Before the Open (Jan 25-29)

Good morning. Happy Friday.

The Asian/Pacific markets suffered stiff losses. China, Japan, Hong Kong, South Korea, India, Taiwan, Indonesia and the Philippines were all very weak. Europe, Africa and the Middle East are currently mostly down. The UK, Denmark, France, Turkey, Germany, Russia, Switzerland, Spain and Italy are down more than 1%. Futures in the States point towards a negative open for the cash market.

————— Online Course: Jason Leavitt’s Masterclass in Trading —————

The dollar is flat. Oil and copper are up. Gold and silver are up. Bonds are down. Bitcoin is up big.

Stories/News from Seeking Alpha…

Hunting the wolves

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.

Robinhood dashes for cash

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.

2035 EV goal

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.”

WeWork in talks with a SPAC to go public

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.

What else is happening…

76% respondents plan to leave Robinhood (RBNHD) – Blind platform.

Facebook (NASDAQ:FB) reportedly preparing broad legal attack on Apple (NASDAQ:AAPL).

Qualtrics, a spinoff from SAP (NYSE:SAP), jumps in trading debut.

Novavax (NASDAQ:NVAX) vaccine shows 89% efficacy in U.K. Phase 3 trial.

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.

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

—————

Good morning. Happy Thursday.

The Asian/Pacific markets suffered stiff losses. Japan, China, Hong Kong, South Korea, India, New Zealand, Taiwan, Australia, Indonesia, Singapore and Thailand dropped at least 1%. Europe, Africa and the Middle East are currently mixed. Poland, Greece and Portugal are up; the UK, UAE, Russia, and the Czech Republic are down. Futures in the States point towards a positive open for the cash market.

————— Online Course: Jason Leavitt’s Masterclass in Trading —————

The dollar is up. Oil and copper are up. Gold and silver are up. Bonds are down. Bitcoin is up.

Stories/News from Seeking Alpha…

A new era of trading?

Wall Street on Wednesday logged its worst day since October despite many catalysts that could have been utilized by traders. On the surface level, things appeared to be positive for equities, like the unwavering support of the Federal Reserve. While the central bank flagged a moderating recovery, Chairman Jay Powell made clear the U.S. central bank was nowhere near exiting massive support for the economy, left benchmark interest rates near zero and repeated a pledge to maintain its bond buying program at the current pace of $120B of purchases per month. U.S. stock index futures still fell again overnight: Dow -0.4%; S&P 500 -0.7%; Nasdaq -1%.

Coronavirus vaccine delays and a much-anticipated pullback from all-time highs can serve as an excuse to book profits, but worries are growing. Dealers said highly leveraged investors need cash to cover losses elsewhere as retail investors involved with the WSB Reddit channel continue to shift the power dynamics on Wall Street. While some may dismiss what’s going on as an irrelevant “gamification” of stock trading, the instability could create broader market losses and upend the traditional trading model. Flows vs. fundamentals, momentum vs. value, day trading vs. investing are hot topics that are set to trend this year as wild retail investor enthusiasm plays out in the markets.

Case in point: About 44 circuit breaker halts were triggered in the first two hours of trading on Wednesday as volatility reigned high at cult favorites GameStop (NYSE:GME), AMC Entertainment (NYSE:AMC), Express (NYSE:EXPR), Bed Bath & Beyond (NASDAQ:BBBY), Nokia (NYSE:NOK) and Koss (NASDAQ:KOSS). Halts give traders time to digest news and adjust their trades over the typical five-minute pause, but have done little to help smooth rapid movement generated by the WSB Reddit army. The wild swings also saw online brokerages like Robinhood (RBNHD), Charles Schwab (NYSE:SCHW), E*Trade (NASDAQ:ETFC) and TD Ameritrade (NASDAQ:AMTD) hit by extended service disruptions.

Thought bubble: The mob mentality on WallStreetBets is stirring regulatory and legal concerns, as well as the attention of the White House. Treasury Secretary Janet Yellen is monitoring the situation, while the SEC is looking into the short and gamma squeezes that are sending some shares sharply higher. Brokerages have even restricted trading and options activity in GameStop, and Nasdaq (NASDAQ:NDAQ) CEO Adena Friedman suggested that her exchange could halt trading activity if a stock was targeted by internet users, which would enable investigations into possible manipulation and allow investors to “recalibrate.”

How (and if) GameStop mania will come to an end

Many of the professionals on Wall Street don’t think GameStop (NYSE:GME) can hold on to its wild gains, but then again, most of them didn’t see the war with the retail bros coming. Premarket: GME +21% to $420/share.

“The price action is completely divorced from fundamentals. It’s a relatively small universe of retail investors that are pushing around a relatively small universe of stocks so at the end of the day, this Reddit army, they don’t have the wherewithal to sustain these big losses,” said Jason Katz, a managing director and portfolio manager at UBS. “It’s not going to be the institutions left holding the bag. It’s the kids on my basketball team asking me about how options work.”

