Friday Morning Reads
- Electric Vehicle Agenda
- Zero-Emission Vehicles by 2035
- ‘Populist’ Trading Movement
- The GameStop Reckoning
- Robinhood, in Need of Cash
- Bitcoin Jumps Above $38,000
- Dogecoin Soars 370%
- Facebook Stock Falls
- New Billionaire Mints Fortune From Humble Lockers
- Is this Legal?
- How Does the GameStop Saga End?
- Retail Abandons GameStop ($GME)
The retail trading world is outraged at the trading limits imposed by Robinhood (RBNHD) and other brokerages yesterday, and questions are circling about the protections that should be in place for investors. While Robinhood cited clearing house requirements as reasons for the stoppage, it also said "these requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously." Users were only permitted to close positions, leading the stocks to sell off during yesterday's session. As the brokerage looks to reopen the trades today (see below), many of the WSB/Reddit plays are soaring again in premarket trade: AAL +12%, AMC +57%, BB +17%, BBBY +15%, CTRM +24%, EXPR +43%, GME +104%, KOSS +102%, NAKD +41%, NOK +9%, SNDL +12%, TR +8%, TRVG +14%.
Investors and policymakers alike lambasted the trading limits, including Dave Portnoy, Alexandria Ocasio-Cortez and Ted Cruz, accusing the trading platform of seeking to protect Wall Street's interests at the expense of smaller investors. "We need an SEC that has clear rules about market manipulation and then has the backbone to get in and enforce those rules," added Sen. Elizabeth Warren, a longtime critic of Wall Street. "You’ve got to have a cop on the beat."
How should market manipulation be defined? We're also talking about public markets here, where every share is only worth as much as people are prepared to pay for it - regardless of the fundamentals of the company. Regulators can't pick and choose which market participants are able to play in the market or the value of healthy share prices (or can they?). The pros are also going to have to get a whole lot smarter on how they take bets against companies if an army of day traders can be rallied within hours to make that bet go wrong.
Thought bubble: Should a hedge fund be able to get 10x leverage and short 140% of a company in a healthy market? Should mob and herd mentality of rolling into stocks be curbed? Regulators may want to step in on both sides, but government bodies may also be fueling the bubble. Easy money policies from the Fed have also driven consumers out of savings accounts and CDs, encouraging riskier behavior and flows into related products. (117 comments)
The NYT reported overnight that Robinhood (RBNHD) drew on credit lines of $500M-$600M to meet lending requirements and separately raised $1B in emergency funding to avoid having to place further limits on trades (just hours after saying there was "no liquidity problem"). It's a significant amount of money for a firm that was valued at about $12B just a few months ago, as users take their money elsewhere. "We pulled those credit lines so that we could maximize within reason the funds we have to deposit at the clearing houses," CEO Vlad Tenev declared, saying Robinhood will allow limited buys today of previously halted plays like GameStop (NYSE:GME) and AMC (NYSE:AMC), but will "continue to monitor the situation and make adjustments as needed."
Quote: "As a brokerage firm, we have many financial requirements, including SEC net capital obligations and clearinghouse deposits," Robinhood continued in a blog post. "Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment. These requirements exist to protect investors and the markets and we take our responsibilities to comply with them seriously, including through the measures we have taken today."
Other brokerages appear to be giving similar reasons for the Thursday halt, attributing growing financial pressure vs. the shadowy motivations claimed by the retail bros. "This has to do with settlement mechanics of the market," Webull CEO Anthony Denier told Yahoo Finance. "It wasn't our choice. Our clearing firm gave us a call and said we're going to have to stop allowing you from opening positions due to high volatility. It takes two whole days for brokerages to fund trades with central clearing houses, and because of the volatility of these stocks, the clearing houses have made the cost of collateral for the holding period extremely expensive. We also cannot use customer funds to front that cost due to regulation."
