Stocks are little changed Tuesday morning as Wall Street prepares for the heart of the corporate earnings season.
Stocks are little changed Tuesday morning as Wall Street prepares for the heart of the corporate earnings season.
Tesla shares are down by more than 35% from yearly highs.
The data is being provided by a Kraken unit.
(Bloomberg) -- Empresa Electrica Guacolda SA’s bonds jumped the most in more than a month after Grupo WEG said it will honor commitments previously made to creditors after it acquires AES Gener’s stake in the coal-fired power producer.Guacolda’s $500 million of notes due in 2025 rose 3.4 cents on the dollar Friday to 80 cents, according to Trace trading data. Yields fell to 10.7%, a drop of about 200 basis points from highs hit this week.WEG, a Santiago-based investment firm, signed a contract on Feb. 23 to buy the 50% stake from co-owner AES Gener, a Chilean energy giant that is selling as part of its plan to cut carbon emissions. Guacolda operates coal-burning power plants in the Atacama region in northern Chile.The price of the company’s bonds had slumped amid concerns that the deal, which requires regulatory approval, would leave bondholders without assurances that WEG would honor certain financial commitments.Read more: Chile coal plant debt falls to distressed on AES stake sale However, in an email response to questions Friday, WEG said it will comply with previously signed commitments “including those relating to the bond issued at the time in the North American market.”Once the sale is completed, WEG said it will also sign on to the Chilean government’s national de-carbonization agreement and work to develop the plant as the country goes through an energy transition process.“These Guacolda bonds were structured as stand-alone with minimal restrictions on dividends, so that means that yes, the intentions of the new shareholders are what matters,” said Roger Horn, a senior strategist at SMBC Nikko Securities America in New York.(Adds strategist comment in last paragraph, updates pricing in second paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- The Bank of Japan’s head-scratching surge this week came to a halt on Friday, as the stock erased intraday gains to fall by its limit.The shares sank 19%, the most since December 1991, after rising by the daily limit in each of the four previous sessions.The volatile moves in the shares, or subscription certificates as the BOJ refers to them, has baffled market participants. While the BOJ is unusual in being a listed central bank, the stock pays a tiny dividend and holds no voting rights. In fact, the central bank doesn’t even hold shareholders’ meetings. The stock traded at an all-time low just in January.Usually little noticed or commented on, the central bank’s stock became a topic of conversation in parliament on Friday, where BOJ Governor Haruhiko Kuroda was delivering his semi-annual report on currency and monetary control.“The Bank of Japan’s subscription certificates are completely different from the normal shares of listed companies,” Kuroda said in response to a question about the long-term decline in the stock price during his time as governor. Unlike a normal stock, he said, the share price doesn’t reflect profits or the state of its balance sheet. “The price is not the responsibility of the bank.”Speculative MovesWhile technically a listed entity on the Tokyo Stock Exchange’s Jasdaq, the nature of the stock and its speculative moves are a long-standing mystery of Japan’s financial markets. A speculative surge was also witnessed in late 2012 and early 2013, when optimism over the Abenomics program of former Prime Minister Shinzo Abe was at its peak.“This isn’t a stock you can evaluate based on fundamentals,” Tomoichiro Kubota, a senior market analyst at Matsui Securities Co., said. “Seeing the BOJ stock dive like today, it looks like the upward climb is done for now.”The government holds a 55% stake, while individual investors have 40%. The subscription certificates can’t be bought at online securities firms, as they weren’t subject to the 2009 digitalization of traditional paper stock certificates. It’s the only issue for which Japan Securities Clearing Corp., the entity that clears transactions for all equities in the country, still requires physical delivery of paper certificates, which remain valid even now.This week’s short-lived rally comes after the Nikkei 225 Stock Average briefly touched its highest levels since the bubble era of the 1980s. In those days, when the benchmark traded at around 70 times earnings, some investors collected BOJ’s stock and framed their certificates as a collectible which were then worth 745,000 yen ($6,874) apiece.The moves have come ahead of a closely-watched policy review by the central bank on March 19, which may lead to changes in how it buys exchange-traded funds -- because as well as being listed, the BOJ is itself the largest single owner of Japanese shares.