The American's Guide to Euro2020

Missed this gem earlier...though we're about half-way through the tournament still relevant and hilarious! (The "clueless" in the title is probably a bit a redundant.) 

Yaba Daba Deal!

Who doesn't love the Flintstones? The popular 1960s prime-time animated series produced by Hanna-Barbera involving the titular prehistoric family? The town of Hillsborough, that's who. 

Sitting just outside of San Jose, CA the exclusive enclave has a median home price of $4.3 million and really prefers you stick to more traditional styles of homes. Even the town's homepage features a marble and iron gate--not the most welcoming sign. Well in 2019, the township sued the the owner of a controversial multimillion dollar Flintstones-themed house, that it considered a "visible eyesore." The parties have now settled said suit, with the town of Hillsborough paying owner Florence Fang $125,000 and the latter agreeing to apply for building permits. Yaba Daba Doooo!

   

Pandemics and Inequality

A new story from the WSJ highlights one of the peculiarities of this pandemic...that economically it has left most Americans better off, at least in the short run. Despite a near complete shutdown of the U.S. economy and over 20 million of job losses in early 2020, households added $13.5 trillion in wealth last year, according to the Federal Reserve. Thanks to trillions spent by the Federal government on stimulus checks and unemployment benefits Americans broadly were able to save more, pay off credit-card debt, and refinance into cheaper mortgages. The results are in striking contrast to the Global Financial Crisis in 2008, when U.S. households lost $8 trillion of wealth (click chart to enlarge).

And yet, even as all economic cohorts benefited from the government's actions, the winners overwhelmingly were once again the richest Americans. About $10 trillion of the $13.5 trillion (or 75% of the gain in wealth in 2020) accrued to the top income quintile. Moreover, nearly half of that $10 trillion, $4.5 trillion (or 35% of all economic gains) went to the top 1%.

For most lower-income workers much of their increase in wealth came form stimulus checks and unemployment benefits that are expected to wind down out in the months ahead. But as the WSJ notes, "Americans who gained the most during 2020 were also the ones who had much more wealth to begin with. Houses, stocks and retirement accounts...soared in value, and those boosts are likely to endure." That means wealth inequality, bad even before the pandemic, has only grown in the past year.

This outcome is not unexpected. Historically, pandemics have worsened inequality between the haves and have nots. The one exception (that proves the rule?) may have been the bubonic plague or Black Death between 1346 and 1353 which reduced world population by an estimated 20%-25%. Records from Italy show income overall fell but that inequality lessened as an extreme shortage of labor increased the wages of workers.

More Agony, Less Ecstasy: Football Makes People Unhappy?

Euro2020 has reached the knock-out stage. Millions of fans in Europe and around the world will experience joy and, more likely, pain as some teams advance and more get eliminated. In fact, according to researchers at the University of Sussex "the pain felt by football fans after a defeat is more than double the joy of winning." So you can be sure there'll be, on balance, more misery than elation at the end of this tournament...and for that matter, any tournament or league play (where data for the study was collected). 

This finding is analogous to a fundamental concept in behavioral finance: loss aversion, the idea that losses generally have twice the psychological impact than gains of the same size (i.e.., a $100 loss is felt more acutely than a $100 gain). But whereas people will typically take actions to avoid losses when investing (often at the expense of potential gains), when it comes to football people happily support their teams, year after year, despite the high probability of disappointment. Consider the English Premier League (EPL), the world's most popular football league. As ING's analysts point out, over the five seasons from 2014-2019 only three teams (Manchester City, Tottenham and Arsenal)  out of 20 have won at least half their games. Fans supporting the other 17 clubs were more than likely to experience loss. 

Back to the study...the University of Sussex team "analysed three million responses from 32,000 people on a smartphone app called Mappiness, which periodically asks users how they are feeling, what they are doing, where they are and who they are with.. By combining this rich data with GPS locations of football stadia and times and results of football matches over three years, [researchers] were able to pinpoint football fans and monitor their mood in the build-up to and after matches."

The results: on average, fans were 3.9 percentage points happier in the hour following a win, dropping off to 1.3 and 1.1 points in the second and third hours. A defeat, meanwhile, caused a drop in happiness of 7.8 points in the first hour, and 3.1 and 3.2 points in the second and third hour.

In other words, losses were felt more keenly wins and for longer! Moreover, joy and pain were felt 3x-4x more strongly when watching games in the stadium versus viewing at home.

Therein lies the paradox. Most people enthuse about the joy the football brings them. Yet, empirically the average football match (if we extrapolate the EPL results) leads to unhappiness. As the Sussex team points out: "Continuing to follow a team even though it causes more pain than pleasure looks irrational from a traditional economic perspective." So why do tens of millions of people do so? The two most persuasive reasons are:

1. Identity. People like to be associated with groups and crave camaraderie. That's the whole basis of social media. Allegiance to a team (local or international) can provide individuals with a shared sense of belonging and purpose that can transcend the pain of losing. In fact, international tournaments like the current Euro2020 or the World Cup can fuel national unity and trust in ways very few other events can.

