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Hertz shares are likely going to $0, Morgan Stanley says (HTZ)

Mon, 06/22/2020 - 3:29pm

  • Morgan Stanley on Monday lowered its base case for Hertz to $0 from $2, citing risks of de-listing or a potential liquidity shortfall.  
  • The firm's base case is now equal to its bear case. Morgan Stanley also lowered its bull case for Hertz to $3 from $8. 
  • The updated price target reflects the bank's view "that our Bear case has a higher probability of occurring than our Bull case," wrote analyst Adam Jonas. 
  • The firm also believes that "it is more likely than not that equity will not carry a meaningful residual value," according to the Monday note. 
  • Read more on Business Insider.

Hertz shares will likely fall to $0, according to Morgan Stanley, leaving the car-rental company's shareholders with nothing. 

Morgan Stanley on Monday lowered its base case for shares of Hertz to $0 from $2 after the bankrupt company's plan to raise money through a secondary share sale was canceled. 

"We are now more concerned that there is a potential risk of a NYSE de-listing, or potential liquidity shortfall where the company may exhaust available cash to run the business by the end of 2020, potentially leaving the equity with little or no residual claim," said Morgan Stanley analyst Adam Jonas in the Monday note. 

Hertz has been in the spotlight because thousands of small retail investors piled into its cheap shares after the company declared bankruptcy at the end of May, sending the price skyrocketing. Hoping to capitalize off of the surge, Hertz announced plans to sell as much as $500 million in additional shares and even noted in a regulatory filing that the stock "could ultimately be worthless." 

Read more: A notorious market bear says inexperienced 'zombie investors' are fueling a stock-market bubble — and warns that even the Fed won't be able to prevent another 30% crash

But that plan was abruptly halted when the Securities and Exchange Commission raised issues with the sale. Now, the company will have to seek other financing options as it continues to work through bankruptcy. 

The firm also lowered its bull case to $3 from $8, and said that this scenario is now more uncertain than ever for Hertz equity. Moving the base case in line with the bear case for Hertz reflects Morgan Stanley's view "that our Bear case has a higher probability of occurring than our Bull case," said Jonas. 

While there may be potential scenarios for Hertz to secure near-term financing that would preserve positive equity in the short-term, other risks make it less likely that shareholders will end up gaining from the situation. 

Shareholders are "the bottom of the pecking order of the capital structure," Jonas wrote, adding that "we believe it is more likely than not that equity will not carry a meaningful residual value." 

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Insiders say forgiving PPP loans will be more complex than applying was. Here's how fintechs are helping— and winning over banks' clients as a result.

Mon, 06/22/2020 - 3:22pm

  • As the application period for the paycheck-protection program for small businesses closes, attention is shifting to what needs to be done for the loans to be forgiven. 
  • Insiders said the loan forgiveness process is far more complex than applying was, including a significant amount of documents to be filed by the lender.
  • The issue is compounded by a lack of clear guidance from regulators about what is needed, including several rule revisions in recent months. 
  • Fintechs such as BlueVine, Plaid, and PayPal have all stepped up to help streamline the process, as was the case during application. 
  • Sign up here for our Wall Street Insider newsletter.

The launch of the paycheck-protection program for small businesses in April was anything but easy. Standing up a multi-billion dollar program from scratch in the midst of a pandemic provided its fair share of hiccups.

From the first round of funding running out in just two weeks, to publicly traded companies receiving money ahead of small business, applying for a loan wasn't seamless

But as the application period comes to a close at the end of June, a more challenging issue has arisen: ensuring the loans are forgiven. 

"There's just a lot of complexity, a multiple of the complexity, on the forgiveness side as compared to the origination side," Peter Davis, EY Americas financial services advisory leader, told Business Insider. He added that the industry put forward a "tremendous amount of effort to get the program stood up, and that was the easy part. The forgiveness is now definitively the hard part." 

On the surface, the concept of loan forgiveness might seem fairly straightforward. In order to ensure a loan is forgiven by the government, borrowers have 24 weeks — an extension of the eight weeks originally offered — after receiving a loan to provide lenders proof the funds were spent appropriately. 

One main caveat is that at least 60% of the funds were spent on payroll. Lenders then send that information to the Small Business Administration, the government agency running the program. 

However, thanks to guidelines that have continued to shift, the significant amount of paperwork required and lack of clarity of who is to blame if the information isn't filed properly, the entire process will be much more cumbersome than applying was, insiders said. 

Read more: How big banks decided the futures of America's small business: The inside story of how $349 billion in government cash was doled out in just 12 days, leaving thousands of entrepreneurs without relief

During the initial wave of PPP loans, incumbent banks struggled to process large volumes of loan applications, leaving many small businesses unable to access funds. Fintechs like PayPal and Square then became approved SBA lenders, giving small businesses another option when it came to applying for the second wave of PPP funding.

Once again fintechs are looking to step up to the plate to help lenders and borrowers manage an intricate process.

"As people started getting closer to actually having to operationalize forgiveness, it became immediately apparent that there were going to be some real problems," John Pitts, head of policy at Plaid, told Business Insider.

"I would view the fact that there are still so many changes happening right now as good evidence of the underlying structural problems," Pitts said regarding the rule revisions. "A lot of those rely around the complexity and difficulty of meeting that complexity with the appropriate data." 

Forgiveness is full of complications

One of the biggest challenges navigating the program has been the constant updates, insiders said. Since the start of the program, 19 interim final rules have been filed and 48 FAQs released by the SBA, according to Davis, who added that EY has built out a platform to help both lenders and borrowers.  

The most recent update, which was published June 19, likely won't be the last. Davis said more changes can be expected in the months ahead. As a result, the paperwork one borrower submits for forgiveness might end up being entirely different from another who submits it a few weeks later.

While borrowers have 24 weeks from the time they received the funds to file for forgiveness, insiders said submissions should pick up in the coming weeks as the PPP loan application process officially closes at the end of the month. And while questions remain about loans under a certain threshold being automatically forgiven, everyone is expected to apply for forgiveness lest they have to pay back the loan with interest, albeit only at a 1% interest rate.

But even as forgiveness filings ramp up, other concur much remains up in the air. 

"With the latest guidance by the SBA, we are pleased that they are working to make the PPP loan forgiveness application as simple as possible for borrowers, but there are still gaps when it comes to guidance for lenders/servicers to operationalize the forgiveness processes," Doug Bland, PayPal's senior vice president of global credit, told Business Insider via email. 

Uncertainty around what is, or isn't, needed when applying is also compounded by not having the ability to make changes after the submission is made, Rohit Arora, CEO and cofounder of online small business lender Biz2Credit, told Business Insider. 

Not being able to revise what has been submitted is likely to further complicate things. The inability to add more documents after filing was a common problem that cropped up during the application process, and is likely to be an issue as submissions for forgiveness begin rolling in. 

"Once they've applied and they've done their documentation and then they want to go back, especially if they want to increase their forgiveness amount, that would be very tough," said Arora, whose company is rolling out a platform this week to help with filing for forgiveness. "Unwinding something like this is very tough."

Digitally-savvy fintechs are trying to automate the forgiveness process

While the small business lending process can typically be very manual, fintechs were able to leverage their tech to process PPP applications online, which became crucial in handling high volumes. 

And as the focus shifts to forgiveness, many are looking to do the same once again. 

Online bank for small businesses BlueVine, which was able to digitize application documents and automate the application review process, is working on an automated platform to help its customers secure forgiveness.  

"This laborious and complex process will be helped by fintech companies like BlueVine to create an easy-to-understand online application that makes the process faster, easier, and more efficient," Brad Brodigan, BlueVine's chief commercial officer, told Business Insider, "which is really important for small business owners who don't necessarily have a CPA or an accounting department."

