Happy Anniversary (Black Monday!!), Remember the ARK Innovation Meltdown?, and Much More
Happy Anniversary (Black Monday!!), Remember the ARK Innovation Meltdown?, and Much More
StreetSmarts Morning Note
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“I’m always fully invested. It’s a great feeling to look at a stock and know you’re one of the owners”
-Charles M. Schwab
“If you lend someone $20 and never see that person again, it was probably worth it”
-Author Unknown
Table of Contents
A.M. Allocations: Summaries of important news and investing events
How’s Aunt Cathie?: ARK Innovation’s (ex-) Queen of Wall Street
Hire Ground: Unemployment Claims Lowest Since January
Happy Anniversary (Black Monday)!!
Hot Headlines: Links to some of the top financial stories of the day
A.M. Allocations
How’s Aunt Cathie?: ARK Innovation’s (ex-)Queen of Wall Street
Apparently, she’s ‘ok’. For those of you who weren’t following the markets back in the heady days of the pandemic, Cathie Wood was the poster
childlady of the insane mini-tech bubble we saw for a few years. Her main fund, the ARK Innovation ETF, which was launched back in 2014, rose to fame in the aftermath of the initial COVID market shock around March 2020.Over the next 11 months, she managed a staggering +330% return and every time you turned on CNBC or Bloomberg TV, there she was - spreading the gospel of a high tech, innovation fueled future.
Labelled the ‘anti-Warren Buffett’, whose fundamental driven, value-based style was labelled ‘quaint’ and ‘antiquated’ in this new economy - just like it was in the DotCom bubble. The parallels were comical.
Fast forward a few years, and it’s clear that ARK wasn’t the levered bet on the future it was prescribed to be. There were some truly innovative names in the portfolio, but a lot were sorta… lame: Like Netflix’s ugly cousin, Roku, or Zoom (I mean, Skype’s been around since 2003). I actually did a video on this back in 2022.
Moreover, the small-cap nature of the fund made the popularity and success of it a sort of self-fulfilling prophecy… until it wasn’t. And from a peak of $28 billion in Assets Under Management (AUM) - making her one of only a handful of members in the ‘$25 Billion Club’ - she now manages only $6.5 billion, with her fund down 76% since peak.
Explainer: Some of the success of ARK can be attributed to its hype, fueling the returns of its holdings, which in turn, fueled the hype (repeat ad nauseum). If you put a billion dollars into an S&P 500 ETF, the administrator, like Horizons or Vanguard, has to go out and buy a billion dollars worth of stocks, split amongst those 500 mega-cap companies. The result is that the buying doesn’t really impact the market price by much.
Conversely, if you put a billion dollars into ARK, they go out and buy a billion split amongst their (currently) 36 holdings, many of which are small-caps whose price could end up moving drastically. For example, Roku makes up 7.4% of the current portfolio and has a market cap of $8.8 billion. Buying that billion in ARK means ARK has to buy $74 million in Roku - which will move the price bigly.
The hype-fueled performance also works on the way down. If a billion gets pulled out of ARK, that means selling $74 million in Roku - which again, will move the price bigly.
Take-Away: I’ll admit, some of the stuff Cathie has said has sounded completely nuts to me - like her $1.48 million target for Bitcoin for 2030 which would put the market value of the crypto at $21 trillion (the GDP of Europe is $17 trillion). But I do like when people truly believe in something and I’m confident she is sincere in her convictions . It’s fun to laugh at the Masayoshi Sons (Softbank’s CEO) of the world when they lose billions on Uber, but if not for them who would lose tens of billions on WeWork move the world forward?
Hire Ground: Unemployment Claims Lowest Since January
Weekly jobless claims in the U.S. have decreased to a seasonally adjusted 198,000, marking a 13,000 decline from the previous week and presenting the lowest figures since January 21. This drop indicates a tight labor market, possibly contributing to sustained inflation, but concerns rise with the increase in announced layoffs.
