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GameStop, Reddit and Robinhood: A full recap of the historic retail trading mania on Wall Street

GameStop mania took Wall Street by storm, thanks to a legion of retail traders glued to the WallStreetBets message board on Reddit.

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GameStop mania took Wall Street by storm, thanks to a legion of retail traders glued to the WallStreetBets message board on Reddit.

Shares of the struggling brick-and-mortar video game retailer skyrocketed 400% in the past week, closing out January with a whopping 1,625% gain. A band of amateur traders in WallStreetBets forum, whose members have tripled to 6.5 million in just a week, aimed to bid up heavily shorted stocks “to the moon,” creating massive short squeezes that some believe caused a turmoil in the broader market.

The rally backfired on Robinhood, the free-trading pioneer and popular app. The young broker that wants to go public this year had to tap credit lines, raise new funds and throttle back trading in a list of the short-squeeze names. We learned Saturday morning in a new post from Robinhood why, with the broker explaining that the central Wall Street clearinghouse mandated a ten-fold increase in the firm’s deposit requirements on the week in order to ensure smooth settlement in trades involving the securities experiencing unprecedented volatility.

The reckless retail buying frenzy drew attention from high-profile investors including Elon Musk and Chamath Palihapitiya as well as a slew of lawmakers calling on regulators to intervene.

Here’s how the mania unfolded in the past week:

Monday

The fast and furious action began Monday with GameStop shares more than doubling and within two hours turning red. The stock eventually closed 18% higher after multiple trading halts throughout the day.

The extreme volume in the name also started to raise eyebrows. GameStop was traded more than any S&P 500 stock on Monday.

Enthusiastic day traders on Reddit pushed one another to keep doubling down on GameStop. One top post Monday said “IM NOT SELLING THIS UNTIL AT LEAST $1000+ GME.”

The struggling game retailer is a popular short target on Wall Street. In fact, more than 130% of its float shares had been borrowed and sold short, one of the most shorted names in the U.S. stock market, according to FactSet. Retail traders this month realized they could cause an artificial pop in the name if enough of them bought, forcing hedge funds betting against the stock to cover their losses by buying back the shares themselves. The squeeze game began to intensfiy.

“Chasing the squeeze is like buying a lottery ticket,” Lindsey Bell, chief investment strategist at Ally Invest, said in a note. “You might profit, but you might also lose everything. This type of speculative trading is more about luck and less about skill.”

A demonstrator holds up a placard saying Robin Crook in front of the New York Stock Exchange, January 28, 2021.

John Lamparski | SOPA Images | Sipa USA via AP Images

Tuesday

The rally gained steam on Tuesday after Social Capital’s Palihapitiya said in a tweet that he bought GameStop call options betting the stock will go higher. Shares of GameStop surged to nearly $150 on Tuesday.

Tesla CEO Musk also chimed in on the phenomenon on Twitter and linked to the WallStreetBets message board. He tweeted to his 42 million followers “Gamestonk!!”

Reddit users continued to show off their massive returns from trading in GameStop. One trending post featured a screenshot of the user’s brokerage account with an over 1,000% return on the stock.

Wednesday

By mid-week, everyone was talking about GameStop.

CNBC’s Andrew Ross Sorkin reported that Melvin Capital closed out its short position in the stock on Tuesday afternoon after taking a huge loss. Citadel and Point72 had to infuse close to $3 billion into the hedge fund to shore up its finances.

While GameStop kept soaring, other heavily shorted names with troubled businesses — like AMC Entertainment and Bed Bath & Beyond — also got caught up in the Reddit-fueled frenzy.

AMC jumped 300% on Wednesday alone with more than one billion shares changing hands in its highest volume day ever. Bed Bath & Beyond popped 43% Wednesday, while Koss soared 480% on that day.

The Reddit forum also briefly went private Wednesday evening as the moderators said they were “unable to ensure Reddit’s content policy.”

Thursday

GameStop dropped 44% on Thursday, falling for the first time in six days as Robinhood and Interactive Brokers limited trading in several of the heavily shorted names to closing positions only, meaning that traders could not buy up shares as the prices fell.

