Wednesday Morning Reads
- Diminished Future
- Why We Don’t Believe the Big City Obituary
- The Burger Flipper Who Became a World Expert
- U.S. Mint Still Rationing Silver
- Reddit Trading Frenzy Fades
- Mark Cuban - Hold ‘If You Can Afford to’
- Robinhood’s C.E.O. Is in the Hot Seat
- Are Private Messaging Apps Next
- Ant Reaches Agreement
- YOLO Gambling is Reckless
- De-Grossing and the Butterfly Effect
- How The “Dumb” Money Won
Amazon (NASDAQ:AMZN) posted record revenues of more than $125B for the fourth quarter after the closing bell on Tuesday, up a whopping 44% Y/Y on holiday and pandemic-driven demand, but the biggest news wasn't the ringing of the register. CEO Jeff Bezos said he would step aside later this year, though he would remain engaged at Amazon as executive chairman. Andy Jassy, the head of the company's cloud division, will take the helm of the e-commerce giant in the third quarter.
Although Bezos' departure was announced last year, Amazon consumer boss Jeff Wilke officially made his exit last month and was considered the number two at the company. Jassy is also an Amazon veteran (he's been with Bezos since 1997) and was the architect of Amazon Web Services, which is how Amazon makes most of its money. In the most recent quarter, AWS had net sales of $12.7B with an operating income of $3.6B, more than half of the firm's overall operating income. AWS also has a market share of around 34%, according to Synergy Research Group.
Why is Bezos taking a back seat? "Being the CEO of Amazon is a deep responsibility, and it's consuming,” he declared, saying it was time to focus on some of his passion projects and philanthropic ventures. Those include The Washington Post newspaper and private space company Blue Origin (BORGN), as well as his Day One Fund and the Bezos Earth Fund. Bezos, aged 57, founded Amazon from his garage in Seattle in 1994, eventually expanding the company to dominate industries like online retail, groceries, streaming, cloud computing and artificial intelligence.
Outlook: Trading volatility was seen after-hours, before Amazon shares ended the session slightly lower, as investors digested the news. Amazon also said sales in Q1 would be between $100B-$106B, a slowdown from the fourth quarter, but an increase of between 33% and 40% from a year earlier, and expects coronavirus-related costs to decelerate after several months of heavy investments. Amazon additionally revealed the design of its 350-foot-tall "HQ2" in Virginia, which features spiraling outdoor walkways and was dubbed the Helix. (252 comments)
U.S. stock index futures are moving into the green for a third day, powered by strong tech earnings, stimulus progress and a broader vaccine rollout. Nasdaq is leading the pack, with contracts linked to the index ahead by 0.7%, on strong quarterly results from Amazon and Google. While CEO Jeff Bezos said he would step down, leading AMZN shares to decline modestly, Alphabet (GOOG, GOOGL) soared over 7% AH. The tech giant blew through forecasts with an ad spending recovery, and broke out operating income from its cloud business for the first time, with a loss that showed the business is still in investment mode.
Other happenings: The White House confirmed plans to hike weekly vaccine supplies to 11.5M doses, distributing doses directly to up to 40,000 pharmacies. Over in the Senate, the chamber voted 50 to 49 in a straight party-line decision to begin the budget reconciliation process, which would open the door for Democrats to push through the COVID rescue package on their own. The move would avoid the filibuster that requires 60 votes for most legislation, although President Biden did meet with a group of Republican senators on Monday and expressed willingness to agree to some modifications.
Funds also appear to be flowing back into traditional names, with meme stocks losing a total of $167B in market capitalization following another brutal selloff on Tuesday. Things aren't looking better premarket: GameStop (NYSE:GME) -5%; AMC Entertainment (NYSE:AMC) -5%; BlackBerry (NYSE:BB) -4%.
