The Flagship Pod: DAO’s & DeFi, Superbanks, Omicron, Lululemon, Inflation & More!

October 27, 2022
Market & Industry Analysis

The following is a transcript of the weekly Thursday Moby Live Podcast we host on Discord, at 2:00pm PST // 5:00pm EST.

Peter Starr:

And now coming to you live from our coast to coast trading desk. This is the Flagship Pod presented by moby.co a weekly live discussion in front of a live discord audience, where we discuss the market, the mechanics powering the world around you and stocks in the economy that you should be keeping in mind this week.

As always, I’m your host, Peter Starr. It’s gonna be a quick show today y’all. We’ve got a lot of interesting volatility in the markets. The S&P is finally cracking off of a three day winning streak. And we’re seeing not more volatility, but still lots of questions about what’s going to happen with the economy, with the Omicron variant and everything else. We’ve got a couple of stocks we’re watching as well, as well as a couple of really interesting trends we’re seeing in the energy space.

So all in all folks, lots of really cool stuff to get into today. We’re going to have a very tight show though. We’re sticking to about a 20 minute schedule due to some scheduling issues over here @mob.co, either way folks, all that’s going to come in a really tight package. So make sure you get your questions in, here at discord and the voice chat as well as if that doesn’t work, literally just DM me. There’s nothing wrong with it. It’s not illegal, I promise. Hit me up there.

Anything that you want us to focus on during this really tight 20 minutes, let’s get into it. However, audience, as always, I’m joined by our co-founder and chief analyst here, we’ve got Justin Kramer, ladies and gentlemen, Justin, how’s it going today, man? How you doing?

 

Justin  Kramer:

Good. All good. Just another sunny day down here, but no complaints. How’s everything going by you?

 

Peter Starr:

You think your east coast folks are so fancy with your just like lack of winter. You got sunny Miami, we’ve got a very needed rain here, down here in Torrance, California. So really excited for a very gray gloomy day, which I haven’t seen in a while. So winter’s actually kind of turning things around here in California, which would bode well agriculturally moving forward for the rest of the country. Hell yeah, brother. And that’s kind of like where we’re living. We are living in a lot of really interesting like dynamic space in the market right now. As I said before, the market’s kind of rising after a really weird period of volatility in the past few weeks.

There’s still a lot of questions about the Omicron variant, which I’ll get into during my little COVID update midway through this. But Justin, let me get your view real quick. Looking at the markets right now, are all with the kind of fear moment of COVID kind of passing again. Do you think we’re going to break back into more of a bull run here at the macro level in the market, or is this just Q4 resisting all of the mayhem that the Omicron variant of coronavirus could cause.

 

Justin  Kramer:

No, this feels like some real headwinds to me personally. I know with Delta, there were some scares there, but you have the country, not only the country, but the world starting to like actually be a little fearful. So, while I don’t think we’re, unless like there’s a new variant one day that just totally, takes the cake. I don’t think we’ll ever really re-enter into a period of full lockdown for a handful of reasons, but in the mean time, I think there’s going to be some serious headwinds. And so you’re seeing in the market, obviously Q4 has its own kind of ups and downs, but between inflation, between interest rates rising and more supply chain issues, the COVID markets, this is why we’re seeing the volatility. Again, we’re still bullish in the long term. Like always we think it’ll pass, but this is real definitely right now for sure.

 

Peter Starr:

Exactly. Yeah. And at the same time, while it is real, remember audience, we’re still in a really preliminary stage and understanding just how bad slash good slash whatever this Omicron variant is. More preliminary data coming out this week. Again, all, I say the word preliminary, I need to stress the word preliminary because the thing we need to watch for is just how severe Omicron is. The thing that spooked the market was just how fast it infected a bunch of people in its origins areas of like Hong Kong, South Africa, and various other areas of Africa and also randomly Belgium.

So when you look as we get more data, the most important thing to keep in mind is that infection number and how severe those infections are to sort of game out what’s happening in the market. So the craziest thing that’s happened so far is that there’s a pre-print coming out yesterday that demonstrated the preliminary number for Omicrons R-naught value. R-naught just so you know is a statistical value of just like, if one person gets a disease, how many people do they give it to. Delta was at about a 5.8 and Omicron looking to be somewhere in the 20s, which is staggering.

This is actually is very interesting news, more than bad news, but also very preliminary. And it is based on statistics. So it’s a number that fluctuates wildly over time. So this snapshot of the data is probably just in an upswing, probably balance out way lower than that 20 value. To give you an idea, the most infectious disease on the planet is the measles and it has an R-naught value also in the high 20s. So this is something that would be unprecedented. But the thing that we have to keep in mind is, is that if we’re seeing this an R-naught value, that’s actually going to be in those high 20s and literally have a variant of COVID that’s five X, the infection rate of Delta. We’re not seeing a five X hospitalization or death rate from areas where Omicron is popping off.