See more: Fintechs working with lenders and small businesses explain the pain points still plaguing the latest $320 billion round of PPP loans

Buzzy data fintech Plaid, which is set to be acquired by Visa in a deal valued at $5.3 billion, has also been working on new products specifically to help small businesses get the appropriate payroll data in order, both for initial applications and forgiveness. 

PPP loan size depends on average monthly payroll expenses, so in the initial application small businesses needed to source payroll data. As a result, proving a majority of the funds were spent on paying employees is crucial to the entire forgiveness process.

Plaid's Pitts said the fintech tried to simplify the PPP origination process as much as possible, limiting the number of data fields borrowers had to deal with. For forgiveness, it'll look to take the same approach.  

"What we are hearing is a desire for that same prioritization and ease of use in the forgiveness process as there was in the application process," Pitts said.

"On forgiveness, you have a much more complicated job of actually tracking whether you appropriately spent the money in the appropriate period of time on qualified expenses," he added. "That takes what was already a hard data problem for a small business and makes it just exponentially harder."

Small businesses are giving fintechs a shot, and fintechs are setting new table stakes

The entire process has served as a way for fintechs to prove their value to small businesses they previously might not have dealt with. Fintechs and smaller community banks have shown they can offer the same services as incumbents.

"People's relationship with their financial service provider is very sticky, and for very good reason," Pitts said. "Usually there is not a clearly compelling case to change that relationship."

But the PPP process proved an opportunity for fintechs to win over small businesses that weren't prioritized by incumbent banks.

"Many small businesses viewed fintech as an option they had to try," Pitts said.

Roughly 90% of Kabbage's PPP loan applications and nearly 97% of BlueVine's have come from new customers.

"I think it has really brought to the attention of small business owners, in particular, that their banks are really not providing them the level of service that they would need or expect," said Brodigan. 

And that's due to a few reasons, Brodigan said. Incumbent banks have, by nature, larger customer bases and serve a wide array of small businesses. Many rely on manual processes made more difficult with coronavirus-related branch closures.

Fintech lenders like BlueVine and Kabbage, which target small businesses and operate fully online, were well-positioned to help small businesses who were left behind by incumbents.

"Once you've demonstrated that level of performance to a broader audience that didn't necessarily think of themselves as a fintech customer," Pitts said. "I think you're going to start seeing the key features that were offered to them by fintechs as table stakes for their financial services going forward."

Read more:

SEE ALSO: CEOs at Stash and Chime say they're seeing record signups as fintechs race to set up ways for customers to get stimulus checks quickly

SEE ALSO: Fintechs working with lenders and small businesses explain the pain points still plaguing the latest $320 billion round of PPP loans

SEE ALSO: How big banks decided the futures of America's small businesses: The inside story of how $349 billion in government cash was doled out in just 12 days, leaving thousands of entrepreneurs without relief

Join the conversation about this story »

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SoftBank's Vision Fund is scrapping an 'IPO readiness group' and telling its portfolio companies to handle the process themselves

Mon, 06/22/2020 - 3:13pm

  • SoftBank has wound down an initial public offering readiness group, and portfolio companies will now take the lead on their own IPOs.
  • The change comes after a year of IPO misses for SoftBank and its Vision Fund, which is laying off 15% of its 500-person global staff. 
  • SoftBank-backed insurtech Lemonade filed documents to go public two weeks ago. DoorDash confidentially filed for an IPO earlier this year. 
  • For more stories, sign up for our Wall Street Insider newsletter.

SoftBank is scrapping a group dedicated to helping portfolio companies with initial public offerings less than a year after launching it, Business Insider has learned. 

The Japanese investor had started its "IPO readiness group" in early fall of 2019. That came after after some high-profile setbacks for firms backed by SoftBank and its $100 billion Vision Fund, including a weak public-market performance from Uber and an planned IPO from coworking giant WeWork that imploded entirely. 

SoftBank has now decided that having its portfolio companies outsource their IPO preparations would be more efficient than an in-house group, a person close to the firm told Business Insider. 

The change comes as SoftBank cuts 15% of its 500-person staff that work on the Vision Fund. In an interview with Forbes published in early April, SoftBank founder Masayoshi Son said the Vision Fund will withhold cash infusions to save its foundering bets and instead focus on companies that seem likely to break out.

"I would say 15 of them will go bankrupt," Son predicted in that interview, adding that he expects at least another 15 of the company's 88 bets to succeed.

Overall, SoftBank Group lost 961.6 billion yen ($9 billion) for the fiscal year through March, as the investor took heavy losses from WeWork and other companies. 

Read more: Masa Son is facing one of his biggest challenges yet as the SoftBank Vision Fund racks up billions in losses. 12 insiders reveal where it all went wrong.

Mixed IPO record

SoftBank-backed insurtech Lemonade filed documents to go public two weeks ago. Business Insider has reported that Lemonade previously planned to list publicly in 2019 but wound up delaying, in part because of how high-growth companies were being viewed by public markets.

Food-delivery company DoorDash had confidentially filed S-1 paperwork to go public earlier this year. When Business Insider spoke with DoorDash CEO Tony Xu in mid-March, he said that the company didn't necessarily have to go public this year, and that he was focusing on factors he could control amid the coronavirus pandemic. 

Last week, DoorDash said it raised $400 million in new equity funding at a $16 billion valuation. 

SoftBank Investment Advisors CEO Rajeev Misra, who oversees the $100 billion Vision Fund, had highlighted the IPO readiness group in an October interview with Nikkei Asian Review.

The few people involved with the group have been laid off, including Barrett Daniels, who joined in October as an operating partner and had previously been a partner with Deloitte, where he focused on IPOs. He declined to comment when contacted by Business Insider. 

Last year, SoftBank had a number of high-profile IPO issues, from WeWork's shelved attempt to go public to offerings from companies including Uber and Vir Biotechnology, which traded down after their offerings. Vir shares have since ticked back up.

To be sure, the investor has also seen public-markets successes in the past couple of years, including Guardant Health and 10x Genomics, which both have traded up since their IPOs. 

In November, Reuters reported that Indian ride-hailing company Ola was looking to begin its IPO process by the end of March 2021 and had hired consultants from McKinsey and EY to work on its efforts. 

Read more: Equity is the new debt, with Corporate America selling record amounts of stock to stockpile cash. Here's what prompted the sudden shift.

SEE ALSO: Masa Son is facing one of his biggest challenges yet as the SoftBank Vision Fund racks up billions in losses. 12 insiders reveal where it all went wrong.

SEE ALSO: SoftBank's Vision Fund 2 pumped $100 million into Behavox — and the startup's CEO says that's twice what he was looking for

SEE ALSO: Leaked data shows the WeWork stakes that 10 big investors are stuck with — and how JPMorgan wanted to cash out $356 million from the struggling coworking giant

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Blackstone CEO Stephen Schwarzman forecasts 'big V' economic recovery this summer

Mon, 06/22/2020 - 2:54pm

  • The economy will stage a "big V" rebound from its second-quarter lows over the next few months, Blackstone CEO Stephen Schwarzman said on Monday.
  • Economic reopenings will drive the first bounce-back but fail to bring the US back to 2019 levels of activity, he said during the Bloomberg Invest Global virtual conference.
  • A viable coronavirus vaccine will drive the second stage of recovery, and "people are much more optimistic" that one will come to market faster than in the past, the CEO added.
  • Visit the Business Insider homepage for more stories.

The economy's turnaround from coronavirus-related lows will arrive in the form of a steep V-shaped rebound, Blackstone CEO Stephen Schwarzman said on Monday.

