The Breakdown - The Chad Index Versus Doomer Internet Money: The Breakdown Weekly Recap

Episode Date: June 13, 2020

The stock market has long been disconnected from the underlying economy, but much of what happened this week - particularly the pumping of bankrupt company stocks - suggests that something new is afoot.  In this episode, NLW breaks down three long-term trends suggested by the so-called Robinhood Rally, including: The “insurgency” aspect of a generation of young professionals who are willing to play the financial game rather than have it be played for them A totally new force in financial media, which could hit like a wrecking ball in one of the stodgiest, traditional media industries  An embrace of a certain type of cynicism or nihilism when it comes to the values of financial markets  This week on The Breakdown: Monday | Why War Reporting Is the Right Mental Model for Today’s Media, Feat. Jake Hanrahan The founder of Popular Front joins NLW for a discussion about protests, media and how the people being covered tend to not reflect divisive politics. Tuesday | What the Stock Market’s ‘Robinhood Rally’ Means for Bitcoin The largest 50-day rally in stock market history and even shares of bankrupt companies are up more than 100%. What is going on? Wednesday | A Vision for Digital Property Rights, Feat. Nic Carter Most people today look at social platforms like any other private company, but what if we saw them as alternative jurisdictions with a new set of property rights? Thursday | Why the Fed Keeps Denying Its Role in Increasing Inequality The Federal Reserve expects low inflation, says rates will stay close to zero through 2022 and keeps lying about the role of central banks in increasing inequality. Friday | Bitcoin Is More Than an Inflation Hedge While fears of a “great monetary inflation” have driven the recent bitcoin narrative, other aspects like censorship resistance and peaceful protest matter just as much. Saturday | The Chad Index Versus Doomer Internet Money: The Breakdown Weekly Recap This week, the wildest, most nonsensical, volatile part of the market wasn’t bitcoin, it was the “Robinhood Rally” in equities.  

Welcome back to The Breakdown, an everyday analysis breaking down the most important stories in Bitcoin, crypto, and beyond. This episode is sponsored by BitStamp and CipherTrace. The Breakdown is produced and distributed by CoinDes. And now, here's your host, NLW. Welcome back to The Breakdown. It is Saturday, June 13th, and this is the weekly recap. Normally, I have more guest shows than I had this week. I ended up doing a lot of analysis, both because there was a lot going on, but also because I had a couple cancellations at the

last minute. But I still, even with that, wanted to reflect on something that I think is a really important concept that comes out of the stock market insanity. And before that, I briefly want to shout out Adam Singer for the epic title of this episode. He tweeted earlier in the week crypto Twitter currently losing their minds that the NASDAQ is above 10K and Bitcoin is still stuck in the 9,000s. The Chad Index versus Dumer Internet money. And some folks in the crypto community got annoyed because Singer was needling them again, but I just thought the Chad Index versus Doomer Internet money was just about the best thing I ever heard. So shout out to Adam for that epic title. I apologize for just totally appropriating it. Anyways, it's very clear that the big

theme of this week from a financial perspective was the nuttiness in the regular markets. Bitcoin has been comparatively boring. It's been one of its least volatile periods in the last little bit. And meanwhile, the stock market has been full of people pumping bankrupt stocks. Now, we've finally seen a little bit of a correction in that, but it's still notable just how interesting a time it is for regular markets and what an insurgent force this group of Robin Hood ralliers present. I think we've long had a disconnect between the stock market and the real economy. And you can see this from a couple different vantage points. One that is recently contextual is if you go back and look at how the stock market responded during times of significant social strife, whether it was the

L.A. riots or it was 1968 around the assassination of Martin Luther King and R.F.K. And the beginning of the Tet Offensive and the U.S. election. stock market was actually up that year. So that's one historical example. I think more pertinently, as someone like Ben Hunt might say, over the last decade, the stock market has fully embraced its place as a political scoreboard, right? It is a political utility where number go up is not just a financial need. It is a political need. In some ways, the way that I interpret this Robin Hood rally is a new generation deciding to push that disconnect between the real economy and the stock market farther than ever. If you have grown up in a world where fundamentals simply do not matter or matter at least

less and less and less and less to stock price, where it becomes more and more overvalued, where it doesn't seem to be connected to actual earnings ratios or anything like that, any of these classic measures of what a stock should actually be worth, and instead is just this political scorecard, it's just this thing that is going to be constantly pumped by central bank policy, well, why wouldn't you take it to its logical conclusion? And obviously, the kind of apotheosis of this this week was these huge pumps around bankruptcy stocks, right? Seeing multiple companies, it wasn't just Hertz, although Hertz got the most attention with hundreds of thousands of people buying Hertz after it had declared bankruptcy and driving its price up. But it's kind of just a show of just what a game this is.

