RobinHood anger, silver linings

Morning Note

Now for the recriminations. RobinHood and other US brokers stopped trading in a number of stocks such as GameStop and AMC Entertainment that have lately been the target of retail investors seeking to ramp prices to spook hedge funds shorting the shares. Cue the upset: a class action lawsuit has been lodged against RobinHood, Democrat and Republican politicians are wading in by calling for Congressional hearings, and the SEC and even the White House say they are monitoring the situation. The fact is, the US brokers have obligations to maintain capital requirements mandated by the SEC – it’s been reported the company raised $1bn. There are things like counterparty risk. Free trading apps don’t run on fumes and markets don’t make themselves. But that won’t stop the Reddit crowd from claiming RobinHood is a poacher turned gamekeeper.

 

Seemingly, RobinHood and other brokers pricked the bubble – shares in GME fell 44% to $199. AMC dropped 56%. Hold on your hats, though, as shares are soaring in pre-market trading this morning with the US brokers set to allow some limited trading on the stocks today. I would issue the usual warning: it’s always riskiest when it looks easy, and usually these speculative crazes end in tears. 

 

Our Reddit watchlist had a rough day, but pre-market and trading in Frankfurt suggests another rollercoaster today

Our Reddit watchlist took a hit but may rebound in pre-market.

Keep an eye on silver – the /r/wallstreetbets thread is laced with mentions of effecting a massive short squeeze on the metal. Yesterday we did see a sharp spike higher but it coincided with a swift reversal for the US dollar and gold also shot higher. One to watch though.

 

Watch the FAANGs today – German finance minister Olaf Scholz said a global tax on tech giants was now “highly likely”, following a call with US Treasury Secretary Janet Yellen. She had backed the moved in her Senate confirmation hearing last week.  The Biden administration seems all but certain to engage with the OECD, which plans to establish a global tax regime this year. 

 

European equities stumbled out of bed this morning, but we await the US session for our cup of ambition. There was a late blitz higher in the latter part of the European session yesterday as the US markets rose and the Vix eased back from multi-month highs (though it’s back up this morning). This week has wiped out year-to-date gains in several of the major indices as investors start to look rather hesitant to call for the next leg up. Worries about lockdowns ad infinitum in Europe are a clear weight and the EU’s rollout of vaccines, which has been marked more by threats to restrict access to Pfizer jabs than by anything very positive, is proving as painfully slow as its delivery of fiscal relief to member states.

 

Bank of America this morning calls for a 10% correction in equities in the coming months. I’ve said lately a 5-10% drawdown in Q1 was likely. Wall Street is about 3% down since I made that call, so could see a little more downside and a test of 3,500 is possible. Beyond this, the backdrop for equities should be quite positive as vaccines kick in and the recovery takes off (fingers crossed).