Robinhood now a go-to for young investors and short sellers

(Reuters) – Robinhood, the online brokerage used by many retail traders to pile in to heavily shorted stocks like GameStop Corp, has made an ambitious push into loaning out its clients’ shares to short sellers as it expands its business.

The broker had $1.9 billion in shares loaned out as of Dec. 31, nearly three times the $674 million a year earlier, and it was permitted to lend out $4.6 billion worth of securities under margin agreements, around five times bigger than the prior year, according to an annual regulatory filing here late on Monday.

The size of the jump highlights Robinhood’s rapid growth over the past year as the number of retail investors has soared in the work-from-home environment during the pandemic and as retail brokers have largely eliminated trading fees, a model Robinhood helped pioneer.

Menlo Park, California-based Robinhood is expected to go public this year with a valuation of more than $20 billion.

Securities lending is common among brokerages, which can earn income by lending shares to hedge funds and others, who then sell the shares back into the market, betting the share prices will drop so they can buy them back at a lower price when it is time to return them, pocketing the difference.

Shares that are in heavy demand from short sellers, like GameStop, which had 140% short interest in January here, command the biggest premium from the lender.

What makes Robinhood notable is that many of the stocks its users invest in are among the most sought-after by people who want to bet against them, said one senior financial executive involved with hedge funds.

It was unclear how great a benefit the securities lending was to Robinhood’s revenue and income, which it does not disclose.

Robinhood declined comment on the filing and did not immediately respond to a request for comment on the details of which stocks it loans out.

In January, retail investors coordinated through trading forums on social media in an attempt to punish hedge funds by buying up shares of GameStop and other heavily shorted names, like AMC Entertainment, driving up their prices and forcing short sellers to close out positions at big losses.

On Jan. 28, at the height of the retail trading mania, Robinhood, along with several other brokers, restricted the buying of GameStop and other so-called meme stocks due to a massive spike in collateral requirements needed to clear the trades, angering many of its customers.

The trading restrictions sparked congressional hearings, regulatory probes and have placed greater scrutiny on short selling.

In response, Vlad Tenev, Robinhood’s chief executive officer, called for shorter stock settlement times, which would reduce clearing collateral requirements.

He also said the idea that more shares of a stock can be shorted than there are available to trade, as was the case with GameStop, is a “pathology” that could destabilize the financial markets.

Robinhood positioned itself for growth in securities lending in October 2018 by launching its own clearing broker, which acts as a go-between with the clearinghouse that settles its trades, and allows it to hold its customers’ assets. The broker can then lend out securities its customers buy on margin.

At present, less than 3% of Robinhood’s funded accounts are margin-enabled, Tenev recently told Congress here.

Instacart valuation more than doubles to $39 billion with latest funding round

Instacart has more than doubled its valuation in less than six months to $39 billion with a $265 million fundraising round from existing investors, as the grocery delivery company benefits from a surge in online orders during the COVID-19 pandemic.

The San Francisco start-up, whose transaction volumes surged sixfold last year as doorstep delivery boomed during lockdowns, said on Tuesday it plans to use part of the new funds to increase its corporate headcount by an estimated 50% in 2021.

The company was valued at $17.8 billion in November following the closing of a previous funding round. That same month, Reuters reported Instacart had picked Goldman Sachs Group Inc to lead its initial public offering at around a $30 billion valuation.

Its latest cash injection comes just a few months after California backed a ballot proposal that upheld the status of app-based delivery drivers as independent contractors- a major boost for the likes of Instacart and Uber Technologies Inc, which rely on people to work independently and not as employees.

The new funding round was led by Andreessen Horowitz, Sequoia Capital, D1 Capital Partners, Fidelity Management & Research Co and T. Rowe Price Associates.

China’s Ant seeks to ease staff concerns about selling company’s shares

China’s Ant Group is working on measures to help staff with “short-term liquidity problems”, its executive chairman said in internal messages, after the halting of the fintech giant’s $37 billion IPO dashed employees’ hopes of cashing in their shares.

The listing of the affiliate of Chinese e-commerce giant Alibaba Group Holding last November would have made some of the company’s employees millionaires or billionaires.

Eric Jing told Ant employees last week that the company would review its staff incentive programmes and roll out some measures starting from April to help solve their financial problems, according to two people who have seen the messages.

Some Ant employees recently expressed frustration on social media for not being able to sell the company shares they own after Chinese regulators abruptly halted Ant’s dual-listing, which was set to be the world’s largest, in November.