Robinhood and Interactive Brokers also hiked their margin requirements on trades, making it harder for traders to use leverage to load up on stocks and options. Other brokers too hiked margin requirements.

Other speculative names with high levels of short interest, including AMC Entertainment, Blackberry and Bed Bath & Beyond also dropped sharply.

The decision by Robinhood, which has presented itself as the free-trading friend of the small investor,causes a backlash with its customers taking to social media to express their outrage.

It also drew the scrutiny of political officials from both sides of the aisle. Rep. Alexandria Ocasio-Cortez weighed in on Twitter, calling Robinhood’s new parameters “unacceptable.”

Republican Senator Ted Cruz tweeted “fully agree” in response to Ocasio-Cortez.

Robinhood CEO Vlad Tenev came on CNBC Thursday night to say that it took those unusual actions so the broker could continue to meet rising deposit requirements and denied it was because of any liquidity issues.

“In order to protect the firm and protect our customers we had to limit buying in these stocks,” Tenev told CNBC.

We would later learn just how much those deposit requirements increased for the broker. Robinhood said its mandated deposit requirements soared ten-fold during the week. Robinhood clears its trades through its clearing broker Robinhood Securities, which is a member, along with others, of a central clearinghouse on Wall Street. This clearinghouse ensures orderly settlement of trades, a process that takes two days. For a stock rising 100% and falling 40% in single sessions, two days becomes a much riskier time period and more collateral is demanded according to the clearinghouse rules.

“It was not because we wanted to stop people from buying these stocks,” Robinhood explained in the post on Saturday. “We did this because the required amount we had to deposit with the clearinghouse was so large—with individual volatile securities accounting for hundreds of millions of dollars in deposit requirements—that we had to take steps to limit buying in those volatile securities to ensure we could comfortably meet our requirements.”

Friday

Robinhood raised $1 billion overnight from investors and taps credit lines to ensure it can meet those requirements.

Shares of GameStop spiked again on Friday as Robinhood said it would resume limited trading in these highly volatile names.

CNBC’s Jim Cramer implored GameStop holders to take profits.

“Don’t go for the grand slam. Take the home run. You’ve already won,” Cramer said.

The speculative stocks gave back a chunk of their gains after Robinhood tightened restrictions throughout the day, only allowing clients to buy only a single share of GameStop. The stock trading app also expanded its list of restricted stocks from 13 earlier in the day to 50.

GameStop, which had doubled in earlier trading Friday, traded off its highs. It would recover into the close and end Friday up more than 67%

The Securities and Exchange Commission said Friday it is reviewing recent trading volatility that has led to a meteoric rise in GameStop and AMC.

“We will act to protect retail investors when the facts demonstrate abusive or manipulative trading activity,” the SEC said in a release. The regulator also pledged to clamp down on brokerages that may have “unduly” limited customers’ ability to trade.

Short sellers not done

Amid the meteoric rise in GameStop shares, short sellers have suffered nearly $20 billion in losses this month. However, they are not showing signs of surrender.

Short-selling hedge funds have mostly held onto their bearish positions or they are being replaced by players willing to bet against the stock.

Most on Wall Street agree the GameStop trade will soon end very badly for the retail traders who are still long. There’s hope that the frenzy will lead to tough lessons learned and some lasting interest in investing.

“The fact that more people are interested in the market and more people are thinking about investing is a good thing,” said Michael Katz, partner at Seven Points Capital. “They just have to make sure they are educated and they are monitoring what they are doing, not just buying into the hype.”

— CNBC’s Nate Rattner contributed to this story.

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The reckless retail buying frenzy drew attention from high-profile investors including Elon Musk and Chamath Palihapitiya as well as a slew of lawmakers calling on regulators to intervene.

Source: https://www.cnbc.com/2021/01/30/gamestop-reddit-and-robinhood-a-full-recap-of-the-historic-retail-trading-mania-on-wall-street.html

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Fed Chief Powell, other officials owned securities central bank bought during Covid pandemic

Federal Reserve Chairman Jerome Powell owned municipal bonds of the same type bought by the Fed during the coronavirus pandemic.

