Card Games, Retail Investors, and IRS Refunds

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Card Games, Retail Investors, and IRS Refunds

We have 3 “regular” Data Items to share today, but we want to start with something remarkable we recently heard on Quanta Magazine’s podcast “The Joy of X”. Quanta is a product of Jim Simons’ foundation, so we keep track of everything they write or produce. If it’s good enough for a chain-smoking quant billionaire, it’s certainly good enough for us.

#1: Chances are you have a well-worn pack of cards somewhere in your house, and it is a perfect example of how something prosaic can also be profoundly complex. Believe it or not, the order of that deck is likely entirely unique, unlike every other deck of well-shuffled cards anywhere on the planet and different from any deck of cards ever used in history.

There’s a link below from McGill University with an explanation of the math, but the title sums it up nicely: “There are more ways to arrange a deck of cards than there are atoms on Earth”. The exact number of combinations: 8, followed by 67 zeros, plus or minus a few million. Moreover, it doesn’t take that many shuffles to get a unique deck. The McGill folks recommend 7 full shuffles, but after that tedious process you’re holding something that’s never existed before and will never exist again.

Takeaway: it doesn’t take a lot of variables to make a near-infinitely complex environment, something we’re reminded of daily when looking at capital markets.

Now, on to the usual Data section content…

#2: There’s a lot of chatter about a meaningful pullback coming/starting in US equities, but those calls need to acknowledge that retail investors 1) are very engaged with the current market and 2) are “better to buy”, as old-time block traders used to say.

This is a Google Trends US query volume chart for the search term “buy stock” from the start of 2018 through last week. Prior to the Pandemic Crisis, it is a dull, flat line. The first peak was March 2020 (nice entry point). The second was late January 2021 (the lows for the year so far). As you can see, interest is picking up again now.

Takeaway: while we’re sympathetic to calls for a correction here, retail money flows may well limit just how much of a drawdown we really see.

#3: We are still bird-dogging the topic of inflation and got to wondering about the simplest of all Google searches related to this topic: appending the word “cheap” to your query.

Here’s the Google Trends search volume data for queries that include the word “cheap” back to the start of 2019. The highlight box is the same week as now, but from 2019. The current reading is 85, 4 percent higher than April 2019. Interest in “cheap” goods and services troughed twice last year – late March and early November – but are now clearly starting to run ahead of 2019, pre-pandemic levels.

Takeaway: a little inflation is a good thing in that it keeps consumers focused on buying today rather than paying more later, and this chart shows we’re at “healthy” (i.e., pre-pandemic) levels of inflation awareness.

#4: US tax refund season is catching up to last year, finally. With a one month filing extension past the customary April 15th deadline, individual filers had more time to submit their returns. The result is that we’re only now closing the gap to last year’s refund payments.

For the week ending April 9th, the total amount refunded by the IRS for the 2020 tax year is only down 11.2 percent versus 2019 ($196 billion now, $220 bn then). This is materially better than the prior week (April 2nd), when the refund amount comp was -15.4 pct, or the week before (March 26th) with a -19.4 pct comp.

Takeaway: tax refunds are very important to many US consumers, who typically use these payments to reduce credit card debt incurred during the prior Holiday shopping season. With credit card debt already under control (as described in our Markets section of our full report) these payments, which are averaging $2,888/household this year, provide further fuel for a recovery in American consumer spending.

Sources:

McGill piece on unique card decks: https://www.mcgill.ca/oss/article/did-you-know-infographics/there-are-more-ways-arrange-deck-cards-there-are-atoms-earth

IRS Refund Data: https://www.irs.gov/newsroom/filing-season-statistics-by-year