2. The entire experience can be addictive. Akin to gambling, where individuals know the odds of winning are small, yet will happily participate for the excitement and rush. Adding to this point, the researchers also found that fans systematically over-estimate the probability of their team winning and never revise or learn from experience. Of course! 

As I write this, the Czech Republic just eliminated the Netherlands 2-0 from the Euro2020. Czechoslovakia has a population of 10 million, Holland 17 million. That means 3.4x more pain than joy in the aftermath of that match. Will that lead to a sad (low productivity) Monday across the Netherlands? As Peter Dolton, a co-author of the study notes: "Football is the biggest sport on the planet and the way it makes us feel is hugely important for economies, and very interesting for economists."

Tiger Global: Breaking VC

We previously wrote about how Tiger Global, a hedge fund-PE hybrid, was disrupting VC and Growth Equity investing with its rapid deployment pace, sky-high valuations and hands-off approach. The latest data from CB Insights shows Tiger is now the leading investor in unicorns, backing 103 of them, more than venerable VC firms like Sequoia (click to enlarge).

In doing so, Tiger upended the traditionally deliberate, economical, and partnership style of venture investing with an allocator approach that implies venture firms don't add any value beyond providing capital, of which Tiger has plenty. Now, according to Crunchbase, the Firm seems to have put its strategy on steroids. So far in 2021, Tiger has led or co-led deals totaling $10.5 billion and participated in rounds which totaled a further $11.5 billion, more than twice the entire amount of 2020 and outpacing firms like Sequoia Capital, who've (only?!) done $4.1 billion worth of venture deals YTD. 

 

What else is interesting is who are the investors following Tiger into deals...sure, firms like Coatue, DST, and T. Rowe with a similar strategy...but also Accel, Sequoia, Andreessen, etc. even as they decry Tiger's style...Well, I guess, if you can't beat em, join em?

The Tesla Arbitrage: An Update

Back in November, we highlighted a (risk-free?) arbitrage opportunity taking advantage of the introduction of Tesla into the S&P 500 during its quarterly rebalancing. As noted, research shows that over the following 12 months post rebalance, additions to the index, on average, underperformed deletions, by 23%! Back in December the S&P announced that Tesla (NASDAQ: TLSA) would replace Apartment Investment & Management (NYSE: AIV). Well, six months in, how would a trade going long AIV and shorting TSLA be doing?

Not bad...Since the rebalance on Dec 21, Tesla is down 5.5% through Jun 23 while AIV is up almost 64% for a long/short gain of 69% (or 180% annualized). That's:

Jeff Bezos Enters His Bond Villain Stage

It's been a big couple of weeks for Jeff Bezos. First Amazon buys MGM for $8.5 billion, giving him rights to 4,000 films, including the Bond series, the Rocky films and The Silence of the Lambs; and also series like Fargo and The Handmaid’s Tale. But perhaps most intriguingly, he "secured access to something much more exclusive: the deleted footage from Donald Trump’s hit show The Apprentice." Democracy dies in darkness?

A big question hanging over that deal was why was Amazon paying more for MGM than Disney paid for Lucas Films and Marvel combined? Yeah, but Amazon's not Disney or Netflix, it's Prime with an entertainment division.

Still, let's put this deal into perspective. Jeff Bezos is estimated to be worth $186 billion, so he could personally (in theory) buy 22 MGMs. At $8.5 billion, MGM is 4.6% of Bezos' net worth. He's 57; according to the Federal Reserve, the average and median net worth of Americans in the 55-64 age bracket in 2019 was $1,176,000 and $213,000, respectively. Hmm...

4.6% of $1.1M is ~$54,000 or the price of a standard Mercedes Benz E-Class. 4.6% of $213K is ~$9,500 or the price of three Peloton bikes. Yup, in a sense buying MGM for Bezos was the financial equivalent of a very expensive trip to the mall for the rest of us.

Intriguing as it might be to see Bezos cameos in future Bond films, the arguably much bigger news is that of Bezos' plans for space travel. Today, Bezos trumped rival Elon Musk when he made the surprise announcement that he will be aboard his rocket company, Blue Origin's, first human flight to space. And he's taking his brother with him. (Also, is it me or does Bezos look a little puffy in his Instagram video?) 

Balls in your court Elon...who was initially quiet about his antagonist's pronouncement, but later found a silver lining in Bezos briefly leaving earth. But as Electra King knows, The World is Not Enough for tycoons.