At the Bloomberg Invest Global virtual conference, the chief executive laid out a two-stage recovery, with an economic reopening sparking a rapid rebound from the bottom set in the second quarter. Where the Federal Reserve's liquidity-boosting measures drove a sharp run-up for risk assets, easing of widespread lockdowns will prompt a similar pattern for economic activity, Schwarzman said.

"You'll also see a big V in terms of the economy going up for the next few months because it's been closed," he said. "And as people are allowed to go back, the economy will really respond a lot."

He continued: "But there's only so much the economy that's highly complex can respond, just because not all things go up equally, and it will take quite a while before we sync up and get back to 2019 levels."

Read more: MORGAN STANLEY: The best-performing stocks for the end of recessions are loaded for surprising gains in the second half of the year. Here's how to ready your portfolio in advance.

A viable coronavirus vaccine is needed to unlock a broader bounce-back for the US economy, the CEO said. Biotech and pharmaceutical giants including Gilead, Moderna, and Pfizer are racing to introduce the first marketable vaccine. Roughly 130 candidates are being developed, and it's likely that at least one will arrive sooner than expected, Schwarzman said.

"That we'll go 0-for-130 really seems remote," Schwarzman said, adding, "I think people are much more optimistic that that's going to occur on a timeframe that's way different than the development of vaccines was in the past."

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Sonos soars after short-seller Andrew Left predicts Apple acquisition, says he sees 130% upside (SONO, AAPL)

Mon, 06/22/2020 - 2:50pm

  • Sonos surged Monday after famed short-seller Andrew Left of Citron Research published a note that said Apple is likely to acquire the smart-speaker company.
  • Citron expects shares of Sonos to surge roughly 130% from current levels, to $30.
  • The firm praises Sonos' resilience against large cap tech competitors like Google, Amazon, and Apple, and points to the company's 18 years of consecutive revenue growth as evidence of the company's strong product ecosystem.
  • "The strength of Sonos brand is best exhibited by Sonos' gross margins, which are 400bps higher than Apple," Left said.
  • Visit Business Insider's homepage for more stories.

Sonos can surge 130% from current levels and Apple is likely to acquire the company, according to a note published on Monday by Citron Research's Andrew Left.

Sonos surged as much as 22% to $14.53 on Monday after the report was published.

Left said that Sonos is the leader of sound in connected homes, and its enterprise value of $1 billion is low relative to recent SPAC's and other stocks that have gone parabolic amid increased retail trading. Left expects Sonos to report "a blowout quarter."

Left said, "Just as the world went into quarantining and home became the new focus, Sonos introduced three new products that are sold out EVERYWHERE."

The sold out Sonos products is a demand issue, not a supply chain disruption, according to channel checks conducted by Citron.

Read more: MORGAN STANLEY: The best-performing stocks for the end of recessions are loaded for surprising gains in the second half of the year. Here's how to ready your portfolio in advance.

The note mentioned that Sonos has created a sticky ecosystem that has allowed it to consistently grow revenue for 18 years despite intense competition in the smart speaker space from big tech giants like Amazon, Google, and Apple.

Apple is the most likely acquirer of Sonos, according to Left, who said that the similarities between the two companies "are uncanny."

"The strength of the Sonos brand is best exhibited by Sonos' gross margins, which are 400 bps higher than Apple. Both Sonos and Apple have strong high margin direct to consumer offerings," the note said.

Sonos is only second to Apple in issued patents, which should protect the company from competitors. Sonos sued Google for infringing on five of its patents, according to the note, which argues Sonos could stand to benefit in the form of licensing fees if the courts rule in its favor.

Read more: A notorious market bear says inexperienced 'zombie investors' are fueling a stock-market bubble - and warns that even the Fed won't be able to prevent another 30% crash

Left pinned a $30 price target on Sonos for 2020, but said the stock could surge even more if its re-rated to a higher multiple: "Assuming Sonos should trade at 3x sales, this implies a stock price of $38. At 6x sales, this implies a stock price of $64."

But at the end of the day, Sonos may not reach those levels if Apple swoops in and acquires them.

Left said: "The most obvious potential acquirer is Apple. Consider this: On the same day that Sonos publicly sued Google and accused Amazon of stealing its proprietary technology, Apple began selling Sonos' speakers in its Apple Stores."

Read more: A 30-year market veteran explains why we're in 'one of the nutsiest bubbles in the history of bubbledom' - and warns of an 'underwater' economy for the next several years

Join the conversation about this story »

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US stocks rise as economic recovery outweighs growing coronavirus cases

Mon, 06/22/2020 - 2:30pm

  • US stocks rose on Monday, paring earlier losses as investors focused on increasing global coronavirus cases and continued economic-reopening progress.
  • Gold rose, nearing its highest level since 2012, as investors bought the safe-haven asset.
  • New coronavirus cases have hit records in some US states and continue to increase globally.
  • Read more on Business Insider.

US stocks rose on Monday, paring losses from earlier in the day, as investors weighed increasing global coronaviruses cases against economic-reopening progress. 

New cases have increased in the US as states reopen from lockdowns that began in mid-March to contain the disease. The US reported more than 30,000 new COVID-19 cases on Friday and Saturday, the highest levels since May 1, according to Johns Hopkins University data.

Here's where US indexes stood at 2:30 p.m. ET on Monday:

Read more: Jefferies created a 6-step process for finding companies that will keep paying strong dividends — and landed on these 20 global stocks as 'rock-solid' picks

Global cases are also on the rise. The World Health Organization said on Sunday that new COVID-19 cases hit a single-day record. Still, US equities have erased nearly all their losses in recent weeks, putting the S&P 500 within 10% of its pre-coronavirus all-time high.

Gold climbed near its highest level since 2012 as investors piled into the asset amid fears of surging COVID-19 cases. Stocks tied to the economic reopening were mixed in early trading — airlines declined, but retailers such as Gap gained.

Technology stocks led the broader market higher later in the day, with shares of Amazon, Adobe, and Square gaining. Stay-at-home stocks also rose, with Netflix, Zoom, and Peloton all notching fresh all-time highs in intraday trading. 

Investors are still weighing economic data to gauge the pace of the US economic recovery from the coronavirus-induced recession.

US existing home sales  in May slumped nearly 10% to the lowest level in nearly a decade, according to a report released Monday. Still, the National Association of Realtors thinks the data shows the bottoming out of the market and that next month sales will rebound. 

Oil prices slid. West Texas Intermediate crude fell as much as 1.6%, to $39.12 a barrel, while Brent crude, the international benchmark, declined 1.5%, to $41.58 per barrel, at intraday lows.

Read more: A 30-year market veteran explains why we're in 'one of the nutsiest bubbles in the history of bubbledom' — and warns of an 'underwater' economy for the next several years

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Future of Fintech: Funding's New Guard

Mon, 06/22/2020 - 1:03pm

Over the last decade, fintech has established itself as a fundamental part of the world’s financial services ecosystem.

Today, fintech financing is surging across the globe, despite major banks remaining cautious about acquisitions.

Instead, three emerging trends are fueling the current fintech boom: new geographical fintech centers, more late-stage mega-rounds, and the rise of fintech-focused venture firms.

In the Future of Fintech: Funding’s New Guard slide deck, Business Insider Intelligence explores how these three key trends are driving a surge in funding.

This exclusive slide deck can be yours for FREE today.

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Gold climbs to nearly 8-year high as revived coronavirus concerns push investors to safe havens

Mon, 06/22/2020 - 12:55pm

  • Gold contracts for August delivery leaped as much as 1.5% to $1,779 per ounce, reaching the highest level in nearly eight years.
  • Investors piled into safe havens through the session as spiking coronavirus infections throughout the US ratcheted up fears of a prolonged recession.
  • The precious metal has also thrived on bets for interest rates staying near zero. Lower rates boost gold's relative value for yield-hungry investors.
  • Watch gold trade live here.

