GameStop Stock Won’t Stop Climbing—and the Risks Are Rising

Short selling data provider S3 Partners estimates that GameStop bears have accumulated $5 billion in losses so far in 2021.

The squeeze isn’t over. GameStop shares are up another 65% in premarket trading to about $243 a share. GameStop stock traded at $4 a share six months ago.

The losses are so big that GameStop’s run might be causing problems for other, unrelated, stocks. Hedge funds can, in extreme circumstances, be forced to sell holdings as borrowing costs in shorted stocks rise and losses mount.

The GameStop situation counts as an extreme situation.

Melvin Capital’s 15 largest long positions in companies with market capitalization less than $100 billion are down more than 4% on average over the past week. Only one of the 15 stocks is up. The S&P 500 over the same span is basically flat.

Investors will have to brace themselves for other, strange, impacts as the fallout from the GameStop squeeze spreads.

—Al Root

*** Examine the wealth gap and how to address inequities in criminal justice, education, health care and more at a Barron’s event today at 12 p.m. EST. Speakers include Emerson Collective’s Arne Duncan, Rockefeller Foundation’s Dr. Rajiv J. Shah, and others. Sign up at barrons.com/wealthgap

***

GameStop Trading Draws Attention From State Regulator

The unprecedented rise of GameStop’s stock has caught the attention of a top securities regulator in Massachusetts.

• William Galvin, the Secretary of the Commonwealth of Massachusetts, said in a statement to Barron’s that he’s been watching the stock, adding, “This is certainly on my radar. I’m concerned, because it suggests that there is something systematically wrong with the options trading on this stock.”
• GameStop stock is up 685% in 2021 alone, a rise that’s had Wall Street analysts scratching their heads. Experts point to speculative options activity, exuberance from the WallStreetBets forum on Reddit, and the stock’s sky-high short interest.
• Tesla CEO Elon Musk sent the stock soaring even more in after-hours trading last night, after he posted “GameStonk” on Twitter with a link to the WallStreetBets Reddit page. Investor Chamath Palihapitiya said he placed a relatively—for a billionaire—small bet on the stock via options.

What’s Next: Stocks that soar so much on relatively no news from a company rarely hold up. Michael Burry, of The Big Short fame, announced a stake in 2019 when it was trading below $4. Now he says, “what is going on now—there should be legal and regulatory repercussions. This is unnatural, insane, and dangerous.”

—Connor Smith

***

The Global Economy Is Improving, and Biden’s Stimulus Plan Could Spur U.S. Growth

The world is set for rosier economic growth in 2021 than initially forecast, the International Monetary Fund said Tuesday, as it also cut its estimate of 2020’s downturn ahead of the release of fourth quarter U.S. gross domestic product data later in the week.

• The IMF now projects 5.5% economic expansion this year, up from its previous estimate of 5.2% released in October and estimates that the global economy shrank 3.5% in 2020, down from its earlier projection of a 4.4% dip.
• Many Americans saved a portion of the latest round of $600 checks, The Wall Street Journal notes, and socked away a total of $1.4 trillion during the first three quarters of last year, about twice as much as in 2019, suggesting that there could be a historic surge in spending later in 2021.
• On top of that, the Biden administration’s $1.9 trillion stimulus could boost U.S. growth by 5% over the next three years, the IMF’s chief economist Gita Gopinath told reporters Tuesday.
• President Joe Biden says he is open to negotiations with the Republicans on his stimulus plan, but Democratic lawmakers are preparing to move ahead without the GOP. “The work must move forward, preferably with our Republican colleagues, but without them if we must,” Senate Majority Leader Chuck Schumer said Tuesday.
• Because Democrats hold a majority in the House and Senate, they can pass a stimulus package using a tactic called reconciliation, which allows a bill to clear the Senate with a simple majority, rather than the 60-vote filibuster threshold.

What’s Next: Economists polled by Dow Jones/The Wall Street Journal expect the U.S. economy to have grown by 4.1% during the last three months of 2020. Just over 4% growth even as the pandemic surged would be an indication that the latest, more optimistic projections for 2021 are realistic.

—Ben Walsh

***

Acting Capitol Hill Police Chief Apologizes For Security Lapses

The acting chief of the Capitol Hill Police apologized Tuesday for the force’s extensive security failures that allowed rioters to enter the Capitol building on Jan. 6 as lawmakers were debating the Electoral College vote. Two officers died and one rioter was shot and killed by police.

• In a closed door briefing for the House Appropriations Committee, acting chief Yogananda D. Pittman said the department knew there was a “strong potential for violence” that day. Pittman, who was not the acting chief on Jan. 6, assumed the role after her predecessor, Steven Sund, resigned following the riot.
• The department “knew that some of these participants [at the Jan. 6 rally] were intending to bring firearms and other weapons to the event,” she said in written testimony. “We knew that there was a strong potential for violence and that Congress was the target.”
• Pittman added that on Jan. 4 Sund requested National Guard support for the planned protest, but that request was denied by a panel that included the House and Senate Sergeant at Arms, both of whom later resigned. The 1,200 member Capitol Police were overwhelmed the day of the riot.
• Timothy Blodgett, the acting House Sergeant at Arms said during the House briefing that preparations, such as communication plans and creating a security perimeter around the Capitol, were inadequate.