“We’ve equipped people with the tools to be able to do something. And they did,” said certified financial planner Douglas Boneparth, president of Bone Fide Wealth in New York, though others are cautioning the strategy is not sustainable. “The Reddit army should prepare for stricter rules and regulation shortly, which should kill the idea that what happened with GameStop will happen with others,” wrote Edward Moya, senior market analyst at Oanda.

What should GameStop and AMC (NYSE:AMC) management do during the wild ride? “My advice to those CEOs would be that, at times like this, your company is not your stock and your stock is not your company,” said Tilray CEO Brendan Kennedy, whose stock spiked 1,400% in a 2018 short squeeze. “Keep it all in perspective as these very unusual market dynamics are taking place.

Outlook: “A lot of these heavily shorted stocks running up… and that always leads to some degrossing. Look, this is a health development, in my view,” said Michael Wilson, chief U.S. equity strategist at Morgan Stanley. “We’re still very bullish about the economy this year and we’re very constructive on equities going into 2021. But let’s be honest, we’ve had a heck of a move and we’ve discounted a lot of good news and so a good consolidation is exactly what we need.”

Tech earnings

Strong earnings reports from Apple (AAPL) and Facebook (FB) did little to boost sentiment after the bell on Wednesday, while Tesla (TSLA) missed analyst expectations, and the three tech powerhouses sold off.

Apple (-2.4% premarket) – The iPhone maker reported its largest revenue on record at $111.4B, with sales in every product category rising by double-digit percentage points. The blowout quarter also saw big results at Apple’s services business, which the company has highlighted as a growth engine, as well as significant growth in China. However, it didn’t give a formal guidance for the upcoming quarter, and executives said sales growth from AirPods and other wearables will decelerate.

Facebook (-1% premarket) – The social network disclosed falls in daily usage at home, but global growth boosted numbers. Earnings beats were also swept aside as the company warned about the impact from Apple’s privacy changes and called the latter a “significant competitor.” Pandemic trends could also hurt its advertising business and it may not be able to grow as quickly in the second half of 2021.

Tesla (-5% premarket) – The EV maker knocked out another profit and floated a 50% deliveries growth target, but that wasn’t enough to impress. Earnings missed analyst expectations, though revenue beat estimates, and some other announcements were made. Tesla talked subscriptions, software licensing and its 4680 battery on a conference call and said it expects its two new factories in Texas and Germany to come online this year.

GDP data puts stimulus in the spotlight

All eyes this morning will be on the Commerce Department’s snapshot of fourth-quarter gross domestic product amid a resurgence in coronavirus infections across the country. GDP is expected to have slowed to an annualized rate of 4% vs. the historic 33.4% expansion seen in the July-September period, as the nation emerged from the severe lockdowns instituted during the early stages of the coronavirus crisis. While it’s a skewed comparison, the U.S. in 2020 is forecast to record its worst performance since WWII and well below pre-pandemic levels.

Why it matters: The GDP figure could drive renewed efforts towards additional stimulus relief. The Biden administration has already unveiled a recovery plan worth $1.9T, though some lawmakers have balked at the price tag or questioned the direction of funds, following the $900B package passed at the end of December. Economists expect growth to further slow down in the first quarter of 2021, before picking up speed into summer as more Americans get vaccinated.

Other things to watch: The Labor Department will release data on weekly jobless claims, as well as new home sales data for December. The U.S. goods trade balance is also due out for that month, along with wholesale inventory figures, and don’t forget about the latest earnings parade. McDonald’s (MCD), Altria (MO), American Airlines (AAL), Visa (V) and Mastercard (MA) are all scheduled to report Q4 results.

Will vaccines work against COVID mutations?

Health officials and researchers have been racing to determine whether COVID-19 vaccines will work against new variants as governments across the globe roll out jabs they hope will reopen schools and businesses. A new Pfizer (NYSE:PFE) laboratory study has found that coronavirus mutations identified in the U.K. and South Africa strain had only small impacts on the effectiveness of antibodies generated by the company’s vaccine.

The fine print: The research is preliminary, has yet to be peer-reviewed, and was only tested only a subset of mutations found in the variants (not the variants themselves). The researchers also didn’t assess whether their results were statistically significant.

The findings are still consistent with other preliminary results reported in recent weeks by several research groups, but precautions are being taken. Moderna (NASDAQ:MRNA) has said it would develop a booster shot for the South Africa variant, while President Biden restricted travel from South Africa and re-established a ban on most incoming travel from Europe, the U.K. and Brazil.

Outlook: White House health advisor Dr. Anthony Fauci said Pfizer and Moderna’s vaccines could be easily adapted to target new strains of the virus, something the drugmakers are already working on. “We’re already trying to stay one or two steps ahead of the game so that if, in fact, we have a situation where the South African strain is prevalent here… you want to really get ahead of it from a protection standpoint.”