Gold futures leaped as much as 1.5% on Monday as surging coronavirus cases pushed investors into the popular hedge bet.

The rally drove contracts for August delivery to $1,779 per ounce at intraday highs, the precious metal's highest level since 2012. Gold now trades roughly 15% higher year-to-date.

Investors typically rush to gold as they grow more worried of a stock market rout. An uptick in coronavirus cases throughout the US sparked new fears of a longer-than-expected recession over the weekend. Florida recorded three straight days of record-high case counts, while North Carolina, Texas, and Arizona posted similarly dire testing data.

Read more: A 30-year market veteran explains why we're in 'one of the nutsiest bubbles in the history of bubbledom' — and warns of an 'underwater' economy for the next several years

Gold tumbled through the initial coronavirus sell-off before recovering as traders piled into safe-haven assets. Prices stabilized through May but sank in early June as growing risk-on attitudes drove capital into stocks and risky bonds. 

The metal recently thrived on from the expectation of low rates remaining for years. Federal Reserve policymakers revealed in June they expect near-zero interest rates to last at least through 2022 to ensure a robust economic recovery. Such forecasts strengthen gold's relative value for investors hungry for yield.

Investors are also positioning for a weakened US dollar to boost the metal's price in the near future. Experts throughout the financial sector have flagged concerns of a dollar crash on the horizon. Stephen Roach, former chairman at Morgan Stanley Asia, cautioned on Tuesday the currency will collapse amid a swelling US debt pile and strained global trade relationships. A weaker dollar typically leads gold to appreciate as it turns cheaper for foreign investors.

Other second-wave plays turned higher through Monday's relatively calm session. Popular stay-at-home stocks including Zoom, Netflix, and Peloton all notched fresh record highs. Stocks previously seen as bets for a smooth recovery, including American Airlines and Royal Caribbean Cruises, tanked more than 7% at intraday lows. 

Gold futures traded at $1,768.20 per ounce as of 12:30 p.m. ET Monday.

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3 of the most popular stay-at-home stocks hit all-time highs as coronavirus cases climb (NFLX, PTON, ZM)

Mon, 06/22/2020 - 12:42pm

  • Three popular stay-at-home stocks surged Monday as coronavirus cases climb in the US and around the world. 
  • Netflix, Peloton, and Zoom stocks all hit record highs in intraday trading Monday as investors watched growing COVID-19 case numbers. 
  • At the same time, the so-called reopening stocks including airlines, cruise lines, and retailers slumped. 
  • Read more on Business Insider.

Three of the top stay-at-home stocks are again surging as the number of coronavirus cases climbs, increasing investor fears of a second shutdown that could decimate the US and global economy. 

Shares of Netflix, Peloton, and Zoom Video Communications all gained Monday, hitting fresh record highs as investors weighed mounting coronavirus cases against data showing a US economic recovery. The stocks have outperformed the broader market this year as investors see them performing well amid a recession and coronavirus-induced lockdowns that keep consumers at home. 

An uptick in new cases of COVID-19 is fueling the most recent leg of  the stay-at-home stock rally. The US reported more than 30,000 coronavirus new cases on Friday and Saturday, the highest levels since early May, according to data from Johns Hopkins. On Sunday, the World Health Organization reported that new COVID-19 cases hit a single-day record. 

Read more: House-flipping was at its highest level since 2006 before the coronavirus hit. Here's what flippers should know about investing now.

Netflix rose 2.6% to $465.72 per share, while Zoom gained nearly 5% to roughly $255. Shares of Peloton jumped nearly 8% to about $55 per share after Stifel analyst Scott Devitt on Monday boosted his price target on the company to $62 from $55, now the highest on Wall Street for the stock. 

"Shifting consumer behavior, gym closures / social contact avoidance, and steady demand from word-of-mouth have the potential to fuel multiple quarters of holiday-like demand in our view," Devitt wrote in a Monday note. His new price target implies that Peloton could surge another 13% from recent highs. 

On the flip side, stocks tied to the US economy reopening slumped on Monday. American Airlines fell nearly 7%, Carnival Corp. slid more than 5%, and Norwegian Cruise Lines lost 6%. The group of stocks has been ticking lower in recent weeks as investor concern over growing cases of coronavirus intensifies. 

Join the conversation about this story »

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Moving companies are Silicon Valley's new booming businesses as techies flee town to work remotely

Mon, 06/22/2020 - 12:30pm

  • Business for moving companies in the San Francisco Bay Area is booming.
  • Services are in high demand as tech workers leave the region now that they can work remotely because of COVID-19.
  • The shift illustrates how the pandemic will reshape Silicon Valley for years to come.
  • Entire companies are ditching their offices and moving their furniture into storage as they pivot to remote-first business models.

As the pandemic rages on, increasing numbers of tech workers are ditching Silicon Valley.

It has major consequences for the region's future — and is great news for the businesses hauling their belongings.

In interviews with Business Insider, people working in the moving industry in the San Francisco Bay Area said that business is booming, with remarkable numbers of people turning their backs on the region and moving away over the last few weeks and months, despite the added logistical difficulties created by the pandemic.

Their comments add to the growing pile of evidence that COVID-19 and the associated wave of remote work will radically reshape Silicon Valley, the heart of America's tech industry, for years to come — including impacting the region's sky-high residential and commercial real estate prices.

"Business has been ridiculously busy," said Kevin Twibill, the founder of San Francisco-based Corrib Moving and Storage. "We're turning away work because we don't have more employees."

Moves associated with sales of family homes are down, he said. but there has been a major uptick in moves from apartments and shared properties. "Most of them move home, from where they were ... instead of paying $2,000 for their 20-square-foot apartment downtown, they're moving back home."

Jim Morris of Oakland-based Sweet Lemon Moving Services agreed. "There's a lot more people moving out ... it's significant enough that it's easy to notice."Many are moving out to more scenic, less urban areas, he added: "We see a lot more movement out to the Central Valley and the foothills and Lake Tahoe region," as well as Santa Cruz and Napa.

The tech industry has long had a troubled relationship with the Bay Area. The region is beset by issues — and the industry contributes to many of them — including a high cost of living, a major housing crisis, and terrible traffic. Now that its offices, shops, bars, and other amenities are off limits because of the pandemic, some tech workers say they have no reason to stay and are considering leaving the region, and some real-estate professionals in rival regions have said they've seen an uptick in interest.

The pandemic has forced companies around the world to move abruptly to an entirely remote workforce, and some high-profile San Francisco-headquartered tech companies — notably Twitter and the bitcoin startup Coinbase — have since announced they will allow most employees to work remotely after lockdowns end. Facebook expects half of its workforce to be remote in 10 years.

In a recent poll of thousands of Bay Area tech workers, two-thirds said they'd consider leaving if they could permanently work remotely, with a third saying they'd think about going even if they had to take a pay cut in order to do so.

Unprecedented numbers of people are also sticking their stuff in storage as they consider their futures. "As a company we [always] kind of book up to full capacity, but one thing I can say is I've moved a lot more storage jobs where people are putting their stuff into storage," said Alex Parocha, the San Francisco manager for Massachussetts-headquartered moving company Gentle Giants Moving Company. 

Twibill has seen similar: his firm has "storage coming in every single day," when it's "normally once or twice a week."