(Updates with closing price, quote in the seventh paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- More than a third of Australian homeowners are planning to sell in the next five years, according to a report by Westpac Banking Corp., as they look to cash in on a booming market driven by low mortgage rates and an improving economy.The report showed 35% of households surveyed were considering selling, more than double the amount seen prior to the pandemic. More than one in ten were already in the process of putting their property on the market, or planning to do so in the next twelve months.“It is absolutely a seller’s market at the moment,” Matt Hassan, a senior economist at Westpac, said in a media release. “The research suggests the situation will rebalance in coming months as more sellers come onto the market, however demand is still expected to remain strong, driving a sustained lift in prices this year and next.”Australia’s housing market in February posted its biggest monthly price gain in 17 years, dispelling fears of a Covid-induced downturn. Economists think the gains can continue: Goldman Sachs Group Inc. said Friday that prices will rise 10% this year, fueled by low interest rates and improved sentiment, although the bank also noted there are risks ahead including a potentially more hawkish Reserve Bank.The Westpac report also pointed to lingering caution, with 51% of respondents saying they’re actively holding off from listing their property straight away, while 66% said high moving costs were a big barrier to selling.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
As U.S. technology shares stumble, investors are debating whether the decline is an opportunity to scoop up bargains or a sign of more pain to come for stocks that have led markets higher for years. The Nasdaq Composite, an index heavily populated by tech and growth names, has slumped 8.3% since its Feb 12 closing record, over three times the decline for the S&P 500. Drops in popular growth stocks have been even steeper, with Tesla shares off 27% and Peloton down 32%.
(Bloomberg) -- Aggreko Plc, one of the world’s biggest suppliers of portable power generators, accepted a 2.3 billion-pound ($3.2 billion) bid from a private equity consortium.TDR Capital and I Squared Capital agreed to buy the business for 880 pence per share in cash, London-listed Aggreko said in a statement. The price represents a 39% premium to Aggreko’s closing price on Feb. 4, the day before their interest was first reported. The stock rose 1.8% to 905 pence shortly after the open of regular trading Friday.Aggreko offers rentals of power, heating and cooling equipment to clients in the energy, refining, construction and events industries. It has provided generators to the Glastonbury Festival, Britain’s marquee music event, as well as the 2018 Winter Olympic Games in South Korea.Bloomberg News reported Thursday that the private equity firms were nearing a firm offer for Aggreko following weeks of negotiations. Platinum Equity has also made a preliminary approach to Aggreko, though its interest was seen as less likely to translate into a deal, people with knowledge of the matter said.TDR and I Squared’s offer for Aggreko is in-line with expectations and unlikely to see competing bids, Andrew Nussey, a Peel Hunt analyst, wrote in a note. The acquisition is expected to be completed in the summer of this year.Bargain HuntingPrivate equity firms have been hunting for bargains among listed companies in the U.K. Blackstone Group Inc. and Global Infrastructure Partners teamed up last month on a deal to buy Signature Aviation Plc, an operator of private-jet bases, for $4.7 billion. Allied Universal Security Services LLC, which is backed by Warburg Pincus, has offered to take over British security firm G4S Plc for 3.8 billion pounds.TDR has been particularly active. It completed an acquisition last month of a controlling stake in Walmart’s U.K. grocery arm, Asda Group Ltd., together with Britain’s Issa brothers. In February, it approached Arrow Global Group Plc about a potential takeover bid valuing the London-listed alternative investment group at more than 540 million pounds.Morgan Stanley, Barclays Plc, Deutsche Bank AG, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Bank of America Corp. are advising the private equity consortium. Aggreko is working with Centerview Partners, Citigroup Inc. and Jefferies Financial Group Inc.Barclays, Bank of America, Deutsche Bank, Goldman Sachs and Banco Santander SA are helping arrange debt to fund the transaction.(Updates with shares trading in the second paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Congress is nearing passage of the third economic stimulus check it will send out to you and other taxpayers as part of its Covid-19 relief bill.
The bill that passed the Senate makes payments harder to get. Your tax return might help.
