The Best One Yet - “How the money pipes work” — A stock brokerage’s plumbing. Levi’s kills slim-fit. WeWork’s ReWork.

Episode Date: February 1, 2021

We’re jumping into the pipes deep within the financial system: Breaking down the plumbing on why brokerages broke down last week. Levi’s is killing slim fit, joining The Comfort Economy, and going into… furniture. And a year after falling apart, WeWork may be reborn for the next trend in your work life.$LEVI $SPYGot a SnackFact? Tweet it @RobinhoodSnacks @JackKramer @NickOfNewYorkWant a shoutout on the pod? Fill out this form:https://forms.gle/KhUAo31xmkSdeynD9Learn more about your ad choices. Visit podcastchoices.com/adchoices Hosted on Acast. See acast.com/privacy for more information.

This is Nick. This is Jack. And this is Snacks Daily. Welcome back. It is Monday, February 1st. February, or as they call it in Vermont, the start of Frostbite season. Classic February. Jack, is this our best one yet, by the way? T-B-O-Y. Let's get right to it. This is a classic T-boy. First story, what do we got jack? We are jumping into the money pipes that move stocks from the market to your account. We're looking at the plumbing that got clogged with GameStop stock repop last week. For our second story, Levi's is killing Slim Fit. slipping into the comfort economy baggy jeans instead. Jack, their other latest idea makes so little sense, it makes too much sense. For our third and final story, We Work, is pulling a rework. Yeah, they may finally go public, finally, by spacking themselves. This future of work from home, it's really work from anywhere. But Snackers, before we hit those three stories, last week was wild for stock markets. Things ended down 4% overall, Nick, which was the worst week since October.

Plus, we got the, Jack, we got the old game. GameStop stock repop. Yes, this tongue twister will never go away. Game Stop stock. Jump 221% Wednesday. Gotcha. Fell 44% Thursday. Following you.

And jumped 67% Friday. So Snackers, a whole lot went on. Jack and I spoke to each other over the weekend. I would say, we spoke to each other a lot, Jack. Verizon must think we got married because Saturday and Sunday was a full-time FaceTime phone call between Nick and me. Basically, Jack and I were like, how specifically can we be the most helpful to Snackers this week by making sense of all of all.

latest market madness that's been happening over the whole last week. And it got us thinking, we've been talking about finance news like we did this weekend. To each other. Every weekend for the past like 15 years. Yeah, this is pre-Iphone. We're talking Motorola Razor era. It started when Nick and I showed up as freshman year roommates sharing Seinfeld DVDs. I had season three, he had season four. I feel like we're dating ourselves now. Since then, we've worked on Wall Street, been covering finance news for 10 years. Jack, we could kind of say we're PFWTMs, not in much, but kind of in the financial industry. We are. We are are people familiar with the matter of how stock markets work? And Jack, what would you say based

in all this? What would be our takeaway on the financial industry? Nobody completely gets how finance work next. No, they don't. And that's basically why Jack and I decided to make making financial news digestible our like entire life takeaway. Chicago does logistics. Dahlene does two pumps and we make financial news digestible. And the news right now, mainstreamification of investing like we have never seen before. It is. a meme vesting moment. Nick, GameStop was like the only subject of Saturn Live. They basically co-hosted a whole SNL skit. So this week, Jack and I had an idea. Here's what we're thinking. We want to make the financial system more digestible too.

Our goal, one news story per day that highlights a different side of the financial system. Now, Snackers, that system is complicated. And by the way, not everyone plays by the same rules in that system. That's why we're jumping in Snack style. Jack, let's hit our three stories. You're tuned in the snacks daily. We spoke to the lawyers and we got to get some illegal out the way. The snacks about the hair ain't food. It's air candy. They don't reflect the views of the Robberhood family.

It's all informational just so. We're not recommending any securities. It's not a research report or investment advice. Not an offer or sale of a security. Snacks is digestible. Business news for you. Robberhood Financial, LLC, member FINRA slash SIPC. For our first story, we are going inside the money pipes.

We are looking at why brokerages stopped stock trading last week. You might think buying or selling a stock happens like, boom, as quickly as a text message. False. No. It is slower. A lot slower. It's a lot slower, more like the plumbing system in an East Village, New York, pre-war, four-floor walk-up. Jack, I'm picturing 21 East 14th Street.

