Millenials: Penny Wise Pound Foolish

These millenials are proving to be the worst investors.  Not only did they did stay away from the stock market post 2008, thinking that stocks weren't good investments, they flocked towards bitcoin in 2017 and top ticked it near the end of 2017, and have ridden it all the way back down.  Now they are embracing the stock market in droves. 

After that fiasco, you'd figure they would wise up for at least the next few years and at least try to stay away from bubbles.  But now, they are embracing the stock market not by buying index funds and blue chip stocks, but by speculating in the junkiest beaten up stocks and more recently, insane pump and dumps with various themes, first it was Covid 19 (too many to name), then bankrupt stocks (HTZ, CHK), then assorted small cap trash ranging from kid's entertaintment companies (GNUS), to security and surveillance stocks (DGLY) after the Black Lives Matter riots and protests, and along that same theme, black-owned companies (UONE, CARV).

They are also buying speculative calls in droves, seeing the biggest call volume ever over the past few weeks.  

And the dumbest thing about the millenials is that most of them are probably using the absolute worst broker to do their trades: Robinhood.  Not only are their premarket trading hours too short, but their website and app routinely goes down during the busiest times in the market.  And why are they so popular?  Because of zero commissions, the main reason being is that Robinhood sells their order flow to the likes of Citadel and other HFT firms who gladly take the other side of the trade or just front run them.

And another thing about Robinhood investors:  they don't realize how much short interest they could be credited with if they actually used a broker that rebated them for lending out their shares to other firms.  And since they are often long the most desirable shorts on the Street, Robinhood is pocketing all the enormous short borrow fees they collect by lending out their clients' junk filled portfolio.

For example, one of the recent favorite longs on Robinhood is HTZ.  To borrow HTZ short, you have to pay a short interest rate over 200% annualized.  If the broker was fair, they would be giving back a big portion of that short interest back to the client, but Robinhood collects it all.  There are many brokers that rebate the short interest from lending out shares in their portfolio, but Robinhood and some of the other popular no commission brokers do not. 

Ironically, Robinhood does the exact opposite of what Robin Hood did.  Robinhood is taking money from the poor and giving it to themselves, the rich. 

In the last couple of days, we've got the bulls getting confident again, with Fed saying they will be buying individual corporate bonds, better than expected retail sales, and "good" news on coronavirus therapeutics.  That managed to boost SPX 200 points from the Monday overnight lows to post retail sales euphoria highs.  I reshorted and am back on the bear bus.  Looking for a grind lower this week, and more panicky selling after triple witching Friday and on to next week. 

One thing I've noticed among the spread bettor crowd on IG.com is that they were consistently short the equity indexes for the last couple of months, with anywhere between 60-70% short throughout that period.  Now we are almost 50/50 long and short in the equity index positions among retail bettors.

This matches what I have been observing on financial social media, as investors seem more confident about stocks going higher with a belief that the Fed will lift all boats.  The confidence in the Fed to raise stock prices is as high as I've ever seen it.  And also getting reports here and there that hedge funds are getting more and more net long.  Perfect storm is brewing for the August and September.