What else is happening…

Toyota (TM) takes back auto sales crown from Volkswagen (OTCPK:VWAGY).

Reddit group WallStreetBets is public again after briefly going private.

AstraZeneca (AZN) and EU at loggerheads over COVID-19 vaccine supplies.

Exxon (XOM) planning board, other changes as activists ratchet up pressure.

Morgan Stanley dives into winners/losers in greener federal energy policies.

Today’s Economic Calendar
8:30 Initial Jobless Claims
8:30 International Trade in Goods (Advance)
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
8:30 GDP Q1
10:00 New Home Sales
10:00 Leading Indicators
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
1:00 PM Results of $62B, 7-Year Note Auction
4:30 PM Money Supply
4:30 PM Fed Balance Sheet

—————

Good morning. Happy Tuesday.

The Asian/Pacific markets closed mostly down. Japan and China did well, but Hong Kong, South Korea, India, Australia, Thailand and the Philippines were weak. Europe, Africa and the Middle East are currently down big. The UK, Denmark, France, Turkey, Germany, Greece, Russia, South Africa, Finland, Norway, Hungary, Spain, the Netherlands, Italy, Portugal, Austria, Sweden and the Czech Republic are down big. Futures in the States point towards a big gap down open for the cash market.

————— Online Course: Jason Leavitt’s Masterclass in Trading —————

The dollar is up. Oil and copper are down. Gold and silver are down. Bonds are up. Bitcoin is down.

Stories/News from Seeking Alpha…

Fed’s first meeting of 2021

When the Federal Open Market Committee ends its two-day meeting this afternoon, Fed Chair Jerome Powell is likely to assure investors that the central bank won’t taper its asset purchases anytime soon. Recently, Powell repeated his “we’re not thinking about thinking about” reducing QE or raising rates as the pandemic weighs on the U.S. economy. “When it does become appropriate to discuss specific dates” for tapering asset purchases, “we will let the world know,” he said on Jan. 14 in an online Q&A.

Even as the population starts to get vaccinated for COVID-19, it will be months before it reaches the point of herd immunity. “The emphasis will be on, ‘we’re not out of the woods yet,'” Seth Carpenter, an economist at UBS and a former Fed economist told the AP. Powell will also be careful not to repeat then-chair Ben Bernanke’s comments to Congress in 2013 – that the Fed was considering reducing bond purchases – which led to the infamous “taper tantrum.” Investors, caught off-guard by the comments, pushed up longer-term interest rates.

Backdrop: The Fed is currently buying $80B of Treasury bonds and $40B in mortgage-backed securities each month to keep longer-term borrowing rates low. It has said it won’t curb those purchases until “substantial further progress” has been made in achieving low unemployment and an inflation target of 2% a year. And with the shift to inflation target averaging, the central bank may let inflation run over 2% for a period of time.

Outlook: Jim O’Sullivan, an economist at TD Securities, expects Powell to “stress” that the Fed won’t increase rates until inflation accelerates. “We expect him to emphasize that inflation will be key to when the Fed’s ‘exit’ (from low rates) begins,” he wrote, “and most Fed officials are skeptical that a few strong quarters for growth will suddenly lead to a meaningful pickup in the trend in inflation.” The FOMC issues its statement at 2:00 p.m. ET, and Powell will take the podium a half-hour later.

Tech on tap

The tech sector remains lit after earnings from Microsoft (MSFT) pushed Nasdaq futures up 0.5% overnight, though contracts linked to the Dow and S&P 500 fell back 0.4% and 0.2%, respectively. Azure revenue growth was up 50%, further reversing the platform’s pre-pandemic deceleration, while fiscal Q2 beats and upside guidance sent shares up nearly 4% premarket. Intelligent Cloud revenue meanwhile totaled $14.6B (+23% Y/Y), adding to the optimism over a segment investors think is critical to the company’s future success.

The results are boosting sentiment for other tech giants, including Apple (AAPL), Facebook (FB) and Tesla (TSLA), which will all announce Q4 results after the bell. What should investors expect?

Apple – Quarterly sales are expected to cross $100B as demand for its products and services surged with more people working from home during the pandemic. Another key metric, Services revenue, is a key part of Apple’s diversification strategy and has taken on outsized importance in recent years.

Facebook – Statistics like ad revenue growth and MAUs will be in the spotlight, as well as the effects of its recent moderation efforts. Critics have said the social network has failed to police hate speech and political violence, while others say it has taken censoring too far (think President Trump’s suspension and the exodus to Telegram and Signal).

Tesla – The EV maker is set to post its sixth consecutive quarterly profit (and $10B in revenue) after joining the S&P 500. Investors will size up Tesla’s performance at the end of a record-breaking year, as well as early guidance for 2021 amid a push by the Biden administration toward EVs. Among other possibilities are Gigafactory announcements, self-driving news and some surprises from Elon Musk.

