Trump's Volatile Tweets

In today's newsletter we discuss the newly minted Volfefe Index that tracks how Trump's tweets impact stock markets and, PayTM's plans (allegedly) to acquire stake in the troubled Yes Bank.

An Uncertain Endeavor

So there are a lot of things that can affect an investor’s future expectations. Political tensions, Economic prospects, you name it, they all make their way into an investor's mind map. Which is why when you see stock price movements, you almost always see a jagged zigzagging line that hardly produces recurring patterns, because they've got to take into account so many variables at the end of it all.

Sometimes the ups and downs are more pronounced especially if there is political and economic turmoil in the country. Other times not as much.

So when Trump became president most people knew that the "Trump Factor" could add more uncertainty to the mix.

However, nobody ever went out of their way to prove it. Until, of course the JP Morgan study came about, where they confirmed that Trump’s tweets do in fact move the markets.

We are not talking about individual stocks here. We are talking about governments, in particular, government bonds. Most people invest in the government because of the relative safety it offers. However, when you don’t think the government (more like, the country) is likely to do as well in the near future, those expectations change and you see changes in the government bond prices as well.

The Volfefe index tries to see if these changes are more pronounced after Trump tweets from his account. And sure enough, they found that it does.

Now besides the obvious absurdity of it all, it prods us to ask an ever deeper question.

Can we ever know if Trump is serious or not? I mean he recently tweeted out that he was willing to buy Greenland.

Is that supposed to be a joke? Or is it a serious policy consideration? What if he tweets saying he’s going to nuke a country tomorrow? What happens then? Do we take it at face value or do we not?

And that is why perhaps people are unsure. And when uncertainty creeps into the minds of investors, volatility immediately follows.

Hence the name Volfefe. Vol for Volatility, Fefe from the famous tweet when Trump coined the word covfefe

PayTM's new ambitions?

A day after news broke that PayTM (One97 Communication) made losses to the tune of ~ Rs. 4200 Cr , news started pouring in that Vijay Shekhar Sharma was also planning to buy stake in Yes Bank.

The story goes that one of the largest stakeholders in Yes Bank, their co-founder Rana Kapoor wants to exit the company. This move comes after he publicly tweeted last year that his shares in Yes Bank were like diamonds and he had no plans to sell them, ever.

Because, you know, diamonds are forever.

Anyway, we are not quite sure what changed. One possibility is that Yes Bank continues to lose money after somehow having managed to lend money to a lot of institutions that don't have the capacity to pay back. Another rumor is that he simply wants out. I mean, you wouldn't want to stay in a sinking ship now would you?

It's possible. But nonetheless, news media is currently reporting that Rana Kapoor has already had a round of talks with Vijay Shekhar Sharma and a potential stake sale is on the cards.

That's right folks. We are now at a point when the owner of a fin-tech company is allegedly planning to invest in a full fledged commercial bank.

For starters, this is perhaps the only way PayTM,  gets access to a banking license, because you can't buy one off the market whenever you feel like it. Getting hold of a commercial banking license can be an extremely tedious endeavor.

Also it makes sense because PayTMs ambitions aren't just limited to being an e-commerce platform. They are already a payment's bank. But buying a part of Yes Bank will allow them to go the full mile. i.e. a true digital bank that can offer the full range of services including wealth management, mutual funds, deposit accounts, loans etc etc.

The regulations might be a pain for a while, especially considering all this will need the explicit blessing from the RBI. But this could potentially be a game changer for PayTM, if everything goes through.

Also, there is all this talk about PayTM going for an IPO in a couple years.

So maybe, come IPO time, when PayTM asks the Indian public to invest in the company they will not only have a digital business in tow, but a more traditional business as well. It could get a whole lot more people excited about its prospects?

Maybe, Maybe not. We'll let you be the judge of that.

Tweet of the Day

After the Finance Minister Nirmala Sitharaman stated that the auto slowdown could be attributed to millennials opting to use Ola and Uber, as opposed to buying vehicles, Twiterrati was up in arms castigating the honorable Finance Minister for her comments. And some very interesting tweets followed soon after.

Anyway, that's it from us today. We will see you tomorrow. Until then...