The Compound and Friends - Episode: Trading the Election
Release Date: November 1, 2024

Overview

In this engaging and insightful episode of The Compound and Friends, hosts Downtown Josh Brown, Michael Batnick, and Jack Rains delve into the multifaceted dynamics of the upcoming election, its impact on financial markets, and the evolving landscape of social media platforms. The conversation spans a wide array of topics, including election prediction markets, corporate earnings reactions, MicroStrategy's aggressive Bitcoin investment strategy, the rise of Reddit as a dominant social media force, and the strategic moves of major financial institutions like Robinhood and Sherwood.

Election Prediction Markets and Betting Trends

The episode kicks off with a lively discussion about the surge in election-related betting markets. Michael Batnick highlights Robinhood's launch of presidential election event contracts ahead of the November 5th general election, noting the enthusiasm among users to trade based on election outcomes.

• Michael Batnik [20:10]: "We had a good call. I'll fill you in after."

• Jack Rains [20:30]: "It's a binary bet on the election, Matthew Tuttle, CEO of investment fund Tuttle Capital Management, told Yahoo Finance. Listen to this one... I think the trajectory of shares hinges on a buy the rumor sell the fact trading strategy."

Jack Rains elaborates on platforms like Kalshi and Polymarket, observing a significant skew toward betting on Trump, possibly influenced by a higher proportion of conservative bettors and recent momentum in his favor.

• Jack Rains [20:55]: "There's a little bit like a slightly higher percentage of people that are actually betting on this probably lean conservative. So that's going to skew it a little bit."

The hosts contemplate the implications of these betting markets on voter behavior and election outcomes, pondering whether early predictions might dissuade voter turnout.

• Michael Batnik [21:19]: "So I would tend to believe that the prediction market is the real thing when it comes to, like, the stock market."

Corporate Earnings and Stock Market Reactions

Transitioning to corporate earnings, the hosts analyze recent performances of major tech giants amid a challenging market environment. Notably, Microsoft and Meta experienced significant stock declines despite solid earnings reports.

• Josh Brown [07:52]: "There's a lot of dispersion in the Mag 7. So Microsoft, Nvidia are bright red. Meta's down almost four."

• Jack Rains [14:16]: "What about the total, you know, Gen AI future? Is this a bubble today or not?"

The conversation underscores a shift from an initial optimistic earnings season to a more cautious sentiment, with even traditionally high-performing stocks facing sell-offs.

• Josh Brown [16:30]: "It's interesting seeing how bullish investors are on the stock market compared with how like people feel about the economy..."

Jack Rains attributes this dichotomy to personal portfolio gains contrasting with pessimistic economic news, suggesting a segmented perception among investors.

• Jack Rains [18:34]: "But my take on this is most people's personal portfolios are up because most people are invested in index funds or something like that."

MicroStrategy's Bitcoin Strategy: A Risky Gamble

A substantial portion of the episode focuses on MicroStrategy's bold strategy under CEO Michael Saylor, who has been aggressively purchasing Bitcoin to leverage corporate growth. The hosts dissect the sustainability and risks associated with this approach.

• Josh Brown [50:03]: "MicroStrategy has stock to sell, so if you want to understand, like, really what's going on, read Matt Levine."

• Jack Rains [53:29]: "They make $100 million in revenue below $400 million. So relative to the size of the bitcoin holdings, you're paying a 3x. But it doesn't matter."

The discussion highlights the company's exponential increase in Bitcoin holdings—from 133,000 to 252,000 Bitcoins—and the corresponding rise in value from $2.2 billion to $18 billion. However, concerns are raised about the potential for margin calls and the sustainability of continually issuing debt to fund further Bitcoin acquisitions.

• Michael Batnik [55:37]: "This is a wild story though. He's like the bitcoin Fed..."

• Jack Rains [54:07]: "If bitcoin had a like 85% drawdown, he could get margin called and then have to sell some of his bitcoin to pay back creditors."

The hosts debate the long-term viability of MicroStrategy's strategy, contemplating scenarios where significant Bitcoin price drops could jeopardize the company's financial stability.

The Rise of Reddit: Outpacing Twitter in Engagement

Shifting focus to social media, the hosts commend Reddit's remarkable performance post-IPO, contrasting it with Twitter's struggles under Elon Musk's leadership. Reddit's user base has surged, with daily active users up by 47% year-over-year and revenue soaring by 68%.

• Jack Rains [34:23]: "Reddit absolutely crushed earnings. Their revenue was up 68% year over year, which is nuts."