Bottom line: The entire system needs more transparency. Robinhood allows free trades through a practice called payment for order flow, or PFOF, which sends customer orders to high frequency traders like Citadel in exchange for cash. Orders may also be filled at a slightly lower price (often pennies) than buying the same shares on a public exchange. While that may have enabled the commissions-free revolution that led retail investors into the market, it has also led to a moment of reckoning over how healthy public markets should work and function. (99 comments)
General Motors (NYSE:GM) has been rallying strong since its CES appearance earlier this month, and now the automaker wants to end production of all diesel and gasoline-powered cars, trucks and SUVs by 2035. Not only that, but the company upped its goals for becoming carbon neutral in both its global products and operations. GM plans to use 100% renewable energy to power its U.S. facilities by 2030 and in global facilities by 2035, which is a timeline ahead of its original target.
Bigger picture: GM already announced it would invest $27B in electric and autonomous vehicles in the next five years, a 35% increase over plans made before the pandemic, as it attempts to bring 30 EV models to market by 2025. The new focus will be offering zero-emissions vehicles across a range of price points and working with all stakeholders to build out the necessary charging infrastructure and promote consumer acceptance. It comes after President Biden signed a series of executive orders this week that prioritize climate change, including the replacement of the government's fleet of almost 650,000 vehicles with all-electric models produced in the U.S.
Analyst commentary: "With battery technology the linchpin, GM says its battery technology will allow electric cars to travel 400 miles on a single charge without compromising driving performance which would exceed Tesla's (NASDAQ:TSLA) projected range for its Model 3," wrote Wedbush analyst Dan Ives. "In our opinion this is a very bullish signal for the EV sector domestically and we believe is a shot across the bow at Tesla and other EV players that GM will be aggressively going after EVs and is not just talking the talk with this latest news. With the Biden Green Agenda on the horizon, we believe other automakers could follow GM's lead domestically with Tesla continuing to run away with market share in this EV arms race." (115 comments)
In a move that could turn WeWork (WE) into a publicly traded company more than a year after its IPO fail, the office leasing company is in talks to combine with a SPAC, WSJ reports. A deal could value the firm at $10B, but it's not known whether that amount includes debt assumed. Bill Ackman, whose Pershing Square Tontine Holdings (PSTH) raised $4B last year, has pointed out that failed IPOs like WeWork is the reason he chose to form a SPAC, but the company has also received offers for private investment rounds and could choose to stay private instead.
Backdrop: After filing IPO paperwork back in August 2019, WeWork faced intense scrutiny of its finances and leadership from investors and the media. A month later, the firm put its IPO on ice, CEO and co-founder Adam Neumann resigned, while SoftBank (OTCPK:SFTBY) - WeWork's biggest investor - took control of the company. The office space provider's valuation was then cut to as low as $10B from $47B. However, in the last year, WeWork has made changes to its corporate governance, announced large staff cuts and instituted a massive cost-cutting drive as it targets positive cash flow in 2021.
Outlook: As companies keenly await COVID-19 vaccines that promise to return staff to the office, a recent survey from the Pew Research Center suggests that won't be so easy. More than half of U.S. employees currently working from home say they'd like to keep their remote arrangements beyond the pandemic, and one-third of those surveyed said they want the option to telework at least sometimes. The transition to remote work could increase the appeal of WeWork's pitch to companies that want satellite offices for their workers or want space available just a few days per week. (18 comments)
What else is happening...
Thursday's Key Earnings
Altria (NYSE:MO) +2% with smokeable product volumes up 3.3%.
American Airlines (NASDAQ:AAL) +9.3% on improved earnings, short squeeze factors.
McDonald's (NYSE:MCD) -0.1% as global comparable sales stayed negative.
Mastercard (NYSE:MA) +2.8% after beating consensus estimates.
Visa (NYSE:V) +1% AH on payments volume, transactions growth.
In Asia, Japan -1.9%. Hong Kong -0.9%. China -0.6%. India -1.3%.
In Europe, at midday, London -1%. Paris -1%. Frankfurt -0.9%.
Futures at 6:20, Dow -0.8%. S&P -1%. Nasdaq -1.2%. Crude +0.3% to $52.49. Gold +1.1% at $1860.90. Bitcoin +16% to $36642.
Ten-year Treasury Yield +2 bps to 1.08%
Today's Economic Calendar
8:30 Personal Income and Outlays
8:30 Employment Cost Index
9:45 Chicago PMI
10:00 Pending Home Sales
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
1:00 PM Fed's Kaplan Speech
3:00 PM Farm Prices
4:00 PM Fed's Kaplan Speech
5:25 PM Fed's Kaplan Speech