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📝 Focus

• Twitter = X! Add eToro for a match made in...

📊 In the Markets

• Cooling prices, China export surge and French luxury on fire!

📖 MoneyFitt Explains

🎓️ Meme stocks

📝 Focus

Twitter = X! Add eToro for a match made in...

Last week, Twitter owner and sole director Elon Musk temporarily switched the blue bird logo for Dogecoin's shiba inu. This week he tweeted a not-very-cryptic letter "X" to acknowledge that the social media platform has apparently merged with a shell company called X, the same name as CEO Elon Musk’s long-envisioned “everything app” (see MFM from last October.) This had appeared in a 4th April court document which said "Twitter, Inc. has been merged into X Corp. and no longer exists."

..... ▷ But in the clearest indication that Musk is pushing forward with his plans to turn Twitter into a "super-app" (see MFM on X, Tencent's WeChat and others from last December) and, as he recently told a Morgan Stanley conference, “the biggest financial institution in the world” it announced that as of Thursday, it is partnering with eToro, the privately held "social trading", commission-free brokerage app and crypto exchange that recently failed to get SEC approval to list.

..... ▷ The new feature will allow users to view TradingView charts on an expanded range of financial instruments and buy and sell stocks, cryptocurrencies and other financial assets through Twitter’s “cashtags” feature (a ticker symbol with a dollar sign in front of it) and a direct link to eToro. This will allow the user to complete the journey from unfounded rumour to frenzy, pump, doubt, action, euphoria, dump, loss and regret, all in almost the same place.

..... ▷ Where to start?! How about with this common disclaimer: "Past performance is not a reliable indicator of future performance"? eToro is originally and best known for its innovative "social trading" function, in which ignorant users can watch and copy trading "strategies" of other users: "Invest like our best-performing traders: simply choose an investor to copy, and when they trade, so do you." These "popular investors" would then earn commissions from eToro based on (deep breath) "assets under copy" or AUC, the total amount other users allocate to copy their trades. Commissions range from 1.5% to 2% of the AUC a year, paid out monthly. It also gives bonuses to content creators who boost "engagement" (i.e. frenzied churning of portfolios.) To be fair, this could be seen as a democratised twist on the conventional mutual fund management industry (but with pretty much zero guardrails.)

..... ▷ eToro has over 30 million registered users in Europe, Asia and much of the United States, of which almost 10% are active. It makes money mainly from the spread (the difference between bid and offer prices) on users' trades, which are temptingly at zero commission (but not "free"), and from various other fees for overnight and weekend trades, withdrawals, currency conversions etc. What could possibly go wrong with pairing this already dumbed-down investor-churning system with the trading community on Twitter, or "Fintwit", which, with r/wallstreetbets on Reddit was central to the "meme stock" 🎓 frenzy of 2021.

..... ▷ Also this week, Musk appeared in an interview to tell the BBC and the world that the firm he bought for $44bn, "obviously overpaying", is now "roughly breakeven" with 1/5th of the staff he started with. He added that "the pain level of Twitter has been extremely high." Twitter also labelled as "state-affiliated media" both the BBC, since walked back to "publicly-funded", and NPR, which exited the platform entirely (to which Musk responded with a Tweet saying "defund @NPR"). That label falsely implied that they were not editorially independent and is also used for China Xinhua News and Russia Today. (Voice of America is "government-funded.)

📊 In the Markets

Markets rallied sharply on weaker-than-expected wholesale prices (in the Producer Price Index), which actually declined 0.5% on a monthly basis in March, against expert forecasts of no change and the first drop since early in the pandemic. Traders took it as an indication that the cooling seen so far in consumer prices will continue. Prices of suppliers' goods and services are still up compared to March 2022, but only by 2.7%, having peaked at 11% last June and just over half the rate in February. Excluding food (up a little) and energy (down a lot) the "core" PPI stayed about flat, as it was in February.

​​..... ▷ The slowdown was driven by 1% lower goods prices, especially energy, and even the prices of notoriously sticky core services, two-thirds of the US economy, were down by 0.3%. This comes on top of last week's data showing a higher-than-expected increase in the number of Americans filing new claims for unemployment benefits, showing that the labour market was finally cooling. Probably not enough to stop the Fed from one more hike in 19 days' time, but futures are pricing in a lower probability (63% vs 70% yesterday.) The CME FedWatch Tool is saying that after the 0.25% hike to 5.00-5.25%, rates will hold steady for one more Fed meeting before dropping like a stone to be 2.00% lower than where we are today by September next year.

China's exports unexpectedly surged 14.8% in March, a completely opposite outcome to expert forecasts of a 7% drop and the 6.8% decline in each of January and February. China’s March exports mark the first expansion since last September. Shipments were higher to Russia as well as south-east Asian countries. Shipments surged in "new exports” including electric vehicles and lithium batteries. Imports also came in much greater than expected: still down by 1% but better than the 5% drop analysts were forecasting.

..... ▷ Last week, Li Qiang, the country’s new premier and second-in-command to Xi Jinping, chaired a meeting of the State Council that studied measures to promote the stability of foreign trade. Could just be a coincidence, but China's data is notoriously subject to local reporting that's "managed" to please those higher up the chain. UBS Wealth Management's chief economist Paul Donovan notes not only that global trade never quite adds up (the world imports more than it exports), but the export strength China just reported doesn't (yet?) seem to show up in other economies’ import data.

Meanwhile, over in Europe, markets were more or less flat, but shares in European luxury names like LVMH, Richemont, Dior, Burberry, Prada, Moncler and Hermès were strong on better-than-expected third-quarter earnings at LVMH (up 19% like for like, though helped by the strong US$) and optimism around the revival in the Chinese economy implied by the better than expected trade data (above.)

📖 MoneyFitt Explains

🎓️ Meme stock

A meme stock is one that one way or another gets a huge following of retail investors (often noobs, often rather ignorant and often trading very cheaply online.) Traders in the stock would often share internet memes and celebrity Tweets on platforms like Reddit, Twitter and, increasingly, Discord.

Most striking is the combination of quite advanced trading strategies (often involving leverage, options and short squeezes) with what seems to be an utter disregard for conventional fundamental valuations or analysis of business prospects. At the peak of the initial period of meme stock mayhem in early 2021, led by GameStop and the like (Bed Bath and Beyond, AMC Entertainment etc), there was often a messianic, fanboy zeal about them. The end result for many noob participants was to get thoroughly hosed by those whipping them up into a frenzy in what looked from the outside like a massive series of "pump and dump" operations.

Interestingly, the meme-ification of companies about to be unplugged from life support proved to be a lifeline for some as they used the inflated share prices to raise cheap money and live to fight another day. One of the key attributes of many meme stocks was to have absolutely terrible prospects, and because of this, many hedge funds would sell the shares short, i.e. bet that the shares would go down more. By aggressively buying the shares up and up, “apes” (traders focusing on these sorts of meme stocks) would trigger options market makers to buy the shares at higher and higher prices for technical reasons... and short sellers would be forced eventually to do the same at a massive loss.

The seeming poetic justice of hedge fund fat cats getting killed by the power of the people helped fuel much of the excitement, though of course naivety, over-excitement and general confusion among noobs was also ruthlessly exploited by a different bunch of fat cats.)

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