Stats: Tesla’s market capitalization drove past Facebook earlier this month following the Senate races in Georgia. The Democrat wins put more charge in the battery packs of the electric vehicle rally on expectations of heightened industry support. Tesla’s market cap is now $837B vs. Facebook’s $803B, while Apple is ways ahead at $2.4T. Along with other tech giants, the companies make up a significant percentage of the S&P 500 Index, so movement can be expected there as well.

‘Gamestonk!!’ – Musk joins the retail bros

After surging over 90% yesterday back to the $150 level, GameStop (NYSE:GME) got another boost from a well-known short-seller battler – Elon Musk. It only took a one-word tweet from the master troller, “Gamestonk,” to propel GME shares another 46% to $217 in after-hours trading (the stock is up 1000% since Jan. 12) The Tesla (NASDAQ:TSLA) CEO has fought with the shorts for years over the future of the EV maker, but many were forced to admit defeat last year.

Backdrop: Citron Research’s Andrew Left, the famed short-seller (or infamous, according to the retail bros), has a long history of opining on Tesla, shorting shares at least as early as in 2013. Left had a big turn of heart in October 2018, when he took a long position and said “the story has become too compelling to ignore,” but just before the big run-up in 2020, he announced that Musk would even short the electric car maker at this level. “This is no longer about the technology, it has become the new Wall St casino,” Left declared, though TSLA has surged another 400% since then.

Stats: Tesla had long been a favorite play for shorts, who controlled about 19% of shares at the start of 2020. About two-thirds of the positions were unwound over the course of the year after recording $40.1B in losses. In fact, the losses endured by Tesla shorts were more than the short losses for the next nine companies – combined. Meanwhile short interest of GameStop has held steady at a massive 140% of the float, leading to trouble for some hedge funds. Melvin Capital has required a $2.75B cash infusion from Citadel and Point72 to help it weather the losses from its GME short position (though fresh reports from CNBC suggest it may have closed its position).

After promising not to comment on GameStop after attacks from the “angry mob” (a.k.a. the “Wall Street Bets” Reddit forum), Citron’s Andrew Left doubled down on his position. “If I had never been involved in GameStop and came to this right now, would I still be short this stock? 100 percent,” Left told Reuters, adding that he “created this game, based on uncovering the truths, so I can’t get mad at people for taking the other side.” But as the retail bro army rallies the troops, he may be left holding the short end of the stick and nursing millions in losses. Will Musk and the r/wallstreetbets subreddit have the last laugh?

Walgreens poaches Starbucks exec for CEO

Starbucks (SBUX) COO Rosalind Brewer is taking the helm of Walgreens Boots Alliance (WBA), making her the only Black woman to lead a Fortune 500 company. She’ll take the CEO spot from Stefano Pessina, who is shifting to the role of executive chairman. Shares of Walgreens are up nearly 7% premarket on the news, a big help for a stock that’s down about 5% over the past year.

The drugstore chain has struggled during the pandemic as foot traffic dropped, particularly at its Boots stores in the U.K. Earlier this month, the company said that sales were picking up, but restated guidance for low-single digit earnings growth. While Walgreens has been cutting costs in some areas, shareholders are looking for new revenue steams. Rival CVS Health (NYSE:CVS) recently acquired health insurer Aetna and opened up Minute Clinics, but Walgreens has been playing catch-up in health services. Brewer also sits on the board of Amazon (NASDAQ:AMZN), which launched its own pharmacy business in November.

Quote from Roz: “The healthcare industry is constantly evolving, and I am excited to work alongside the entire WBA team as we deliver further innovation and positively impact the lives of millions of people around the world every day. This is especially true today as the company plays a crucial role in combatting the COVID-19 pandemic.”

Thought bubble: Her departure from Starbucks comes as investors and activists push for more diversity in corporate America. Regulators have even joined in the effort, while Nasdaq (NASDAQ:NDAQ) has proposed changes that would promote greater racial and gender diversity on the boards of companies listed on its exchange. Walgreens currently trades on the Nasdaq.

Reducing pandemic inequality?

Headlines out of Davos haven’t been nearly as loud this year, given that the World Economic Forum went virtual due to the pandemic. The annual event usually sees the world’s political and business leaders, plus the usual smattering of celebrities, gather at the Swiss Alpine resort. Collaboration on issues like COVID vaccines, job creation and climate change is dominating the summit, which centers around seven key themes: How to Save the Planet, Fairer Economies, Tech for Good, Society and Future of Work, Better Business, Healthy Futures and Beyond Geopolitics.

On that note, South Korea warned that inequality was not only worsening within countries, but also between nations, due to the economic fallout from COVID-19. As a result, President Moon Jae-in outlined plans for a “profit-sharing system in which the government provides strong incentives to companies that have prospered during the pandemic to share their profits with their hardest-hit peers.” While South Korea’s policy measures have already included massive fiscal stimulus, small businesses aid, job retention support and vouchers for low-income families, Moon is pledging to do more. “More wisdom will be needed to work out the details but if these initiatives can be realized they can become a benchmark for inclusive policies to be used in overcoming future pandemics together.”

