How to Fix the Markets
Six ways to make trading fairer
As we try to understand what happened in the meme-stock frenzy — a populist uprising, a skillfully disguised market manipulation, or both? — one thing is clear: The public doesn’t trust the stock market. In his latest column, Andrew offers some potential ways to make investing fairer and regain trust:
A transaction tax, even of 0.1 percent of a trade’s value, could reduce the attractiveness of the high-speed trading that gives sophisticated Wall Street firms a huge advantage.
Force hedge funds to disclose short-selling positions. “If we as a society believe transparency is important to understand who is buying up shares, it would seem logical that we also want to know who is betting against them,” Andrew writes.
End private meetings between investors and companies, which risk giving the biggest financial players information that the general investing public lacks.
Change how people qualify to access private investments, perhaps using a financial literacy test. That would open the world of venture capital, private equity and more to anyone with a baseline of knowledge, rather than just people with a certain level of wealth.
End payment for order flow, which means that online brokerages like Robinhood couldn’t sell customers’ trade orders to firms like Citadel Securities to execute. That could give retail traders more confidence that their brokers don’t have a conflict of interest — though it would also end zero-commission trading.
Bring back the Buffett Rule, an Obama-era proposal that effectively imposed a 30 percent income tax on anyone who earns more than $1 million. This wouldn’t address the markets, necessarily, but would boost perceptions of fairness in the system as a whole, which is partly what the GameStop trade is about.
“Think of them as conversation starters, not endorsements,” Andrew writes. “Each has pros and cons and likely some unintended consequences.”
What would you add to the list? Let us know at firstname.lastname@example.org. Include your name and location, and we may feature your response in a future newsletter.
HERE’S WHAT’S HAPPENING
No consensus on stimulus after President Biden meets with Republicans. Mr. Biden had a cordial meeting with 10 senators at the White House to discuss their $618 billion economic relief proposal, but appeared unlikely to whittle down his $1.9 trillion plan.
Mixed signals on an economic recovery. The Congressional Budget Office projected that the U.S. economy would return to its pre-pandemic size by summer, faster than expected, but that workers who lost their jobs may stay unemployed for years. Supporters of both expansive and limited stimulus spending will find ammunition in the report.
Exxon Mobil reports a historic loss. The oil giant said it lost $22 billion last year, its first annual loss in decades. It’s also under pressure from activist investors, and said it had hired a new independent director and created a new division to help it reduce emissions.
Apple hits up the debt markets again. The iPhone maker sold $14 billion in bonds, its third debt sale since May, to take advantage of low interest rates. Among the chief uses of the proceeds, according to Bloomberg: stock buybacks.
Britain’s former finance minister becomes an M.&A. banker. George Osborne, chancellor of the Exchequer from 2010 to 2016, will join the boutique investment bank Robey Warshaw. He’s following in the footsteps of policymakers like Peter Orszag, a longtime Democratic economic official who is now the C.E.O. of Lazard’s financial advisory business.
What’s next for Robinhood?
The online brokerage surprised many yesterday when it unveiled a $2.4 billion fund-raising round, on top of the $1 billion it had collected last week while managing a run on its cash from the meme-stock trading frenzy. It has plenty of funds now — but its prospects remain uncertain.
Robinhood raised more money in five days than in its previous eight years, after receiving huge collateral demands from Wall Street’s main stock-trading clearinghouse last Thursday. It has also been asking its banks for additional debt financing, perhaps through expanded credit lines, a person close to the company told DealBook. (Reuters suggested that it is seeking up to $1 billion.)
But the company still really wants, and perhaps needs, to go public. Robinhood had already hired advisers like Goldman Sachs to work on an I.P.O., and still hopes to go public this year. The trading frenzy highlights why an offering is increasingly important, the person close to the company said:
An I.P.O. — or perhaps a direct listing with a capital raise — would raise fresh funds, adding to Robinhood’s cash cushion. After all, this probably wasn’t its last trading frenzy.
A listing would give Robinhood access to financing sources barred to privately held companies, which are considered less stable than businesses that can easily raise equity by selling public stock.
Meanwhile, Robinhood is betting that its business has stabilized. The firm has dropped trading restrictions on many stocks — they now apply to eight, rather than 50 — which suggests that its collateral requirements are falling. (That said, today may be another wild ride for meme stocks: Shares in GameStop are down 23 percent in premarket trading, while those in AMC Entertainment are down 21 percent.)
Despite an outcry over the trading curbs, the app appears to have drawn new users: It was downloaded more than 600,000 times on Friday, according to JMP Securities.
Robinhood has a date on Capitol Hill. Vlad Tenev, the brokerage’s C.E.O., is expected to testify at a Feb. 18 hearing before the House Financial Services Committee, which will focus on any role hedge funds played in the trading curbs.
