🎙️ Want More Nvidia?

✍️ The great Howard Marks dropped another wonderful memo this week. We couldn’t help but share it below — he always brings the goods.

“The most important adage regarding leverage reminds us to ‘never forget the six-foot-tall person who drowned crossing the stream that was five feet deep on average,’” Marks writes.

“To survive, you have to get through the low points, and the more leverage you carry (everything else being equal), the less likely you are to do so.”

Check out Marks’ full piece, The Impact of Debt.

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the biggest stories in markets:

• Assets in leveraged single-stock ETFs have doubled this year

• Americans rack up ‘phantom debt’ Wall Street can’t track

This, and more, in just 5 minutes to read.

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In The News

⚠️ Want More Nvidia? Investors Try Funds That Double Its Return

More rally, more risk. If Nvidia’s 88% surge this year isn’t good enough, there might be a financial product just for you. 

The market’s surge since October 2022 has enticed some investors to take on more risk, and they’re turning to single-stock exchange-traded funds (ETFs). The funds try to amplify the return of individual stocks using borrowed money or derivative contracts.

For instance, investors can opt for the T-Rex 2X Long Nvidia Daily Target ETF, which seeks to double the graphics chipmaker's daily return. 

The fund, available through major brokerages, has surged by ~207% this year alone (it’s only May!). Similar ETFs allow investors to make leveraged or inverse bets on popular stocks such as Tesla and Coinbase.

Zoom out: Single-stock ETFs were approved by the SEC in 2022. They were slow to catch on but have picked up steam in 2024: Assets doubled to $7.1 billion in the first quarter alone. The largest single-stock ETF, a 2x long Nvidia fund from GraniteShares, has seen over $1 billion in inflows this year and is nearing $2 billion in total assets.

• Single-stock ETFs have made leveraged trading more accessible than traditional margin accounts, attracting retail investors and hedge funds.
  

• Some investors, however, have urged caution with the products, which can post higher returns but also come with higher risk. Other analysts warn investors that the rise in such funds could be a contrarian signal that a market cycle top is near.
  

• Asset managers point out that single-stock funds are meant for short-term trading and aren't suitable for passive investors.
  

• Advocates argue that the funds enable everyday investors to employ strategies traditionally used by Wall Street. 

Why it matters:

Single-stock ETFs can’t be ignored — not after the recent surge in popularity. They have had inflows totaling $4.2 billion in 2024.

• One professional trader remarked, “I want to take advantage of high-volatility situations. Any time I can trade leverage, my potential return on investment is much higher.”
  

• “Fundamentally, we’re trying to democratize margin investing and access to margin. For many investors, these make sense because they’re much cheaper than using a margin account,” added GraniteShares’ CEO.
  

Still, concerns around fees and risk remain. 

• “These funds are the sharpest knife in the drawer, and it’s important people fully understand what they’re getting into,” another analyst cautioned. “My worry is that some people look at the name, hit the buy button, and then could be in for quite a surprise.”

Read more

More Headlines

📈 Gallup: Americans continue to name inflation as top financial problem

🏠 Homeowners are getting richer and richer 

🖥️ Apple debuts new iPad Pro powered by M4 chips

💰 One in 24 NYC residents is a millionaire — the richest city in the world

💼 Ten questions to get hired at JP Morgan, Goldman Sachs and Citi

🥙 Americans Rack Up ‘Phantom Debt’ That Wall Street Can’t Track

BNPL reads like the latest meme stock ticker, but it’s actually just short for a movement that’s shaping consumer behavior. 

"Buy Now, Pay Later" (BNPL) platforms could be driving “Phantom Debt.” 

Basically, there’s a lack of transparency surrounding BNPL platforms. Platforms like Affirm and Block’s Afterpay allow consumers to split purchases into smaller installments. Here’s the catch: They don't report these loans to credit agencies, so it’s hard to gauge. 

Growth of BNPL: The BNPL market is projected to reach almost $700 billion globally by 2028. But the lack of reporting to credit agencies masks the true financial health of American households.

• Meanwhile, Americans are increasingly falling behind on auto loans and credit card payments, with delinquency rates reaching the highest since at least 2012.
  

• One senior economist at Wells Fargo noted, “People need to be more awake to the risk of BNPL.”

BNPL companies and major credit bureaus like TransUnion and Equifax Inc. are in a stalemate regarding data reporting. BNPL companies argue that releasing data could harm consumers' credit scores, while credit bureaus claim they're ready to handle the information and it’s necessary. 

• A Harris Poll survey found that 43% of BNPL users were behind on payments, and 28% were delinquent on other debt because of BNPL spending. (BNPL generally encourages more spending.)
  

• Middle-class households increasingly rely on BNPL, with 42% of those earning over $100,000 reporting being behind or delinquent on BNPL payments.
  

• As of late 2023, almost 3.5% of credit card balances were at least 30 days past due, according to the Philadelphia Fed, the most since the data began in 2012.

How it works: BNPL platforms offer quick credit approvals and let consumers pay in installments with no interest or fees if payments are made on time. But missed payments can result in steep penalties.

Why it matters:

It’s becoming a BNPL world. Seemingly everywhere, especially when shopping online, there’s a line about how to “buy” something without fronting the money. 

Invisible barriers: Critics argue that BNPL disproportionately attracts financially vulnerable individuals. Risks include surprise late fees, hidden interest, and potential overdraft fees. Others worry that BNPL is creating “invisible barriers” to the financial system. 

• Despite robust consumer spending and low unemployment rates, inflation pressures households. BNPL offers a way to space out payments, but falling behind can have consequences that exacerbate the impacts of persistent inflation and, in turn, the wealth gap.
  

• In theory, BNPL sounds useful, practical — even helpful, especially to millions of Americans living paycheck to paycheck.
  

• But the risks can’t be overlooked. According to Federal Reserve data, consumers with a household income of less than $75,000 are four times more likely to use BNPL services than those with a household income above that threshold.
  

• A 30-year-old in debt from BNPL purchases said, “They hook you with the idea of no interest rates. I thought that I would be able to build my credit if I paid it back—I was so wrong.”

Read more

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Quick Poll

On Monday, we asked: How often do you buy groceries online?

— About half of respondents said they “never” buy groceries online. “I shop daily and want to pick my produce.” Another: “I want to see the produce and meats.”

— Among people who buy groceries online, responses included: “Non produce items. Great for diapers, paper products, cereal, milk. We like to pick out our own fruits and vegetables.” And: “I live in London UK and it feels like that is the norm here.”

— Another reader said, “We buy groceries every week through a delivery app. It’s more expensive but worth the convenience. My wife and I share a shopping list during the week and add to our cart. We have 3 kids and it just makes a lot of sense for us. However, I do miss going into the store and picking out that perfect steak.”

See you next time!

That's it for today on We Study Markets!

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