Jing made the comments in response to employee questions about Ant’s future on the company’s internal website, said the people, who declined to be named as they were not authorized to speak to the media.

The company’s share buyback programme for employees has been halted since July last year due to the planned initial public offering, one of the people said, which would have given them an opportunity to monetize their holdings.

Ant declined to comment.

The Wall Street Journal first reported the news.

“Our company will certainly become a public company and I’m very confident about it all along,” Jing was cited by the people as saying in the internal messages. “Our preparation work won’t stop.”

Ant is currently working on plans to shift to a financial holding company structure following intense regulatory pressure and to rein in some of its operations and subject them to rules and capital requirements similar to those for banks.

A group business structure overall, however, means that the company could proceed with the IPO within two years, Reuters has reported.

“This rectification won’t make Ant weak, but will make us healthier, with a greater stage for growth,” Jing said, without disclosing the details of the restructuring plan.

Analysis: Emerging markets feel the heat of the ‘bondfire’

Just when developing economies were ready to bask in the post-COVID rebound in global growth, in sweeps a bond market blaze to scorch them again.

Most major investment banks were predicting a stellar 2021 for emerging market assets as long as one crucial snag – global borrowing costs rising too fast – was avoided. Well guess what, they are on a tear.

February saw their steepest monthly gain since Donald Trump’s shock 2016 U.S. presidential election win and, though the move comes from record low levels, for emerging markets now carrying nearly $80 trillion worth of debt it has been painful few weeks.

The widely-tracked JPMorgan Emerging Market Bond Index (EMBI) is having its worst start to a year for a quarter of a century, currencies have recoiled and MSCI’s EM stocks index has just suffered its biggest weekly drop since peak COVID panic last March.

The carnage has been described as a bond bonfire by ING analysts and prompted some of those bullish investment banks like JPMorgan and Morgan Stanley to curtail their bets.

Graphic: Worst start to a year for EM hard currency debt in 25 years –

Reuters Graphic

Rising developed market bond yields sting emerging markets in two main ways.

Firstly they push up borrowing costs. BofA estimates emerging markets will sell over three quarters of a trillion dollars worth of debt this year – $210 billion by governments and over $550 billion by corporates. Higher rates mean adding to government debt ratios that soared 15.5 percentage points across the top 60 emerging markets last year and have left 13 such countries with debt-to-GDP in excess of 100%.

Secondly, it cuts the premium existing emerging debt offers investors compared to ultra safe and liquid U.S. Treasuries.

If the risk-reward calculation no longer adds up, money managers can quickly sell as was seen during the 2013 ‘taper tantrum’ when the Federal Reserve’s hints at ending its easy-money policies triggered an estimated $25 billion emerging asset selloff in just two months.

The effects of that episode were particularly severe in the “Fragile Five” of Brazil, India, Indonesia, South Africa and Turkey that had built-up large current account deficits that were funded by short-term capital inflows.

Graphic: US yields and EM capital flows –

Reuters Graphic

BOOM TIME

This time, investors are worried about at least some of those.

“Brazil and South Africa are countries whose combination of persistent weak growth, rising public debt, very steep yield curves with very high long-term real interest rates has become a big source of concern,” said David Lubin, Citi’s managing director and head of emerging markets economics. “Mexico might also be on that list.”

Still, the alarm bells aren’t ringing as loud now.

For one reason, U.S. “real” yields, adjusted for inflation, remain low by historical standards, at about negative 80 basis points which keeps emerging market assets looking attractive.

By comparison, during the original taper tantrum, “real” U.S. 10-year yields rose steeply from negative 75 basis points at the end of 2012 to positive 50 basis points by mid-2013.

And despite the huge rise in debts, last year’s recessions have helped to mostly eliminate current account deficits, limiting many emerging markets’ reliance on capital inflows and acting as a shock absorber against rising U.S. yields.

A punchy recovery in global growth and fast-rising commodity prices should further help developing economies and even dig some out of a hole.

Moody’s last week cranked up its pan-EM growth forecast for the year to 7% from 6.1%, led by upward revisions to China, India and Mexico, and with $1.9 trillion of U.S. stimulus now coming most institutions are doing the same.

“We could be at the door of a big, big economic boom,” said head of Barings’ sovereign debt and currencies group Ricardo Adrogué. “Some of these countries that seem hopeless today could actually be ok”.

Graphic: Emerging market borrowing costs are rising again –

Reuters Graphic

FRAGILE FRONTIERS

Others will not be so lucky though.

Ethiopia is about to become a test case for the new G20 ‘Common Framework’ debt relief plan which stipulates private creditor debt must also be restructured, meaning the government has to default.

