🏦 Big banks' big break

Monday, June 29, 2020 by Robinhood Snacks | Disclosures

When big daddy FDIC raises your allowance

Last Week’s Market Moves
Dow Jones
25,016 (-3.30%)
S&P 500
3,009 (-2.87%)
Nasdaq
9,757 (-1.90%)
Bitcoin
$9,204 (-0.78%)
10-Yr US Treasury
0.647%

Hey Snackers,

Dig up that oversized elementary school sweatshirt: Gap is back. The early 2000s fashion staple just watched its stock soar on the wings of Kanye. The collab you never saw coming: Gap + Yeezy. Then again: 2020.

Stocks plunged last week on record coronavirus surges. Nine states, including Texas and Florida, rolled back some reopening measures. All three major stock indexes (the S&P 500, the Nasdaq, and the Dow) fell well over 2% on Friday.

On the pod: Our IPO of the week is grocery legend Albertsons (owner of Safeway). But we think this supermarket chain looks more like a Private Equity firm than a food icon — Hear why in our absurdly digestible daily podcast.

Regulate
1. Big banks get a big deregulation break, then get grounded by the Fed

Like getting the car on Friday night... Party at the branch. Bank stocks like JP Morgan and Citi rose Thursday on some loosened parental guidance from the FDIC (that's the government agency responsible for making you feel safe about depositing your cash). If your bank goes rupt, the FDIC's got you covered up to $250K per insured bank. With great deposit insurance, comes great responsibility...

  • The FDIC supervises banks to make sure they're not being irresponsible with your $$$. Banks make money off your idle checking account dollars by investing them, often as interest-generating loans (that's kind of their MO).
  • Loans are critical to the economy. All that cash isn't really just sitting in checking/savings accounts. It's fueling economic growth through loans.
  • The FDIC just gave banks a big break: it'll allow them to invest inactive customer cash into venture capital — think an investment in a pre-IPO company like Airbnb. The FDIC also reduced the amount of cash that banks need to set aside as reserves for potential loan losses.

One step back, one step forward... This FDIC announcement rolls back the Volcker Rule, which was imposed after the '08 financial crisis. The goal was to ban the types of risky investments that led to big bank failures. Weakening the Volcker Rules gives banks a bit more freedom, but separately they also just got grounded:

  • Hand over the Switch: The same day as the FDIC's allowance-boosting moves, The Fed ordered banks to stop stock buybacks until September. It's also banning banks from increasing dividend payouts to shareholders.
  • Canceling Disneyland: The Fed determined the US' largest banks could lose $700B in a worst-case recession scenario. So it wants them to save that buyback and dividend money to ensure they could weather a bad economic storm (The Fed's not keen to bail out banks again).
THE TAKEAWAY

For investors, it's kind of a wash... Shareholders value stocks based on expectations of future profits. Loosening of the Volcker Rule could boost bank profits, which could justify higher stock prices. Buuut... the Fed is limiting dividends and stock buybacks, which are drivers of returns for shareholders. The events canceled out: bank stocks jumped on the FDIC news then fell on Fed news.

Highs

Insert Elon side-eye... Virgin Galactic stock soared on news of a sweet NASA partnership. Virgin will try to hotel-ify the International Space Station to help NASA commercialize the galaxy. It's working on becoming a space travel agency, coordinating resources and travel plans for ISS-bound customers. Virgin stock got a second bump after completing a successful glide test flight — It says full rocket-powered flights are next. All this excitement despite Virgin only sending 5 paying customers into sub-orbital space so far.

Renegade, renegade... The discount retail giant behind TJ Maxx, Marshalls, and Homegoods wants nothing to do with online shopping. TJX took an $887M loss on closed stores last quarter, but didn't bow to the e-pressure. On the contrary: it shut down its ecommerce site since online activity makes up just 2% of the chain's total sales. Now that most TJX stores have reopened, sales are actually higher than a year ago — That's thanks to treasure-hunting shoppers hitting up physical stores for some "revenge spending" after being stuck inside so long.

Lows

Zuck gets ad-Zucked... Facebook stock dropped 11% for the week on a boycott of Facebook's ad platform (including Instagram) to protest FB's policies on misinformation and hate speech. What started with just early boycott birds Ben & Jerry's and Patagonia snowballed to the mainstream — Verizon, Coca-Cola,, Unilever, and Honda gave Zuck their corporate thumbs down. On Friday CEO Mark Zuckerberg responded to the criticism with a pledge to flag speech from politicians that broke its policies, even if those posts are "newsworthy".

