Dust starts to settle on retail frenzy, Democrats get started on stimulus and the end of an era at Amazon.
Taking a look
As GameStop Corp. rapidly falls back to earth, Treasury Secretary Janet Yellen has summoned experts to take a look at the recent day-trader mania. She called a meeting with the Securities and Exchange Commission, the Federal Reserve Board, the Federal Reserve Bank of New York and the Commodity Futures Trading Commission, according to a statement from her department. While such talks aren't unusual during market volatility, and don't necessarily mean policy moves are imminent, there has been political pressure to respond to the speculative frenzy. Yellen has requested an ethics waiver to hold the meeting as she received more than $700,000 in speaking fees from Ken Griffin's Citadel, the fund which has been the target of much retail-investor opprobrium.
The Senate yesterday voted 50-49 to open a debate on budget resolution for the 2021 fiscal year, a move that paves the way for much of President Joe Biden's stimulus package to become law without the need for any Republican support. Senate Majority Leader Chuck Schumer said Janet Yellen warned Democrat lawmakers in a call that the GOP plan for a much smaller $618 billion deal risked repeat the mistake in 2009. The one thing that may put a fly in the ointment for the Biden administration is the speed at which the economy is already picking up, as signs of returning growth could reduce support for a large package.
Uncover Hidden Value in Corporate Bonds
VanEck has partnered with Moody's Analytics to launch 2 new ETFs with a quant-driven approach to investment grade bonds.
Jeff Bezos's announcement that he will resign as chief executive officer of Amazon.com Inc. in the third quarter of this year came as the company released another blockbuster set of results and solid guidance. Bezos, who founded it as an online bookseller in the 1990s, has steered it into a retail behemoth with a market capitalization of $1.7 trillion. He will be replaced at the helm by Andy Jassy, the head of the company’s cloud computing unit, and retain an interest in Amazon by taking the role of executive chairman.
Equity markets remain on the front foot this morning, with positive earnings and stimulus hopes keeping investors in a risk-on mood. Overnight, the MSCI Asia Pacific Index added 0.8% while Japan's Topix index closed 1.3% higher. In Europe, the Stoxx 600 Index had gained 0.7% by 5:50 a.m. Eastern Time with Italian equities putting in a very strong performance after former European Central Bank President Mario Draghi was tapped to become Italy's next prime minister. S&P 500 futures pointed to another rise at the open, the 10-year Treasury yield was at 1.117%, oil rose and gold slipped.
The run-up to Friday's payrolls report begins at 8:15 a.m. with the publication of the ADP Employment Change number. U.S. services and composite PMIs for January are at 9:45 a.m., with ISM services at 10:00 a.m. Crude inventories data is at 10:30 a.m. Minneapolis Fed President Neel Kashkari, St. Louis Fed President James Bullard, Philadelphia Fed President Patrick Harker, Cleveland Fed President Loretta Mester and Chicago Fed President Charles Evans all speak today. GlaxoSmithKline Plc, Biogen Inc., PayPal Holdings Inc., eBay Inc. and Qualcomm Inc. are among the many companies reporting results.
What we've been reading
This is what's caught our eye over the last 24 hours.
And finally, here’s what Joe's interested in this morning
GameStop got clobbered yesterday, and the stock is now down about 75% from where it was on Friday morning. Nonetheless, it's clear that retail traders will be a force to be reckoned with some time. On the latest episode of Odd Lots, Tracy Alloway and I spoke with Benn Eifert, the CIO at QVR Advisors, who can explain complicated ideas in options and volatility better than just about anyone.
Anyway, there's too much to get into here, but here's one nugget I found fascinating. We were talking about how savvy some of the options traders are on WallStreetBets. He pointed out that four months ago, a user put up a post titled "The REAL Greatest Short Burn of the Century" that laid out what was going to happen in GameStop with incredible clarity.
There's a line in the post that goes:
Thanks to MMs literally not using their brain and relying on ze maths to configure their entire business, we can take advantage of them sleeping at the wheel for a few seconds, and cause them to ram into GME for us.
As Benn points out, that use of the term "ze maths" is an oblique reference to those French derivatives desks, that are famous for employing super smart mathematicians to build complex formulas which also have a nasty tendency to blow up from time to time.
Obviously folks on WSB range in their sophistication. But as Tracy has pointed out, one way this crowd is different from, say, the 1990s dotcom message-board crowd, is just how much many of them know about options. Many of them know the game really well.
Anyway, definitely check out the episode with Benn here. The GameStop trade might be over, but the impact of this crowd on volatility, and what that means for professional investors is likely here to stay.
Joe Weisenthal is an editor at Bloomberg.
Like Bloomberg's Five Things? Subscribe for unlimited access to trusted, data-based journalism in 120 countries around the world and gain expert analysis from exclusive daily newsletters, The Bloomberg Open and The Bloomberg Close.