Wall Street’s skeptics are suffering
Short-sellers have long been some of Wall Street’s most reviled villains. But the recent “meme stock” frenzy — in part, a concerted effort to squeeze such investors — has left many fearing for their livelihoods, The Times’s Kate Kelly and Matt Goldstein report.
Short-sellers have been battered by the bull market. Hedge funds that primarily bet against stocks were down 47 percent over the past year. “Short-sellers have been beaten up and left for dead on the side of the road,” said Jim Chanos, the investor who famously bet against Enron ahead of its collapse.
Now they are worried about new challenges:
The GameStop frenzy shows that internet-enabled herds can bet en masse on companies, driving up their stock price and saddling shorts with huge losses. “I see dead hedge funds,” one user posted in a Reddit forum.
Washington lawmakers are holding shorts up as potential market manipulators. “We must deal with the hedge funds whose unethical conduct directly led to the recent market volatility,” said Representative Maxine Waters, a Democrat, the head of the House Financial Services Committee who will oversee a Feb. 18 hearing on the meme stock mania.
Crowded trades and a bull market have “destroyed what’s left of short-sellers,” said Marc Cohodes, a veteran investor.
Some worry about their personal safety, too. Fahmi Quadir, who runs a $50 million hedge fund, shares her GPS coordinates with a colleague. And Gabe Plotkin, whose Melvin Capital was specifically targeted by Reddit traders, had to hire security after his family was threatened.
HERE’S WHAT’S HAPPENING
A setback in the fight against Covid-19. South Africa halted distribution of AstraZeneca’s coronavirus vaccine after a preliminary study showed that it had limited effect against the coronavirus variant first identified in the country.
President Biden presses for a huge stimulus measure. The president defended efforts to pass a $1.9 trillion package with only Democratic votes, rejecting calls for smaller proposals. In related news, Democrats plan to unveil a $3,000-per-child cash payment.
Democratic senators propose rewriting a tech legal shield. The “SAFE TECH Act,” proposed by Senator Mark Warner of Virginia, would establish limits to websites’ immunity from legal liability on user-posted content. It has encountered resistance from groups that say smaller tech platforms could be hurt more than giants like Google and Facebook.
SoftBank’s Vision Fund posts a huge quarterly gain. The Japanese company’s tech investment fund reported an $8 billion profit in its latest quarter, thanks to portfolio companies like OpenDoor and DoorDash going public. SoftBank as a whole reported an $11 billion profit, surpassing estimates.
The best of the Super Bowl. Sure, Tom Brady solidified his status as the greatest quarterback of all time as he led the Tampa Bay Buccaneers to a blowout victory over the Kansas City Chiefs. But let’s talk about the ads, which included pleas for unity (Bruce Springsteen for Jeep), nostalgic weirdness (Timothée Chalamet as the son of Edward Scissorhands for Cadillac) and just plain old weirdness (Toni Petersson, the C.E.O. of Oatly). Andrew’s favorite: Jason Alexander, in a manner of speaking, for Tide.
Where do you get your financial advice?
As lawmakers and regulators investigate the meme stock frenzy, they are taking a closer look at online forums and social media accounts. Treasury Secretary Janet Yellen said yesterday that she wanted to “make sure that investors are adequately protected.”
Disclosures and disclaimers are in focus. The trader known as “Roaring Kitty” put a disclaimer on his popular YouTube videos about GameStop, recommending that potential investors consult an adviser before acting. But an analysis of more than 1,200 TikTok videos by 50 “StockTok” influencers found that 14 percent encouraged users to make trades without a disclaimer, according to the cryptocurrency trading platform Paxful. Those videos, some of which were flagged by TikTok as “misleading,” have garnered 28.4 million views.
Regulators have been here before. During the dot-com boom, the S.E.C. kept tabs on chat rooms for signs of manipulation, as in the case of Jonathan Lebed, a teenager who posted messages touting stocks he owned. In September 2000, he settled with the agency by agreeing to pay back $285,000.
There’s an ETF for that: The asset manager VanEck is starting a fund that scours Twitter, forums and blogs for stocks with a lot of online buzz.
“The elements in the new system consist of central computers, an automatic communications network and desktop terminals.”
— On this day 50 years ago, the Nasdaq booted up the first electronic stock exchange, which The Times called “the most revolutionary innovation in the history of the over-the-counter market.”
Microsoft’s president talks politics
After the Jan. 6 riot in Washington, companies have been rethinking their political donations, as we detailed this weekend. Microsoft, which has given hundreds of thousands of dollars in recent election cycles to Republicans who went on to challenge the certification of votes after the storming of the Capitol, said late last week that it would cut them off. In the first in-depth interview about the decision, Microsoft’s president, Brad Smith, spoke with Kara Swisher on the “Sway” podcast.