Now, here is the complicated pipes that take a stock from like somewhere else to your account. We're looking at those complicated pipes because they broke the system last week for the whole world to see. And that's why Robin Hood, TD Ameritrade, Interactive brokers, E-Trade, and others, restricted trading of GameStop, AMC, and a whole bunch of other meme stocks last week. Snackers, maybe you've bought a stock before. It turns out every time you buy a stock, you're actually borrowing that stock for a full two days. That's because it takes two full days for the seller to digitally deliver. that stock to the buyer. That's right. There is one surprisingly long virtual pipe through which your stock actually flows. And like in between, like in the middle of that pipe, the brokerage,

it's spotting you. It's like got you. It's a two-day loan it's giving you between you buying the stock and it arriving in your account. And let's say those stocks are the ones getting mentioned and hyped up on Wall Street bets. Jack can kind of create a major stress on the whole plumbing system we got here. For example, imagine you place an order to buy a hundred share. of GameStop on Wednesday last week. Now at that point, since GameStop's stock is $400, the brokerage is essentially lending you like $40,000 worth of stock 100 times 400. And that loan from the brokerage to you just sits there for two days until Friday when the stock finally arrives from whoever sold it. But then, Jack, let's say over this two-day period, what if the

stock drops for GameStop from like $400 to maybe $0 before Friday? Then the brokerage lent you you $40,000 and finally get stock that's worth $0 to replace it. So the brokerage would lose $40,000 because within those two days, the stock plummeted. Now, normally for a brokerage, these things balance out. Yeah. Sometimes you gain money with the stocks in those two days. Haguna Matata. Sometimes you lose money on those stock loans in the two days. But for some brokerages last week, it was only game stop stock. It was only buy orders for that stock. And it was happening all day long. And that built up a huge potential risk. for the brokerages last week. So if you look at this analogy then and see what happened on Thursday,

a bunch of brokerages held huge risk on those two-day loans, specifically for meme stops like GameStop. Now, multiply our one example by a million brand new retail investors all focused on these Wall Street bet stocks. Which leads to our takeaway, Jack, what's the takeaway for our buddies over in the money pipes? If stock trading is plumbing, then brokerages need cash to keep the trades flowing through the pipes. Snackers, there is a master of the pipes who says how much collateral cash these brokerages need. And that master of the pipes is the DTCC. Yeah, the depository trust in clearing corporation, we think they should go with master of the pipes. But until they rebrand on Thursday morning, the DTCC ordered the brokerages to collectively put up $8.5 billion in

cash as collateral to ensure stocks could keep flowing through the pipes. That is because brokerages had so many GameStop buy orders. And if the stock of GameStop dropped massively, something Jack that was totally possible with GameStop, although it hasn't happened. Then the brokerages would be sitting on huge losses and would need to find cash really fast. And that situation, that helps explain

what happened on Thursday. Thursday's news. Brokerages did various things last week to meet the sudden and huge collateral requirements from the DTCC. Some of them, not all of them, but some of them prevented viral. stock buying because that would have required even more cash collateral. Social media fueled, meme vesting required cash to get through the pipes. A whole lot of cash. For our second story,

Levi's stock is exactly where I was a year ago, Jack. And at the same time, Levi's is the most active company in fashion right now. All right, seconds. Investors have stashed Levi's stock and like that one lower left closet drawer, you know, like the one year you're not really ever opening. For me, it's a wicker basket. Jack just, fully exposed that he's recording from Vermont right now. Yes. Levi's though, it's summer sales, like last time we covered it, Jack, plummeted 60%. It lost $127 million in 2020, million. Unsurprisingly, the stock underperformed last year. It didn't move. Yeah. It's the same place today as it was a year ago, while the rest of the stock market is 13% higher.

So then Jack and I are preparing for today's pod, and we noticed this shocking news. Levi's added 21 stores in the last three months, and sales only dipped 12% last quarter. Levi's seems shockingly confident right now. Yes, they do. Because they're also killing off their slim fit jeans. Yeah, they just launched their own loose fit for both men and women. Yeah, perfect for like the spirit airwise situation, Jack, when you only can do certain carry-on luggage. You can stuff like a full suitcase worth of stuff in these baggy jeans. Technically, I'm only carrying one bag today. The CEO made this statement regarding the company's skinny to loose-fit switcheroo. Get this. I think we're kind of leading this trend to some extent.

