Robinhood, a commission free stock trading and investing platform that is vying to be an all in one financial services platform in the near future is engaging in risky business as of late. Robinhoods founder-CEO Vladimir-Tenev recently made public a tokenized stock offering that permits investors to invest in digital representations of private companies on the blockchain. Not only have private companies like OpenAI objected to this strategy, they haven't even approved Robinhood to engage in selling its shares of the firm on the blockchain to Robinhoods users. This will pose major legal problems to Tenev’s company in the near future, maybe even causing investors to devalue the company in their own minds.
Robinhood is issuing its accredited investor shares of private companies to the public through derivative products, this is very dangerous as private firms don't have to report info (earnings, sales, etc) like public firms do. Thus making this investment just a gamble for the financially semi-literate. Although, to Robinhood's credit, that is exactly what they want, to lure their young and amateur investing audience to use their products that are usually only offered to accredited investors (for good reason).
Robinhood's whole debacle here reminds me of another profit-hounding semi-unethical strategy: private equity firms trying to get into American citizens 401k’s to invest retirement savings into private companies and riskier investments. 401k’s traditionally invest into safe, low risk, medium growth assets to grow savings over a long period for eventual or current retirees. Private equity investments are illiquid and not transparent, potentially a big risk for citizens 401k accounts. PE firms note the upside of increased return on investment from their offerings but that comes at a higher risk and retirement accounts are not something to be risking.
Equity Insights
↑Dicks(DKS):Dicks released its Q2 earnings report on 8/28/25 before market open and beat expectations with solid growth outlook, raising its full year guidance. DSG has 9% of the total $140 billion market share across footwear, apparel, and hardlines in sports retail. DSG also delivered record Q2 sales with an EPS of $4.71, up from $4.37 a year earlier. Although down 4.84% on the day of earnings due to a lowered gross margin outlook (profit after deducting cost of goods sold from revenue), I expect DSG to raise above $230 by year's end.
↑Alibaba(BABA):In a recent WSJ article by Raffaele Huang and Tracy Qu, Alibaba is said to be creating an AI chip for China to help fill the void left by Nvidia's departure due to Chinese national security concerns from their less powerful H2O chip. Although still considered to be a less powerful chip by analysts China is lowering the gap between themselves and the U.S.
Theme of the Week
The Federal Reserve is a national and the IMF an international lender of last resort to lagging or dangerously in the red companies and/or countries. This is very useful to uplift /prop up companies/countries in need of intervention to strengthen the economy. But, on the other hand, it poses a big risk known as a moral hazard which is when a company/country (in this scenario) changes their strategy to take on more and higher risk levels because they know another party (the Fed & IMF) will bear the cost of any negative outcomes. This culture of increased risk-taking leads to the intervention of the lender of last resort which is a bad place for the economy to be. Along with this, libertarian economists (economists supporting free-market capitalism with minimal government intervention) would argue that letting the market run its natural course on these hazardous companies/countries will be better for the economy in the long term as it rids us of the dangerous risk-taking incentives.
An example of this moral hazard playing out dates back to 1997 when a highly leveraged (owned $30 in debt for every dollar in capital) and highly quantitative hedge fund called Long Term Capital Management was nearing insolvency when Russia's 90’s default caused price swings across the markets thus ruining LTCM’s portfolio. LTCM borrowed highly from wall street banks for its trades, thus the Fed worried its failure could heavily disrupt the markets. The Fed infused billions of capital into LCTM to prop it up for its eventual liquidation as to keep the markets stable. Critics argued that this incentivized reckless risk taking by other firms because they know the Fed will save them. What do you think?
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