When you order pizza for 100... and everyone goes to the other party. Ford just announced a redesign of its prize profit puppy, the F-150, the first new F-Series in six years. Ford unveiled the shiny pickup and flexed the hands-free driving mode. But Lordstown Motors threw its own pickup-unveiling party on the same day, and got America's VP to attend. The EV startup got more buzz than the Detroit icon — and Ford stock dropped after its outshined unveiling.

What else we’re Snackin’
  • Speak: All the world's languages, in one visualization — out of 7K known languages, just 23 make up the native tongue of 4.1B people.
  • Watch: How a $0 budget film (filmed entirely via Zoom) topped the US box office by generating $25K in sales.
  • Disconnect: How different personality types can cope with the "always-on" culture (the pinging never ends).
  • Learn: What does net worth really mean? Kick back with a snack and calculate your own from month-to-month.
  • Explore: 10 of the most beautiful scenic drives through national parks for your 4th of July road trip.
  • Work: How to give your résumé a makeover for an unplanned career change — turn obstacles into opportunities.

🍪 Thanks for Snacking with us! Want to share the Snacks? Invite your friends to sign up here.

Snacks Daily Podcast

Attention in the aisle: Safeway-owner Albertsons has (finally) IPO'D.

Sales surged on COVID-induced shelter-in-place hoarding, but the grocery big shot still has $8B of debt in the cart. So it's focused on its sneaky "sleeper brands": When you grab that Albertsons-owned ketchup brand instead of Heinz, Albertsons indulges in bigger profits.

Tune into our highly snackable pod to hear more about why Albertsons wants you to ditch Tropicana.

This Week

ID: 1228701

Subscribe to Robinhood Snacks

Our Editorial Principles
Robinhood Financial LLC and Robinhood Crypto, LLC are wholly-owned subsidiaries of Robinhood Markets, Inc. Equities and options are offered to self-directed customers by Robinhood Financial. Robinhood Financial is a member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation (SIPC), which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at www.sipc.org. Cryptocurrency trading is offered through an account with Robinhood Crypto. Robinhood Crypto is not a member of FINRA or SIPC. Cryptocurrencies are not stocks and your cryptocurrency investments are not protected by either FDIC or SIPC insurance.

Getting “early access” to options or Web is defined as signing up with a valid email address for a spot in Robinhood Financial’s respective waitlist queues for Web or for options. Getting “early access” to Robinhood Crypto is defined as signing up with a valid email address for a spot in Robinhood Crypto’s waitlist queue. Early access to the waitlist for Web, options, or Robinhood Crypto should in no way be construed as confirmation that a brokerage account with Robinhood Financial has been opened or will even be approved for opening. Priority may be given to Robinhood Gold subscribers and existing customers of Robinhood Financial.

Free trading of stocks and options refers to $0 commissions for Robinhood Financial self-directed individual cash or margin brokerage accounts that trade U.S. listed securities via mobile devices or Web. Relevant SEC & FINRA fees may apply. Please see the Fee Schedule.

Robinhood Financial is currently registered in the following jurisdictions. This is not an offer, solicitation of an offer, or advice to buy or sell securities, or open a brokerage account in any jurisdiction where Robinhood Financial is not registered. Additional information about your broker can be found by clicking here.

Margin trading involves interest charges and risks, including the potential to lose more than deposited or the need to deposit additional collateral in a falling market. Before using margin, customers must determine whether this type of trading strategy is right for them given their specific investment objectives, experience, risk tolerance, and financial situation. For more information please see Robinhood Financial’s Margin Disclosure Statement, Margin Agreement and FINRA Investor Information. These disclosures contain information on Robinhood Financial’s lending policies, interest charges, and the risks associated with margin accounts.

Investors should consider the investment objectives and unique risk profile of Exchange Traded Funds (ETFs) carefully before investing. ETFs are subject to risks similar to those of other diversified portfolios. Leveraged and Inverse ETFs may not be suitable for all investors and may increase exposure to volatility through the use of leverage, short sales of securities, derivatives and other complex investment strategies.

Although ETFs are designed to provide investment results that generally correspond to the performance of their respective underlying indices, they may not be able to exactly replicate the performance of the indices because of expenses and other factors. A prospectus contains this and other information about the ETF and should be read carefully before investing. Customers should obtain prospectuses from issuers and/or their third party agents who distribute and make prospectuses available for review. ETFs are required to distribute portfolio gains to shareholders at year end. These gains may be generated by portfolio rebalancing or the need to meet diversification requirements. ETF trading will also generate tax consequences. Additional regulatory guidance on Exchange Traded Products can be found by clicking here.