The most non-definitive statement from a CEO we've ever heard. Most hedged thinged ever. And guess what, Snackers? It's all part of the comfort economy that the pandemic completely ushered in. You want drawstrings, not zippers. But here's what's fascinated Jack and me about Levi's. This company we noticed has been absurdly active in the last few months. Loose fit was just the start. They also inked to deal with Uber to deliver you jeans same day if you order them online. Yeah, like that unexpected last minute full-body Zoom meeting that seems to come up on Tuesdays. And they also launched their own re-commerce website to be the place to resell your college pair of Levi's.

Yeah, it's Levi's secondhand. Oh, and then they launched their first sweatpants and underwear line called Red Tap, which thankfully is not made of the stiff denim they're known for. No, Jack, I hate denim. Jack, actually, the whole strategy team at Levi's basically has like a whiteboard, a dart, and a few real house wives at Key West Martini's. Levi's, where no idea is a bad idea. So, Jack, what's the takeaway for our buddies over at Levi's?

Meet the customer where they are. Okay, so this very latest Levi's partnership we just noticed, it makes absolutely no sense at first. Target. Furniture. A jeans company just launched a line of pillows, tableware, and rugs sold exclusively a target. A place like the denim decanter right next to the Chambre lamp. By the way, Shambre is just the New York word for

denim. It's soft. Jack, I will never wear denim. Shambray, I'm okay with. But we think Levi's has noticed two things in this year of all their random product launch experiments. First, they notice that Target has the secret sauce of attracting retail shoppers during the pandemic, and that is groceries. They get shoppers in. Second, they realize customers aren't buying clothing specifically for events they used to go to. No more bell-bottomed pants just for that music fest. So Levi's has recognized they need to meet the customers at the stores like Target where they're spending time. Not Levi's. And they've noticed they need to sell them products for the places you're actually spending time. Not out. Like furniture. For our third and final story, WeWork got crushed by themselves in 2019. Then they got further crushed by the

pandemic in 2020. But here's the wild thing. WeWork may be saved by the pandemic in 2021. It's a crazy story. It is. Snackers, 15 months ago, Nick and I were getting ready to cover the WeWork IPO at a ridiculous valuation of $47 billion. And then 12 months ago, that valuation changed and WeWork became worth $3 billion. WeWork was four lifts. Then they were a third of a lift. Yeah, they canceled their IPO after society basically realized, you know what, this isn't a tech company. This is just a real estate company. And you know what? The CEO is more talk than Term She. Basically, they were losing as much money as a tech company, but without like the whole scale thing. That's when WeWork picked itself up

like Batman at the advice of Alfred and we did itself. Yeah, it did. It sold off its wee schools. It sold off its wee dorms. It sold off that wave pool startup. It bought from the surfer guy. Remember that, Jack? I can't believe they had a wave pool startup. They also crucially ditched Adam Newman. Okay, so Jack and I went all the way back and reopened WeWork's IPO paperwork from 2019. Jack, what do we notice when we command F this thing? Adam Newman, the founder of WeWork, and former CEO was mentioned 169 times in the S-1. Get this, Snackers. Co-working was only mentioned six times.

Which led to a shocking story, Jack and I noticed this past weekend. According to PFWTM, WeWork may now go public via SPAC at a $10 billion valuation. If a SPAC acquires WeWork to take it public, that would triple its valuation in just the past year. Now, a year ago, remember, we worked in just canceled its IPO, in 2019, the pandemic like broke WeWork pretty hard. Yeah, the cashew butter available in every

WeWork fridge, it was a super spreader event. Yeah, it was. And yet, since then, revenue for WeWork has stopped plummeting last quarter. And the company publicly announced they expect profitability at the end of 2021. Could be adjusted, but still could be profitability. Self-proclaimed path to profitability from WeWork. So, Jack, what's the takeaway for our buddies over at Wework? 2020 was work from home. 2021 could be work from anywhere. Okay, so here's how we're seeing this. Co-working is like the obvious pandemic victim,

but it could become the surprise post-pandemic winner. Here's the change we're expecting. There will be less working in office, but people won't be working entirely at home either. Right, and many companies are going to like end up in the middle of this whole spectrum with the post-COVID work plans, right, Jack, like right in the meaty part of the curve. Some will be fully remote, others will be fully in office, but many will be flex workers.