(Bloomberg) -- Regulators kicked off the final countdown for the London interbank offered rate Friday, ordering banks to be ready for the end of a much maligned benchmark that’s been at the heart of the international financial system for decades.The U.K. Financial Conduct Authority confirmed that the final fixings for most rates will take place at end of this year, with just a few key dollar tenors set to linger for a further 18 months.The move comes in the wake of major manipulation scandals and the drying up of trading used to inform the rates, which are linked to everything from credit cards to leveraged loans. Global regulators have made a concerted effort to wind down the benchmark in 2021, with the Federal Reserve and others pushing market participants toward a slew of alternatives.“Outside the U.S. dollar markets, this marks the end game,” said Claude Brown, a partner at Reed Smith LLP in London. “The rate that linked the world, and then shocked the world, will leave this world in 2021.”Libor is deeply embedded in financial markets. Some $200 trillion of derivatives are tied to the U.S. dollar benchmark alone and most major global banks will spend more than $100 million this year preparing for the switch. Other players -- from corporations to hedge funds -- will also be affected, with many only beginning to shift from legacy contracts.Bank of England Governor Andrew Bailey said this was now the “final chapter,” and there’s no excuse for delays.The BOE will hold executives to account for progress in the transition under the U.K.’s regulatory regime for senior managers, according to people familiar with the matter. If firms fail to take appropriate steps, there is the potential for measures such as capital sanctions, though these would come further down the line.Progress toward replacement benchmarks, such as the Secured Overnight Financing Rate in the U.S. and the Tokyo Overnight Average Rate in Japan, has been sluggish, and there are hopes Friday’s announcement could accelerate the process -- particularly in the vast global derivatives market.“This was the much anticipated final piece of clarity the market needed to really kick on,” said Kari Hallgrimsson, co-head of EMEA rates at JPMorgan Chase & Co. “We would expect liquidity for trading the new rates to keep increasing from here on out.”Friday’s decision is a cessation event and locks in the benchmark’s fallback spread calculations, which for dollar Libor will be added to SOFR, the main U.S. replacement. Where firms have adhered to International Swaps and Derivatives Association’s Libor protocol, their contracts will automatically transition to replacement rates the moment Libor ends, avoiding a cliff-edge scenario.The delay in the most-used dollar Libor tenors -- notably the three-month benchmark -- is a concession to market concerns, but regulators remain adamant that dollar Libor shouldn’t be used for new contracts after 2021. Firms should expect further engagement from their supervisors to ensure timelines are met, the FCA warned.The Fed, for its part, is intensifying its scrutiny of banks’ efforts to shed their reliance on Libor, and has begun compiling more detailed evidence on their progress.“In the months ahead, supervisors will focus on ensuring that firms are managing the remaining transition risks,” said Randal Quarles, vice chair for supervision at the Federal Reserve Board and chair of the Financial Stability Board.While speculation about the announcement’s timing jolted the eurodollar market in December, the market reaction on Friday was subdued. The spread between June 2023 and September 2023 Eurodollars widened one basis point, as did the difference between December 2021 and March 2022 short sterling contracts.The FCA also detailed proposals to deal with the most troublesome loans and securitizations that can’t be switched to replacement rates. The regulator will consult on synthetic Libor -- which doesn’t rely on bank panel data -- for the sterling and yen benchmarks, and will continue to consider the case for using these powers for some dollar Libor settings.Worries are mounting that hundreds of billions of dollars of these legacy contracts will never be able to transition, even with the extension of certain dollar Libor tenors. This will present a key challenge to banks, regulators and lawmakers in the months ahead.“Some cash products have not embraced Libor and the clock is ticking loudly,” said Priya Misra, global head of interest rate strategy at TD Securities. “A lot of them will mature by June 2023, but there will be a lot left over after that.”What Analysts Are SayingGoldman Sachs Group Inc:“Today marks an extremely significant milestone in the multi-year global transition away from Libor,” said Jason Granet, chief Libor transition officer. “With full clarity on Libor’s endgame the market can now move forward towards a smooth and efficient transition.”Eigen Technologies Ltd:“At this late stage, pure human review and legal advice is going to be too slow and inaccurate, putting the financial firms and their counterparties at economic and conduct risk,” said Chief Executive Officer Lewis Liu. “The only way out of this now is through the rapid deployment of technology.”Linklaters:This is “expected to be based on a forward-looking term version of the relevant risk-free rate plus a fixed spread calculated over the same period and in the same way as the spread adjustment implemented in ISDA’s Ibor fallbacks,” said Phoebe Coutts, a capital markets lawyer. “It will also be interesting to see which legacy uses of synthetic Libor will be permitted by the FCA, as there has been some uncertainty around which products constitute ‘tough legacy’ products.”(Adds Fed comment in 13th paragraph, additional comments from analysts)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Wall Street ended sharply higher after a volatile session on Friday, with the Nasdaq rebounding at the end of a week that saw it extend losses to about 10% from its previous record high. All three main indexes bounced back from losses earlier in the day, with investors in recent sessions spooked by rising interest rates that offset optimism about an economic rebound. The benchmark 10-year U.S. Treasury yields hit a new one-year high of 1.626% after nonfarm payrolls increased by 379,000 jobs last month, blowing past a rise of 182,000 forecast by economists polled by Reuters.