Thought bubble: Diverting corporate profits into the pockets of consumers could turn off many voters, who see it as a form of socialism and too radical. “Considering they were critical to the government’s policy to increase public housing, I think they may take the profit-sharing scheme in the same way,” said Park Sung-min, a senior political analyst and head of Min Consulting. While mandatory regulation may face strong backlash, voluntary schemes could be on the table, such as platform companies sharing profits with mom-and-pop stores by cutting fees.

Outlook: South Korea has garnered praised from the international community for its handling of the pandemic, specifically of its mass testing and contact tracing systems that were rapidly rolled out and have been sustained over the past year. Businesses have benefited from the lack of a nationwide lockdown, as well as strong demand for the country’s tech exports amid global stay-at-home trends.

What else is happening…

Biden’s climate change steps lift renewables again.

Beyond Meat (NASDAQ:BYND)-PepsiCo (NASDAQ:PEP) deal called a win-win by UBS.

Goldman Sachs (NYSE:GS) CEO takes $10M pay cut for 1MDB scandal.

Hello Bitcoin, goodbye Intel: ARK Invest outlines 5 big ideas for ’21.

Today’s Economic Calendar
7:00 MBA Mortgage Applications
8:30 Durable Goods
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
11:30 Results of $28B, 2-Year FRN Auction
2:00 PM FOMC Announcement
2:30 PM Chairman Press Conference

—————

Good morning. Happy Tuesday.

The Asian/Pacific markets were mostly down. Japan, China, Hong Kong, South Korea, India, Taiwan, Indonesia, Singapore and the Philippines all posted big losses. Europe, Africa and the Middle East are currently doing well. The UK, Poland, France, Germany, Greece, Finland, Switzerland, Spain, the Netherlands, Italy and Austria are up; Denmark, the UAE, South Africa and Portugal are down. Futures in the States point towards a flat open for the cash market.

————— Online Course: Jason Leavitt’s Masterclass in Trading —————

The dollar is down. Oil is up; copper is down. Gold is flat, silver is down. Bonds are flat. Bitcoin is down.

Stories/News from Seeking Alpha…

A different kind of WSB

Here at Seeking Alpha, and for all of our readership, Wall Street Breakfast is colloquially referred to as “WSB,” but a different type of WSB has been taking the market by the storm in recent weeks. What we’re referring to is Wall Street Bets – the Reddit forum dedicated to “making money and being amused while doing it.” The r/wallstreetbets subreddit and their army of day traders have been responsible for outsized moves in recent weeks for heavily shorted stocks like GameStop (NYSE:GME), Bed Bath & Beyond (NASDAQ:BBBY) and AMC Entertainment (NYSE:AMC). The community will pick an individual stock and run it up as a group, triggering a short squeeze and sending shares even higher. In today’s “WSB” premarket movement: KOSS +88%; GME +20%; AMC +17%; CLVS +9%.

Thought bubble: Not all of the targeted buying campaigns are about busting the shorts. Some of the stocks the WSB crew are swiping for have been highlighted for their low valuation, like BlackBerry (NYSE:BB) or Palantir (NYSE:PLTR), but for the average trader, there has been more of an emphasis on flows over fundamentals. In fact, fundamentals may have gone out the window a long time ago as the retail investor becomes a more powerful collective force than the professional investor. Just think of Tesla (TSLA), whose market cap tops the nine largest automakers combined but makes a fraction of their cars and annual profits.

Could a Reddit forum bring the market down? As exciting as these moves are, they’re only a sideshow. The ones that should be most alarmed are the ill-equipped financial professionals that could be disrupted by the populist forces. Once upon a time, short-selling firms would unveil a new position to great anticipation (think Citron), but from now on, that may just signal a massive incoming short squeeze. Some advice to the shorts from Mad Money’s Jim Cramer: “Stop crowding into the same trades.”

Takeaway: Retail trading is definitely changing the way markets function, but what really seems to matter is that we now have a stock picker’s market for the first time since the dot-com bubble. That means stocks may be less sensitive to the broader economy than they used to be, while the professionals need to pay attention to a new generation of investors that entered the scene after the rise of commission-free trading. Instead of following many of the upgrades and downgrades on Wall Street, they’re doing their own research on platforms like Seeking Alpha, and signaling a new era to the DIY investing atmosphere.

SPAC craze continues into 2021

Companies have already raised $400B in the first three weeks of 2021, including $337B in corporate debt through Jan. 22 and a record $64B in IPOs and secondary share offerings. That’s $170B above the average for this time of year, according to an FT analysis of Refinitiv data, and is one of the biggest hauls of the past two decades.

Driving the fundraising blitz: A wave of government and central bank coronavirus stimulus measures has flooded the capital markets. It’s easy to borrow when interest rates are this low or raise equity with stock prices near all-time highs. That has companies thinking they should expand if they can or cash out.