And that I think brings me to three key points that I want to talk about. BitStamp is the original global cryptocurrency exchange. Since 2011, BitStamp has been the preferred exchange for serious traders and investors, trusted by over 4 million customers, including top financial institutions. BitStamp is built on professional grade trading technology. Their platform is powered by a NASDAQ matching engine, and their APIs are recognized as the best in the industry. Download the BitStamp app from the App Store or Google Play,

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with the best attribution and deepest token coverage. So if your virtual asset business, isn't using CypherTrace to manage compliance risks, you should start now. Learn more at cyphertrace.com. I do believe that this particular Robin Hood rally will fade. We won't start to see or we won't keep seeing the same level of coverage that we've had on it, right? It's an interesting new thing to write about. I do think that this type of trader class is an important force potentially going forward as we'll get into, but I really think that part of this has to do with the counter-trace that they were making this unique moment. And unfortunately, as always happens, it's likely that if

a rational exuberance takes over, they're going to get wiped out, just like every other bubble. Of course, this is different a little bit because they've chosen the bubble that is the one that is most propped up by the central banks and the U.S. government. So we'll see if it actually burst in the same way. But either way, I want to talk about three larger trends that are going on underneath this. The first is the willingness of people to play the financial game rather than have it played on them. I don't use words like insurgency unintentionally. I really am seeing this group as out with something to prove about the traditional financial class versus what they know using common sense, using peer learning, using crowdsourcing.

It is in some ways an insurgency that is rejecting the truths of the past and instead presenting a new model. It's why you see people like Portnoy being held up because insurgencies and movements have leaders. It's why you see Portnoy being so willing to go after Buffett. It's not just the media side, although we'll get into that in a second. This is an insurgency of people, I think, who many of them are frustrated by the opacity of the financial system, by the way the financial system shapes all of our lives without us feeling like we have any control over it. And in some ways they're taking it back. Now, of course, I think that it's probably a much smaller portion of people who feel like that versus maybe just people who are having fun and want to make some money,

but I think it's a not insignificant part of this. So that's part one, a willingness to play the financial game rather than having it played on top of them. Second, I think that this represents an absolutely powerful new force in financial media. Financial media is one of the stodgiest and oldest and boringest and least disrupted so far of any type of medias. I mean, it is just a joke that these traditional kind of CNBC and Bloomberg analysis is all that's available. I do think that you've started to see over the course of the last few years, specifically in the context of podcasts and FinTwit and YouTube, a new set of voices who think very differently. I would argue that a lot of these folks are talking about and speaking about the same issues as Bitcoiners are, even if they are not

themselves, Bitcoinsers, but you've heard people like Luke Gromman on the show. You've heard the Lynn Aldens. You've heard the Jeff Booths. You've heard the Brent Johnson's. You've heard people like this. And it's very hard once you listen to them to go back to the Friam Jim Kramer's, right? It's a joke. Like, why would you listen to the CNBC talking heads when you have access to all of these fascinating, well-researched, really thoughtful, even if you disagree with them voices that are available. And I think that what we're seeing with this is a hunger for a different type of understanding and a different type of explanation of the financial system. Now, what Portnoy gets and why he is such a force is that he realizes and just is the living embodiment of

entertainment as a bulldozer. I mean, he is a monster truck rally for financial media effectively. And of course, people want to watch. It's hilarious. It's so much fun, especially compared to traditional things. But he makes this like a sport and like a combat sport, frankly. So I think that financial media should be absolutely terrified because, you know, I was talking about an insurgency before in general in the financial system. But when it comes to where the disruption is going to happen first, again, I just don't think you can watch Portnoy and listen to the type of people that we have on this show and Pomp has on his and Quote the Raven has on his and George Gammon has on his channel and go back to the crap that they're serving you. So that's part two of the mega trends that this is

reflective of. Third, and this is perhaps a little bit less fun of one, I do worry that there is a certain amount of cynicism or nihilism. The lie of markets was this idea of fundamentals. And as I mentioned at the top of this show, I do think that stock markets have been divorced from fundamentals for much longer than just this crisis. However, I do think that the idea that there should be some correlation, that companies shouldn't just be allowed to be zombie companies, that we shouldn't be able to make money off of bankrupt companies like that. There was a value system there that had a pretense, at least, of values. And I think that we have seen the utter rejection of that in the way that this group behaves. In some ways, that's a cleansing force because obviously that

value system was kind of bullshit to begin with, based on what we've seen from the markets and based on the way that we've seen them impact people's lives. But I do worry that going purely into a kind of cynicism or nihilism about the markets as capital allocating forces and not value transmission forces is worrisome. So it's something that's less a trend I'm willing to, commit and say is for sure there, but more something that I'm keeping my eye on. I do think it's important that, I mean, listen, if we could live in a world where markets actually represented fair value of companies, I think it'd be a better world. Let's put it that way. The farther away from that we get, even if it's these people who are in the Robin Hood rally, didn't create the problem,

they're just seizing the opportunity of it, is still something that is a little concerning. What do you think, guys? Hit me up on Twitter at NLW. Email me NLW at Wittermore.com. Let me know what you think about the Chad Index versus Dumer Internet money. Let me know what you think about the Robin Hood Rally. And I hope that wherever you are, you're having a great weekend. Until Monday, guys, be safe and take care of each other. Peace.