Options transactions may involve a high degree of risk. Please review the options disclosure document entitled the Characteristics and Risks of Standardized Options available through https://about.robinhood.com/legal or https://www.theocc.com to learn more about the risks associated with options trading.

The cash management program is expected to be offered by Robinhood Financial LLC. The cash management program, when operational, will be an added program to Robinhood brokerage accounts and will not be a separate account or a bank account. Robinhood Financial will provide additional information on the cash management program once it is operational to help customers, including those with “early access,” to determine if they want to add the program to their brokerage account.

Robinhood Snacks newsletters and podcasts reflect the opinions of only the authors who are associated persons of Robinhood Financial LLC and do not reflect the views of Robinhood Markets, Inc. or any of its subsidiaries or affiliates. They are meant for informational purposes only, are not intended to serve as a recommendation to buy or sell any security in a self-directed Robinhood account or any other account, and are not an offer or sale of a security. They are also not research reports and are not intended to serve as the basis for any investment decision. Any third-party information provided therein does not reflect the views of Robinhood Markets, Inc., Robinhood Financial LLC, or any of their subsidiaries or affiliates. All investments involve risk and the past performance of a security or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit or protect against loss. There is always the potential of losing money when you invest in securities or other financial products. Investors should consider their investment objectives and risks carefully before investing. The price of a given security may increase or decrease based on market conditions and customers may lose money, including their original investment. Robinhood Financial LLC, member FINRA/SIPC.

Testimonials may not be representative of the experience of other customers and are not guarantees of future performance or success. Robinhood Financial LLC, member FINRA/SIPC.

Third party information provided for product features, communications, and communications emanating from social media communities, market prices, data and other information available through Robinhood Markets, Inc., Robinhood Financial LLC or Robinhood Crypto, LLC are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any financial instrument or cryptocurrency or as an official confirmation of any transaction. The information provided is not warranted as to completeness or accuracy and is subject to change without notice. Any information about Robinhood Crypto on any Robinhood website (including www.robinhood.com and blog.robinhood.com), the Robinhood platform, e-mails, or any other communications, are meant for informational purposes only and are not intended as an offer, solicitation, or advertisement for Robinhood Crypto or any goods or services offered by Robinhood Crypto. The Robinhood website provides its users links to social media sites and email. The linked social media and email messages are pre-populated. However, these messages can be deleted or edited by users, who are under no obligation to send any pre-populated messages. Any comments or statements made herein do not reflect the views of Robinhood Markets Inc., Robinhood Financial LLC, Robinhood Crypto, LLC, or any of their subsidiaries or affiliates.

Investors should be aware that system response, execution price, speed, liquidity, market data, and account access times are affected by many factors, including market volatility, size and type of order, market conditions, system performance, and other factors.

All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk it does not assure a profit, or protect against loss, in a down market. There is always the potential of losing money when you invest in securities, or other financial products. Investors should consider their investment objectives and risks carefully before investing.

Cryptocurrency is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status. Cryptocurrencies are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not currently backed nor supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies. Trading in cryptocurrencies comes with significant risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks. In addition, cryptocurrency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing. Cryptocurrency trading requires knowledge of cryptocurrency markets. In attempting to profit through cryptocurrency trading, you must compete with traders worldwide. You should have appropriate knowledge and experience before engaging in substantial cryptocurrency trading. Cryptocurrency trading may not generally be appropriate, particularly with funds drawn from retirement savings, student loans, mortgages, emergency funds, or funds set aside for other purposes. Cryptocurrency trading can lead to large and immediate financial losses. Under certain market conditions, you may find it difficult or impossible to liquidate a position quickly at a reasonable price. This can occur, for example, when the market for a particular cryptocurrency suddenly drops, or if trading is halted due to recent news events, unusual trading activity, or changes in the underlying cryptocurrency system. Several federal agencies have also published advisory documents surrounding the risks of virtual currency. For more information see, the CFPB’s Consumer Advisory, the CFTC’s Customer Advisory, the SEC’s Investor Alert, and FINRA’s Investor Alert.

Robinhood Crypto, LLC has a seller of payment instruments license in Georgia, with reference number 61417.

Robinhood Crypto, LLC has a money transmitter license in New Jersey, with reference number 1803456-C22.

Please note that an Alaska money transmission license does not cover the transmission of virtual currency.

Check the background of Robinhood Financial LLC and Robinhood Securities, LLC on FINRA’s BrokerCheck.

Robinhood Terms & Conditions    Disclosure Library    Contact Us    FAQ

© 2020 Robinhood. All rights reserved.