial traction.
We know what you’re thinking. When will I use Bitcoin instead of Paypal or Venmo? Well, while we don’t think you’ll buy this year's Christmas eggnog in Bitcoin, we do think a large percentage of Americans will use crypto platforms over the coming years. If we told you 10 years ago you’d trade dollars though text messages (Venmo), you would have laughed. Don’t laugh when instead of storing money in her mattress your grandma tells you she’s got a Coinbase wallet. When that happens, we’ve hit paydirt.
Until recently cryptocurrency was reserved for internet transactions between unscrupulous shadows in the underbelly of the dark web. But it is now a place where more people have the opportunity to participate in an alternative system without waiting for banks to open up or for a debit card to be mailed. Noone can track your transactions. Wires and overseas transactions happen instantly. With a growing segment of the population long on privacy rights that want the government at arms length, electronic currencies make sense. There will never be a run on a bank in crypto, as it’s a decentralized database controlled by no single entity.
And Bitcoin is now traded on mainstream retail platforms. Robinhood and Fidelity are in. Square has also brought crypto on board, and JP Morgan now processes Bitcoin transactions. Billion dollar hedge funds have taken positions.
Will Coinbase’s IPO be Gladwell’s tipping point for cryptocurrency? We’ve accumulated some coins just in case.