So there’s a chance that it’s bearing out that it’s more infectious, but also so milder that this may actually lead into a bunch of interesting scenarios. So a lot of cool things to watch. I’m not going to speculate further. A lot of my scientist friends have a bunch of crackpot theories about how this could actually break COVID. I’m not going to get into that in this time. Let’s get into tangible things to talk about the real market. Just keep in mind, anybody who’s saying Omicron is something or isn’t something is not giving you real information because we simply still do not have enough data. That data is coming into focus gradually over the next week and a half. Hopefully by the end of next week, we can get a really better understanding of how Omicrons going to hit as it gets, as we get more data specifically from America, let’s launch into the actual market though.

So a lot of really good news in terms of companies that are be able to, like you said Justin, survive these really strong headwinds. One thing we’re really excited to see that’s happening right now is the Lululemon’s earnings call. They’ve beat earnings real well. The revenue is up really strongly. The stock is pretty volatile this week, but it should rise on this news from this earnings call. Justin, what are your views as certain companies sort of deal with all these supply chain issues for the past two years? How do you feel about companies like Lululemon, Dick Sporting Goods? Like what’s the deal? How are they able to beat these supply chain issues and perform really well, even like in the worst possible conditions in the worst part of the economy right now?

 

Justin  Kramer:

Yeah, so, I mean, it’s similar to a lot of the movement we’ve seen towards like certain types of tech stocks over the last, I was going to say a few years. But even the last decade, to be honest, that people who have embraced technology ultimately will be rewarded both from a company perspective as well as stock perspective. And so when you look at Lemon, Dick’s a few of the other brands that you mentioning, Best Buy to a certain extent. They’re embracing like a D to C e-commerce type mentality. And so for some of them they’re earlier on in kind of their life cycle in terms of what they’re investing in from an internal perspective. For [inaudible 00:06:49] we start yielding benefits and others it’s already working. And so just that real commitment and some gradual success, he’s going to propel a lot of these companies going forward because the margins are higher.

It’s a more sustainable business. You don’t have to worry about the supply chains nearly as much. And it’s just what consumers ultimately want at the end of the day is a very cohesive tech online e-commerce experience. So Lulu has been a stock that we’ve been holding for a while. And again, until things change, we’ll continue to hold it. They have a nice kind of mix of not only being like this technology first e-commerce brand to a certain extent, but they’ve also built like a lot of brand value that’s hard to exactly quantify.

 

Justin  Kramer:

But they’re doing a really good job of like transitioning themselves and positioning themselves as like the leader in fitness and the leader and not just yoga, how they started, but really anything fitness. And they’re building kind of that brand value, almost what akin to kind of like Starbucks did for coffee. So long story short, definitely, really like Lulu, there’s going to be volatility. Like there always is, especially with like high growth retail names especially but definitely a stock we’re going to be holding onto for a while.

 

Peter Starr:

And that’s the thing that’s impressed me the most to piggyback off of that. A lot of these stocks, if you were even remotely plugged into the market, let’s say two years ago, we were all kind of expecting the Amazon apocalypse. Like Amazon came and basically destroyed every mall in America. And we figured every retailer was going to go down, but then you saw Best Buy over the course of 2018 and 2019, realize that they could beat Amazon on distribution since they had way more air quotes warehouses than Amazon does. Their warehouses being their physical retail stores. And so what you’re seeing is this return to like solid branding and return to making your stores more efficient. So they can act both as distribution centers, as well as actual physical stores. So really, I’m just really impressed with companies like Lulu, Dick’s and especially Best Buy as they’ve managed to weather the storm that is the Amazonfication of the entire economy and really perform really well.

I think the reason that I’m excited and bullish on Lululemon moving forward is not only are they being extraordinarily efficient with their physical retail stores and using them as distribution centers. They also have more than anything, a really strong luxury angle that you just can’t beat really. And so it’s going to be hard to get through that mode. So really strong branding maneuvering by Lululemons. So we’re really excited to see how they move forward. The strong is only up 2% during this earning called postmarket. So it’s really hard to say if the market’s agreeing with us right now, but I’m excited to continue that hold moving forward.

 

Peter Starr:

But getting at like traditional stocks, because remember the market right now is just, it’s just mayhem right now, the volatility, the inflationary pressure that’s driving prices up, down all over the place. It’s hard to discuss like genuine trends until we get a very a strong view of exactly when rates are going to go up, if rates are going to go up. What tapering means and what transitory means. Because amazingly, even though we see like it’s obvious, the Fed is going to do something about inflation, they’ve been very vague about exactly what that is and when it’s going to be.

