☎️ Big banks' big margin call

Tuesday, March 30, 2021 by Robinhood Snacks | Disclosures
_When they run out of Terra Blues chips_

When they run out of Terra Blues chips

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Hey Snackers,

Nike says it's not affiliated with blood-stained "Satan Shoes," and is now suing the company that sold 666 pairs of them in a collab with Lil Nas X. Nike's lawyers work hard, but the devil works harder: the shoes sold out in less than a minute.

The Dow closed at a record high, while the broader market lagged. Oh, and the massive ship that was blocking the Suez has finally been moved after six days.

Borrow
1. Big banks could lose big bucks after a major hedge fund defaulted on margin calls

The i-banking equivalent... of defaulting on your mortgage and getting foreclosed on: getting your multi-billion dollar positions sold off after missing a margin call. Trading on margin = trading (partly) with borrowed money (usually from a broker). Margin call = when equity in your margin account falls below a minimum level, and the lender asks you to put up more of your own cash or sell positions to mitigate risk. They can happen when the value of holdings in a margin account plunges.

  • Call: Last week, a bunch of big banks told a large US hedge fund (reportedly: Archegos Capital Management) that it needed to put up more $$$ to keep its positions.
  • Response: Archegos basically said "IOU but ICPU" (I can’t pay you). AKA: it defaulted on the margin call, leaving the banks that loaned it money exposed to billions in losses.
  • Result: Banks started selling off Archegos' positions to meet the minimum equity requirements for the margin account (and recoup some of the losses).

It's a cascade effect... This big margin default is trickling down from the fund to banks to regular investors. For banks: this could mean billions in losses. Credit Suisse and Nomura warned of significant hits to their quarterly financials — both stocks plunged as much as 15% yesterday. Now, banks' damage-control is causing collateral damage: retail investors.

  • Last week: Morgan Stanley, Goldman Sachs, Credit Suisse, and others quickly dumped a bunch of stocks tied to Archegos, forcing it to liquidate nearly $30B worth of positions.
  • That selloff caused many of those stocks to fall — including Viacom, Discovery, Tencent, and Baidu — even while the broader market rose. Viacom has plunged a whopping 30% since Friday.
THE TAKEAWAY

High roller, high risk... Investment banks like Goldman lend companies billions in cash and stocks — and they make billions from these positions. Trading on margin means greater potential gain, but also much greater potential losses (that can mount fast). Before Monday’s warning, Credit Suisse said its pretax profit in January and February was the best in a decade. Now it could face billions in losses, because it may not have hedged its risk enough.

Terra

Came for the free Terra chips... stayed for the all-inclusive resort. JetBlue is known for its East Coast routes and unlimited free snacks (shoutout mini choc chip cookies). Now, it wants to Expedia-fy itself with a new travel booking site called Paisly. JetBlue flyers can book hotel rooms, rental cars, and even theme park tickets through the site. JetBlue plans to expand it to vacation rentals, too.

  • "Vengeance Vacays": As the vaccine rolls out across the US, pandemic travel has been notching records. JetBlue is investing in this new product to capitalize on all the pent up travel that could be coming, after a year of roundtrips to the fridge.

Like a red-eye to Miami... The travel booking market is already crowded, with companies like Expedia, Priceline, and Kayak. But JetBlue thinks your ticket is its ticket to success.

  • Customization is key: Paisly uses your JetBlue flight info to make personalized suggestions, so you don't have to open 27 tabs and keep re-entering your flight dates.
  • The name was inspired by paisley patterns, "symbolizing how Paisly’s travel suggestions are unique to each customer" (and we thought it was just a Millennial hook). Customers also earn TrueBlue rewards points for booking through the site.
THE TAKEAWAY

Platforms = the greatest love/hate relationship in business... Nonna's Pizza Shop loves that people discover its marinara through DoorDash — but hates paying DoorDash a commission. Airlines love that Expedia helps you snag their $356 LAX-JFK flight, but hate giving Expedia a cut. JetBlue would rather keep you on its own website. Paisly adds that all-in-one convenience, making direct booking more appealing.

What else we’re Snackin’
  • Nice: Tesla double-charged some customers for new cars, leaving them desperate for refund details.
  • Vaxpass: The White House says there will be no federal mandate requiring a "vaccine passport" to travel. It's leaning on the private sector.
  • Cryptocredit: Visa will allow the use of cryptocurrency USD Coin (a US dollar-backed stablecoin) to settle payments.
  • Repair: Raphael Bostic, the first Black Fed president, says there are "definitely merits" to reparations.
  • Shot: New Yorkers age 30 and up will be eligible for Covid-19 vaccines starting April 6th.
  • Robox: Boston Dynamics unveils Stretch, a warehouse robot that can move up to 800 boxes an hour (apparently, similar to a human).
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Disclosure: Authors of this Snacks own shares of Tesla

ID: 1583551