Others are expected to follow. S&P Global warned last week Belize was “virtually certain” to default in May. Laos and Sri Lanka have key payments in June and July, while JPMorgan lists 16 at-risk countries from Cameroon to Tajikistan sitting on a combined $61.4 billion of debt.

Tellimer’s senior economist Patrick Curran has dubbed the new group of vulnerable countries the ‘Fragile Frontiers’. It includes Jamaica, Tunisia, Ecuador, Sri Lanka, Belarus, Ethiopia, Laos, Bahrain and Oman.

Adding to the risks, not all emerging markets have started rolling out COVID vaccines yet. In Africa, for example, only a minority of countries are currently vaccinating and more variants are still breaking out.

Countries like Mexico, Jamaica, Panama, Mauritius, Montenegro, Jordan and Fiji where tourism accounts for close to 10% of GDP will wonder whether vaccines will come quickly enough to save their busy seasons this year.

“Virus mutations are a real thing I worry about,” said Raza Agha, head of emerging markets credit strategy at Legal & General Investment Management. “There’s already been several and there’s no way of predicting how many more there will be.”

Graphic: Tourism as a share of GDP –

Reuters Graphic

Graphic: Most indebted emerging and low-income countries –

Reuters Graphic

Graphic: Interest payment pain –

Reuters Graphic

Payments firm Klarna triples valuation to $31 billion by raising $1 billion

STOCKHOLM (Reuters) – Swedish payments firm Klarna nearly tripled its valuation to $31 billion in less than six months after it announced on Monday a new $1 billion fundraising round.

The new round, which will make Klarna the most valuable European startup, was oversubscribed four times and included a combination of new and existing investors.

The “buy now, pay later” firm completed a $650 million funding round in September from a group of investors led by Silver Lake that valued it at $11 billion.

Klarna also said it would pledge 1% of the capital raised to a newly created initiative that focuses on key sustainability challenges around the world and would launch on April 22 on World Earth Day.

Reuters had reported last week that the company, which competes with PayPal and Australia’s AfterPay, was finalising another private funding round.

Buffett upbeat on U.S. and Berkshire, buys back stock even as pandemic hits results

Not even the coronavirus pandemic could dampen Warren Buffett’s enthusiasm for the future prospects of America and his company Berkshire Hathaway Inc.

Buffet used his annual letter to investors to assure that he and his successors would be careful stewards of their money, and “the passage of time, an inner calm, ample diversification and a minimization of transactions and fees” would serve them well.

He also retained his longstanding optimism for his company, repurchasing a record $24.7 billion of Berkshire stock in 2020 in a sign he considers it undervalued, and for the United States despite “severe interruptions” such as the pandemic.

“Our unwavering conclusion: Never bet against America,” he said. ((here))

The letter breaks an uncharacteristic silence for the 90-year-old Buffett, who has been almost completely invisible to the public since Berkshire’s annual meeting last May amid the pandemic, soaring stocks and a divisive U.S. presidential election.

“He’s a deep believer in his company and the country,” said Tom Russo, a partner at Gardner, Russo & Gardner in Lancaster, Pennsylvania and longtime Berkshire investor.

The letter was accompanied by Berkshire’s financial results and annual report.

Berkshire reported net income of $35.84 billion in the fourth quarter, and $42.52 billion for the year, both reflecting gains in its stock holdings, led by Apple Inc.

Operating income, which Buffett considers a more accurate measure of performance, fell 9% for the year to $21.92 billion. The stock buybacks have continued in 2021, with Berkshire repurchasing more than $4 billion of its own stock.

GameStop rally fizzles; shares still on pace for 130% weekly gain

GameStop  customers inside Wall Street shop

An early surge in the shares of GameStop Corp fizzled and left the video game retailer’s stock down more than 15% on Friday, throwing water on a renewed rally this week that has left analysts puzzled.

GameStop shares hovered around $94 after hitting $105 in late-morning trading. Despite Friday’s losses, the company’s stock is up about 135% for the week in the face of a broader market selloff that has sent the benchmark S&P 500 down about 2% over the same time.

Analysts have struggled to find an clear explanation for the rally, leaving some skeptical that it will continue.

“You might be able to make some quick trading money and it could be a lot of money, but in the end, it’s the greater fool theory,” said Eric Diton, president and managing director at The Wealth Alliance in New York. The theory refers to buying stocks that are over-valued in anticipation that someone else will come along to buy them at a higher price.