To win Senate passage, Biden agreed to make millions ineligible for the third checks.
Never say that one person makes no difference. This past Thursday, stocks tumbled, bonds surged, and investors started taking inflationary risks seriously – all because one guy said what he thinks. Jerome Powell, chair of the Federal Reserve, held a press conference at which he gave both the good and the bad. He stated, again, his belief that the COVID vaccination program will allow a full reopening of the economy, and that we’ll see a resurgence in the job market. That’s the good news. The bad news, we’ll also likely see consumer prices go up in the short term – inflation. And when inflation starts rising, so do interest rates – and that’s when stocks typically slide. We’re not there yet, but the specter of it was enough this past week to put serious pressure on the stock markets. However, as the market retreat has pushed many stocks to rock-bottom prices, several Wall Street analysts believe that now may be the time to buy in. These analysts have identified three tickers whose current share prices land close to their 52-week lows. Noting that each is set to take back off on an upward trajectory, the analysts see an attractive entry point. Not to mention each has earned a Moderate or Strong Buy consensus rating, according to TipRanks database. Alteryx (AYX) We’ll start with Alteryx, an analytic software company based in California that takes advantage of the great changes brought by the information age. Data has become a commodity and an asset, and more than ever, companies now need the ability to collect, collate, sort, and analyze reams of raw information. This is exactly what Alteryx’s products allow, and the company has built on that need. In Q4, the company reported net income of 32 cents per share on $160.5 million in total revenues, beating consensus estimates. The company reported good news on the liquidity front, too, with $1 billion in cash available as of Dec 31, up 2.5% the prior year. In Q4, operating cash flow reached $58.5 million, crushing the year-before figure of $20.7 million. However, investors were wary of the lower-than-expected guidance. The company forecasted a range of between $104 million to $107 million in revenue, compared to $119 million analysts had expected. The stock tumbled 16% after the report. That was magnified by the general market turndown at the same time. Overall, AYX is down ~46% over the past 52 months. Yet, the recent sell-off could be an opportunity as the business remains sound amid these challenging times, according to 5-star analyst Daniel Ives, of Wedbush. “We still believe the company is well positioned to capture market share in the nearly ~$50B analytics, business intelligence, and data preparation market with its code-friendly end-to-end data prep and analytics platform once pandemic pressures subside…. The revenue beat was due to a product mix that tilted towards upfront revenue recognition, an improvement in churn rates and an improvement in customer spending trends," Ives opined. Ives’ comments back his Outperform (i.e. Buy) rating, and his $150 price target implies a one-year upside of 89% for the stock. (To watch Ives’ track record, click here) Overall, the 13 analyst recent reviews on Alteryx, breaking down to 10 Buys and 3 Holds, give the stock a Strong Buy analyst consensus rating. Shares are selling for $79.25 and have an average price target of $150.45. (See AYX stock analysis on TipRanks) Root, Inc. (ROOT) Switching over to the insurance sector, we’ll look at Root. This insurance company interacts with customers through its app, acting more like a tech company than a car insurance provider. But it works because the way customers interact with businesses is changing. Root also uses data analytics to set rates for customers, basing fees and premiums on measurable and measured metrics of how a customer actually drives. It’s a personalized version of car insurance, fit for the digital age. Root has also been expanding its model to the renters insurance market. Root has been trading publicly for just 4 months; the company IPO'd back in October, and it’s currently down 50% since it hit the markets. In its Q4 and Full-year 2020 results, Root showed solid gains in direct premiums, although the company still reports a net loss. For the quarter, the direct earnings premiums rose 30% year-over-year to $155 million. For all of 2020, that metric gained 71% to reach $605 million. The full-year net loss was $14.2 million. Truist's 5-star analyst Youssef Squali covers Root, and he sees the company maneuvering to preserve a favorable outlook this year and next. “ROOT's mgt continues to refine its growth strategy two quarters post IPO, and 4Q20 results/2021 outlook reflects such a process... They believe their stepped-up marketing investment should lead to accelerating policy count growth as the year progresses and provide a substantial tailwind heading into 2022. To us, this seems part of a deliberate strategy to marginally shift the balance between topline growth and profitability slightly more in favor of the latter,” Squali noted. Squali’s rating on the stock is a Buy, and his $24 price target suggests a 95% upside in the months ahead. (To watch Squali’s track record, click here) Shares in Root are selling for $12.30 each, and the average target of $22 indicates a possible upside of ~79% by year’s end. There are 5 reviews on record, including 3 to Buy and 2 to Hold, making the analyst consensus a Moderate Buy. (See ROOT stock analysis on TipRanks) Arco Platform, Ltd. (ARCE) The shift to online and remote work hasn’t just impacted the workplace. Around the world, schools and students have also had to adapt. Arco Platform is a Brazilian educational company offering content, technology, supplemental programs, and specialized services to school clients in Brazil. The company boasts over 5,400 schools on its client list, with programs and products in classrooms from kindergarten through high school – and over 405,000 students using Arco Platform learning tools. Arco will report 4Q20 and full year 2020 results later this month – but a look at the company’s November Q3 release is instructive. The company described 2020 as a “testament to the resilience of our business.” By the numbers, Arco reported strong revenue gains in 2020 – no surprise, considering the move to remote learning. Quarterly revenue of 208.7 million Brazilian reals (US$36.66 million) was up 196% year-over-year, while the top line for the first 9 months of the year, at 705.2 million reals (US$123.85 million) was up 117% yoy. Earnings for educational companies can vary through the school year, depending on the school vacation schedule. The third quarter is typically Arco’s worst of the year, with a net loss – and 2020 was no exception. But, the Q3 net loss was only 9 US cents per share – a huge improvement from the 53-cent loss reported in 3Q19. Mr. Market chopped off 38% of the company’s stock price over the past 12 months. One analyst, however, thinks this lower stock price could offer new investors an opportunity to get into ARCE on the cheap. Credit Suisse's Daniel Federle rates ARCE an Outperform (i.e. Buy) along with a $55 price target. This figure implies a 12-month upside potential of ~67%. (To watch Federle’s track record, click here) Federle is confident that the company is positioned for the next leg of growth, noting: "[The] company is structurally solid and moving in the right direction and... any eventual weak operating data point is macro related rather than any issue related to the company. We continue with the view that growth will return to its regular trajectory once COVID effects dissipate.” Turning to expansionary plans, Federle noted, “Arco mentioned that it is within their plans to launch a product focused on the B2C market, likely already in 2021. The product will be focused on offering courses (e.g. test preps) directly to students. It is important to note that this product will not be a substitute for learning systems, rather a complement. Potential success obtained in the B2C market is an upside risk to our estimates.” There are only two reviews on record for Arco, although both of them are Buys, making the analyst consensus here a Moderate Buy. Shares are trading for $33.73 and have an average price target of $51, which suggests a 51% upside from that level. (See ARCE stock analysis on TipRanks) To find good ideas for beaten-down stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights. Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
