Tagged: abnb

Deal Art

The Federal Reserve’s balance sheet is 185 times leveraged, and DoorDash’s market cap is $50 billion.  I’m sure it’ll all work out.

Image courtesy Amazon and Showtime.

In some ways the Fed is easier to understand than DoorDash. It’s got $7.2 trillion of liabilities and $39 billion of capital.  Who needs capital when you can create money? The Fed is the intermediary between our insatiable consumption and the finite time we all offer in trade for money.

Speaking of money, DoorDash raised over $2.4 billion of private equity before becoming (NYSE:DASH).  For grins, recall that INTC’s 1971 IPO raised $6.8 million.  Thanks to the Fed’s approach to money, it would be worth at least seven times more today.

Really, it says the 1971 dollar is about $0.14 now.  I suspect it’s less still, because humans find ingenious ways to offset the hourglass erosion of buying power running out like sand.  (And INTC’s split-adjusted IPO price would be $0.02 per share rather than the $23.50 at which they then were offered.)

I’m delighted for those Palo Alto entrepreneurs at DASH who early on both wrote the code and delivered the food. And the movie Layer Cake declared that the art of the deal is being a good middleman.  DASH is a whale of a fine intermediary.

As is Airbnb.  The rental impresario is worth $75 billion. Not bad for sitting in the middle.  ABNB is already in six Exchange Traded Funds despite debuting publicly just Dec 10.

Funny, both these intermediary plays are most heavily traded by…intermediaries.  Both in early trading show 70% of volume from Fast Traders, machines intermediating market prices.  More than 50% of daily volume in each thus far is borrowed too.  That is, it’s not owned, but loaned.

ABNB is trading over 22 million shares daily, over 330,000 daily trades, and 54% of volume is borrowed. DASH is averaging 110,000 trades, 9.4 million shares of volume.  And through yesterday, 57% of those shares, about 5.4 million daily, were a bit like the money the Fed creates – electronically borrowed from nowhere.

How? High-speed traders constructing the market’s digital trusses and girders daily like Legos get leeway as so-called market-makers to trade things that might not exist in the moment, if the moment demands it for the sake of stability.

Do you follow?  When the Fed buys our mortgages, it manufactures money. It’s an accounting entry.  Trade banks $200 billion of electronic bucks residing in excess reserves for the mortgages the banks want to sell, which in turn become digital assets on the Fed’s balance sheet. The country didn’t raise that cash by borrowing or taxing.

Pretty cool huh?  Wish you could do that?  Don’t try. It’s fraud for the rest of us.

Anyway, traders can do the same thing, earning latitude to make liquidity from stock marked “borrowed,” so long as the books are squared in 35 days.

And here’s the kicker.  ETFs are intermediary vehicles too.  Man, this art of the deal thing – being a good middle…person – is everywhere.

ETFs take in assets like ABNB shares, and issue an equal value of, say, BUYZ, the Franklin Disruptive Opportunities ETF.  They manage the ABNB shares for themselves (tax-free too). And you buy BUYZ in your brokerage account instead.

Got that?  ETFs don’t manage any money for you. Unlike index funds.  They sell you a substitute, an intermediary vehicle, called ETFs.

Franklin used to be an Active manager. Key folks there told me a couple years ago that unremitting redemptions from active funds had forced them into the ETF business.

One of them told me, paraphrasing, it’s a lot easier running ETFs. We don’t have to keep customer accounts or pick stocks.

You need to understand the machinery of the markets, folks. And the Grand Unified Theory of Intermediation that’s everywhere in our financial markets nowadays.

It’s the art of the deal.  And reason not to expect rational things from the stock market.

If 70% of the volume in ABNB and DASH is resulting thus far from machines borrowing and trading it, and not wanting to own it, valuations reflect the art of the deal, intermediation. Not prospects (which may be great, but the market isn’t the barometer).

Same thing with ETFs.  The art of the deal is exchanging them for stocks.

The Fed? The more it buys, the more valuable debt becomes (and the less our money is worth). So that’s working too.  Cough, cough.

Here’s your lesson, investors and investor-relations folks. You cannot control these things. But ignore them at your peril (we always know the facts I shared about DASH and ABNB). All deals with intermediaries need three parties to be happy, not two.  And one always wants to leave.