What’s on the Menu 🍴

When it comes to investing, it can be hard to sift through mountains of information and opinions…

And that’s why we created the Daily Dough - to help you see through the noise and get directly to the signal.

Here’s what we’ve got for you today:

• Huge Win For Bitcoin Against The SEC! 🎉

• When A Stock Price Isn’t “Real” 📥

• Rent Inflation: What To Watch 👀

• The Truth About Consumer Savings, Credit Card Debt & The Looming Recession 💳

Today’s newsletter is a 5 minute read.

Huge Win For Bitcoin Against The SEC! 🎉

Grayscale may get a second chance at launching a spot Bitcoin ETF, thanks to a recent federal appeals court ruling that orders the SEC to revisit its previous rejection.

Why It Matters: The SEC has traditionally been a party pooper for Bitcoin ETF applications. If approved, Grayscale's Bitcoin ETF would allow even your tech-averse grandma to invest in Bitcoin with ease, opening up crypto investment to the masses.

As we explain in this video, a spot ETF helped gold’s price explode from $500/ounce to around $2,000/ounce today.

Key Developments:

• Double Standards? Circuit Judge Neomi Rao pointed out the SEC approved Bitcoin futures funds but gave Grayscale's similar fund a thumbs down. Grayscale argued their product was "materially similar," and the court agreed.

• Rationale, Please: The court didn't critique the SEC for rejecting Grayscale's application but rather for failing to explain why they treated similar products differently.

Deep Dive:

• Prior Drama: The SEC rejected Grayscale's first ETF application in October 2021, citing concerns over market manipulation.

• In Good Company: Other big shots like BlackRock and Fidelity have also been in the Bitcoin ETF application queue.

• Impact on Pricing: Converting from a closed-end fund to an ETF could eliminate the existing discount on GBTC.

The Bottom Line: The court ruling doesn't guarantee that the SEC will approve Grayscale's Bitcoin ETF, but it does force a review and puts the onus on the SEC to explain any rejection. This could pave the way for more crypto ETFs, essentially allowing Bitcoin to schmooze its way into even more portfolios.

When A Stock Price Isn’t “Real” 📥

A strange thing happened in the stock market over the past few weeks: a relatively unknown Vietnamese company briefly became one of the top 100 largest stocks by market cap.

VinFast (ticker:VFS), an electric vehicle manufacturer that just went public via SPAC, skyrocketed nearly 900% since the beginning of August 2023.

The implied market capitalization of VinFast at the stock’s recent peak was just over $200 Billion, which ranked only behind Tesla and Toyota in the automotive sector.

Yet VFS produced less than 20,000 vehicles in the past year versus Tesla at over 1 million and Toyota at almost 9 million vehicles produced.

VFS also produces no profit, and in fact it actually operates at a loss!

So what gives? Why do investors think this deserves such a massive valuation?

The truth is quite simple: the valuation is a mirage.

As VFS completed its SPAC transaction and began its trading as a public company, the tradable public share count (the “float”) was only about 8 million shares.

That might sound like a lot, but the total outstanding share count is 2.307 billion shares, of which the founder CEO owns 2.299 billion (99.7%).

The CEO’s shares are not able to be traded in the open market at the current time, so the tiny fraction of shares that do trade can be gobbled up by a handful of traders.

The silly prices paid by these short term traders would not hold if the bulk of shares became tradable. The marginal share value doesn’t accurately represent the whole.

The tiny share count also means there are minimal shares available to short sellers who might bet against VFS and help push price down.

When supply is this thin and one-sided, even a small amount of demand from traders can create a “squeeze” that pushes the stock price quickly higher.

We’ve seen this price action play out many times in both low float stocks as well as low volume crypto altcoins.

This can be supercharged when stocks have listed call & put options, which amplify the moves and create headaches for market makers & option writers.

This is sometimes referred to as a ”gamma squeeze”, a topic for another DD edition.

The endgame in these situations is always a huge plummet in the stock or altcoin, though it can take weeks or months for it to ultimately play out.

Case in point, VFS had a massive 44% decline this past Tuesday alone.

A combination of more shares becoming available for trading as well as trader apathy when the squeeze stops working usually does the trick on the downside.

And while you might think the obvious play is to short a low float rocket like VFS that will crash back down to earth, there’s usually no shares available to borrow.

There can also be snapback rallies that wipe out any short sellers in the interim, the classic example of markets being irrational longer than you can remain solvent!

If you can identify low float squeezes as short term trading opportunities on the long side before they make their run, great!

Otherwise don’t fret over short term irrational price moves in low float stocks or altcoins.

They are anomalies that don’t represent reality long term.

Rent Inflation: What To Watch 👀

It’s been a tough couple of years for renters of homes.

We’ve seen extraordinary inflation in housing since 2020.

Some areas of the country are experiencing rent inflation that’s worse than others, of course.

But, with owners equivalent rent (OER) accounting for 25% of the CPI calculation, a decline in rent price changes is very welcomed…and it’s happening.

We’re finally seeing price changes cool from their peak in 2021 and it’s helped the overall Consumer Price Index fall significantly.

Rent disinflation does take time to trickle into CPI numbers due to the lag once a lease is signed.

We’re actually still in a cycle of seeing leasee’s who signed at higher market prices, needing to resign…this is where things get interesting.

Overall, market rent really depends on who you’re renting from.

Renting from a private owner, you may not see much of a change in your rent.

However, renting from a corporate apartment complex, you typically see rents changing more based on supply/demand algorithms.

Larger cities had much higher rent increases in 2021 and 2022.

It’s very possible people resigning in these areas, could end up pleasantly surprised by either a tiny rent increase, or even a possible decrease in rent!

Take a look at the once piping hot Austin rental market seeing year-over-year DECREASES in rent:

Another hot market, Tampa, FL, is seeing year-over-year decreases in rent:

This could be another nail in the coffin of a recession if a lot of Americans get a couple of extra bucks in their pockets by resigning pricey leases.

Either way, if the Federal Reserve wants to get to their 2% inflation target, rent disinflation (and even deflation in some areas) will help massively.

The Truth About Consumer Savings, Credit Card Debt & The Looming Recession 💳

Credit card debt is on the rise, interest payments are flying through the roof, and the consumer is running out of savings... or are they?

I break down the data and show you why "data cherry picking" is a problem right now, and how I am looking at the current stock market selloff.

Click to watch today’s video

Food For Thought 🧠

"In investing, what is comfortable is rarely profitable.”
- Robert Arnott

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.