(Bloomberg) -- Elon Musk set records last year for one of the fastest streaks of wealth accumulation in history. The reversal is underway, and it’s steep.The Tesla Inc. chief executive officer lost $27 billion since Monday as shares of the automaker tumbled in the selloff of tech stocks. His $156.9 billion net worth still places him No. 2 on the Bloomberg Billionaires Index, but he’s now almost $20 billion behind Jeff Bezos, who he topped just last week as world’s richest person.Musk’s tumble only underscores the hard-to-fathom velocity of his ascent. Tesla shares soared 743% in 2020, boosting the value of his stake and unlocking billions of dollars in options through his historic “moonshot” compensation package.His gains accelerated into the new year. In January, he unseated Bezos as the world’s richest person. Musk’s fortune peaked later that month at $210 billion, according to the index, a ranking of the world’s 500 wealthiest people.Consistent quarterly profits, the election of President Joe Biden with his embrace of clean technologies and enthusiasm from retail investors fueled the company’s rise, but for some, its swelling valuation was emblematic of an unsustainable frothiness in tech. The Nasdaq 100 Index fell for the third straight week on Friday, its longest streak of declines since September.Bitcoin InvestmentMusk’s fortune hasn’t been solely subject to the forces buffeting the tech industry. His net worth has risen and slumped recently in tandem with the price of Bitcoin. Tesla disclosed last month it had added $1.5 billion of the cryptocurrency to its balance sheet. Musk’s fortune took a $15 billion hit two weeks later after he mused on twitter that the prices of Bitcoin and other cryptocurrencies “do seem high.”Extreme volatility has roiled many of the world’s biggest fortunes this year. Asia’s once-richest person, Chinese bottled-water tycoon Zhong Shanshan, relinquished the title to Indian billionaire Mukesh Ambani last month after losing more than $22 billion in a matter of days.Read more: Ambani Again Richest Asian as China’s Zhong Down $22 BillionQuicken Loans Inc. Chairman Dan Gilbert’s net worth surged by $25 billion on Monday after his mortgage lender Rocket Cos. was said to be the next target of Reddit day traders. His fortune has since fallen by almost $24 billion. Alphabet Inc. co-founders Sergey Brin and Larry Page are among the biggest gainers on the index this year. They’ve each added more than $13 billion to their fortunes since Jan. 1.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
(Bloomberg) -- It’s in the air again, on Reddit, in Congress, in the C-suite: Hedge funds that get rich off short-selling are the enemy. The odd thing is, the biggest players in the game are getting a pass.Those would be the asset managers, pension plans and sovereign wealth funds that provide the vast majority of securities used to take bearish positions. Without the likes of BlackRock Inc. and State Street Corp., the California Public Employees’ Retirement System and the Kuwait Investment Authority filling such an elemental role, investors such as Gabe Plotkin, whose Melvin Capital Management became a piñata for day traders in the GameStop Corp. saga, wouldn’t have shares to sell short.“Anytime we short a stock, we locate a borrow,” Plotkin said Feb. 18 at the House Financial Services Committee hearing on the GameStop short squeeze.There’s plenty to choose from. As of mid-2020, some $24 trillion of stocks and bonds were available for such borrowing, with $1.2 trillion in shares -- equal to a third of all hedge-fund assets -- actually out on loan, according to the International Securities Lending Association.It’s a situation that on the surface defies logic. Given the popular belief that short sellers create unjustified losses in some stocks, why would shareholders want to supply the ammunition for attacks against their investments? The explanation is fairly straight forward: By loaning out securities for a small fee plus interest, they can generate extra income that boosts returns. That’s key in an industry where fund managers are paid to beat benchmarks and especially valuable in a world of low yields.The trade-off is simple: For investors with large, diversified portfolios, a single stock plummeting under the weight of a short-selling campaign has little impact over the long run. And in the nearer term, the greater the number of aggregate bets against a stock -- the so-called short interest -- the higher the fee a lender can charge.In the case of GameStop, short interest was unusually high and shares on loan were generating an annualized return of 25% to 30%, Ken Griffin testified at the Feb. 18 hearing. Griffin operates a market maker, Citadel Securities, as well as Citadel, one of the world’s largest hedge funds.