😈 😇 Is Trading a Sin or Salvation?

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What’s on the Menu 🍴

At 2:00 PM EST today, the Federal Reserve will announce their interest rate decision…

And it looks like they’ll be hiking another 25 basis points.

In today’s newsletter, we’re asking - Is the fed making a MASSIVE mistake raising rates so high?

Here’s what we’ve got for you today:

• Is Trading a Sin or Salvation? 😈 😇

• Spotify: Good Product, Bad Business? 👌

• The Wealth Effect No One Saw Coming 👁️

• Is The Fed Making A Mistake? 👎

Today’s newsletter is a 5 minute read.

Is Trading a Sin or Salvation? 😈 😇

We're slicing into a hearty topic today - the morality of trading.

Now there's a spirited debate simmering in financial circles, with one camp branding trading as an unethical, even immoral act.

They paint a picture of traders as “traitors”, particularly among some hardline Bitcoin maximalists who subscribe to the 'never sell Bitcoin' doctrine.

But here at Daily Dough, we're bucking the trend…

We believe trading is not just an acceptable act, but a noble one.

We propose that investors have a moral obligation to hone their trading and investing skills, a duty to wield their capital judiciously and effectively in this economic battlefield.

“Trading is a Zero-Sum Game”

Firstly, let's shatter a myth: not all trading is a zero-sum game.

The term "zero-sum game" brings to mind a ruthless seesaw where one's gain equals another's loss. This is a common misconception.

In reality, trading, especially in growing markets, can be a positive-sum game.

This means new value, new wealth, and new dough can be created, rather than just shifted from one pocket to another.

Picture it this way: You're not carving up a pie, you're baking a fresh one and expanding the size of everyone's slice.

When you invest in a fledgling company, your gains aren't made from other investors' losses; they’re a result of the company’s growth and success.

You're essentially bringing new money into the market, rather than redistributing existing money.

“Altcoin Trading Is Unethical”

Some might consider it heresy to buy or sell an altcoin, but we believe it can be a noble pursuit.

By trading altcoins with the goal of accumulating more bitcoin or fiat currency, you're redistributing capital from get-rich-quick investors looking to make a quick buck from a crypto to savvy traders and capital allocators.

Shorting crypto scams often helps with “price discovery” (where the market finds the real value of an asset). Often times, this is ZERO for low quality altcoins.

For example, I find it my mortal duty to remove capital from the Worldcoin ecosystem:

So, you're promoting market efficiency. And that's a tick in the "moral" column.

“Trading Democratizes Wealth Creation”

Consider also the democratizing power of trading.

Thanks to technological advancements, trading isn't confined to the Wall Street elites anymore.

Everyday folks from anywhere in the world can now get a slice of the investment pie, contributing to a more equitable distribution of wealth.

Today's traders are as likely to be work-from-home parents, students, or retirees looking to grow their nest egg.

Trading offers the chance to bridge the wealth gap and encourage economic participation from all corners of society.

We’ve helped thousands of traders from over 120 countries build wealth in today’s trading arena.

To sum it all up, trading isn’t just some Machiavellian money-grab. It’s a vehicle for economic growth, a tool for social mobility, and an arena for risk-taking entrepreneurs.

As traders, you're the lifeblood of the market, ensuring its health, vitality, and dynamism.

So, take a bow, traders & investors…

You're the good guys in our book, and don't let anyone tell you otherwise.

Spotify: Good Product, Bad Business? 👌

Spotify is unquestionably the leader in music streaming globally, boasting an astounding 551 MILLION monthly active users at the end of Q2.

So why has the stock generated basically zero returns since IPO and why was it down more than 10% after reporting Q2 earnings this week?

The main driver of the poor returns appears to be a lack of profitability and a general unwillingness by management to rein in operating expenses.

In other words, the business is not currently being run for the benefit of shareholders, and it looks like that could continue for the foreseeable future.

Spotify has notoriously low gross margins for a tech company (25%), because it pays out so much of its $13 Billion+ annual revenue in royalties to musicians and record companies.

