Monday Jun.29, 2020

🏦 Big banks' big break

_When big daddy FDIC raises your allowance_
_When big daddy FDIC raises your allowance_

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

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).

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

Who's up...

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

...and who's down

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.

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