“Securities lending is a way for long holders to generate additional alpha,” said Nancy Allen of DataLend, which compiles data on securities financing. “Originally, it was a way to cover costs, but over the last 10 to 15 years it’s become an investment function.”Not everyone is comfortable with the inherent conflict. In December 2019, Japan’s $1.6 trillion Government Pension Investment Fund stopped lending its international stock holdings to short sellers, calling the practice inconsistent with its responsibilities as a fiduciary. At the time, the decision cost GPIF about $100 million a year in lost revenue.The U.S. Securities and Exchange Commission has regulated short-selling since the 1930s and polices the market for abuses such as naked shorting, which involves taking a short position without borrowing shares. Proponents of legal shorting argue that its use enhances liquidity, improves pricing and serves a critical role as a bulwark against fraud and hype.Chief executives, whose pay packages often depend on share performance, routinely decry short sellers as vultures. More recently, shorting has come under fire in the emotionally charged banter on Reddit’s WallStreetBets forum. Some speculators ran up the prices of GameStop, AMC Entertainment Holdings Inc. and other meme stocks in January to punish the hedge funds that bet against them, and they delighted when the rampant buying led to bruising losses at Melvin, Maplelane Capital and Citron Research.Many of the key actors in the GameStop frenzy testified at the Feb. 18 hearing. Plotkin was grilled by committee members over Melvin’s short position. Citadel’s Griffin and others faced broader questions about short-selling. Yet no one asked about the supply of borrowed shares and there were no witnesses called from the securities-lending industry.There’s a symbiotic relationship between hedge funds and the prime-brokerage units of Wall Street firms, much of it built on securities lending. Prime brokers act as intermediaries, sourcing stocks and bonds for borrowers who want to short them and facilitate the trades. According to DataLend, securities lending generated $2.9 billion of broker-to-broker revenue in 2020, almost the same as in 2019.Demand for short positions was already expected to drop as stock prices surged to all-time highs. Now, with the threat of retribution from the Reddit crowd, it may weaken even further. Griffin said he has “no doubt” there’ll be less short-selling as a consequence of the GameStop squeeze.“I think the whole industry will have to adapt,” Plotkin said at the hearing. “I don’t think investors like myself want to be susceptible to these types of dynamics.”This could not only threaten the dealers who broker stock lending but also the holders who supply the securities and share in the revenue. They reaped $7.7 billion globally in 2020, down from a record of almost $10 billion in 2018, according to DataLend. Lending fees increased by 4.2% on a year-over-year basis in February after the GameStop onslaught, DataLend says.While securities lending accounted for $652 million, or just 4%, of BlackRock’s revenue in the fourth quarter of 2020, there’s little cost involved and the risks are low because borrowers have to put up collateral that equals or exceeds the value of the loan. At both BlackRock and State Street Corp., the second-largest custody bank, the value of securities on loan as of Dec. 31 jumped at least 20% from a year earlier, to $352 billion and $441 billion, respectively.“Every little bit counts with indexes,” said John Rekenthaler, vice president of research at Morningstar. “You’re scraping nickels off the street, but there’s a whole lot of nickels.”Others could take a hit, too. Just as Robinhood Markets is able to offer zero-commission trades by selling its order flow to Citadel and other market makers, asset managers typically pass on some of their securities-lending revenue as a type of client rebate.“It’s very important to remember that institutional investors earn substantial returns from participating in the securities-lending market,” Citadel’s Griffin said at the GameStop hearing. “That accrues to the benefit of pension plans, of ETFs, of other pools of institutional lending that participate in the securities lending market.”(Adds data on lending fees after the short-interest chart.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Some households are collecting a big pile of federal money in 2021.