This is one major reason for low profitability despite impressive subscriber growth and scale.

But management does have more control over operating expenses in areas like product development, R&D, operations, administrative functions, and marketing.

Spotify, led by co-founder and CEO Daniel Ek, went on a spending binge over the past several years: the company has grown headcount more than 50% since 2021.

The company has also paid $1 Billion+ to podcast hosts such as Joe Rogan in the hopes that they can use exclusive content to gain dominance over podcast advertising.

All of that has resulted in worsening operating losses and minimal cash flows despite very robust subscriber and revenue growth:

Bulls will argue that Spotify will eventually dominate the entire audio streaming industry and large profits will flow to the bottom line once greater scale is reached.

Frankly we think having more than 550 million subscribers and over $13 Billion of revenue already represents massive scale!

And while Spotify toys with price increases and dodges questions about future profits, a new threat has emerged: TikTok.

TikTok is now rolling out a competing streaming service across multiple geographies.

This is a big deal because TikTok often drives virality for songs & artists and the global audience size is over 1 Billion monthly active users!

This could pressure Spotify’s growth and make it even harder to achieve those elusive profits.

Like Twitter under Jack Dorsey, we think Spotify has languished under a founder who doesn’t operate efficiently or tenaciously enough.

Even the user interface is now a confusing jumble of hidden menus and strange feature choices.

Maybe SPOT could take a cue from Zuck’s “year of efficiency” over at META.

One way or another, it’s time for change at Spotify.

Otherwise SPOT risks both shareholders & users abandoning ship!

The Wealth Effect No One Saw Coming 👁️

The stock market roaring closer to all-time-highs could create something unexpected: A major wealth effect.

We’ve come off a period of time where stocks were down.

Cryptocurrencies like Bitcoin have plunged.

Also, bonds have taken a beating thanks to rising interest rates.

So, with the stock market on the rise, and even Bitcoin showing signs of life again… could this lead to people feeling wealthier, and wanting to spend more money?

We think it’s something to watch out for.

The consumer can protect purchasing power with higher rates being paid on their savings, real estate values are holding steady, AND their brokerage accounts are rising.

Now, people feeling wealthier and spending money is great for the economy… but you know who it’s NOT great for?

The Federal Reserve.

The Fed is fighting inflation, and they’re expected to raise rates another 25 basis points this week to continue this fight.

If this market keeps defying gravity, making people feel wealthier, it could cause inflation to be a bit more stubborn.

Is The Fed Making A Mistake? 👎

It’s that time where the Federal Reserve has to make a decision on interest rates.

What we know? They’re very likely hiking another 25 basis points (98.9% chance of a hike).

While another 25 bps isn’t a big deal in the grand scheme of things (they’ve pretty much done the bulk of the rate hikes), it does beg the question:

Is the Fed is screwing up royally?

With inflation cooling its jets, and expected to keep declining, we now have a positive real rate.

This means generally speaking that interest you can earn on your money will be HIGHER than the inflation rate.

This is the ultimate goal, and why we invest in the first place.

So, why does the Fed keep pushing here?

They likely see risks of re-inflation happening easily.

They’re talking tough especially as the stock market roars higher, and we also have to watch commodity prices.

Commodity prices increasing could mean trouble ahead on the inflation front.

But, many people think the Fed is making a mistake pushing rates higher here, just like they made a mistake by waiting too long to hike rates in the first place!

The Fed isn’t calling victory until inflation gets to their “2% target”.

It’s clear higher rates aren’t fully breaking the consumer… yet.

But, if they keep staying aggressive, they just might finally break the economy.

Delicious Bites 😋

• Crypto community uneasy about Worldcoin token launch

• AI and dot-com bubble share some similarities

• A breakdown of the blockbuster success of Barbie and Oppenheimer at the box office

• Bill introduced to ban members of the U.S. Congress from trading stocks

Food For Thought 🧠

"A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw, irrational emotion under control.”
- Charlie Munger

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.