One catalyst that sparked GameStop’s rally in January – a high concentration of investors that had bet against the stock being forced to unwind their positions – does not appear to be as much of a factor this time.

Short interest accounted for 28.4% of the float on Thursday, compared with a peak of 142% in early January, according to S3 Partners.

Options market activity in the stock, which has returned to the top of the list in a social media-driven retail trading frenzy, suggested investors were betting on higher prices or higher volatility, or both.

Refinitiv data on options showed retail investors have been buying deep out-of-the-money call options, which are options with contract prices to buy far higher than the current stock price.

Many of those option contracts are set to expire on Friday, and would mean handsome gains for those betting on a further rise in GameStop’s stock price.

Call options, which would be profitable for holders if GameStop shares reach $200 and $800 this week, have been particularly heavily traded, the data showed.

“The actors are looking to take advantage of everything they can to maximize their impact and the timing is important,” said David Trainer, chief executive officer of investment research firm New Constructs. “The options expiration will contribute to their strategy on how to push the stock as much as they can and maximize their profits.”

Bots on major social media websites have been hyping GameStop and other “meme stocks,” although the extent to which they influenced market prices is unclear, according to analysis by Massachusetts-based cyber security company PiiQ Media.

GameStop’s stock is still far from the $483 intraday trading high it hit in January, when individual investors using Robinhood and other trading apps drove a rally, forcing many hedge funds that had bet against the video game retailer to cover short positions.

Other Reddit favorites were also lower, with cinema operator AMC Entertainment down around 5.5%, headphone maker Koss off about 25% and marijuana company Sundial Growers down less than 1% in Friday trading.

U.S. stocks tank as Treasury yields surge

Wall Street’s main indexes recoiled from record highs on Thursday as surging U.S. Treasury yields took the shine off stocks now that a strong economic recovery looked more certain and investors clung to bets that inflation would rise.

The S&P 500 was down 2.03%, and retreating technology stocks dragged the Nasdaq down more than 3% at one point as the benchmark 10-year note yield surged more than 20 basis points above 1.6% to a one-year high.

That surge put the note yield above the 1.48% S&P 500 dividend yield, wiping out the strong advantage that the stock market has held over bonds during the pandemic.

COMMENTS:

PETER TUZ, PRESIDENT, CHASE INVESTMENT COUNSEL, CHARLOTTESVILLE, VIRGINIA

“It’s an exciting day on the market. Rates matter. We’ve seen the 10-year Treasury yield go from below 1% to 1.5% pretty quickly. At 1.5%, the yield is comparable to S&P 500 dividend yield. And there’s no capital risk with a 10-year, you’ll get your principle back. And all of a sudden it’s competitive with stocks.

“On top of that you’ve had an equity market that’s hit record highs many times this year and it’s expensive relative to historic norms. We were primed for a sell-off and we’re getting one.

“I ignore (the meme stocks), but what they do is point to how speculative in some ways the market is. When you have this small group of stocks acting irrational it puts it in people’s minds that these things can fluctuate up and down and they don’t want any part of it. The meme stocks volatility scares people out of the market in general.

“We’ve had a great market and we have these sell-offs driven by interest rates. You see a lot of corrections in individual stocks because of guidance. Returning to normal is painful for shareholders.”

MICHAEL ANTONELLI, MARKET STRATEGIST, BAIRD, MILWAUKEE

“We had a Treasury auction and the auction result was really sloppy. Rates are having big moves today. The 10-year, the five year yields have been rising throughout the day. The market is really focused on the interest rate world right now, what they’re saying and how fast they’re moving.”

“The auction had a big tail to it … there was not a lot of demand.” he said so as a result “The 10-year yield and the 5-year started spiking around 1 PM EST. People were selling bonds.”

“When yields rise rapidly that scares the stock market.”

“In a low interest rate world a lot of big names and popular stocks do well. When rates rise those kinds of stocks go out of favor.”

“Rising rates is kicking off a rotation from all those hot popular tech names into cyclicals and banks and energy.”

MICHAEL PURVES, CHIEF EXECUTIVE, TALLBACKEN CAPITAL ADVISORS, NEW YORK

“The rate market is getting very dynamic. There have been a lot of rate rises since last August, but this has been the first one that has created a disorderly Treasury sell-off. Given how important Treasuries are to everything, that creates all sort of ripples.”

“The bond market is starting to look like a different landscape. There will be more interest rate hikes in 2023, which is pretty far away but not that far away. When you’ve had zero rates forever, and then those are not quite forever, that’s very disruptive to how markets are wired. But I don’t think it’s a fire alarm.”

