Green Shoots
goodstead wishes to apologize to its Members for the lack of depth of analysis this week. Our attention was focused on a regulatory examination which we are pleased to report we passed. Although goodstead is not yet accepting clients for futures, commodities and options trading advisory, we have taken the first step in readying the business to do so. More on this as our capability and regulatory approval develops. Additionally, we have been focused on a potential equity capitalization that, should it materialize favorably, would allow us to provide a better product to more people. Godspeed, goodstead.
Jobless Figures Lowest Since Beginning of Pandemic
Labor market continues to see modest improvement
First time unemployment claims continue to move in the right direction, confirming further our view that the US economy is emerging from its necessary induced coma. Initial claims came in at 684,000--still too many--but 97,000 fewer than at last reading, indicating labor market expansion (more people getting hired.) California, Florida and New York showed the largest declines, consistent with the acceleration of vaccine rates and concomitant business openings in these states. The numbers would suggest that businesses are both reducing layoffs as well as engaging in hiring. A reading in the 200,000 area is considered normal for an economy that is operating at peak capacity, so on this measure you wouldn't say that the economy is out of the woods yet.
Q4 US GDP Growth Shows Continued Improvement
US economy grew at a seasonally-adjusted 4.3% annualized rate
We have indicators that lag the economy, and we have indicators that lead it. Lagging indicators serve to confirm what we think we know from interrogating our leading indicators. Our leading indicators have been consistent with an economy in recovery. This was confirmed by the US Bureau of Economic Analysis this week. GDP growth of 4.3% in the fourth quarter of 2020 shows that the economy grew at a strong pace after its initial large recovery in the third quarter, and that when the winds is at the back of the economy, we can expect higher-than-typical rates of growth. As the American Recovery Plan Act is implemented over the coming months, expect to see no less than 4.3% growth.
The Fed's Favorite Inflation Gauge Points to Reduced Inflation Pressure
Consumers modestly pulled back on spending in February
The Personal Consumption Expenditures (PCE) fell in February. This indicates that households spent less in February than in January. PCE are the data that support the Fed's preferred measure of price inflation, the PCE Price Index, which, together with the Consumer Price Index (CPI), it uses to inform its interest rate policy. This pullback in consumer spending would suggest reduced demand pressures which can cause higher-than-desired price inflation. Nonetheless, the PCE Price Index increased by 1.6% over January, indicating that price inflation is on the rise. Excluding food and energy--notoriously volatile components of the index--the rate was slightly lower at 1.4%. We'd expect that the pullback in spending is temporary, especially as the economic engine fires up, the weather warms, and disaster relief checks start getting spent. We expect inflation measures will continue to rise at a modest pace, as does the Federal Reserve, which sees inflation finishing out the year at 2.4%.
Score One for the Good Guys
ThredUp goes public, shows impressive pop
ThredUp is an online consignment and thrift store where you can buy and sell high-quality secondhand clothes. goodstead admires its budget- and earth-friendly model, in that it creates a two-sided marketplace for consumers to get rid of the things they don't want, but that someone else might value more, and saves energy, water, and human labor in the process. Investors were rewarded with a $168MM initial public offering today, which saw its shares increase in value by as much as 32% in its first day of trading. Less clear is how the company goes from losing $48MM on $186MM in revenue in 2020--a profit margin of -388% and net cash burn of $234MM--to profitability, but we wish them success. goodstead doesn't invest in individual companies on behalf of its clients, but if it did, it would be rooting for this one.
Robinhood Goes to Market
Robinhood, the controversial trading app, files for IPO
goodstead has written before about our friends at Robinhood. Since that time, its CEO, Vlad Tenev, has appeared before Congress to answer questions about its business practices and whether it really is a merry band of thieves dedicated to transferring wealth from institutional investors to the little guy. Its revenue generation practices have also come under the spotlight, as its pay-for-order-flow business model has given arise to renewed questions of whether the practice is too conflict-of-interest-riddled to enable best-execution, and so be allowed in the US (it is prohibited in other developed markets.)
As part of the rescue financing round Robinhood was compelled to undertake in order to meet margin calls precipitated by the highly levered positions of its retail traders (the Gamestop saga,) the company agreed to seek an Initial Public Offering within some months of the financing. And so Robinhood goes to market to sell its shares to the public and, presumably, to the army of retail traders it commands.
As mentioned with regard to ThredUp, goodstead doesn't take positions in the securities of individual companies, but if we were to analyze the company for potential investment, we would take a close look at the regulatory risk that the company faces due to its revenue model of pay-for-order-flow, its casino-like user engagement technology, as well as the weakness of a regulatory compliance and risk management apparatus that seems to have these guys often in the spotlight for the wrong reasons.
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