Some of the money raised this year went to special acquisition companies, better known as “SPACs” or blank check companies. These are vehicles that raise money through an IPO so that they can buy or merge with another company. There’s already 61 new SPACs this year that have raised just under $17B, adding to the 229 U.S. SPACs that raised $76B in 2020, which was dubbed the “year of the SPAC.” While some are cautioning that their swelling popularity is unsustainable, others see the trends differently.

Quote: “Low interest rates, the flexible structure, and the two-year window to find a target before returning capital suggest the popularity of SPACs will continue in the near term,” Goldman chief U.S. equity strategist David Kostin declared. “Importantly, we see little risk to public equity markets should investor enthusiasm for SPACs subside.”

Shakeup at Apollo after Epstein review

Leon Black is stepping down as CEO at Apollo Global Management (APO) following an independent review of his ties to the late financier and convicted sex offender Jeffrey Epstein. Black co-founded Apollo 31 years ago with Josh Harris and Marc Rowan (who will take over as CEO) and turned it into one of the world’s largest private equity groups.

Apollo is also changing its corporate governance structure. The firm is doing away with shares with special voting rights that currently give Black and other co-founders effective control of the firm, and has proposed augmenting the board so that the majority of directors are independent. In recent years, it has also abandoned its partnership structure and became a corporation in 2019 like a number of its rivals have done. Removing the dual-class share structure would take it a step further, possibly allowing the company to be included in the S&P 500.

The fine print: Back in October, Apollo executives had warned that some investors had paused their commitments to the buyout firm’s funds, awaiting the results from an investigation into Black’s dealings with Epstein. The independent review, conducted by law firm Dechert LLP, found Black was not involved in any way with Epstein’s criminal activities, but he did pay him $158M for advice on tax and estate planning and related services between 2012 and 2017.

Quote: “I hope that the results of the review, and related enhancements… will reaffirm to you that Apollo is dedicated to the highest levels of transparency and governance,” Black wrote in a note to Apollo fund investors.

Economic trends a year out from COVID

Retail traders have been pouring into the markets over the last year, with little to spend their paychecks on and hopes of big gains, while stimulus measures and capital markets swimming in cash have led stocks to all-time highs. The Fed is also set to keep interest rates low tomorrow, and Fed Chair Jay Powell is likely to double down on easy money policies. With an unemployment rate of 6.7% in January, nearly 93% of the U.S. workforce now has jobs, though the service economy is still in terrible shape, including the travel, leisure, dining and sports industries.

Low interest rates have also made it easy to purchase a house, something Americans are doing as they flee the city in droves for the suburbs (think work stations, school space, etc.) Case in point: The SPDR S&P Homebuilders ETF (NYSEARCA:XHB) is up 160% since the pandemic lows seen in March 2020. Trends like stay-at-home life and hybrid work styles have also continued to propel the tech names and the Nasdaq to new heights.

States aren’t likely to institute further lockdowns amid a broader vaccine rollout and they can’t even afford it (federal funding may be coming soon). California Governor Gavin Newsom lifted his state’s stay-at-home order on Monday, even though the infection rate is still pretty bad, and states appear to be finding that you can leave the economy in place if you keep the elderly and the at-risk at home.

But the pandemic is causing a sharp divide in class wealth. COVID-19 brought the sharpest rise in the U.S. poverty rate since the 1960s, according to a study by the University of Notre Dame. The poverty rate in the U.S. increased by 2.4 percentage points during the latter half of 2020, meaning an additional 8M people nationwide are now considered poor. In the same time frame, the collective wealth of America’s 651 billionaires jumped by over $2.95T to over $4T, in a trend that’s likely to trigger more discussions about equality in the economic sphere.

What else is happening…

Earnings season: GE (GE), J&J (JNJ) and Microsoft (MSFT) set to report.

Moderna (NASDAQ:MRNA) believes its vaccine will work against new variants.

Google (GOOG, GOOGL) sees progress on cookies; union effort moves forward.

Kimberly-Clark (KMB) raises dividend after beating Q4 expectations.

Merck (MRK) abandons pursuit of a vaccine amid lackluster trial data.

Today’s Economic Calendar
8:55 Redbook Chain Store Sales
9:00 S&P Corelogic Case-Shiller Home Price Index
9:00 FHFA House Price Index
10:00 Consumer Confidence
10:00 Richmond Fed Mfg.
1:00 PM Results of $61B, 5-Year Note Auction

—————

Good morning. Happy Monday. Hope you had a good weekend.

The Asian/Pacific markets were mixed. China, Japan, Hong Kong and South Korea did well, but India, Taiwan, Malaysia, Indonesia and Singapore were weak. Europe, Africa and the Middle East are currently weak. South Africa and the Czech Republic are doing well, but the UK, Poland, France, Germany, Greece, Norway, Spain, Italy, Portugal and Austria are down 1% or more. Futures in the States point towards a flat open for the S&P 500 but a big positive open for the Nasdaq 100.

