🏦 America's massive debt dilemma

Tuesday, September 8, 2020 by Robinhood Snacks | Disclosures

When the 2020 credit card statement arrives

Last Week’s Market Moves
Dow Jones
28,133 (-1.82%)
S&P 500
3,427 (-2.31%)
11,313 (-3.27%)
$10,606 (-7.77%)
10-Yr US Treasury

Hey Snackers,

Some Flat-Earthers in Italy were forced to quarantine after sailing out to find "the end of the world" during lockdown. Guess 2020 wasn't enough for them.

On Friday, we learned that the US economy added ~1.4M jobs in August. The unemployment rate dropped for the 4th month straight, falling to 8.4% from 10.2% in July. Stocks still fell for the week.

On the pod: Peloton is reportedly unveiling a cheaper treadmill. Tune into our 15-minute pod to hear why it's way easier to sprint downmarket than up.

1. US debt will exceed the size of the economy for the 1st time since WWII

BRB, deleting Venmo... The US is kind of like that person who racked up more in Venmo requests than they can pay. US debt has been growing for decades, but it skyrocketed in the corona-conomy. From April-June, America's debt became larger than the size of its economy on a quarterly basis. Last week...

  • US debt reached its highest level relative to the size of the economy since WWII. Next fiscal year, debt is projected to be bigger than the US' GDP for the full year — a 1st since 1946.
  • GDP: That's the total value of all goods and services produced by a country over a period of time (usually a year).
  • $27 trillion: That's America's national debt. It's ~10X the size of every African country's GDP combined and it's $82K per American.

One shrinks, one explodes... The US GDP shrank at a record rate last quarter as consumer spending and manufacturing declined. Instead of that $5 Starbucks latte, you made WFH iced coffee. Meanwhile, debt ballooned:

  • Government spending spiked an extra $3T this year on corona-related rescue programs. Think: $1.2K stimulus checks, enhanced unemployment, and loans to businesses.
  • But government revenues fell 10% this spring compared to 2019. As corporate profits disappeared and millions lost their jobs, way less payroll and income tax $$$ flowed to the government.
  • More gov't spending + less gov't income = bigger deficit: The federal budget deficit is expected to hit $3.3T this year, more than triple 2019's deficit and the biggest mismatch between income & spending ever.

Tomorrow's generations will have to repay today's debts... The bigger the debt, the more the US has to pay back — with interest. Right now, the US (counterintuitively) enjoys record low interest on government debt despite the massive IOU. But in the long term, higher interest rates on debt could force the US government to cut spending on services like healthcare, education, and defense — and/or raise taxes. Big spending is necessary right now to prop up the economy, but it's trouble for future generations.


Abnormally Happy Hour... Zoom's profit soared 3,300% last quarter compared to the same time last year. In 3 months, the video conferencing icon made double the money that it made last year. Zoom's sales more than quadrupled to $663M and it significantly raised its full-year forecast, so investors sent the stock zooming up 40%. Zoom is growing abnormally fast for a public, relatively mature company (even compared to other corona-conomy winners).

Trying to sneak the Red Vines in... AMC shares soared 15% on Friday after America's largest movie theater chain said 70% of its US theaters would be open on Labor Day weekend. Chris Nolan's much-hyped thriller "Tenet" also dropped on Friday, kicking off US theaters' 1st big weekend since March and bringing in $20M. In June, AMC said it was "generating effectively no revenue" (niiice) and doubted it could remain in business much longer. Since then, AMC stock has soared 70% on the reopening hype.


Elon gets rejected from the club... Tesla stock plunged 7% Friday on news that the S&P 500 added Etsy to the famous index, but not the e-car maker. Tesla became eligible for an S&P 500 Club invite in July after posting 4 straight profitable quarters. If Tesla did get in, funds that track the S&P would need to buy over 120M Tesla shares, likely driving up the stock price. Turns out Elon hasn't made it past the S&P bouncer yet.

Throwing profit puppies out the emergency exit... Desperate move. United said it's permanently dropping its $200 change fee for domestic flights. Delta and American predictably followed suit. Profitable add-ons like change fees have 5X'd over the past decade and made up 15% of US airlines' sales last year. Buuuut: travel is still down ~60% from 2019 and airline bailout money runs out in October. Between pandemics, hurricanes, and fires, booking a flight with a $200 change fee is... risky. Airlines hope that killing those fees will boost sales.

What else we’re Snackin’
  • Visualize: The most popular websites since 1993 in a timelapse. Watch Google rise to #1 as AOL shrinks (and Amazon loses to adult websites).
  • Watch: 3 tips for managing your money, paying off debt, and building financial independence through saving and investing.
  • Achieve: How to make time for purposeful "Deep Work" — 2 hours of disconnected focus can be worth more than other people's full work day.
  • Control: Having an alter-ego helped Beyoncé conquer her nerves. This "Batman Effect" could help you improve self-control, too.
  • Work: 5 tips for a productive job search during the pandemic — virtual eye contact is key.

🍪 Thanks for Snacking with us! Want to start getting Snacks daily? Sign up here for our daily market newsletter.

Snacks Daily Podcast

Spot what these have in common: J. Crew, Pier 1 Imports, Neiman Marcus, GNC, Modell's, and JC Penney.

These retailers (and 40+ more) all went bankrupt in 2020. But what actually happens to a company after it files for bankruptcy?

Some get new beginnings, some get sold for scraps, and others get reincarnated as ecommerce companies.

Tune into our digestible 15-minute pod to hear why bankrupt companies aren't dead — they're just zombies.

This Week

Disclosure: Authors of this Snacks own shares of Delta, Amazon, and Lululemon

ID: 1324144

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.