Category Archives: Reporting

GameStop – The Casino at Broad and Wall

I thought it was a very strange story. “Analysts confounded by GameStop price moves” read the headline in the business section of one of the world’s most widely read newspapers. “Recent volatility in the stock of GameStop has confused analysts following the video game retailor” read the lede line.

That there had been great volatility in the price of a share of GameStop was not debatable. The stock was trading below $20 a share at the end of 2020. On January 29, 2021 it hit $325. That’s a jump of 1,625%. If you had bought 100 shares on December 31, you would have paid $2,000. On January 29, one month later, your 100 shares would have been worth $32,500. If you think you understand the stock market that is a mindboggling increase. Certainly one to “confound” and “confuse.” But as your intrepid reporter wrote in my primer for the National Center for Business Journalism, stock markets are not what they used to be.

My grandmother Edna gave me ten shares of AT&T stock when I graduated from the 8th grade. She was a big believer in the stock market and AT&T, at the time the national monopoly telephone company and the most widely held stock in the world, was her favorite. At a monopoly utility, its revenue and profit was controlled by the government. In return, it held an exclusive franchise which made it a company almost completely protected from competition. As a result, the stock price remained very stable. And so did the dividend. The shares provided holders with a high degree of safety and a steady income.

In other words, AT&T shares traded predominately on their fundamentals, based on the health and business of the company and also on the health of the economy as a whole. In 1965, total trading volume for the year ran a few of billion shares.

Today the New York Stock Exchange can trade a couple billion shares between the opening and lunch. And swings in stock prices, where a one percent a day move was once considered extreme, can now be seen moving ten, twenty percent or more in a day.

The reason should neither confuse or confound. The simple truth is that the market has evolved from a relatively staid place where companies came to raise money for their growth and expansion and investors came to put their money to work for the benefit of the overall economy, to a casino where people with money try to out maneuver other people with the goal of adding to their money horde.

The stock market is no longer a good indicator of the health of the economy. It is, at least on a short term basis, decoupled from reality, manipulated by big time traders who care nothing about the prospects for a company. They just trade the company stock because they have identified certain characteristics in price movements which they believe can make for profitable trades in the short run.

So a battle between short sellers, who were betting that shares on GameStop (ticker symbol GME) would go down, found themselves challenged by a group of day traders who thought it would be fun to gang up on the so-called pros. The day traders, lacking the large bankroll of the hedge funds, banded together and bought the stock without concern for the company’s lackluster performance and poor prospects. That drove up the price, which put the squeeze on the hedge funds which had shorted the stock.

Definitions: shorting a stock means borrowing stock you do not own and selling it, making a bet the price will go down, enabling you to buy at a lower price and return the borrowed stock. Hedge funds sound like they are following a rational, conservative strategy but are really just large pools of money from rich people willing to take very large chances in the hopes of making even larger profits. Because they are only available to so-called sophisticated investors, they are virtually unregulated.

Why do we care?

Part of me says we shouldn’t care. Just recognize that the markets are manipulated and individuals should probably stay away. Refrain from judging a political leader’s performance by the movement of the Dow Jones average. And chalk the newspaper story referenced above to the work of a poor reporter operating in an environment where where are few editors.

But one thing about the GameStop affair bears note, as indicated in the chart below:

From CRS Report

In the midst of the wild price movements a discount brokerage, Robinhood, which caters to the day-trader crowd, restricted trading in GameStop shares. There are some situations where a brokerage has the right to do this. But they generally involve risk exposure for the broker involving a client who has borrowed on margin or sold short and may not be able to cover loses. My understanding of the GameStop incident is that Robinhood blocked all trading, even for those individuals who owned the shares and now wanted to sell and collect their profits. The broker would face no risk in that trade.

The Congressional Research Service has identified policy issues for Congress to consider as a result of GameStop. But I have a feeling this will just result in more talk and no action. It is interesting to note that hedge fund manager Leon Cooperman complained loudly about the day-trader’s action. The hedge fund managers for once found themselves playing defense. I have never heard complaints about the hedge funds and the banks, which generally trade with their own exchange memberships, regularly take advantage of individual investors due to superior knowledge of order flows, priority positioning of their trading computers and the ability to trade virtually anywhere at any time, avoiding any market suspensions or circuit breaker provisions.

My personal pet peeve is something called high frequency trading, a principal reason for the huge trading volumes these days. These systems use computers to buy and sell, sometimes holding a stock for only a fraction of a second, based on complex algorithms evaluating stock price, volume and order flow.