————— Online Course: Jason Leavitt’s Masterclass in Trading —————

The dollar is up. Oil and copper are down. Gold and silver are up. Bonds are up. Bitcoin is up.

Stories/News from Seeking Alpha…

Earnings season kicks into high gear

Traders are preparing for the busiest week of earnings season, which will include reports from some of the largest tech companies, and the excitement is palpable. Nasdaq futures climbed 1% to lead gains overnight, while the S&P 500 and Dow Jones rose 0.4% and 0.1%, respectively. Don’t forget about the aggressive stimulus being pursued by the new Biden administration, which may look to pass a $1.9T package on its own this week if bipartisan support proves to difficult.

Snapshot: More than a fifth of the S&P 500 are expected to provide quarterly updates over the next five sessions, shedding light on how businesses performed as coronavirus cases rose at the end of 2020. The mega-caps are headlining the busy earnings week, and share prices are bound to respond. For the first time ever, Apple’s quarterly sales are expected to cross $100B and Microsoft is projected to pass $40B, while Tesla is set to post its sixth consecutive quarterly profit and metrics like ad revenue growth and MAUs will be on watch at Facebook. Premarket movement: AAPL +2.3%, MSFT +1.8%,TSLA +1.7%, FB +1.7%.

Don’t forget about other sectors. Investors will size up results at telecom firms Verizon (VZ) and AT&T (T), food companies like McDonald’s (MCD) and Starbucks (SBUX), payment giants Mastercard (MA) and Visa (V), as well as industrial heavyweights like Honeywell (HON), GE (GE), Caterpillar (CAT) and Boeing (BA). S&P 500 earnings are on track to fall 4.7% year over year for the quarter, according to FactSet, but corporate guidance and forecasts will make all the difference, with profits set to rebound 24% over 2021.

Go deeper: Ahead of the reports, options activity has been continuing at a breakneck pace, building on last year’s record volumes. Bullish call options trading surged to a high on Jan. 14, with about 32M contracts changing hands, according to Trade Alert, and Apple and Tesla were among the most popular bets. “This is the most popular I’ve seen call buying in my career,” said Jon Cherry, global head of options at Northern Trust Capital Markets. “Where I think that is really driving from is kind of the melt-up that we’ve seen in broader markets.”

China passes U.S. as top destination for foreign investment

Global foreign direct investment (FDI) collapsed in 2020, falling by 42% to an estimated $859B, from $1.5T in 2019. In fact, FDI finished 2020 more than 30% below the trough after the global financial crisis in 2009, according to the United Nations Conference on Trade and Development, while further weakness is expected in 2021. The economic measure accounts for investments made by businesses in other countries, such as the construction of a factory, an acquisition of a local company or the opening of a satellite office.

Bigger picture: As the coronavirus upended the global economy, China became the largest FDI recipient, attracting an estimated $163B in inflows, followed by the U.S. with $134B. The country was also the only major economy not to contract in 2020 due to a strict centralized lockdown that reportedly contained COVID-19. The economic numbers suggest another acceleration in China’s share of global trade and its position as the world’s factory floor.

FDI examples: Walmart (WMT) announced it would invest 3B yuan ($460M) in Wuhan, the city that was the first center of the pandemic, over the next five years, while Starbucks (SBUX) is spending $150M on an innovation park in the eastern Chinese city of Kunshan. Tesla (TSLA) is also ramping up production at Giga Shanghai, and Walt Disney (DIS) is continuing a big expansion at its Shanghai theme park. Back in December, Goldman Sachs (GS) and JPMorgan (JPM) took full ownership of their Chinese joint venture partner, and earlier this year, PepsiCo (PEP) spent $705M on Be & Cherry, one of China’s largest snack brands.

Go deeper: Total stock of foreign investments is still larger in the U.S., but the momentum of FDI has been shifting towards China since 2017. Although the Trump administration urged American companies to leave the country, it also put Chinese investors on notice that U.S. acquisitions would face new scrutiny on national security grounds. The Biden administration will also have to contend with the rise of China, but the sheer size of its consumer market could draw in foreign investments that are betting on the nation’s robust economic recovery.

Can’t stop addicted to the shindig

The “retail bros” that have propelled stocks like legacy photo giant Kodak (KODK) and bankrupt rental company Hertz (HTZ) to dizzying heights have a new favorite: GameStop (NYSE:GME). Shares of the video game retailer are up another 50% premarket as an epic run and battle between investing (gambling?) forces continues. The stock, which was trading near $20 just two weeks ago, is now set to open near $100.

Backdrop: On Jan. 11, GameStop popped on the investing radar after the company added some new directors to collectively bring deep expertise in e-commerce, online marketing, finance and strategic planning. That included Chewy (CHWY) co-founder Ryan Cohen and two former colleagues after he pushed the company to better focus on digital sales. A battle then ensued between short-selling firm Citron Research and speculative buyers organizing on Reddit’s popular WallStreetBets.

