Jordan Belfort: GameStop frenzy is a 'modified pump and dump'
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London (CNN Business)From Wall Street to the White House, everyone is watching GameStop shares.
What’s happening: Stock in the left-for-dead video game retailer shot up an astonishing 135% to $347.51 on Wednesday, bringing gains since the start of January to 1,745%. In the battle between day traders coordinating on Reddit and legacy hedge funds betting GameStop shares will crash, the rag-tag internet crew is winning the day — at least for now.
It’s not just about GameStop (GME) anymore. Shares of AMC Entertainment (AMC), Nokia (NOK), Tootsie Roll Industries (TR) and the shell of a bankrupt Blockbuster also soared Wednesday as emboldened small investors looked further afield.
Earlier this week, I wrote about how the spectacle has grabbed Wall Street’s attention, forcing the old guard to reckon with how the democratization of investing through no-fee trading platforms like Robinhood is affecting market dynamics. There’s plenty more to be said on that front. But for now, there’s one big question: Just how does this episode end?
Shares of companies like GameStop and AMC Entertainment remain extremely volatile in premarket trading, leaving the immediate fate of the rally unclear. As of 7:35 a.m. ET, GameStop shares were up 37% to $475.
Outside of the United States, where stock in popular hedge-fund targets like Unibail-Rodamco-Westfield had also shot up, there were signs Thursday morning of retrenchment. Shares of the European shopping center owner shed almost 2% in Amsterdam on Thursday after gaining nearly 20% the previous session.
For the hedge funds and short sellers at the center of the melee, though, the damage is done. Melvin Capital closed out its position in GameStop this week after taking a huge loss, CNBC reports. Andrew Left of Citron Research said in a YouTube video posted Wednesday that he covered most of his GameStop shorts at “a loss of 100%.”
Watch this space: So far, many on Wall Street are viewing the GameStop saga as a somewhat isolated event. But there are some concerns that damaged Wall Street money managers may need to sell other stocks they’d been planning to hold for the long-term — say in Apple, or Target — in order to cover losses. That could ripple through the broader market, which on Wednesday had its worst day since October thanks to concerns about Covid-19 vaccination efforts and the economy.
It’s evident that investors are on edge. The VIX, a measure of stock market volatility, shot up nearly 62% on Wednesday, its third biggest one-day leap on records dating back to 2001. It retreated on Thursday but remains elevated.
Talk about whether regulators need to step in and limit this kind of behavior is also increasing — though for the folks at the Securities and Exchange Commission, it’s not a clear-cut case. Sen. Elizabeth Warren, for her part, is using the incident to renew her call for a Wall Street crackdown.
“For years, the same hedge funds, private equity firms, and wealthy investors dismayed by the GameStop trades have treated the stock market like their own personal casino while everyone else pays the price,” the Massachusetts Democrat said in a statement.
Apple, Facebook and Tesla had earnings, too
On a normal day, all eyes would have been on Apple (AAPL), Facebook (FB) and Tesla (TSLA), which reported earnings after US markets closed Wednesday.
Apple’s most recent quarter was a blowout thanks to sales of its new iPhone 12, with revenue hitting a record $111.4 billion — well above what Wall Street analysts had predicted.
Sales of iPhones grew more than 17% year-over-year to nearly $65.6 billion, feeding hopes that the company’s earnings will be supercharged in 2021 by a flood of people rushing to upgrade their devices.
Facebook, meanwhile, said revenue rose 33% to roughly $28 billion during the quarter, showing the durability of its core advertising business despite the pandemic. When combining Facebook’s various apps, including Instagram, Messenger and WhatsApp, the company reported 3.3 billion monthly active users, an increase of 14% year-over-year.
Tesla told investors that it had notched its first full year as a profitable company, and vowed to increase sales growth by more than 50% in 2021.
“2020 was a defining year for us on many levels,” CEO Elon Musk said. “Despite a challenging environment … we delivered almost as many cars last year as we produced in our entire history.”
Still, jittery investors don’t appear impressed. Shares of Apple are down 1.7% in premarket trading, while Tesla’s stock is 5% lower. Facebook shares also dipped.
Walmart ramps up its battle with Amazon using robots
In an escalating race against Amazon, Walmart (WMT) is sending in the robots.
The plan: To speed up customers’ online delivery and curbside pickup orders, the company is building automated mini-warehouses in dozens of its stores, my CNN Business colleague Nathaniel Meyersohn reports.
There, bots will gather thousands of pantry items and frozen foods instead of employees. The items will then be brought to an area where Walmart workers can assemble them into orders for pickup or delivery.
Big picture: Walmart’s plan comes as online ordering surges in the pandemic. Walmart’s online sales, which include pickup and delivery, climbed 79% between August and October compared to the previous year. The prior quarter, online sales grew 97% from a year earlier.
Investor insight: Walmart’s shares are up 24% in the past year, while Amazon’s stock has rallied 77%. But on the whole, Wall Street has cheered Walmart’s ambitious efforts to take on the internet behemoth.
Tom Ward, Walmart’s US senior vice president of customer product, said on a call with reporters Tuesday that the centers would enable Walmart to fulfill curbside pickups and home deliveries within an hour. Those robots better work quickly.
Comcast (CMCSA), American Airlines (AAL), Dow (DOW), JetBlue (JBLU), Mastercard (MA), McDonald’s (MCD) and Southwest Air (LUV) report results before US markets open. Mondelez (MDLZ) and Visa (V) follow after the close.
- The first look at US GDP for the last three months of 2020 arrives at 8:30 a.m. ET.
- At the same time, we’ll get a look at initial jobless claims from last week amid concerns about the state of the US labor market.
Coming tomorrow: A busy earnings week continues with Caterpillar (CAT), Chevron (CVX) and Honeywell (HON).
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