The name of the hearing — “Game Stopped?” — suggests someone has been reading all those punny headlines.
Exclusive: TaylorMade is for sale
KPS Capital Partners has hired Morgan Stanley to run a sale of TaylorMade, the golf equipment brand, DealBook has learned. A deal could value the company at more than $2 billion; KPS bought it for $425 million from Adidas four years ago. Spokespeople for Morgan Stanley and KPS declined to comment, while TaylorMade was unavailable for comment.
Tiger beat. Adidas sold the brand to KPS in 2017, as golf was falling out of favor and the German sportswear group sought to refocus on shoes and clothes. (It’s since tapped JPMorgan Chase to weigh a sale of its Reebok brand.) By the time KPS bought TaylorMade, the brand had struck a deal with Tiger Woods, who needed a club sponsor after Nike quit the business. When Mr. Woods signed the deal, he was struggling to make a comeback, but two years later he won the Masters.
While TaylorMade has also inked deals with Dustin Johnson, Rickie Fowler, Rory McIlroy and others, its deal with Mr. Woods is a “key component to the strength and growth” of the brand, its C.E.O., David Abeles, said last year.
Pandemic boom. Social distancing has been a boon for golf. Sales of golf equipment hit $1 billion in the third quarter of last year, up 18 percent from the year before. The last time the industry topped those levels was in 2008, the last year Mr. Woods won a major before his career was sidelined by injuries and scandal.
“Even as America’s central bank dedicates research and attention to racial economic outcomes and publicly champions inclusion, it has had a poor record of building a work force that looks like the population it is meant to serve.”
— The Times’s Jeanna Smialek, on why there are so few Black economists at the Fed
Digging into the cobalt market
The mining group Glencore announced this week that it would supply “ethically sourced” cobalt for a Norwegian battery producer, Freyr. That highlights one of the biggest issues in the fast-growing battery industry, where demand from electric carmakers has pushed up the price of cobalt by 30 percent this year. Most of the supply comes from the Democratic Republic of Congo, where children working in “artisanal” mines dig tunnels with hand shovels, risking life and limb for about $2 a day.
Demand for cobalt is surging. The rally is driven by China, which is leading in electric car development. But supply strains and human rights complaints are also forcing companies like Tesla — facing battery shortages slowing production — to distance themselves from the so-called “blood diamond of batteries.” Potential alternatives to cobalt, one of the most expensive materials in batteries, are years away.
Last year, a group of nuns introduced a shareholder proposal at Tesla for more human rights disclosures, including details of measures to prevent child labor in cobalt supply chains. It failed to pass, attracting 25 percent support.
Child miners have sued Alphabet, Apple, Dell, Microsoft and Tesla, alleging the companies benefit from and support the abusive artisanal mining system through their deals with companies, like Glencore, operating in Congo. “This isn’t a minimum wage problem,” the plaintiff’s counsel Terry Collingsworth, the executive director of International Rights Advocates, told DealBook. “This is life and death.” The companies moved to dismiss the case, and a federal court in Washington is considering the request.
Glencore and Tesla are part of the recently formed Fair Cobalt Alliance, whose members pledge to support “responsible” artisanal mining. Mr. Collingsworth is skeptical of the “corporate playbook” of voluntary self-regulation.
THE SPEED READ
The private spaceflight company Astra will go public by merging with a blank-check fund run by the telecom entrepreneur Craig McCaw. (Astra)
In pre-I.P.O. funding news: The office-automation software maker UiPath raised $750 million at a $35 billion valuation, while the data-processing services company Databricks raised $1 billion at a $28 billion valuation. (CNBC)
Politics and policy
A federal judge unwound a Trump administration order limiting the scientific studies the E.P.A. could use to devise public health protections. (WaPo)
Former President Donald Trump parted ways with his former lead impeachment lawyer over disagreements in strategy — and fees. (Axios)
The Alibaba co-founder Jack Ma was conspicuously absent from Chinese state media’s latest list of business luminaries. (Bloomberg)
Google will pay $3.8 million to settle claims from the Labor Department that it underpaid women and unfairly passed over women and Asians for promotions from 2014 to 2017. (Reuters)
Ford chose Google to provide cloud-computing services and smart-car technology, snubbing its longtime partner Microsoft. (Bloomberg)
Best of the rest
How wealthy hospitals use century-old lien laws to extract huge fees from poor patients. (NYT Upshot)
“The Sputnik V Vaccine and Russia’s Race to Immunity” (New Yorker)
Want to fly on a SpaceX rocket? A billionaire is raffling off a seat for charity. (NYT)
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