The majority of traffic is going in one direction: out of the Bay Area. Parocha says he's "seen more jobs going out of the Bay versus coming into the Bay" in recent times, with the ratio skewed more heavily to people leaving than normal. San Mateo-based The One Move, meanwhile, said that while their overall business hasn't increased, destinations are changing, said one co-owner. "We're seeing about the same activity level as last June ... but seeing more of people move out of the Bay Area or out of state."

(There are of course still some folks moving to the Bay Area: "Yeah we've had some, wouldn't say it's a lot," said Parocha.)

Entire businesses are also turning their backs on the region. Twibill said he was getting far more calls than normal from startups asking them to pack up their offices. And that many of them are getting their furniture put into storage rather than relocated to a new office space, an unusual move for a business that indicates they may be foregoing having a physical presence entirely for the indefinite future: "They're just giving up their offices."

Many companies who want their offices packed up aren't even bothering to return to supervise the move, Morris said. "[They're] not meeting us there, just giving us diagrams and so forth."

Got a tip? Contact Business Insider reporter Rob Price via encrypted messaging app Signal (+1 650-636-6268), encrypted email (robaeprice@protonmail.com), standard email (rprice@businessinsider.com), Telegram/Wickr/WeChat (robaeprice), or Twitter DM (@robaeprice). We can keep sources anonymous. Use a non-work device to reach out. PR pitches by standard email only, please.

SEE ALSO: Mark Zuckerberg's product boss left Facebook a year ago over 'artistic differences.' Now that Chris Cox is back, the key question is whose vision won?

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Investors should drop 'sell in May' strategy as summer stock-market rally could be in the cards, Bank of America says

Mon, 06/22/2020 - 12:20pm

  • Investors should abandon the often-said "sell in May and go away" market axiom, as a summer market rally happens more often than not, Bank of America said in a note published on Monday.
  • Instead, investors should sell in July/August instead of May to avoid missing a strong summer market rally. 
  • The bank thinks summer seasonality data and contrarian bullish sentiment indicators suggest a summer rally or catch-up trade is in the cards for the stock market.
  • Visit Business Insider's homepage for more stories.

Despite the S&P 500 recently stalling at the resistance level of 3,233, there is still potential for a summer rally, according to a note Bank of America published on Monday.

The bank said it's a mixed bag for the stock market right now. While it held big support at the 2,930 to 3,000 level last week, it also stalled out a number of resistance levels and is now range-bound.

Still, "seasonality favors a summer rally as contrarian bullish Farrell Sentiment and futures positioning across large speculators, leveraged funds and asset managers suggest that the pain trade remains higher and equities continue to climb a perpetual wall of worry," BofA said.

Resistance levels that the S&P 500 needs to reclaim include its recent high of 3,233, the late-February downside price gap of 3,260 to 3,328, and the mid-February peak at 3,394. On the flip side, if key support at 2,930 to 3,000 decisively breaks, support levels to watch include the 38.2% Fibonacci level of 2,835, the May lows of 2,766 to 2,797, and the 61.8% Fibonacci retracement level of 2,589 to 2,640.

Read More: A notorious market bear says inexperienced 'zombie investors' are fueling a stock-market bubble — and warns that even the Fed won't be able to prevent another 30% crash

The bank continued that investors should abandon the "sell in May" thinking due to seasonality data that suggests a summer rally is possible:

"The second best 3-month period of the year for the S&P 500 going back to 1928 is June - August, which has been up 64% of the time with an average return of 3.1%. Within this bullish three month period, most of the fireworks occur in July, which has been up 59% of the time with an average return of 1.5%."

The bank added, "so 'sell in May' should be 'sell in July/August.'"

Besides the strong seasonality data arguing in favor of stocks for June to August, BofA noted that positioning data suggests more upside for the stock market. Large speculators in the market have the "most aggressive net short since February 2016," according to BofA.

The bank said that large market participants "have not had an aggressive net long position as a percentage of total open interest since October 2018," suggesting that most investors don't believe in the recent 40% and higher rally in stocks.

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Read the pitch deck that helped Divvy raise $30 million to provide alternate financing for prospective homebuyers

Sun, 06/21/2020 - 8:02pm

Buying a home, particularly for Millennials, is a complicated and expensive process – at times it can be complicated and expensive enough to discourage potential buyers from even trying.

Enter Divvy, one of the many Silicon Valley startups working to change the way people buy homes. The company is specifically interested in providing alternative financing options for prospective homebuyers who don't qualify for traditional mortgages.

Divvy accomplishes this by purchasing homes outright and allowing customers to pay the company back through monthly installments — 25% of the total goes toward building equity and 75% goes toward paying "rent."

And some top venture capitalists have bought into Divvy's mission as well. In October 2018, Divvy raised a $30 million series A round led by Andreessen Horowitz, with participation from Caffeinated Capital, DFJ, and Affirm CEO Max Levchin.

Divvy helped purchase homes for more than 100 buyers in its first year, but it has much higher hopes. The startup's official mission is to put 100,000 families into their first homes within five years.

To really understand Divvy's strategy, Business Insider Prime has published the investor deck the company used to acquire that $30 million in funding. Simply enter your email address to receive a FREE download of the full deck!

BI Prime is publishing dozens of stories like this each and every day, chock full of exclusive content and industry analysis. Get started by reading the full investor deck.

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The Future of Fintech: AI & Blockchain

Sun, 06/21/2020 - 1:03pm

Sweeping global regulations, the growing penetration of digital devices, and a slew of investor interest are catapulting the fintech industry to new highs.

Of the many emerging technologies poised to transform financial services, two of the most promising and mature are artificial intelligence (AI) and blockchain.

74% of banking executives believe AI will transform their industry completely, and 46% of global financial services employees expect blockchain to improve transparency and data management.

In The Future of Fintech: AI & Blockchain slide deck, Business Insider Intelligence explores the opportunities and hurdles of adopting the two technologies within financial services.

This exclusive slide deck can be yours for FREE today.

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How to decide if you should take the GMAT or GRE for business school so you can save time and money

Sun, 06/21/2020 - 10:50am

  • The GMAT and GRE are being proctored online because of the novel coronavirus pandemic. 
  • But students still have to decide which test is right for their business school application. 
  • Stacey Koprince, a GMAT and GRE instructor, offered advice for applicants facing this dilemma. Koprince told Business Insider that many schools no longer have a bias against one exam or another. Instead, she noted that applicants should take the exam that is best for them. 
  • Here are tips for knowing whether or not these tests are the right option for you.
  • Business Insider is launching a newsletter on gender identity and career success. Sign up here to receive Gender at Work in your inbox.
  • Click here for more BI Prime content.

Business school admissions are extremely competitive, with schools looking for the right mix of experience, undergraduate grades, and, of course, GMAT or GRE test scores.

Test scores are important to any business school application, and recently, because of the coronavirus pandemic, the testing process has gone digital. These online versions of the tests mimic in-person testing, with a human proctor overseeing. But students still have a decide which test makes the most sense for their application. 

The GRE test can cost between $150 to $255 per test. Because of the coronavirus pandemic, the GMAT decreased exam fees from $275 to $200. The tests are more than three hours long — and the preparation is equally grueling. Applicants usually take up to three months or 120 hours to study

To figure out whether business school applicants should take the GMAT or GRE, Business Insider spoke with Stacey Koprince, a GMAT and GRE instructor who got a perfect GRE score, a near perfect 780 on the GMAT, and is now content and curriculum lead at Manhattan Prep

Most schools no longer prefer one exam over another, Koprince told Business Insider. 

"All schools say that they take both exams equally," she said. 

An applicant's decision on whether or not to take the GRE or GMAT depends on which test is best for them, Koprince said. She recommends that applicants first spend a week researching the exams, including the types of questions, time management, and how the test works. Then, she said applicants should take a practice test, and get their baseline score.