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Amid an outcry about Federal Reserve officials owning and trading individual securities, an in-depth look by CNBC at officials’ financial disclosures found three who last year held assets of the same type the Fed itself was buying, including Chairman Jerome Powell.

None of these holdings or transactions appeared to violate the Fed’s code of conduct. But they raise further questions about the Fed’s conflict of interest policies and the oversight of central bank officials.

  • Powell held between $1.25 million and $2.5 million of municipal bonds in family trusts over which he is said to have no control. They were just a small portion of his total reported assets. While the bonds were purchased before 2019, they were held while the Fed last year bought $21.3 billion in munis, including one from the state of Illinois purchased by his family trust in 2016.
  • Boston Fed President Eric Rosengren held between $151,000 and $800,000 worth of real estate investment trusts that owned mortgage-backed securities. He made as many as 37 separate trades in the four REITS while the Fed purchased almost $700 billion in MBS.
  • Richmond Fed President Thomas Barkin held $1.35 million to $3 million in individual corporate bonds purchased before 2020. They include bonds of Pepsi, Home Depot and Eli Lilly. The Fed last year opened a corporate bond-buying facility and purchased $46.5 billion of corporate bonds.

Among those questions: Should the Fed have banned officials from holding, buying and selling the same assets the Fed itself was buying last year when it dramatically widened the types of assets it would purchase in response to the pandemic?

The Fed’s own code of conduct says officials “should be careful to avoid any dealings or other conduct that might convey even an appearance of conflict between their personal interests, the interests of the system, and the public interest.”

In response to CNBC questions asked in the process of our research, a Fed spokesperson released a statement Thursday saying Powell ordered a review last week of the Fed’s ethics rules surrounding “permissible financial holdings and activities by senior Fed officials.”

A Fed spokesperson told CNBC that Powell had no say over the central bank’s individual municipal bond purchases and no say over the investments in his family’s trusts. A Fed ethics officer determined that the holdings did not violate government rules.

Barkin declined to comment.

Rosengren has announced he would sell his individual positions and stop trading while he is president. Dallas Fed President Robert Kaplan, who actively traded millions of dollars of individual stocks, also said he would no longer trade and would sell his individual positions. But he said his trade did not violate Fed ethics rules.

A spokesman for Rosengren told CNBC that he “made sure his personal saving and investment transactions complied with what was permissible under Fed ethics rules.”

But Dennis Kelleher, CEO of the nonprofit Better Markets, said if some of these Fed actions are not against the rules, the rules need to change.

“To think that such trading is acceptable because it is supposedly allowed by Fed’s current policies only highlights that the Fed’s policies are woefully deficient,” Kelleher told CNBC.

While trading by Rosengren and Kaplan was not conducted during the so-called blackout period, when Fed officials are not allowed to talk publicly about monetary policy or trade, Kelleher said during a crisis like last year, “the whole year should be considered a blackout period” because Fed officials are constantly talking and crafting policy in response to fast-moving events.

Source: https://www.cnbc.com/2021/09/17/fed-officials-owned-securities-it-was-buying-during-pandemic-raising-more-questions-about-conflicts.html

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Affirm stock skyrockets after company reports 71% revenue growth and strong guidance

The blockbuster earnings report comes after Affirm last month announced it’s teaming up with Amazon to launch a buy now, pay later checkout option on the site.

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Affirm Holdings Inc. website home screen on a laptop computer in an arranged photograph taken in Little Falls, New Jersey, U.S., on Wednesday, Dec. 9, 2020.

Gabby Jones | Bloomberg | Getty Images

Affirm reported better-than-expected fiscal fourth-quarter results after the bell Thursday, including solid guidance and 71% revenue growth.

The stock soared more than 20% in extended trading following the report.

Here’s how the company did:

  • Revenue: $261.8 million vs. $225 million expected, according to a Refinitiv survey of analysts
  • Loss per share: 48 cents per share, which is not comparable to estimates

Affirm is one of the leading players in the burgeoning buy now, pay later space, which allows people to split the payment for their purchases into installments. Founded in 2013 by PayPal co-founder Max Levchin, Affirm made its stock market debut in January, with shares beginning trading at $90.90, after listing at $49 a piece.