So, let’s talk about other areas of the economy that we can be thinking about as the stock market sorts itself out. And Justin, once again, like you’ve been doing a lot of really awesome work, giving us lots of options to think about as we diversify our portfolio around the stock market, specifically in DeFi, and then today with this Silvergate pick. Why take me through Silvergate real fast, Justin, as we sort of think about new modes for banking, because I really like the way that crypto is entering the traditional finance space and I love expanding the market and I’d love to think, well, what are your ideas behind this pick today? And take me through your analysis about Silvergate real fast.

 

Justin  Kramer:

Yeah. Silvergate’s in a very interesting position because unlike, and I think I call this out in post, but unlike like Chase and Bank of America and a lot of these other stocks, who’ve not only not embraced crypto because kind of like shun it to a certain extent. Silvergate is like doing just such far the opposite and because of that, they’re expanding like crazy. And so when you look at their stock performance over the last year, I mean, they’re up over 270%. And so for those you’re not familiar, like a financial stock being up that much is just insanity. They just, they don’t go through periods of growth like that. And for a company that’s only like around 4 billion in market cap, they’re still really small. So like the upside is still there. And what’s very interesting about them right now in particular is that 99% of their accounts are non-interest bearing, non-interest bearing checking accounts.

 

Justin  Kramer:

Is there anything more boring in the world than that? No. Okay or there maybe a few other things, but it’s definitely up there, but the reason it’s so important is because banks pay out interest, it is an expense. So for every single dollar they get in, they have some sort of expense margin on that. And so if 99% of their accounts aren’t paying interest, then they don’t have to pay them. So that is an awesome position, especially when you look at banks out there, kind of the average is around 35% in terms of how many accounts are non-interest bearing. And then even when you look at like Silicon valley bank, which is another very tech forward bank, that’s embraced crypto, they’re still only in the 50s or 60s. So Silvergate from a cost perspective is doing things that no one else is doing.

Then on the assets side, all of their assets are very heavily linked to interest rates and inflation. And so with inflation picking up, with interest rates picking back up and likely the start of interest rate hikes next winter, they’re really in a position to win on both sides of the equation. And because they’ve taken like this crypto first mentality, they’re able to do this when no one else is. So long story short, they can really really grow over the next few years. And so yes, they’re up to over 200% in the last year. And may that might not have happened in the next 12 months, but there’s no reason it can’t happen based on the growth that they’re showing already over the next several years at the very least. They’re growing deposits, the amount of assets and deposits over 50% going forward. They just did 400% growth. So they’re kind of in the early days and although some might look at the charts and think that they’re already discovered, we still definitely love this name over the longer term.

 

Peter Starr:

Precisely. And I guess that gets into like other moves you’ve been thinking about in terms of like the mix between crypto DeFi and traditional banking. How does this tie into your view on BlockFi? Like, what are the similarities and differences between Silvergate and BlockFi? Cause that’s the main thing I’m seeing from the audience right now. We talked a lot about BlockFi last week, how you can earn interest on your crypto assets up to 10%, which is pretty solid. But when you’re thinking about like buying into this stock, versus just straight up putting your money into an account like BlockFi like what’s the game there from your perspective?

 

Justin  Kramer:

Yeah. I mean, it’s interesting because there’s this whole like argument between centralized finance versus decentralized finance. And so right now, decentralized finances, obviously have like kind of its limelight, if you will. Centralized finance has done really well and BlockFi is an example of that, of a company that’s expanding massively. But the biggest difference is with centralized versus decentralized, you’re paying for all these things that are central to a company. So you’re paying for employees, you’re paying for the office space, you’re paying for everything that a company takes to run. Whereas in the decentralized [inaudible 00:14:14], yes, there are some intrinsic fee you’re going to have to pay for, but you’re more or less stripping out all of those aspects because it’s just running on code rather than humans running it. And so because of that, they’re able to charge a lot less and they’re also able to pay you a lot more.

 

Justin  Kramer:

So it becomes a really interesting kind of opportunity because you can see everything, everything is completely open source. And so you can see exactly how it functions and basically come to conclusion on your own, in terms of what projects you like and what projects you don’t like. So there’s going to be projects that are insanely risky that are paying a 1000% a year, if not more. And those other projects that are paying close to 10, 20% range. And although everyone is definitely greedy, including ourselves, 10% historically 10 to 15% year over year growth is what the market does. And being the market, as we all know is very hard.

 

Justin  Kramer:

So having that from a sense of stability with somewhat minimal risk is from kind of a risk reward perspective is super interesting. And when you start looking at some of these stable coin projects that are yielding good assets, there’s just a lot going on and everyone always thinks, or 99% of people think if they want to make money in crypto, they have to buy the right coin and then sell it. But there’s other ways just by holding onto your current assets that you can get compensated as well. So, it’s kind of a very interesting area to look at.