"From there, go take a look at the websites of the schools that you want to apply to," she said. "And you will see what they're reporting is the average score." 

Koprince said people can use this starting score as a measure of how close they are from other applicants at their dream school. 

"If that in any way makes you think like, 'Hmm, that seems pretty far,' or 'I didn't really like this task,' or 'I'm not confident about my ability to study for this test to get to that level,' take a second week and go take a look at another test," Koprince said. 

Where you want to work will also have an impact on the test you take. Many banking and consulting firms are flexible about the exam they accept. But some companies still have a preference, Koprince said. So she advises students to err on the side of taking the GMAT. 

It's important for applicants to understand their strengths and weaknesses. People will generally perform better on the GRE if they're stronger on vocabulary, geometry, data interpretations, and multi-answer problems. Alternately, those who are stronger on grammar, story problems, and mathematical theory and logic do better on the GMAT.

Abby Jackson contributed to an earlier version of this piece

SEE ALSO: What you need to know to prepare for and excel at the online GRE, according to testing experts and instructors

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'Don't confuse day traders with serious investors': Warren Buffett and Howard Marks will win over time, Princeton economist says

Sun, 06/21/2020 - 9:20am

  • Day traders are mindlessly buying and most are throwing their money away, Wealthfront's investment chief Burton Malkiel said in a blog post this week.
  • "Legions of new day traders have poured new money into stocks without a care for the risks involved, clearly unaware of Buffett's maxim that 'It's only when the tide goes out that you learn who's been swimming naked.'"
  • Their "frenzied buying" includes driving up the share prices of FANGDD — a Chinese company unrelated to FANG stocks — and bankrupt car-rental company Hertz, the Princeton economist and author of ""A Random Walk Down Wall Street" said.
  • "I don't confuse day traders with serious investors," Malkiel added. "Don't be misled with false claims of easy profits from day trading."
  • Visit Business Insider's homepage for more stories.

Bored day traders are making reckless bets and terrible decisions, and the vast majority will underperform the market or lose money, Wealthfront's investment chief Burton Malkiel warned on the robo-adviser's blog this week.

The coronavirus pandemic has sparked "full-blown mania" in financial markets, the Princeton economist and author of "A Random Walk Down Wall Street" said. 

"Individuals, cooped up at home, working remotely on flexible schedules, with no social activities and no live sports to watch and bet on, have increasingly turned to day trading in the stock market," Malkiel continued.

Their wild trades may be partly to blame for choppy markets in recent weeks, he added.

Read more: A notorious market bear says inexperienced 'zombie investors' are fueling a stock-market bubble — and warns that even the Fed won't be able to prevent another 30% crash

While Warren Buffett, Howard Marks, and other veteran investors have been "extremely cautious" and even sold stocks because they're worried about the virus' economic fallout, the market's newest entrants are showing no fear, Malkiel said.

"Legions of new day traders have poured new money into stocks without a care for the risks involved, clearly unaware of Buffett's maxim that 'It's only when the tide goes out that you learn who's been swimming naked.'"

Barstool Sports founder David Portnoy, who goes by the nickname "Davey Day Trader," is probably the best-known member of the movement. He now captains an "army" of day traders, or "retail bros."

Malkiel pointed to two recent examples of "frenzied buying" by day traders on Robinhood:

  • Driving the stock price of FANGDD, a Chinese online real-estate group, up more than 2,000%, likely because it has a similar name to the FAANG group of stocks.
  • Helping to more than double Hertz's stock price after the car-rental agency filed for bankruptcy, perhaps because they weren't aware that shareholders are almost always wiped out in the bankruptcy process.

Read more: Jefferies created a 6-step process for finding companies that will keep paying strong dividends — and landed on these 20 global stocks as 'rock-solid' picks

The economist and author added that almost all individual traders suffer losses over time, highlighting three studies to support his claim:

  • Active traders on Charles Schwab significantly underperformed a low-cost index fund over a six-year period.
  • Less than 1% of Taiwanese traders consistently beat a low-cost ETF over a 15-year period, and 80% lost money.
  • 97% of Brazilian day traders lost money, and just 1% earned more than the national minimum wage.

Malkiel also emphasized that savvy investors diversify and rebalance their holdings, manage their tax burdens, avoid trying to time the market, stick to their convictions, and use investment structures such as low-fee ETFs.

"I don't confuse day traders with serious investors," he said. "Don't be misled with false claims of easy profits from day trading."

Read more: A 30-year market veteran explains why we're in 'one of the nutsiest bubbles in the history of bubbledom' — and warns of an 'underwater' economy for the next several years

 

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Warren Buffett plowed $3 billion into General Electric during the financial crisis. Here's the story of how he helped the industrial titan.

Sun, 06/21/2020 - 9:19am

  • Warren Buffett plowed $3 billion into General Electric during the financial crisis, when the industrials giant's financing arm was suffering from the credit crunch.
  • In exchange, Buffett received $3 billion in preferred stock paying a 10% annual dividend, plus warrants to buy $3 billion in common stock at a fixed price in the future.
  • Buffett's Berkshire Hathaway raked in about $1.5 billion from the deal, but the famed investor revealed years later that he could have made more.
  • "We actually didn't push it to the limit because there really wasn't anybody else around."
  • Visit Business Insider's homepage for more stories.

Warren Buffett invested $3 billion in General Electric in October 2008, handing vital cash to the industrial titan just as credit markets seized up and global demand slumped.

Weathering the storm

GE CEO Jeff Immelt had issued a profit warning in late September, citing "unprecedented weakness and volatility in the financial services markets." The credit crunch was especially bad news for GE Capital, the group's massive financing division that loaned money to consumers and businesses.

Immelt cut the dividend that GE Capital paid to headquarters, halted share buybacks, and put further borrowing plans on hold. He also moved up his goal to reduce GE's reliance on financing profits to the end of 2009.

GE's stock price had plunged by roughly a third since the start of 2008. However, its market capitalization was still more than $245 billion, making it the country's second-most valuable public company after Exxon.

Read more: Jefferies created a 6-step process for finding companies that will keep paying strong dividends — and landed on these 20 global stocks as 'rock-solid' picks

Faced with the monumental challenge of reshaping GE and riding out a brutal downturn, Immelt and his team decided they could use a "rainy-day fund" or a "backup to a backup," The Wall Street Journal reported at the time.

Days after Buffett agreed to plow $5 billion into Goldman Sachs, Immelt contacted the Berkshire Hathaway boss to propose a similar deal, The Journal said.

The pair shook hands on Berkshire investing $3 billion in GE in exchange for preferred stock paying a 10% annual dividend. GE would be allowed to redeem the shares at a 10% premium after three years.

The investor also secured warrants enabling Berkshire to purchase 135 million of GE's common shares for $22.25 each — close to its stock price at the time — at any point in the next five years.

'Insurance is expensive, especially when you buy it from Warren Buffett'

GE accepted Buffett's terms because the famed investor provided more than money; his backing was also a vote of confidence in its future.

"GE is the symbol of American business to the world," Buffett said in the press release announcing the deal. "I am confident that GE will continue to be successful in the years to come."

Immelt added that Buffett's cash, plus at least $12 billion from a public stock offering, would boost GE's flexibility, help it execute its plans faster, and allow it to "play offense in this market should conditions allow."

Read more: A notorious market bear says inexperienced 'zombie investors' are fueling a stock-market bubble — and warns that even the Fed won't be able to prevent another 30% crash

GE's shareholders recognized Buffett's money was a useful cushion for the company.

"It's an insurance policy in case things get worse," fund manager Wayne Titche told The Journal at the time. "In today's market, better safe than sorry."

However, they still balked at the high interest rate and bemoaned the dilution of existing investors' shares.

