IN THE NEWS

🧊 Start-Up Funding Chills (NYT)

Explained:

• Two weeks after Silicon Valley Bank failed, the fallout has hit the start-up market as investors pulled back further.
• One founder of a financial technology startup was aiming for $2.5 million in funding this year but was turned down by 67 investors. Then, in mid-March, his initial investors backed out, too. “I was scratching my head, saying, ‘Why did they just ghost?’” he said. “Then the bank run happened and I was like, ‘Ah, they’re terrified.’”
• After a tough 2022, when the easy money for startups dried up, many hoped things would bounce back in 2023. Not so far, as SVB’s collapse has stoked more anxiety and dread in dealmaking throughout Silicon Valley.

Why it matters:

• The Fed’s campaign to hike interest rates since March 2022 has led to slashed valuations, lowered ambitions, and widespread layoffs. Over the past two weeks, while regulators scrambled to find a buyer for SVB, companies that relied on it for lines of credit have scrambled to secure a new source of funding.
• Note, SVB has found a buyer: U.S. regulators said Monday they would backstop a deal for regional lender First Citizens BancShares (FCNCB) to acquire SVB, sending FCNCB’s stock up over 45%.
• Investors, wary of risk, are choosing to sit on the sidelines. Meanwhile, some young companies are doing what they can to avoid raising new funding, so they do not face lower valuations, onerous terms, and stringent due diligence.
• “People are realizing it’s probably not going to get better,” said Mathias Schilling, an investor at the venture capital firm Headline. “It was a big shock to the system.” He said the bank run that led to SVB’s demise showed how much fear was already in the market. Investors wouldn’t have started such a panic if they weren’t already on edge.

👟 Crocs in Vogue (NYT)

Explained:

• People started buying Crocs in 2020 and haven’t stopped. While other brands that thrived during the pandemic have seen sliding sales, Crocs sales are up nearly 200% since 2019.
• Since January 2020, Crocs’ stock price has soared 167%, partly because the easy slip-on shoes are comfortable for people working at home or puttering around the kitchen or garden. The company’s annual sales have increased 200% in the last three years.
• Last month, after announcing that quarterly sales rose 61 percent, Crocs said it anticipated another record year of growth. Its management team laid out an ambitious business plan that promised more robust profits and revenues when many in the retail industry are trying to temper investor expectations.

Why it matters:

• Crocs continues to lean on influencers, brand partnerships, and digital advertising campaigns. It invests about 7 to 8% of its sales into marketing and will spend more than $200 million on marketing initiatives this year. That includes rolling out more celebrity and big-name partnerships.
• While sales at Peloton, Etsy, and Zoom have dropped since they became pandemic darlings, Crocs is an outlier. Social media deserves credit, as Crocs has built a dedicated customer base with over 6 million Facebook followers and nearly 2 million on Instagram.
• The brand has developed a distinctive online voice through emojis and memes, making shoppers feel that its aim is creating a community rather than just getting people to buy more clogs. “My Crocs are part of my self-care,” said one fan.

THE ETF BETTING AGAINST JIM CRAMER

Eric Balchunas, a senior ETF analyst at Bloomberg, says Cramer has a “knack for not just being wrong, but spectacularly wrong on occasion. He’s got a reverse Midas touch.”

Of course, how many of us would look good in hindsight if we tried to make bets daily on what would happen in markets? Most of us know better, but that’s his schtick. And now, there’s an ETF enabling investors to take their taunts one step further by actually betting against the infamous pundit.

So is betting against him a viable investment strategy?

How it works

Matt Tuttle of Tuttle Capital Management, the man behind a new ETF that does exactly this, thinks so. He says it wasn’t easy to get the idea through the Securities and Exchange Commission (SEC), given that it’s a “first-of-its-kind ETF,” but they eventually approved it.

The fund’s full name is the Inverse Cramer Tracker ETF, ticker: SJIM.

The ETF will operate on a long-short basis, taking the opposite side of whatever trade Cramer proposes. Tuttle explains that their work starts at 8:45 am when they monitor his first TV appearances for specific markets bets, and they continue monitoring his tweets throughout the day and then his show Mad Money, which airs after markets close.

Tuttle says they look for instances where Cramer tells audiences to “buy, buy, buy” a stock, to which the ETF would respond by going short the stock “at the next practical moment.”

It’s a massive amount of work, with a team of three people dedicated to tracking Cramer’s bets.