What's next for the WSB/Reddit crowd? Barstool Sports founder Dave Portnoy pulled out of the trade yesterday with a $700K loss, though others like Mark Cuban aren't convinced the action has run its course. What seems to be the biggest problem is the collective unity needed to band together retail traders on an anonymous platform. Once rumors get out, users become suspicious of each other or bail on a stock, a trade can break down within a session. (16 comments)
Although the "meme stock" trade continues to unwind, discussions over market volatility continue to ensue. Treasury Secretary Janet Yellen has called a meeting with the SEC, the Federal Reserve Board, the Federal Reserve Bank of New York and the Commodity Futures Trading Commission to address the recent market frenzy involving GameStop (NYSE:GME) and Robinhood. This comes after the SEC said it was investigating "manipulative trading activity," as well as actions taken to "unduly inhibit the ability to trade certain securities."
Fine print: Yellen has requested an ethics waiver to hold the meeting after receiving more than $700,000 in speaking fees from Citadel Advisors, the financial empire run by Ken Griffin. Griffin also runs a hedge fund and controls Citadel Securities, a market maker that executes trades for Robinhood.
What could happen? Likely nothing, but if the SEC were to act, it could pursue a series of rules, ranging from short interest caps to taxing short-term bets, according to BofA analyst Michael Carrier. The commission may also move to review payment for order flows (PFOF) and pursue social media oversight to ward off potential market manipulation. Jefferies analyst Daniel Fannon meanwhile thinks the SEC could explore greater investor education around derivatives and risk management or increase costs for leverage services.
This is all taking place while the SEC operates under temporary leadership. The eventual confirmation of Gary Gensler, President Biden's pick for the agency, is a virtual certainty, but it could take weeks or months for the Senate to approve him. Right now, the chamber is focusing on Biden's cabinet-level nominations, coronavirus relief and a possible impeachment trial for President Trump. (88 comments)
A topic that has gotten lots of attention on Wall Street over the last few days is a requirement that stocks be physically deposited in an account within two days of making a transaction - a process known as "T+2." During that time, brokers have to post collateral to the Depository Trust & Clearing Corp. because equity prices can fluctuate over those 48 hours, and the lag can make sure everything turns out alright. Some buyers are also using margin and sellers can be tapping borrowed shares, so the requirement could help prevent brokers from getting burned before the transactions settle.
Backdrop: For many years, markets operated on a "T+5" settlement cycle, when security transactions were done manually. In the 1990s, the SEC shortened the settlement cycle to three business days, which reduced the amount of money that needed to be collected at any given time. It was only in 2017 that the commission moved to T+2, calling the previous standard an outdated "settlement cycle" due to improvements in technology, emerging new products and growing trading volumes.
Latest argument: Given our current lightning-fast systems, many market participants say two days is too long to settle trades. "Moving the industry closer to T+1 settlement is good for everyone because the less risk we maintain in the system, the better off everyone is," said Shane Swanson, former director of equity market structure at Citadel Securities. Some are even calling for instant settlement, like Robinhood (RBNHD) CEO Vlad Tenev, who had to put up some big funds this week to cover the trading frenzy on his platform.
"There is no reason why the greatest financial system the world has ever seen cannot settle trades in real time. Doing so would greatly mitigate the risk that such processing poses," Tenev wrote in a blog post. "Technology is the answer, not the oft-cited impediment. We believe it is important for all relevant stakeholders to convene in the near term to discuss the urgency and necessity of this issue."
What else is happening...
Mario Draghi may be Italy's next prime minister.
In Asia, Japan +1%. Hong Kong +0.2%. China -0.5%. India +0.9%.
In Europe, at midday, London +0.1%. Paris +0.3%. Frankfurt +0.7%.
Futures at 6:20, Dow +0.1%. S&P +0.4%. Nasdaq +0.7%. Crude +0.6% to $55.08. Gold +0.1% at $1836. Bitcoin +3.2% to $36041.
Ten-year Treasury Yield +1 bps to 1.11%
Today's Economic Calendar
7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
8:30 Fed's Kashkari Speech
9:45 PMI Composite Final
10:00 ISM Service Index
10:30 EIA Petroleum Inventories
1:00 PM Fed's Bullard: U.S. Monetary and Economic Policy
2:00 PM Fed's Harker Speech
5:00 PM Fed's Mester Speech
5:00 PM Fed's Evans: U.S. Economic Conditions and Monetary Policy
6:05 PM Fed's Kaplan Speech