We have often (here and here) written about the notion that brokerage houses - especially Robinhood - are seeing a boom during the pandemic as a result of the Fed sending out "free money" to unemployed U.S. citizens who then, instead of going out and looking for a job, sit at home and try to become professional daytraders by downloading the Robinhood app and pouring all of their cash into Tesla call options.
On Tuesday of this week, Robinhood Co-Founder and Co-CEO Vlad Tenev sat down with Aaron Ross-Sorkin for an exclusive interview to talk all things "state of the union" with both the markets, and the Robinhood app. During the interview, he seemed to confirm that the Fed has been a major tailwind for the company.
When Aaron Ross-Sorkin asked him about the idea of "gamifying investing" and Lee Cooperman's assessment that the Fed stimulus checks would "end in tears", Tenev responded by recognizing the effect of the Fed's measures as "an opportunity for investors".
"It appears to be the case that the Fed has determined that it's important to maintain the stability of the markets and support the markets and the economy by lowering rates and delivering stimulus checks to people on an individual basis," Tenev said.
He continued: "Which has, you know, in history been an unprecedented act. So the government is stepping in and doing aggressive actions to maintain the sanctity of the economy and the markets. And I do think, from a macro level that's an opportunity for investors."
Tenev then admitted that Robinhood was literally watching users deposit their stimulus checks: "We saw an impact of people depositing their stimulus checks into Robinhood. We saw, you know, deposits that were equal to or multiples of the stimulus amount."
When Sorkin asked about whether or not that concerned Robinhood, especially given that many of these people are unemployed, Tenev responded by tacitly encouraging it: "I think there’s been a little bit of a shift in mindset. Investing and the ability to invest I think now that the barriers are lower, allowing so many more young people to participate it’s clear to people that it’s not just for the wealthy. And I think what you’re seeing now is sort of a cultural relevance ascribed to investing that hasn’t been there before."
He continued: "...our belief is, the more we lower the barriers to entry, the more we level the playing field and allow people to invest their money at a younger age. The better off our economy will be and the better off society will be because we kind of live in the intersection of capitalism, democracy and innovation. And I think that it’s a very interesting place to be in."
Tenev also said that many Robinhood users see the election volatility (along with literally any other dip in the market for any reason, including the end of the world as we know it) as a reason to "buy the dip". He told Ross-Sorkin: "What we’ve seen is they typically see volatility and market downturns as buying opportunities just because they’re at the beginning of their investing journey and think they recognize that there’s many, many decades for things to smoothen out in front of them."
What he means, of course, is that they have been conditioned by Central Banks to believe the market only goes up.
Tenev continued, making excuses for investors poor decisions: "In terms of volatility, we have to be prepared for anything. It certainly would not be a surprise to see greater volatility heading up to the election and the weeks and months afterward. So we’ve been investing more in terms of making sure our processes are really solid. And we’re taking a look at things like margin and margin requirements for different securities. We’re also continuing to invest in the scalability and reliability and redundancy of our systems."
Tenev also ducked a question of how Robinhood gets such great terms for its payment for order flow.
"But it looks like, from my math, you’re doing better. I mean, Robinhood makes more money on a pay for order flow than your rivals. Can you explain what that deal is and how that is the case?" Ross-Sorkin asks, as one point.
Tenev responded: "It’s a standard, regulated practice across the industry. And it is a revenue stream that Robinhood has – one of several revenue streams. And as we continue to roll out more products, including our debit card, we’ll get access to more revenue streams for the business as time goes on."
You can read the full transcript of the interview here.