The Fed gave us a pony. Investors wanted 2 ponies.

Thursday, August 1, 2019 by Robinhood Snacks | Disclosures

"Just pretend a 2nd interest rate cut is coming"

Dow Jones
26,864 (-1.23%)
S&P 500
2,980 (-1.09%)
Nasdaq
8,175 (-1.19%)
Bitcoin
$10,032 (+3.48%)
10-Yr US Treasury
2.039%

Hey Snackers,

Belated HBD to Harry Potter (now 39 in muggle years).

Markets were busy suffering their worst day in 2 months — the Dow plummeted 334 points after an historic move (yes, it can have an "n") by the Fed.

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Cultivate
1. Scotts Miracle-Gro is kind of a pot company

Willie Nelson's suddenly an investor... Way back in 1868, Scotts Miracle-Gro was founded in Marysville, Ohio. And its mission was simple: help people grow plants. And sales to gardening homeowners and landscaping legends rose 10% last quarter. But overall sales were charged by the other grass — Cannabis.

Hydroponics = growing things indoors without soil... According to Scotts investor presentation, it helps "specialty crops" grow indoors with lighting, nutrients, and other greenhouse-y things. Sales in that division boomed 49% last quarter, courtesy of cannabis (best grown indoors). It even paid $450M to acquire Sunlight Supply, which produces sun-emulating lamps (sales in hydroponics grew 138% if you include that).

THE TAKEAWAY

Trends are like onions... Layers. So many layers. Cannabis has booming growth potential as the stigma of marijuana use fades and legalization continues. Companies like Scotts hope for a piece of that growth action by enabling the enablers — aka supplying growers with the stuff they need to cultivate the cannabis.

Stream

Turn it up... Shares of Swedish music streamer Spotify dipped on word it added fewer paying subscribers last quarter than expected. Here's what Spotify's 232M-strong moshpit of "monthly active users" looks like:

  • The freebies: 129M (up 27%) tolerate an ad every few songs so they don't need to pay any cash money.
  • The premiums: 108M (up 31%) pay monthly for ultimate listening control.
  • Average revenue per user: $5.42. That's a combo of ads and monthly subscription, and it's been declining as Spotify entices broke college students to sign up.

Growth is strong, young Skywalker... CEO Daniel Ek believes his company's 31% user growth is double Apple Music's growth rate. And the percentage of users who canceled their subscription — aka the "churn rate" — hit a record low 4.6%. It's still making a loss though as it focuses on the race against Apple for eardrums.

THE TAKEAWAY

It's not music. It's "listen"... Spotify prioritized podcasts for key reasons. First, it's easier to work with pod creators than 4 powerful record labels representing most music artists. Second, Spotify's pod listeners stay in the app longer (and we assume are better looking). So Spotify acquired Gimlet's collection of pods in February, along with 2 other pod-cquisitions. Add in some in-app nudging and Spotify has doubled its number of pod listeners since the start of 2019.

PS: You can "festify" the stuff you listen to into a music fest-style lineup poster (don't know how Les Mis soundtrack got in there).

Rates

Investors wanted two ponies... But the Fed only gave them one. America's central bank just did something it hasn't done in a decade: Cut interest rates. Fed Chairman Jerome "Jerry" Powell said he's lowering the nation's rates by 0.25%. Doesn't look like much, but the impact is big — if you've got a savings account, car loan, or student debt, this might affect you.

Time-travel back to 2008... That's the last time the Fed lowered rates. With the financial crisis growing, rates were dropped to near zero and stayed there for years to encourage borrowing and boost economic growth. It encouraged us to invest in stocks or other things instead of letting money just sit in savings accounts. This time, the Fed lowered rates for 2 other reasons:

  1. The trade war: Jerry's concerned it could hurt the US economy, so he's preemptively encouraging market-boosting borrowing with lower rates.
  2. Inflation: Prices aren't rising much. And a healthy economy should have about 2% inflation.
THE TAKEAWAY

December was the big pivot... For years, the economy's had its post-crisis mojo back, so the Fed had been increasing interest rates since 2015. But in December, the Fed changed its tone (see the 2 reasons above). Since then, investors have pumped up the S&P 500 by 29% on expectations rates would drop — But stocks fell yesterday because investors expected even more rate drops to come. Jerry hinted 1 was enough.

What else we’re Snackin’
  • Flat: Molson Coors' CEO steps down as Big Beer's sales soften
  • Shiny: SmileDirectClub is reportedly planning an IPO for September
  • Shade: Grubhub's CEO accuses DoorDash and Postmates of price-gouging your late-night pad thai delivery
  • Hit: General Electric revealed that it lost $300M in sales because it makes the engines for Boeing's 737 Max jets
  • Play: Nintendo fell after profits dropped 10%, but its Switch console keeps growing strong
Snacks Daily Podcast
  • Fitbit fell 14% basically because of its one new product — but we've got a prescription: plagiarize Apple's "services" growth strategy.
Thursday

20190801-915886-2760320

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