One donation came as a particularly unpleasant surprise, Mr. Smith said, referring to a gift to Senator Josh Hawley, who led Republican efforts to question the election result. “When I learned in January that that donation had been made in the early part of December, it did not bring an enthusiastic beginning to my morning,” said Mr. Smith, who leaves day-to-day decisions in this area to the company’s PAC department.
Microsoft has redefined its PAC policies. Mr. Smith said the company would now more explicitly consider issues like whether politicians “are good for democracy.”
There is still a place for the corporate PAC, Mr. Smith argued. Although the point of a corporate PAC is up for debate, “I think we have one for good reasons,” he said. Those reasons, namely, are because crucial matters of privacy, security and competition are “going to be decided in the world of politics.”
The serial SPAC sponsor Alec Gores strikes another deal
The blank-check company Gores Holding VI is acquiring Matterport in a deal that values the real-estate technology company at $2.3 billion. The merger also includes a cash infusion of $640 million.
Alec Gores was early to the SPAC game, notably with his firm’s 2016 deal for Hostess. The firm also boasts the biggest SPAC deal to date, taking United Wholesale Mortgage public last year in a deal worth more than $16 billion. Gores Holding raised its seventh SPAC last month, helping January set a record for SPAC fund-raising, with blank-check I.P.O.s worth nearly $26 billion.
Today’s deal was the first by Gores since Justin Wilson and Ted Fike joined from Softbank’s Vision Fund, suggesting a tech shift for the firm’s SPAC business. Matterport makes spatial data technology that helps create 3-D visualizations of properties like homes and event spaces.
The week ahead
Corporate earnings continue to come in better than expected, defying initial forecasts of another pandemic-fueled decline and forcing analysts to upgrade their expectations.
Blue-chip companies hoping to keep the streak alive this week include: Fox, KKR and Twitter on Tuesday; Coca-Cola, G.M. and Uber on Wednesday; and AstraZeneca, Disney and PepsiCo on Thursday.
Bumble is scheduled to make its market debut midweek, and is predicted to raise about $1 billion in an I.P.O. that values the online dating company at around $6 billion.
And finally, the second impeachment trial of former President Donald Trump starts on Tuesday.
Will Biden curb the ‘curse of bigness’?
The Biden administration must choose between taking a progressive view of antitrust regulations, using the law to rein in or break up big companies; sticking with the laissez-faire approach that critics say has led to extreme concentration; or trying to find some middle path. The pressure on the president from the left comes from those who argue that a tougher approach simply hearkens to the past, when the authorities recognized what Louis Brandeis, who went on to become a Supreme Court justice, called the “curse of bigness” in the early 20th century.
“Monopoly power is a causal factor in our most serious economic challenges,” states a new report from the American Economic Liberties Project, an antimonopoly nonprofit, shared first with DealBook. The group argues for a new-old ideological regime that reins in consolidation, proposing dozens of actions for the Justice Department, F.T.C., F.C.C., Congress and many other official bodies.
“This is a major project,” the group’s executive director, Sarah Miller, said. The need to “reject old ideological underpinnings” is a unifying theme throughout the report, she added. “There is not just one silver bullet.”
A new lens is needed, Ms. Miller said. For decades, antitrust reviews have employed a “consumer welfare standard” that examines mergers for economic efficiency, mostly focused on the effect a deal has on prices. But people aren’t just consumers — they are also workers, voters, entrepreneurs and community members. In practice, Ms. Miller argues, as industries consolidate, consumers sometimes pay less for products, but wages also stagnate and entrepreneurship falters.
“America’s concentration crisis did not emerge in the Trump years,” but it deepened during this time, according to the report. The group compiled a downloadable database of more than 1,300 significant mergers during the Trump era, noting that “basic, usable information” about M.&A. is mostly unavailable to the public.
THE SPEED READ
In SPAC news: Elliott Management is reportedly considering raising $1 billion for a blank-check fund; SoftBank is seeking $630 million for two SPACs; and Danny Meyer, the founder of Shake Shack, is planning to raise $250 million for a fund. (WSJ, Bloomberg)
Oatly, the maker of plant-based dairy products, is reportedly seeking a $10 billion valuation in its I.P.O. (Bloomberg)
Politics and policy
Donald Trump’s efforts to contest the 2020 presidential election have cost federal, state and local governments an estimated $519 million. (WaPo)
Best of the rest
Bill McGlashan, the former TPG executive embroiled in the college admissions scandal, will plead guilty to one charge. (Bloomberg)
Jeff Immelt accepts some blame for G.E.’s stumbles — but offers a lot of excuses, too. (NYT)
Clawing back pay for misconduct is hard, so some companies are forcing top executives to set aside share grants for at least a year, even after they vest. (WSJ)
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