The Federal Reserve keeps a close watch on the labor market's influence over inflation, especially as continuing claims increase, totaling 1.734 million. Mixed reactions are seen in stock market futures and higher Treasury yields as markets anticipate guidance from Fed Chair Jerome Powell amid ongoing labor and economic fluctuations.
Happy Anniversary (Black Monday)!!
Yesterday marked the birthday of the largest single day decline of the U.S. stock market. Yes, the Crash of 1929 was greater in its entirety but its worst day - the other Black Monday - was only a 12.8% hit to the Dow Jones Industrial Average; paltry compared to the 22.6% lost on the algorithm- and cocaine-fueled crash on October 19th, 1987. Wall Street in the ’80s was all about going big.
The drop set-off a global panic that resulted in 19 of the 23 largest stock exchanges experiencing declines in excess of 20%. Worldwide losses were estimated at US$1.71 trillion.
The 1929 Crash helped trigger the Great Depression and the Dow took 25 years (1954) in order to reach the highs before the meltdown. Thankfully the 1987 plummet was far less punishing; taking only until January 1989 (466 days) for the Dow to reach its October 16th level.
Joke Of The Day
Hot Headlines
(CNBC) GOP will not move forward with plan to empower interim House speaker Patrick McHenry - In case you’ve found it difficult understanding the current House Speaker situation: McCarthy got voted out; McHenry stepped in as interim Speaker of the House; Steve Scalise wins the nomination but gets voted down by a hard-right coalition of the GOP; Germany bypassed the Maginot line through Belgium; Jim Jordan emerges as the right-wing hopeful but fails in two votes because of minimal support from moderates; Congo changed its name to Zaire, and then back to Congo; Jordan and others propose keeping McHenry as a stop-gap Speaker until January to avoid potential government shut-down, but doesn’t garner enough support; frame 313 of the Zapruder film clearly shows a second assassin in the Grassy Knoll; Jordan has now vowed to take a third run at the Speaker job because DC. Ok, I’m still confused.
(The Hill) FCC Democrats begin process to restore Obama-era net neutrality rules
(Bloomberg) ESPN May Be Worth $22 Billion Based on First Look at Results - Disney released ESPN’s first stand-alone financials. Earlier in the year, Disney CEO Bob Iger said they were interested in a strategic investor for ESPN.
(Reuters) Nokia to cut up to 14,000 jobs as US demand shrinks, growth uncertain - its not StreetSmarts if I don’t mention some company doing a massive lay-off.
(CNBC) Shein opens up about forced labor, data privacy as it looks to clear key hurdles before possible U.S. IPO - People: ‘It’s so innovative how they produce high-quality, fast fashion so much cheaper than the European and Americans’.
(Fox News) Drone strikes target US military bases in Syria, Iraq as regional tensions from Israel-Hamas War escalate - no one killed thankfully.
Trivia
Part of the reason the impact of Black Monday (the 1987 one) didn’t cause shockwaves through the greater economy, was the swift action of the U.S. Federal Reserve, including acting as lender of last resort and through open-market operations. Who was this Chairman of the Fed?
Larry Summers
Paul Volker
Ben Bernanke
Alan Greenspan
The stock market impact of Black Monday rippled across international markets, including a 15% drop in the Japanese Nikkei. There the event is referred to as:
Blue Tuesday
The (Stock Market) Tsunami
Deadly Monday
Happy Monday
(answers at bottom)
Market Update
Trivia Answers
Alan Greenspan. Greenspan was Fed Chair from 1987 - 2006. He has lost a ton of public cred since the Great Financial Crisis, where his easy money policies are said to have stoked the fires of reckless lending. But back then, he was praised for his steady hand and pro-stock market agenda. So 80s.
Blue Tuesday. Bully for you if you picked up that the US meltdown wouldn’t hit Asia until the next day.
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