Yeah, come in a few days a week, work from home and the rest. Don't worry about it. That's how you'll do this. And here's the key. We think companies will be able to recruit better talent if they have the promise to access local WeWorks. Yeah, so we think WeWorks could get a big boost of corporate clients thanks to distributed workforces and the whole new flex working policies, we'll see. Mark Zuckerberg announced a few months ago that Facebook will become a 50% remote company soon.

Jack, why isn't Facebook get a couple dedicated It's spaces for remote workers at a we-work in every single city. WeWork reworked itself to survive last year. The pandemic, though, just set up WeWork to thrive this year. Jack, can you whip up the takeaways for us over there? Wild volatility and meme vesting broke the stock market last week. Yeah, brokerages, they also need cash to power stock through some shockingly slow plumbing. For our second story, Levi's is meeting customers where they are at home.

Yeah, and the comfort economy, you don't dress to impress. you Levi's Lucifer. For our third and final story, WeWork could become the remote-friendly satellite office for big corporations post-pandemic. Yeah, WeWork reworked itself into a public company shape again. Now, time for a snack fact. This one is from Jack in Vermont and me in New York City originally. To kick off Black History Month, we are offering up the first snack fact of the month. Yeah, you may have heard that Black people on average earn less than white people. We've heard that before. According to the census, Black people make just 50 income what white people make on average in the U.S.

But the wealth gap dwarfs the income gap. Yeah. Basically, how much money you make versus how much money you have is actually very different. And according to Brookings, the net worth of a typical white family in America is nearly 10 times the typical net worth of a black family. 58% to 1 for income, 1 to 10 for net worth. Snackers, that's our snack fact to kick off Black History Month. and we want yours. We want a whole bunch of them. We're not just looking for snack facts that are numbers.

Those are good, but we'll take snack facts about people, about companies, about structures and institutions that enlighten us about race in America. We want ones of significance, impact, the stuff that's going to make you think differently. We're going to feature something Black History Month every day for the whole month. Tweet us at Robin Hood Snacks. Snackers, it's been great talking to somebody that's not just Nick like I have been all this time. We've been waiting to get back on this pod for. Monday. We're so happy to be here with you. Have a great day. We'll see you tomorrow. And before we go,

congrats to Xingxia. New job over at Apple in Beijing. Happy birthday to Ilhan Putra in Padang, Indonesia, and Alina Malita in Zurich, Switzerland. And Pedram Masha, who just launched a podcast in San Francisco. And Jake Mack, who just got promoted at Carvana. Happy anniversary to Ivan Chung and Jamie Lung in the Bay Area, California. And Anika and even Galani just had their one-year snack anniversary down in New Jersey. Congratulations to Kelden Boswell and Riley Warren, who are both graduating. And happy birthday to Ryan Wood in Dayton, Ohio. And happy birthday to Lucy G. and Lily Shoe, both from Vancouver, both having birthdays. And Manoxi Nag in San Francisco.

Happy birthday to Aden in Ann Arbor, Michigan, who just turned 11. And Corey Ladizma in Jackson Heights. And Andrew Fam in Irvine, California. And congrats, Marissa Hunter, just got promoted in Des Moines, Iowa. Happy anniversary to Chris and Amanda in Atlanta, Georgia. And J.D. just made his first thing. investment in CIL City, New Jersey. This is Jack. I own stock of Levi's. The Robin Hood Snacks podcast you just heard reflects the opinions of only the hosts who are

associated persons of Robin Hood Financial LLC and does not reflect the views of Robin Hood Markets, or any of its subsidiaries or affiliates. The podcast is for informational purposes only and is not intended to serve as a recommendation to buy or sell any security and is not an offer or sale of a security. The podcast is also not a research report and is not intended to it to serve as the basis of any investment decision. Robin Hood Financial LLC, member FINRA, SIPC.