"Insurance is expensive, especially when you buy it from Warren Buffett," shareholder Arthur Rice told the newspaper.

Buffett trumpeted the GE deal, as well as similar bets on Goldman Sachs and Wrigley, in his 2008 letter to shareholders.

"We very much like these commitments, which carry high current yields that, in themselves, make the investments more than satisfactory," he said.

In all three cases, Berkshire acquired "substantial equity participation as a bonus," he added.

Buffett raked in $1.5 billion — and could have made more

Berkshire received $3.3 billion when GE redeemed its preferred stock in October 2011, as well as $900 million in dividends in the intervening three years.

The pair also amended Berkshire's warrants in 2013 to allow the conglomerate to exercise them without spending any cash. It received 10.7 million shares as a result, which it eventually sold them for about $315 million in 2017.

Between the $300 million premium, the dividends, and the proceeds from the share sales, Berkshire raked in about $1.5 billion in profit or a 50% return.

Read more: A 30-year market veteran explains why we're in 'one of the nutsiest bubbles in the history of bubbledom' — and warns of an 'underwater' economy for the next several years

Moreover, Buffett revealed at Berkshire's annual meeting in 2018 — almost a decade after the deal — that he could have driven a harder bargain, but cut GE some slack given the extraordinary circumstances.

"They were going to take the terms we offered," he said, according to a transcript on Sentieo, a financial-research site.

"But we actually didn't push it to the limit because there really wasn't anybody else around."

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A notorious market bear says inexperienced 'zombie investors' are fueling a stock-market bubble — and warns that even the Fed won't be able to prevent another 30% crash

Sun, 06/21/2020 - 6:05am

Albert Edwards is not a fan of the retail mania sweeping through the stock market.

The Societe Generale global strategist was a vocal skeptic of the market's run-up to the 2000 dot-com bust. He is speaking out again as he watches traders who seem hell-bent on buying after a record-breaking crash and despite ever-present economic risks. 

These traders have been pulled in partly by dollar-cheap speculative companies that recently declared bankruptcy. Last year's fee war among brokerage firms could not have come at a better time for these traders who now enjoy multiple options for free transacting. 

But Edwards is most concerned about an even greater catalyst for the market rally than speculative day trading: the Federal Reserve. He maintains that the Fed has effectively turned into a help desk for investors —  a savior that swoops in whenever there is trouble in markets. And he doubts that its response will be enough to actually avert a market decline that is driven by worsening economic fundamentals.

"I believe this almost 50% equity rally from the March 23 low will fail because I don't think the Fed is omnipotent, as most people believe," Edwards said in a recent note.

"I think despite more and more liquidity thrown at the markets, the fundamentals will ultimately dominate, and the market will sink to new cycle lows, even after the Fed commences buying S&P 500 ETFs when/if the S&P slides below 2000."

Such a slide would be yet another 30 percent-plus drop from current levels, and may wipe out the newcomer day traders Edwards calls "zombie" investors.

Retail traders are on a roll

For now, credit must be given where it is due: these rookie traders are beating professional money managers at their game so far this year, according to Goldman Sachs data. A basket of the most popular stocks among retail traders outperformed the prime picks of both mutual fund and hedge fund managers by more than 15 percentage points.

The issue for Edwards and other observers is that the force that sucked these traders into the market could spit them out with the same ferocity. And in true stock-market fashion, there will be no advance warning to take profits.

Andrew Lapthorne, who heads up Societe Generale's quantitative research team, also flagged this very concern even while lauding the impeccable timing of retail traders

"Hyman Minsky describes the five phases of a bubble as: displacement, boom, euphoria, distress and panic – and it seems we are cycling through these phases in record time this year," Lapthorne said in a recent client note.

Lapthorne's team unearthed further evidence of speculative retail buying by digging into data from the free-trading platform Robinhood.

They found that traders were piling into small-cap companies with low share prices and weak balance sheets. Such companies typically bounce hard after crashes because they fall to the lowest depths. But this time, the gains are abnormally high. 

The caveat with this analysis is that Robinhood traders constitute a fraction of the overall marketplace, and so the impact of their dealings on broader moves must be put into proper perspective. 

However, Edwards' takeaway from his colleague's work remains that directionally speaking, the broader market is hurtling towards euphoria — and inexperienced traders who piled in will get the short end of the stick. 

To further back up his view, he cited data from Sundial Capital Research that shows options traders who exchange 10 contracts or fewer spent a record 52% of their volumes speculating on higher prices in recent weeks. Their purchases of call options tied with the most frenzied weeks for the stock market in 2000. 

Edwards, who called the dot-com crash back then, now has a simple message for these speculators: buyer beware.  

Read more: 

SEE ALSO: Main Street traders have been crushing Wall Street in recent months. Goldman Sachs breaks down what retail investors should buy to keep winning — and lists the 12 stocks leading the charge.

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India's GDP is likely to rebound to 8.5% in 2022, S&P says, but a forgotten community struggles to find any glimmer of hope

Sun, 06/21/2020 - 4:49am

  • India's gross domestic product may rebound to 8.5% in 2022 before suffering a "deep contraction" in this fiscal year, according to S&P Global Ratings.
  • Despite India's $264 billion economic stimulus, or about 10% of its GDP, the country's migrant laborers and struggling communities are enduring critical troubles.
  • A direct cash-transfer benefit reform enabled Prime Minister Narendra Modi's government to deliver stimulus funds to the needy, but tens of thousands amongst those deprived do not have access to digital payments accounts.
  • Meanwhile, a forgotten social community has been wiped off of India's population data and has failed to secure a government representative on the presumption that their numbers have dwindled to a mere 296.
  • Visit Business Insider's homepage for more stories.

India's economy is likely to rebound by 8.5% in 2022 after suffering a deep contraction in the current fiscal year, according to S&P Global. 

However, the world's fifth-largest economy is faced with both a migrant crisis of epic proportions and community distress as tens of thousands struggle to persevere during the pandemic in one of the world's most populous nations. 

The credit ratings agency affirmed a "BBB-"  rating on India which represents a relatively low-risk investment and held its "stable" outlook.

Real gross domestic product will shrink 5% by the end of fiscal 2021, S&P said. In 2020, GDP fell to an 11-year low of less than 5%. 

Aspects that will support India's economic rebound include the country's "wide range of structural trends, including healthy demographics and competitive unit labor costs," S&P said. If implemented efficiently, economic reforms could support the rebound.

Downside risks

On the other hand, India's recovery could be hampered by "a serious local epidemic, enduring financial and corporate distress in India, and long-lasting global economic malaise." 

A sharp rise in national debt is expected this year as the government reels out more stimulus to address the pandemic while dealing with weak revenue generation, but S&P expects its fiscal position to return once a global recovery stabilizes.

Focus on containment and mitigation 

In May 2020, the Indian government announced a $264 billion stimulus package. Out of that, S&P said direct government spending will be less than 1% of GDP, while maximum relief will be directed by India's banking sector through loan guarantees and credit support.

S&P expects India's trade position to remain unchanged in the next 12 months as the economy sees a collapse in exports, a steep fall in the central bank's foreign exchange reserves, and a sustained rise in the current account deficit. 

A direct benefit transfer reform enabled Prime Minister Narendra Modi's government to deliver stimulus funds to over 300 million at-risk individuals, but many more still struggle to avail of the benefits. 

Particularly so for migrant laborers who do not own digital payments accounts. Many villagers who migrated to cities for higher-paid jobs were forced to travel back home to rural areas once the nationwide lockdown rendered their daily jobs redundant. 

More recent governmental measures are aimed at supporting non-bank financial institutions and small-and-medium enterprises, S&P has said.