What’s Next: Lawmakers are likely to move forward with a bipartisan plan, modeled after the 9/11 Commission, to investigate the lapses that led to the insurrection. The Capitol Hill Police’s $516 million budget—which is as big as the Dallas Police Department’s for comparison—is also likely to come under intense scrutiny.

—Ben Walsh

***

Biden’s Climate Policies Could Hit the U.S. Oil Industry

The U.S. oil industry is likely to be an early target of President Joe Biden’s policies to fight climate change, beginning with a ban on new drilling leases on federal land.

• Biden is set to sign an executive order Wednesday halting new oil and gas leases on federal lands, The Wall Street Journal reports. While drilling on those lands accounts for just under 10% of U.S. onshore oil and gas production, fossil fuel companies want to maximize their access to those reserves.
• The executive order is part of a broader push to diminish the U.S. economy’s reliance on oil and gas production, as evidenced by Biden’s canceling of the Keystone XL oil pipeline, actions to keep oil companies from drilling in the Arctic National Wildlife Refuge, and rejoining the Paris Climate Accord.
• The president has also proposed spending several trillions of dollars investing in U.S. infrastructure, with an eye to pushing clear energy items, and has vowed to spend $20 billion replacing the entire fleet of federal government vehicles with electric cars.
• The new administration is being pushed by climate activists and members of the Democratic Party to continue to roll out significant climate policy and, the Journal reports, it could convene a global climate summit on Earth Day in April.

What’s Next: Beyond Biden’s policies, the U.S. oil industry faces major structural challenges. Oil prices are well below their pre-pandemic levels and clean energy options like wind and solar continue to drop in price.

—Ben Walsh

***

Number of Covid Cases Passes 100 Million Mark Globally

The number or people infected by the coronavirus now exceeds 100 million, according to a Reuters tally confirmed by the statistics collected by the Johns Hopkins University.

• It took 11 months for the first 50 million to become infected by Covid-19 but only three months for that number to double, Reuters notes.
• The world’s five worst-affected countries—the U.S., Brazil, India, Russia and the United Kingdom—account for more than half the reported cases, even though they hold just a little more than a fourth of the world’s population.
• The U.K. Covid death toll passed on Tuesday the symbolic mark of 100,000, which prompted an apology from Prime Minister Boris Johnson, who said he was “deeply sorry for every life that has been lost” and “[took] full responsibility for everything that the government has done.”
• Nearly 2.2 million have died from the pandemic since it started early last year.
• The U.K. now has the world’s worst death toll, with 1,502 per million inhabitants, followed in the western world by Italy (1,433) the U.S. (1,295) Spain (1,206) France (1,107) and Germany (651).

What’s Next: The fast progression of infections the world over shows that the result of the race between vaccines and the virus—and its new aggressive variants—is still undecided. And as problems accumulate, hopes for a global coordination of the response to Covid-19 are gradually fading.

—Pierre Briançon

***

Dear Moneyist,

Growing up, I was quite close to my paternal grandparents. They were very active in my life.

While they were living, they frequently disagreed with my dad’s financial decisions, and felt my uncle, my dad’s brother, did well for himself, and, therefore, did not need any money. So they repeatedly told all grandchildren, including me, that their estate would be divided among us, the grandchildren.

My grandparents were transparent with regards to their finances, and even told us where they kept their will. When my grandparents finally passed away, my uncle was named the executor, and finally read the will. Their will specified that everything would be split between my dad and my uncle, contrary to what they told all of us growing up. Naturally, that came as a great disappointment to us.

My uncle, with his half, decided to honor the spirit of what my grandparents said over these years, and decided to give each of his children some money. He tried to convince my dad to do the same with his half. My dad refused.

My dad took to Facebook, telling people of his newly-found wealth, and bragging about his supposed investing prowess when he did not earn that money himself.

My grandparents were frugal, and worked for that money. Additionally, my grandparents financially supported my dad as I was growing up.

My dad would go on, and share the various ways he helped my sister and me financially—only, that it is a lie. It is all quite embarrassing. Everything in my adult life I worked for. My dad did not pay for, or support me throughout college.

He got remarried, and has done more to support his wife’s children who my grandparents never met. He went against my uncle’s advice, and never signed a prenuptial agreement, and is in poor health. It is very likely that my sister and I will never see a penny of our grandparents’ money.

He has even told me that he has no obligations to me, his daughter, and we were on nonspeaking terms for two years.

I never asked my dad for money until more recently when I started a new chapter of my life and wanted a loan to bolster a down payment. He went ballistic that I even asked—never mind that I asked him a year in advance of the planned house purchase.

For additional context, a few years ago, I was in a position to buy a property, and my grandparents said they would help, but then later had to withdraw the offer due to market downturn.

My relationship with my dad has soured to where I find it difficult to talk with him. My father lives in his own world where he believes what he wants to believe, and he has an adoring group of people who admires his supposed investing prowess, and his financial generosity towards his family. He is not the type of person who would agree to going to counseling.

It makes me sad what our family has become.

The only way I could see things changing is by starting with the truth. I would like my dad back, but I am afraid he is too far gone.

Any ideas?

—Loving Daughter

Read The Moneyist’s response here.

—Quentin Fottrell

***

—Newsletter edited by Matt Bemer, Anita Hamilton, Ben Levisohn, Stacy Ozol, Mary Romano