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Good morning, Bull Sheeters. It’s Friday. Let’s play a thought experiment: your we-the-people broker informs you: We’ve instituted a new rule: you cannot buy the hottest stocks on the market; you can only sell them.
What do you do?
Revolt? Sue? Call your Congresswoman? Mobilize your pals, and pile into other meme-driven trades—something like silver ETFs or beaten-down airline stocks?
Yesterday, we saw all of the above. Spoiler: this isn’t a test. Discount broker Robinhood halted “buy” trades in GameStop, AMC Entertainment, BlackBerry, Nokia and five other darlings of the day trade crowd.
The fallout continues today. From Tokyo to London, the major exchanges are in sharp decline. Meanwhile, the retail army is once again pushing higher a batch of meme-able favorites. It appears this fight between the little guy and the Goliaths of Wall Street is far from over.
Let’s see what’s moving markets.
Markets update
Asia
- The major Asia indexes are mostly lower, with the Hang Seng down 0.5%.
- Locked out of the GameStop trade? Never fear. Retail investors have poured into a different GME—GME Resources, an Australian mining penny stock. Shares rocketed more than 70%, before, as they do, collapsing.
- Shares in Alibaba are down 2% in Hong Kong, putting it precariously close to bear market territory since its October high. Investors are jittery ahead of the Feb. 2 earnings call in which the e-commerce giant is expected to report disappointing growth.
Europe
- The European bourses stumbled out of the gates with the Stoxx Europe 600 down 1.2% at the open.
- Shares in the iconic British footwear brand, Dr. Martens, began trading this morning, and early demand for one of Europe’s hottest IPOs is looking, ahem, boot-iful. It’s up 22% in the first half-hour of trade.
- AstraZeneca and the EU have failed to resolve their ugly and very public COVID vaccine dispute as doubts emerge about the vaccine’s efficacy among the elderly. The next big development could come as early as today as the European Medicines Agency is expected to rule on a not insignificant matter—whether Europeans have the green light to stick the vaccine jab in their arm.
U.S.
- The U.S. futures have been dropping all morning after all three indexes closed higher on Thursday.
- The U.S. economy shrank by 3.5% last year, its first contraction since 2009. And, jobless claims came in at a dismal 847,000 yesterday.
- Investors largely ignored the macroeconomic data, and instead focused on the drama playing out on investor message boards and retail trading apps. The big news today: Robinhood has reportedly had to raise $1 billion from investors, and has drawn millions more from credit lines to cover the nitty gritty of its business: clearing trades. The trading app, which has big dreams of going public, says it may reactivate the “buy” button on all trades as soon as this morning.
- The rollercoaster ride ain’t over: GameStop, as of 4 a.m. ET, was up more than 140% in pre-market trading, above $400, which would more than recoup yesterday’s bonkers sell-off.
Elsewhere
- Gold is up, trading above $1,850/ounce.
- The dollar is up again. The greenback is having its best week since October.
- Crude is flat, with Brent steady around $55/barrel.
- Bitcoin was trading sideways until Elon Musk this morning changed his Twitter bio to read #bitcoin. It then jumped 10% in a matter of minutes, to top $35,600.
***
By the numbers
$1.58 billion
Lest you think nobody bothers to read quarterly reports during a bull market, I bring you this item. Tesla‘s market cap was pushing $880 billion earlier this week after the company posted its first annual profit. On a pre-tax GAAP basis that profit was $1.154 billion. That number comes with a big asterisk, Fortune‘s Shawn Tully reports. If you were to strip away the money Tesla makes—$1.58 billion—from the sale of CO2 permits to other carmakers, that pre-tax number would go from a profit to a loss. Tully and I are far from the first to point out that Tesla is a loss-making carmaker that happens to be a very profitable permits vendor. I know it has all these other grand plans around self-driving, and a cache of data that it can someday monetize. But until then, its profit center is selling permits. That’s it. Now, selling permits is a perfectly fine business as long as other carmakers need to buy those permits. Analysts, alas, say those days are numbered.
5.7 million
As of this morning, there were 5.7 million subscribers to the Reddit group WallStreetBets. Actually, they go by “degenerates,” not “subscribers.” By my calculation, the WSB army has grown by more than eight-fold since Saturday. (With the help of Breakout Point, we charted this growth yesterday here in this space.) Judging by the chatter on this ultra-popular retail investor forum, they grow angrier and more determined with each passing hour. They’re angry at Robinhood. They’re angry at Wall Street. They’re angry at the hedge fund shorts. They’re angry at CNBC. And we’re starting to see this pent-up frustration and we’ll show them resolve burst forth into the markets once again. Now that trading restrictions appear on the verge of being lifted, the volumes in GameStop shares have surged all morning, sending GME futures contracts rocketing higher. At the same time, Dow, S&P and Nasdaq futures are going in the opposite direction. On Wednesday, we saw the GameStop squeeze hitting the wider markets. Could this be Round 2 of retail traders vs. Wall Street? We’ll find out at the opening bell. Ding, ding, ding.
***
Have a nice weekend, everyone… But first, there’s more news below.
Bernhard Warner
@BernhardWarner
[email protected]
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