None of these technologies add much if anything to the nation’s economy. They consist of the financial insiders trading amongst themselves and increasing their wealth at the expense of those who they catch in the massive price swings they engineer.

They’ll make a lot of noise and probably hold hearings. But I’ll be shocked if the regulators take any meaningful steps to reign in the professional traders. After all, it’s the pros who make campaign contributions. The individual traders do not.

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The Justices Take a Landmark Step. Unwillingly.

Mark your calendar. Beginning May 4 and ending May 13, the Supreme Court of the United States will make history. It took the coronavirus pandemic to do it, but over six dates the Court will hear oral arguments on ten cases, and the people of the United States will be able for the first time to hear those arguments as they happen.

This is happening because the Court, like most of us, is practicing Covid-19 social distancing protocols, with the justices and staff working mostly from their homes. The Court first delayed these arguments, then decided to hold the hearings via teleconference.

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Jim Lehrer and the Future of News

Jim Lehrer - PBS NewsHour

Jim Lehrer, co-founder and for 36 years the anchor of the PBS NewsHour, died Thursday at the age of 85. He was also the executive editor of the broadcast, moderated 12 presidential debates, and wrote books of fiction and non-fiction, often on topics informed by his interest in journalism, politics and history. The NewsHour remembered and eulogized him on the program that night.

I cannot come close to the heartfelt feelings expressed by his NewsHour colleagues and I highly recommend the program to you. Although I worked for nearly three decades for the public television program Nightly Business Report, public television is about as siloed a group as you will find and I had the pleasure of meeting Lehrer only once. I do remember being tongue tied at meeting the man who is now being mourned as a “giant in journalism.” He of course was friendly and unassuming with me.

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National Archive Gets Trumped

As you know I don’t usually report on other reporters. Nor do I link to material behind paywalls, although I support the use of paywalls to enable reporters to make a living. But there is a story justifiably blazing through the cloud that touches on many of the topics I hold dear and deserves a shout-out.

My tip of the hat goes to Joe Heim of the Washington Post and his story, “National Archives exhibit blurs images critical of President Trump.” Tweet National Archives TrumpedHeim, in a Twitter post after the story went viral, said his story was in part due to “chance.” I’ll respectfully disagree. Heim was visiting the National Archive when he noticed something that had nothing to do with his reporting assignment. That’s not chance. That’s good reporting. I’ve often told journalism students the best story ideas come from their own observations. A good reporter always keeps eyes open.

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Financial Market Reporting, Part 9: Exchange Traded Funds

In my recent post on mutual funds, I noted that John Bogle disrupted that industry with Vanguard, a mutual fund company that specialized in low cost index funds designed to mimic rather than outperform major market indexes. The other mutual fund companies responded with their own index funds, and there is intense competition between them

Mutual fund shares vs. ETFs

Exchange Traded Funds, ETFs, are another refinement of the fund category. They will certainly figure into your reporting on the fund asset class because they are by some measures the most popular of all exchange traded securities.

For my primer on ETFs, see businessjournalism.org.

Trump and the Employment Report, fact and fiction, Pt. 2

Numbers are funny things. Even though they appear to be absolute, a clever manipulator can twist them to make pretty much any point he wants to make. Take President Trump’s statement from February: “Ninety-four million Americans are out of the labor force.” It might seem preposterous but it is correct, as the great sage Obi-Wan-Kenobi once said, “from a certain point of view.”

It is the number you get if you take the total U.S. population 16-years of age and older and subtract the people the BLS says are in the labor force. That number includes everyone who is retired, and most high-school, college, graduate or vocational school student. It also includes the disabled, homemakers, some self-employed and those living off their investments.

My guide to reporting the employment report continues at businessjournalism.org….

Trump and the Employment Report, fact and fiction, Pt. 1

The Bureau of Labor Statistics released its Employment Situation Report for February on March 10, showing a healthy 235,000 gain in payroll employment. Asked what President Trump thought about the numbers, White House press secretary Sean Spicer said, “I talked to the president prior to this, and he said to quote him very clearly,” Spicer said. “They may have been phony in the past, but it’s very real now.”

Many of the reporters present laughed. I cringed.

Over the years on public television’s Nightly Business Report, I filed countless “numbers” pieces. The monthly employment reports were most closely watched. For better or worse these reports often had an immediate financial market moving impact, making them lead stories for a market driven broadcast.

I cringed because I believe attempts to undermine the credibility of these reports do a great disservice.

Continues at businessjournalism.org….

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