• Market Crumbs

What's The Real Reason It's Becoming Easier To Invest?

Image via Dustin Tramel on Unsplash

Back in December Market Crumbs wrote a post titled "It's Becoming Easier To Invest, But Why Did It Take So Long?" The article described three recent developments that were aimed at making investing easier for the masses.

The first development happened when Interactive Brokers slashed commissions on trading to zero, beginning a domino effect in which virtually every major broker followed suit. The move to commission-free trading was seen as a response to Robinhood, the popular fintech startup that has offered commission-free trading for years. The decision to go commission-free was also defended as a way to attract assets and even in Charles Schwab's case, "to make investing easier and more affordable for everyone."

The second development, with a similar goal of attracting assets and making investing easier for the masses, was the move by brokers to introduce fractional share trading. For example, if you have $20 to invest and want to own a piece of Tesla, you could buy a fraction of a share. SoFi even said as Tesla surged to all-time highs, it saw a record number of users buying fractional shares, or a "stock bit."

The final development at the time was a vote by the U.S. Securities and Exchange Commission to propose amendments to the definition of accredited investor. Essentially, the SEC wants to change the definition of an accredited investor to draw more people to private offerings. The SEC even said in its release that the "proposed amendments would allow more investors to participate in private offerings."

Last week came a fourth development that is aimed at drawing more people into the stock market. According to officials in the Trump administration, the White House is considering ways to incentivize Americans to invest in the stock market. The proposal would treat a portion of household income as tax-free for the purpose of investing outside of a traditional 401(k). An example, which officials said use hypothetical numbers, would allow a household making $200,000 to invest $10,000 on a tax-free basis.

"Nothing’s ruled out," a senior administration official said. "Nothing’s been ruled in, either."

Larry Kudlow, director of the National Economic Council, said deposits into the account would on an after-tax basis and taxed when withdrawn, while capital gains would not be taxed at all. Kudlow, who also said nothing has been finalized, said the program could extend to bonds as well. Kudlow and Vice President Mike Pence said the program could be unveiled in the fall, which would likely be at the height of the Presidential election.

So with this latest development, we ask once again, why the sudden rush to lower the bar for investors more than ten years into the current bull market with the stock market at all-time highs? Perhaps the brokerages, administration officials and SEC all know that this late into the bull market it's time to find new buyers, or bagholders. Last year saw insider selling in the U.S. reach two-decade highs, while evidence has recently shown that the 1% is beginning to dump their stock holdings.

As we wrote in December, one astute Twitter user seems to have hit the nail on the coffin, saying "Unloading stocks on the public at the highs is a process, not an event."

Leftover Crumbs

  • Will shares rise 100% by next February? Apple warned it will not meet its revenue guidance as iPhone supplies and Chinese demand have been affected by coronavirus. Apple did not provide a revised guidance, but previously said it expects revenues of $63 billion to $67 billion for its fiscal second quarter. Apple said in a statement "Work is starting to resume around the country, but we are experiencing a slower return to normal conditions than we had anticipated. As a result, we do not expect to meet the revenue guidance we provided for the March quarter due to two main factors." When Apple cut its revenue guidance last January, it kicked off a run that saw shares gain more than 100% over the next twelve months.

  • That's more than a quarter of the world. Facebook's WhatsApp announced it has surpassed 2 billion users. The messaging app has grown quickly as it had 1.5 billion users in 2018 and 1 billion users in 2016. For comparison, Facebook has about 2.5 billion users. WhatsApp used the announcement to reiterate its stance on encryption—mainly that it won't bow to government pressure to remove it. "For all of human history, people have been able to communicate privately with each other, and we don’t think that should go away in a modern society," WhatsApp's CEO Will Cathcart said.

  • This is awkward. Tesla, which is ushering in a future with electric vehicles in a bid to end the use of fossil fuels, has ended up in a spat with environmentalists because it has been clearing forest land in Germany to build a factory. A German court has now ordered Tesla to stop clearing the land that will be home to its first European factory. Despite previously getting approval to clear 92 hectares, or about 227 acres, demonstrators have protested the move saying it threats local wildlife and water supplies. "It should not be assumed that the motion seeking legal protection brought by the Green League lacks any chance of succeeding," the court statement read.

  • How many peaches does $265 million buy? Bayer and BASF have been ordered by a Missouri jury to pay a peach farmer $265 million after a lawsuit he filed alleged his peach orchard was harmed by the companies' herbicide after it drifted onto the trees from nearby farms. The case was the first to reach a verdict on the use of dicamba-based herbicides that have damaged thousands of acres across the United States. 140 similar cases have been filed and will head to court later this year. Both companies plan to appeal, with Bayer saying it was "disappointed with the jury’s verdict" and BASF saying it was "surprised and disappointed."

  • What's the total addressable market? Tesla co-founder and CEO said at the company's annual shareholder meeting that the company has designs for an electric submarine. Interestingly, Musk was asked by an attendee whether Tesla has plans to build a product that is capable of land and sea travel, to which he replied Tesla has designs for the submarine on hand. It is not clear whether Musk was simply joking, but it could be good enough to send Tesla shares higher on hopes of a new innovative product.