Affirm gave upbeat guidance for the current quarter. It expects revenue for the fiscal first quarter of 2022 to come in at $240 million to $250 million, which surpassed analysts’ estimates of $233.9 million.

The company had 7.1 million active customers as of the fourth quarter, up from 5.4 million in the previous period.

The blockbuster earnings report comes after Affirm last month announced it’s teaming up with Amazon to launch the e-commerce giant’s first partnership with an installment payment player. The partnership allows Amazon customers in the U.S. to split purchases of $50 or more into smaller, monthly installments.

When asked how the partnership with Amazon came together, Levchin said on a call with investors that large retailers are realizing the buy now, pay later trend isn’t just a fad or a feature. “They look to us as a provider,” Levchin said.

In the earnings report, Affirm said its guidance for the full year and fiscal first quarter doesn’t factor in any potential contributions to revenue or gross merchandise volume from the partnership with Amazon, which is currently being tested with select customers before rolling out more broadly in the coming months.

— CNBC’s Kate Rooney contributed to this report.

Source: https://www.cnbc.com/2021/09/09/affirm-afrm-stock-skyrockets-after-reporting-71percent-revenue-growth-and-strong-guidance.html

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Oracle falls short on revenue as it ramps up cloud investment

While Oracle has been investing more in capital expenditures to meet expected demand for cloud services, revenue fell short of estimates in multiple segments.

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Oracle CEO Safra Catz delivers a keynote address during the 2019 Oracle OpenWorld on September 17, 2019 in San Francisco, California. Oracle CEO Safra Catz kicked off day two of the 2019 Oracle OpenWorld with a keynote address. The annual convention runs through September 19.

Justin Sullivan | Getty Images

Oracle shares fell as much as 3% in extended trading on Monday after the enterprise software maker reported fiscal first-quarter revenue that came in under analysts’ expectations.

Here’s how the company did:

  • Earnings: $1.03 per share, adjusted, vs. 97 cents per share as expected by analysts, according to Refinitiv.
  • Revenue: $9.73 billion, vs. $9.77 billion as expected by analysts, according to Refinitiv.

Revenue increased by 4% year over year in the quarter, which ended on Aug. 31, according to a statement. In the previous quarter Oracle’s revenue had gone up 8%.

With respect to guidance Oracle CEO Safra Catz said she sees fiscal second-quarter earnings of $1.09 to $1.13 in earnings per share on 3% to 5% revenue growth.. Analysts polled by Refinitiv are expecting fiscal second-quarter adjusted earnings of $1.08 per share and $10.25 billion in revenue, which works out to almost 5% revenue growth.

“Cloud is fundamentally a more profitable business compared to on-premise, and as we look ahead to next year, we expect company operating margins will be the same or better than pre-pandemic levels,” Catz said. Oracle does not disclose revenue or operating income from cloud infrastructure or cloud applications.

Oracle’s largest business segment, cloud services and license support, generated $7.37 billion in revenue, which is up 6% and below the StreetAccount consensus estimate of $7.41 billion.

The cloud license and on-premises license segment contributed $813 million in revenue, down 8% and lower than the $859.7 million consensus. Oracle’s hardware unit had $763 million in revenue, down 6% and less than the $778.5 million estimate.

Oracle boosted its capital expenditures above $1 billion, compared with $436 million in the year-ago quarter. The investment comes after executives signaled they wanted to have the infrastructure necessary to meet expected cloud demand. Cloud infrastructure and cloud applications now represent 25% of total revenue, Oracle said in the statement.

In the quarter Oracle announced a support rewards program designed to encourage customers to adopt its public cloud services, and S&P Global Ratings lowered its rating on Oracle and its debt to BBB+.

Oracle shares have risen 37% since the start of the year, while the S&P 500 index is up about 19% over the same period.

WATCH: Bulls bet on Fluor. Plus, an update on Oracle calls

Here’s how the company did:

Source: https://www.cnbc.com/2021/09/13/oracle-orcl-earnings-q1-2022.html

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