Reddit's strategic partnership with Google to enhance AI-driven translation tools has expanded its global reach, making it a formidable competitor in the social media landscape.

• Jack Rains [35:01]: "They've been using machine learning to build out better translation tools... so it opens up a bigger international market."

The conversation also touches on the evolved nature of communities like WallStreetBets on Reddit, noting a shift from sophisticated trading strategies to more meme-driven interactions as the community has grown.

• Jack Rains [42:13]: "It's bigger than ever, but it's like, it's one of those things where the bigger it gets, you lose that..."

Washington Post's Subscriber Decline and Political Neutrality

Addressing media influences, the hosts critique Jeff Bezos's decision to refrain from endorsing presidential candidates in The Washington Post, citing a resultant 10% loss in subscribers. They argue that the timing of this decision, amidst impending elections, undermines trust in the publication's claimed neutrality.

• Josh Brown [29:26]: "Jeff Bezos saying that the newspaper will not endorse a candidate... it's kind of weird effing timing considering the elections on Tuesday."

• Michael Batnik [30:09]: "It's because Blue Origin relies on government contracts... it's not like none of this is news that this is now a really big factor."

The discussion emphasizes skepticism toward Bezos's motivations, suggesting that such decisions are strategically timed to favor his other business interests, thereby eroding credibility.

• Jack Rains [32:28]: "As soon as you come out and say that none of that happened, it shows that you were thinking about people thinking that that happened."

Robinhood and Sherwood's Evolution

Jack Rains shares insights into Robinhood's expansion beyond retail trading, highlighting Sherwood's growth and the platform's increasing sophistication. The integration of retirement accounts and advanced trading suites marks Robinhood's transition into a more comprehensive financial service provider, appealing to a broader audience.

• Michael Batnik [60:24]: "Robinhood has like a very favorable retirement match... they're offering a lot more."

• Jack Rains [61:07]: "Robinhood's growing up and they're offering a lot more... we're launching like Vlad announced two weeks ago, a full trading suite desktop version."

The hosts commend the strategic moves of Robinhood and Sherwood in capturing a larger share of the financial market, positioning them competitively against traditional brokerage firms.

Concluding Remarks and Favorites

As the episode wraps up, the hosts share their personal favorites and recommendations:

• Josh Brown recommends Matt Levine's coverage for deeper insights into financial intricacies like MicroStrategy.

• Michael Batnik praises Steven Pressfield's daily motivational book for creators and entrepreneurs.

• Jack Rains highlights his co-hosted podcast Snacks Mix and encourages listeners to follow his blog, YoungMoney.com.

The episode concludes with light-hearted banter and a reaffirmation of the hosts' commitment to delivering valuable financial insights.

Notable Quotes

• Josh Brown [14:05]: "It's just like I'm looking at a chart of MSFT divided by SPY and it's where it was in October 21st. So how is that even possible?"

• Jack Rains [26:13]: "It's a binary bet on the election..."

• Michael Batnik [25:01]: "I would tend to believe that the prediction market is the real thing when it comes to, like, the stock market."

• Jack Rains [34:23]: "Reddit absolutely crushed earnings. Their revenue was up 68% year over year, which is nuts."

• Michael Batnik [21:19]: "So I would tend to believe that the prediction market is the real thing when it comes to, like, the stock market."

Key Takeaways

• Election Betting Markets: There's a significant surge in trading election outcomes, with platforms like Robinhood enabling users to bet on presidential results. This trend raises questions about the potential impact on voter behavior and market perceptions.

• Stock Market Volatility: Despite solid earnings reports, major tech stocks like Microsoft and Meta are experiencing notable declines, indicating a shift in investor sentiment towards seeking higher-than-expected performance.

• MicroStrategy's Risky Bitcoin Bet: MicroStrategy's aggressive acquisition of Bitcoin through leveraging debt poses substantial financial risks, especially if Bitcoin's value drops significantly.

• Reddit's Dominance: Reddit is outperforming other social media platforms like Twitter, thanks to strategic partnerships and a focus on community-driven content, making it a powerful tool for information sharing and engagement.

• Media Trust Issues: Jeff Bezos's decision to avoid endorsing political candidates in The Washington Post has led to a loss of subscribers, highlighting the importance of perceived neutrality in media ownership.

• Robinhood's Growth: Robinhood, through Sherwood, is expanding its services beyond retail trading to include retirement accounts and advanced trading tools, positioning itself as a comprehensive financial platform.

This episode of The Compound and Friends offers a deep dive into the intersections of politics, finance, and social media, providing listeners with a nuanced understanding of current market trends and their broader societal implications.