 

Peter Starr:

No, I like that too. But the only issue with it of course, is that there are so many new projects popping up, that agility allows projects to start very quickly as well. And so one thing, I’m really excited about as we continue to build out our view on a diversified portfolio is, as we lean into the research we’re doing into DeFi and into all the different ways you can make money into decentralized finance. Justin, as we get to like the last couple of minutes here, this week, we put in a really strong report just on like the overview of DeFi itself. And so rather than like have you talk about that [inaudible 00:16:07] really have three minutes left in this sort of abridged version of the Flagship Pod.

Real quick, what are some of the DAOs, what are some of the lending pools? What are some of the airdrops that you’re the most excited about as you sort of think about ways to add DeFi to our portfolio? I know it’s the speculative part of our portfolio, but top of your head, that’s the main question I’m getting from the audience right now. What are you seeing in terms of the main projects you’re focusing on as you move forward?

 

Justin  Kramer:

Yes. So there’s a lot of projects and exactly to your point, there’s a lot of like movement. It’s very quick to market. And so there’s a lot out there that seems good in the surface. They even build up right communities. When you start peeling back the wires it’s not what it always is made out to be. And a lot of it unfortunately comes down to marketing in terms of who’s able to like get the most leverage. The friends tell their friends and the word of mouth marketing, just like kind of exponentially rolls from there. So it’s a long winded way of saying just like, be very careful in the short term. I mean the Olympus DAO, and you can speak more to this, but that’s definitely a project that we’re looking for. We’re going to launch a YouTube series on that, maybe Peter, you want to speak a little bit to that.

 

Peter Starr:

Yeah. I am going to actually be staking on Olympus today. I’m going to finally finalize all the staking. I’ve already staked once, we’re going to do it again for the sake of a YouTube video, but yeah, Olympus DAO’s is an awesome project in terms of building an algorithmic stable coin. And that’s a really exciting thing about investing in DAOS because when you’re thinking about the various layers of what crypto has been. The first three layers crypto itself, DeFi tokens like Ethereum Solana, then NFTs, all those first three layers have all been very speculative in nature. I.e. you buy a thing, you wait for it to appreciate and value, then you sell it. Whereas I invest in the stock market because I know that people will work at that company at a stock to make that stock more valuable.

That’s the thing we do here as a species, we work hard. We make things more valuable. Productivity goes up over time. Shareholder value develops, Hooray, everybody wins in the system. That’s why a DAO is awesome because you’re not investing in a token, so much as you’re investing the process behind that token. So Olympus is a really strong way of using an organization to create an algorithmic stable coin that’s not pegged to a Fiat currency, which is kind of a central rot at the heart of all of the crypto ecosystems right now.

So, I’m really excited about that, about the future DAO, the future Olympus DAO has. And I’m excited to take everyone through my process of how I staked a bunch of my Ethereum on the Olympus DAO. And I’ll take you through how you compound interest, because that’s the real thing. When you stake, you get compounding interest and Olympus DAO is exciting because their interest compounds every eight hours, as opposed to you getting paid by a bank either quarterly or God forbid yearly. So that’s where my excitement comes from. Just getting that paycheck, literally putting my money to work on a nine to five basis. If you know what I mean.

 

Justin  Kramer:

Totally. No, no, I couldn’t agree more.

 

Peter Starr:

Exactly, but we’ll have more information on that next week. I can’t wait to take you guys through it, but again, there’s lots of DAO. So, if you have ones that you’ve seen that you want us to research,. Let us know. If you’re listening to the recorded version of this podcast, hit us up hello@moby.co. We’re really excited to give you sort of more of the even handed perspective on a lot of these DAOS because no matter what, everything in this crypto space is entirely speculative and should only be on the fringes of your portfolio as you sort of begin to like sit on the front lines of what is the new economy here in the world.

Audience either way, I really appreciate your time. Again. If you have any questions, you can hit us up hello@moby.co as well as just within discord itself. Feel free to DM me if there’s anything else you guys are thinking about. Otherwise again, thank you much for being here for an awesome conversation. Next week, we’re going to be talking more. We’re going to be doing a bigger deep dive on the DAO space, as well as thinking more about other DeFi projects that might be really interesting. If any stocks you want us to watch again, hit us up.

Otherwise for now, I’m just going to do the credits, y’all. As always, this podcast is produced, hosted and voiced by me, Peter Starr. All of the analysis you saw here today, ladies and gentlemen came primarily from our chief analyst, Justin Kramer. If you liked this podcast, please consider following us on discord. If you’re listening to the recording. If you want to get more of us, feel free to check us out at YouTube or at youtube.com/c/mobyinvest. We just put out a really awesome report on plug power, just kind of diving into the future of renewable energy. We’d love it if you checked that out, we’re doing more and more every week. Otherwise audience, I really appreciate your time. And as always, we’d like to leave you with peace, love and incremental gains. Everyone be well, thank you so much.

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