Social conditions dependent on labor markets

S&P says prominent incidents of social unrest related to "high-profile legislative decisions" in the past two years have not "materially" dented support for the ruling national political party.

Laborers in the economy live and work in dense networks of people. For this reason, the government has addressed the threat of a widespread outbreak amongst these workers, but even if that's achieved, S&P says both the informal and formal labor markets will find it arduous to restore swiftly. 

S&P projects that if unemployment remains elevated for a long time, "pockets of social unrest could emerge" and dampen India's investment and growth. 

Crises persist for a social community left in the lurch

In another troubling sign for India's employment numbers, one considerably-large social group in the country is noticeably unidentifiable on its population data: the Anglo-Indian community.

With its distinct line of ancestry built during the time of colonial rule, the minority Anglo community is eliminated on paper and stripped of its identity within India's demographics.

A sizable number of Anglos in North East India have been significant contributors to the oil, railways, and tea industries of the region. They also helped set up well-recognized academic institutions across the country.

Over the decades, those who could afford to migrate to other countries did so and left behind thin numbers, leading to an almost hidden presence.

Consequently, many remain homeless and rely on sundry charity for survival. A lack of government attention has made Anglo families perish. 

To make sure the community did not suffer harsh neglect post-independence, the government made a provision to nominate two members of the Anglo community to parliament. That came to an end in January 2020

Lack of political representation for the lost group

Representing a mix of British and Indian heritage, the Anglo Indians no longer have a government representative on the assumption that their numbers have dwindled to a mere 296

Owing to their geographic dispersion all over the country and since the community has never been counted separately under the census, no one is certain of the true number. A plea to count members of the Anglo community separately was earlier made, and ignored by a bureaucratic quirk. 

Census information is handy for when governments and health providers need to trace people that require help when disasters such as the coronavirus hit the economy.

Anglo-Indian families have been uprooted and are left out of the "New India," according to Geoffrey Farnham, a member of a local Anglo community group in north-east India. Relief meant for welfare and upliftment never reached their community in the north-east region, he said.

Their alienation by the central government is so complete, that members of the Anglo community in the North East had no idea they had political representation at all, said Farnham, whose grandfather fought in the 1916 Battle of the Somme as a major in the British Army.

Although a bill for the extension of political representation exists, the plea has been held off on grounds of other pressing matters to be dealt with.

Road ahead

With the pandemic still in the early stages, the scale and duration of the crisis remain uncertain, S&P said. Similarly, India's social, health, and economic progress is unpredictable. 

If containment measures against the virus prove successful, the country could solidify its political and social stability, according to the ratings agency. 

"In our view, India's economic outlook remains bright, so long as emerging weaknesses are addressed before growth rates fall much further," Andrew Wood, director of S&P's Asia Pacific sovereign ratings said. 

"The course of India's pandemic will play an important role in determining the strength of its economic recovery."

SEE ALSO: 'The market doesn't care who you are': 11 of JPMorgan CEO Jamie Dimon's best quotes

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An ex-minor baseball player is spinning off a new hedge fund from Leon Cooperman

Sat, 06/20/2020 - 12:07pm

 

Welcome to Wall Street Insider, where we take you behind the scenes of the finance team's biggest scoops and deep dives from the past week. 

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It was a busy week for hedge fund news, with the finance team landing scoops on an upcoming launch, a fund that's giving outside investors their money back, and one that's winding down entirely. 

A new hedge fund run by a one-time minor league baseball player is set to spin off from billionaire Leon Cooperman's Omega Advisors, Bradley Saacks reported. New launches have been few and far between during the global coronavirus pandemic, though, as meetings with potential investors turned into video calls and business travel was cancelled.

Bradley and Alex Morrell learned that billionaire Philippe Laffont's Coatue Management is returning all outside capital in its $350 million quant fund. The fund, started roughly a year ago, had pulled back its exposure from the markets significantly in March and April. Coatue will continue trading the strategy with internal money, though, and hopes to eventually reopen it to outside investors.

And Bradley, Dan DeFrancesco, and Meghan Morris reported that a $2.5 billion Tiger Cub emailed vendors on Tuesday evening to give notice that it has started winding down business operations and liquidating portfolios.

Read the full story here:

Valinor Management is closing — it's the first multi-billion-dollar hedge fund to wind down since the pandemic started

Keep reading to see the advice that value investors are giving each other after getting steamrolled by rising markets; a deep dive into the sports empire of Apollo Global Management cofounder Josh Harris; and a look at why live commerce could soon explode in the US. 

Have a great weekend, 

Meredith 

Advice for value-investing enthusiasts 

Value investors, who seemed poised to take control during the initial market crash from the pandemic, have since been steamrolled by rising markets. For value-seekers, it's been emblematic of a decade of futility. 

Rebecca Ungarino and Bradley Saacks attended a two-day virtual conference hosted by the New York chapter of the CFA Institute (the event is named after Ben Graham, the father of value investing.) Speakers flagged their picks in the quickly changing markets, and implored listeners to stick with the philosophy.

Read the full story here: 

'This is so hard!': Inside a 2-day virtual conference for value investors struggling to make sense of markets Influencers and home shopping

Live-streamed commerce has taken off in China on platforms like Alibaba's Taobao Live and Douyin, China's version of TikTok. Influencers are driving sales of everything from cosmetics to tech products — think home shopping TV networks, but with check-outs embedded in the platforms and payment details stored there. 

"It's entertainment plus shopping," Connie Chan, general partner at Andreessen Horowitz, told Shannen Balogh. And it could soon arrive in the US.

Read the full story here: 

Social media influencers are driving billions in sales in China with live-streamed commerce. An a16z partner explains why the US could be next. Apollo cofounder Josh Harris' sports empire 

The billionaire Josh Harris, who has cofounded a sports-investing business as well as one of the biggest alternative-investing firms, has been taking a look at buying the New York Mets.

Meghan Morris and Casey Sullivan talked to insiders to learn more about how Harris has been applying an aggressive style honed at Apollo Global Management to the sports world. 

Read the full story here: 

Billionaire investor Josh Harris is vying to add the New York Mets to his sports empire. Tycoons, colleagues, and an NBA star reveal his playbook. WeWork competitor Knotel is stretched thin 

As Meghan Morris reports, Knotel's finances were in a tough position well before the pandemic hit, and now, the flexible-office company is stretched even thinner. Until recently, New York-based Knotel was one of the fastest-growing brands in the booming coworking and flex-space field, emerging as a chief competitor to WeWork. 

Read the full story here: 

Leaked Knotel financials reveal that the WeWork rival had huge pre-pandemic losses and now has more unpaid bills than cash. It's a grim sign for the flex-office space. Inside Airbnb-backed Zeus Living 

Zeus Living, an Airbnb-backed startup that focuses on corporate housing, laid off almost two-thirds of its staff in three months and saw its valuation plunge. 

As Alex Nicoll reports, the startup is now planning to shift its business model after clients cancelled millions in contracts and occupancy dropped. 

Read the full story here: 

After 2 layoff rounds and chaotic landlord negotiations, Airbnb-backed Zeus Living wants to shift its business model. Here's how the corporate-housing startup is plotting a way forward. On the move

Wells Fargo has tapped Barry Sommers, the former CEO of wealth management at JPMorgan, as its new wealth and investment management chief. The post had been vacant since February. Wells Fargo CEO Charlie Scharf, who had a nine-year stint JPMorgan and had been viewed as Jamie Dimon's protégé, brought in Sommers as the latest in a string of JPMorgan alums he's hired since joining Wells last year.

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30 Big Tech Predictions for 2020

Sat, 06/20/2020 - 12:02pm

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