Play-by-play: “This is a failing mall-based retailer,” Citron’s Andrew Left said in a video, but the stock buying just kept going. He later said that buyers at these elevated levels are “the suckers at this poker game,” but the traders just doubled down, racking up losses for anyone left holding a short position. In fact, more than 194M shares of GameStop changed hands on Friday, more than eight times its 30-day trading volume average of 23.8M, and triggered four separate trading halts.

While the retail bros might have won the battle, can they win the war?

Kid vaccine trials are underway

Children are less affected by COVID-19 than adults, but they do still catch the virus and can spread it. More than 2.5M cases of coronavirus were reported in children as of Jan. 14, about 13% of all cases, according to a report from the American Academy of Pediatrics and the Children’s Hospital Association.

“Children can still get sick and die from COVID-19,” said Dr. Paul Offit, director of the Vaccine Education Center and an infectious diseases physician at the Children’s Hospital of Philadelphia. “As many children this past year died from COVID-19 as died from influenza. And we recommend an influenza vaccine for children.” He also pointed out that kids can suffer from a disease called “multisystem inflammatory syndrome” associated with COVID, “which can be debilitating.” There have been 1,659 cases of the syndrome in children, referred to as MIS-C, and 26 deaths as of Jan. 8, according to the CDC.

What’s happening? Pfizer (NYSE:PFE) has fully enrolled its COVID-19 vaccine trial in kids ages 12 to 15, which will focus on 2,259 participants and assess safety and efficacy for the group. Moderna (NASDAQ:MRNA) expects data for kids 12 and up may be available before September, but it’s unlikely the company would have data in kids age 11 and younger – which would involve a lower dose – before next year. AstraZeneca (NASDAQ:AZN) plans to continue U.K. trials in a new protocol for kids between ages 5 and 18 “beginning in the coming months,” while Johnson & Johnson (NYSE:JNJ) is in talks with regulators about including pediatric populations in its development plan.

Looking abroad: Israel has begun vaccinating high-school students (over the age of 16), with Ministry of Health data showing that 10- to 19-year-olds made up 21% of known infections. “They are the megaspreaders,” declared Ido Hadari, director of government relations at HMO Maccabi Healthcare Services. Since starting in late December, Israel has led the world’s fastest vaccination campaign, so far administering the first dose of Pfizer’s vaccine to almost 30% of its population.

Where are the driverless cars?

2020 was supposed to be the year of the self-driving car, with several companies estimating they would have tens of thousands of autonomous vehicles on the road by now, but a big disconnect is being seen between these cars rolling out and the revolution that was promised. What happened?

“It’s an extraordinary grind,” Waymo (GOOG, GOOGL) CEO John Krafcik told the FT. “I would say it’s a bigger challenge than launching a rocket and putting it in orbit around the Earth… because it has to be done safely over and over and over again.” 99% accuracy is nowhere good enough when talking about a fleet of vehicles, multiplied by thousands of passengers, and some would argue that the companies got way ahead of themselves when it comes to methodology and safety. “We are at a point now where there is more realism than hype,” added Mark Gottfredson, a partner at consulting group Bain.

Backdrop: Besides industry leader Waymo, which was last valued at more than $30B, there’s been a lot of consolidation since 2016, when Cruise got acquired by General Motors (NYSE:GM). Since then, Argo AI was bought by Volkswagen (OTCPK:OTCPK:VWAGY) and Ford (NYSE:F), Amazon (NASDAQ:AMZN) scooped up Zoox (ZOOX), while Uber’s (NYSE:UBER) self-driving car division was absorbed by Aurora. Waymo is still the only company globally to have a driverless ride-hailing service, and while its fleet spans 300 vehicles, it is confined to one area in southeastern Phoenix.

Outlook: Few technologies have the power to reshape cities the way that driverless vehicles do, and Waymo’s Krafcik remains steadfast that the technology will disrupt personal car ownership. He also forecasts that children born today will have little reason to get a driver’s license. “I can say that with 100% confidence – [They’ll] be able use Waymo in just about any place that [they] might be.”

What else is happening…

Pfizer (NYSE:PFE) COVID-19 vaccine supply to rise with FDA label change.

Restaurants may face another headwind with Biden minimum wage plan.

TikTok challenger Kuaishou aims to raise $5.4B in Hong Kong IPO.

Job openings suggest Tesla (NASDAQ:TSLA) Semi may be moving closer to production.

Solar to become cheapest form of U.S. power by 2030 – WoodMac.

Today’s Economic Calendar
8:30 Chicago Fed National Activity Index
10:30 Dallas Fed Manufacturing Survey
1:00 PM Results of $60B, 2-Year Note Auction

—————

One thought on “Before the Open (Jan 25-29)

Leave a Reply