“A lot of equities have gone up too much, too fast. Ultimately, there’s rate sensitivity.”

ARNIM HOLZER, MACRO AND DEFENSE CORRELATION STRATEGIST, EAB INVESTMENT GROUP, PHILADELPHIA

“There is a concern that despite the Fed saying they are not going to do anything about interest rates, the level of inflation might get away from the Fed, and that will have a market impact… The Fed’s policy should be a calming message, but because of the amount of supply – Treasury debt – the market is beginning to interpret that as much more stimulus, without potential of a check or discipline. The fear is that excesses could develop in the meantime that twist risk-taking in the market to a place that is overly frothy. The market is trying to get ahead of that by getting conservative.”

“The (yield) curve is telling you that growth is coming back with a vengeance, and if the Fed is not going to do anything about it, then you can speculate with impunity. The institutional crowd has concerns that at some point if we mean-revert, it’s going to be the big-cap names that are a source of liquidity. They’re going to prepare for that.”

GameStop’s Frankfurt shares nearly triple in catch-up trade to Wall Street

GameStop Corp’s Frankfurt-listed shares surged 180% in premarket trading on Thursday after the videogame retailer’s U.S. stock more than doubled in late trading in the previous session.

Analysts could not pinpoint one reason for the sharp move, but at least one ruled out a short squeeze that had fired the “Reddit rally” in January when amateur investors piled into stocks that hedge funds had bet against.

Some Twitter users pointed to an activist investor’s tweet of an ice cream cone picture, while others cited factors including options trading and the resignation of GameStop Chief Financial Officer Jim Bell, announced on Tuesday.

GameStop’s U.S.-listed shares soared nearly 104% on Wednesday and were halted several times in a rally that began after 1930 GMT. They jumped another 85% after hours.

German shares of cinema operator AMC Entertainment, another stock favoured last month by individual traders on online discussion forums such as Reddit’s WallStreetBets, jumped 34.7% following an 18% rise in its U.S. stock on Wednesday.

ViacomCBS touts ‘Paramount+’ to investors after mixed earnings

(Reuters) – ViacomCBS Inc kicked off its investor day on Wednesday with a focus on the upcoming rebranding of its CBS All Access streaming service to “Paramount+” – a move designed to capture a larger share of viewers while it pursues selling content to competitors.Slideshow ( 2 images )

“This is a ViacomCBS that is being reimagined for a new kind of marketplace and a new kind of consumer,” said Chair Shari Redstone.

In its fourth-quarter results announced that day, ViacomCBS said it had amassed 19.2 million paid subscribers to All Access and other streaming properties. That was up 7.2% from the previous quarter but significantly below totals for Netflix Inc, with 200 million, and Walt Disney Co’s Disney+, with 94.9 million.

While ViacomCBS was an early entry to streaming – it launched CBS All Access in 2014 – the service has been best known for “Star Trek” shows, and its content investment has paled in comparison to Netflix and Disney. CBS’ 2019 merger with Viacom, a sister company also controlled by the Redstone family, allowed for more content, including films from Paramount Pictures.

ViacomCBS hopes to distinguish Paramount+ from other streaming services through an emphasis on live sports and news. It will launch Paramount+ in the United States, Canada and Latin America on March 4; in the Nordics on March 25, and in Australia in mid-2021.

On Wednesday Chief Executive Bob Bakish said that in 2021, Paramount+ will debut 36 original series across different genres.

He said some new Paramount films will go exclusively to Paramount+ 30 to 45 days after theatrical release. All other new Paramount movies will appear on Paramount+ after their theatrical release, some as early as 90 days.

The rebranded service will include episodes and movies from ViacomCBS-owned BET, CBS, Comedy Central, MTV, Nickelodeon and Paramount Pictures, including original series such as “The Twilight Zone” and “The Good Fight.”

It will cost $6 per month with limited commercials and $10 per month for a commercial-free option, the same rates as for CBS All Access.

The company posted lower-than-expected quarterly revenue, as the COVID-19 pandemic delayed content production and cut film revenue, despite steady demand for its streaming services.

Revenue rose 3% to $6.87 billion in the fourth quarter ended Dec. 31, but came in below estimates of $6.89 billion, according to IBES data from Refinitiv.

Net earnings attributable to ViacomCBS were $783 million, or $1.26 per share, compared with a loss of $302 million, or 49 cents per share, a year earlier.

Excluding items, ViacomCBS earned $1.04 per share, slightly above estimates of $1.02.