(Bloomberg) -- It’s not just in meme stocks that the fate of short sellers is a key theme. Short bets are increasingly in vogue in the $21 trillion Treasuries market, with crucial implications across asset classes.The benchmark 10-year yield reached 1.62% Friday -- the highest since February 2020 -- before dip buying from foreign investors emerged. Stronger-than-expected job creation and Federal Reserve Chair Jerome Powell’s seeming lack of concern, for now, with leaping long-term borrowing costs have emboldened traders. In one telltale sign of which way they’re leaning, demand to borrow 10-year notes in the repurchase-agreement market is so great that rates have gone negative, likely part of a move to short the maturity.The trifecta of more fiscal stimulus ahead, ultra-easy monetary policy and an accelerating vaccination campaign is helping bring a post-pandemic reality into view. There are of course risks to the bearish bond scenario. Most prominently, yields could rise to the point that they spook stocks, and tighten financial conditions generally -- a key metric the Fed is focused on for guiding policy. Even so, Wall Street analysts can’t seem to lift year-end yield forecasts fast enough.“There’s a lot of tinder being put now on this fire for higher yields,” said Margaret Kerins, global head of fixed-income strategy at BMO Capital Markets. “The question is what is the point that higher yields are too high and really put pressure on risk assets and push Powell into action” to try and tamp them down.Share prices have already shown signs of vulnerability to increasing yields, especially tech-heavy stocks. Another area at risk is the housing market -- a bright spot for the economy -- with mortgage rates jumping.The surge in yields and growing confidence in the economic recovery prompted a slew of analysts to recalibrate expectations for 10-year rates this past week. For example, TD Securities and Societe Generale lifted their year-end forecasts to 2% from 1.45% and 1.50%, respectively.Asset managers, for their part, flipped to most net short on 10-year notes since 2016, the latest Commodity Futures Trading Commission data show.Auction PressureIn the days ahead, however, BMO is eyeing 1.75% as the next key mark, a level last seen in January 2020, weeks before the pandemic sent markets into a chaotic frenzy.A fresh dose of long-end supply next week may make short positions even more attractive, especially after record-low demand for last month’s 7-year auction served as a trigger to push 10-year yields above 1.6%. The Treasury will sell a total of $62 billion in 10- and 30-year debt.With expectations for inflation and growth taking flight, traders are signaling that they anticipate the Fed may have to respond more quickly than it’s indicated. Eurodollar futures now reflect a quarter-point hike in the first quarter of 2023, but they’re starting to suggest that it could come in late 2022. Fed officials have projected they’d keep rates near zero until at least the end of 2023.So while the market is leaning toward loftier yields, the interplay between bonds and stocks is bound to be a huge focus going forward.“There’s definitely that momentum, but the question is how well risky assets adjust to the new paradigm,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. “We’ll be watching next week, when the dust settles after the payrolls data, how Treasuries react and how risky assets react to the rise in yields.”What to WatchThe economic calendarMarch 8: Wholesale trade sales/inventoriesMarch 9: NFIB small business optimismMarch 10: MBA mortgage applications; CPI; average weekly earnings; monthly budget statementMarch 11: Jobless claims; Langer consumer comfort; JOLTS job openings: household change in net worthMarch 12: PPI; University of Michigan sentimentThe Fed calendar is empty before the March 17 policy decisionThe auction calendar:March 8: 13-, 26-week billsMarch 9: 42-day cash-management bills; 3-year notesMarch 10: 10-year notesMarch 11: 4-, 8-week bills; 30-year bondsFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2021 Bloomberg L.P.
Ark Funds CEO and Founder Cathie Wood joined Benzinga’s “Raz Report” this week and discussed the history of Ark Funds. Wood also shared some of the reasons why Ark Funds owns several positions, including in DraftKings Inc (NASDAQ: DKNG). Wood on DraftKings: Wood told Benzinga that DraftKings is becoming accepted as a platform for sports betting as the public grows more comfortable with the activity. “We do think sports betting is losing its taint,” Wood said. The fund manager sees more states turning toward legalizing sports betting, especially as many face huge deficits, Wood said. Wood used New Jersey as an example of the success states can have. The state is a mature market and DraftKings’ revenue was up 100% in the state. “New Jersey was very telling to us," she said. Ark Funds: DraftKings was added to two different Ark Funds beginning in February. Ark Next Generation Internet ETF (NYSE: ARKW) owns around 1.4 milion shares of DraftKings worth $88.1 million. Ark Fintech Innovation ETF (NYSE: ARKF) owns around 546,000 shares of DraftKings worth $33.8 million. DraftKings represents around 1.2% and 0.8% of ARKW and ARKF, respectively. Price Action: Shares of DraftKings finished the week down 6.24% at $59.52. Related Link: DraftKings And Dish Network Partner On Sports Betting, TV Integration See more from BenzingaClick here for options trades from BenzingaFuboTV Shares Pop On Caesars Partnership, Access To Additional States For Sports BettingHorizon Acquisition Corp SPAC Jumps 20% On Potential Sportradar Merger© 2021 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Personal finance guru Suze Orman said the receipt of a tax refund indicates "something's radically wrong," since the money returned to filers could otherwise have accrued value over the period it stood in the government's possession.
An ETF that's backed in part by Dave Portnoy, self-proclaimed head of the hordes of retail investors who have upended markets in recent weeks, raises questions about market manipulation.