Highlights

Wall Street Breakfast

Author: bmotrader   |   Latest post: Wed, 3 Mar 2021, 9:17 AM

 

Wall Street Breakfast: Yellen Doubles Down

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The stock market record highs seem to have fizzled in recent days, with the S&P 500 falling for a third straight day on Thursday. Fears of inflation may be at work amid concerns that if all the stimulus being pumped into the financial system works (i.e., people start spending, shopping etc.), that could begin pushing up prices. That may be risky for stock investors as money flows back into the rising yield bond market. In fact, a sizable selloff has been seen in the U.S. government bond market over the past six weeks, with yields on the 10-year Treasury note climbing from 1% in early January to 1.3% this week (yields move inversely to price).

Quote: "We think it's very important to have a big stimulus package [that] addresses the pain this has caused - 15M Americans behind on their rent, 24M adults and 12M children who don't have enough to eat, small businesses failing," Treasury Secretary Janet Yellen told CNBC. "I think the price of doing too little is much higher than the price of doing something big. We think that the benefits will far outweigh the costs in the longer run."

Asked whether the surge of federal spending could prompt a sustained rise in inflation, Yellen responded that it was a risk, but added that inflation has been very low for many years and the Fed could always mitigate that risk by raising rates. According to Speaker Nancy Pelosi, the House aims to pass its $1.9T coronavirus relief plan before the end of February to beat a deadline on extending key unemployment programs. U.S. stock index futures: Dow +0.2%; S&P 500 +0.3%; Nasdaq +0.4%.

Trending - Grilling on the Hill

Yesterday's GameStop (GME) hearing ran for over five hours, but it's only the first of three planned by the House Financial Services Committee. Future hearings will likely feature representatives from the SEC and the Financial Industry Regulatory Authority, according to Chairwoman Maxine Waters. The gathering on Thursday was billed as a fact-finding mission and featured all the big names caught up in the retail trading frenzy that occurred back in January. Here are some of the highlights:

Robinhood's Vlad Tenev - "Despite the unprecedented market conditions in January, at the end of the day, what happened is unacceptable to us." The decision to restrict buying, but not selling of stocks and options was "not influenced by anyone outside the company." Robinhood (RBNHD) had to work with clearinghouses on capital requirement and eventually restricted buying in 13 stocks, and without those moves, users could have lost complete access to the market.

Melvin Capital's Gabe Plotkin - "I don't you think you’ll see stocks with the kind of short interest we saw prior to this year and data scientists will be watching message boards much more closely." He'd also abide by rules that would require disclosures of short positions.

Reddit's Steve Huffman - "A board like WallStreetBets wouldn't work without anonymity. Reddit's (REDDIT) user base is especially good at sniffing out stories that are not true and reiterates that it hasn't found any nefarious behavior."

Citadel's Kenneth Griffin - "With respect of 'payment for order flow,' we simply follow the rules of the road. If they change the rules... that's fine with us." The system has been an important source of innovation and drove the industry toward zero-dollar commissions, he added. "This has been a big win for American investors."

WSB's Roaring Kitty (a.k.a. Keith Gill) - "The idea that I used social media to promote GameStop stock to unwitting investors and influence the market is preposterous. My posts did not cause the movement of billions of dollars into GameStop shares.” He also noted that that some people lost money and "my heart goes out to them." "For me personally, yes, I do find it's [GameStop] an attractive investment at this point."

Covid - Vaccine distribution a focus at G7 summit

French President Emmanuel Macron is urging Europe and the U.S. to allocate up to 5% of their current vaccine supplies to developing countries, saying failure to share vaccines fairly would entrench global inequality. He hopes the push could turn into some kind of international public policy, but it could be hard to convince populations to send their vaccines elsewhere. Britain also announced it will donate a majority of future surplus vaccines to poorer nations ahead of today's G7 summit, which will focus on speeding up a coordinated effort on global vaccination.

Macron's proposal was quickly rejected by the Biden administration, which said vaccinating Americans was its top priority and it wouldn't donate doses until there was enough supply. President Biden is still expected to announce today the U.S. will spend $4B on international COVID vaccination efforts, which was appropriated by Congress as part of the last coronavirus relief bill approved in December. Half of that sum would be distributed "almost immediately" to COVAX, while the rest would be doled out in stages through 2022.

What is COVAX? The program is part of a global scheme co-led by an international vaccine alliance called Gavi, the Coalition for Epidemic Preparedness Innovations, as well as the WHO. It was established to ensure equitable vaccine access for every country in the world, and aims to deliver 2B doses of safe, effective vaccines by the end of 2021. Only after each nation receives vaccine doses for 20% of its population would countries' COVID risk profiles be considered in a subsequent phase of vaccine distribution.

Returns of the vaccine makers: Shares of Pfizer (NYSE:PFE) have largely held in the $30-range over the past year, despite being the first to receive FDA emergency approval for its COVID jab. Many reasons have been given for the lack of movement, such as lower profitability versus prescription drugs and downward pressure on margins due to public interest in facilitating vaccine access. However, the opposite effect has occurred with partner BioNTech (NASDAQ:BNTX), which has seen its stock rise 275% since it first began work on a COVID shot in January 2020. The only other vaccine approved in the U.S. is from Moderna (NASDAQ:MRNA), which has seen its shares soar nearly 750% since it started working around-the-clock to develop a vaccine at the same time as BioNTech.

Regulation - Uber loses case on driver rights

Uber (NYSE:UBER) shares are off 3.5% in premarket trading after losing a key legal fight in the U.K. The country's Supreme Court upheld a ruling that its drivers should be classified as workers rather than independent contractors, entitling them to minimum wage, holiday and sick pay, as well as rest breaks. Britain is the Uber's biggest European market with about 40,000 drivers.

Bigger picture: The verdict concludes an almost five-year legal battle between the ride-hailing giant and a band of former drivers led by Yaseen Aslam and James Farrar. In 2016, an employment tribunal ruled in favor of the group, and since then, two other court decisions have gone against Uber. The case will now be sent back to the employment tribunal, which could order Uber to pay compensation to about 20 original claimants. Thousands of other drivers have also taken legal action, and the decision could be rapidly applied to them.

Uber faced a similar situation in California this past year. Regulators there attempted to reclassify drivers of Uber and other ride-hailing services like Lyft (NASDAQ:LYFT) as employees to grant them more protections. Voters ended up supporting a ballot measure called Proposition 22, which continued the status quo, after the companies said they would guarantee new protections to workers. Those included giving drivers 30 cents per mile driven to account for gas and other vehicle costs, healthcare subsidies for drivers who work 15 hours or more a week and occupational accident insurance coverage while on the job.

Outlook: While the U.K. ruling will only apply to Uber, British businesses may have to review some of their terms, as it could give other contractors the drive to pursue similar claims. "It's one of the biggest employment law decisions of my career," said Joe Aiston, lawyer at Taylor Wessing. "It's going to have a massive knock-on affect both to the gig economy and any business that engages independent contractors."

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