• Market Crumbs

Wall Street Keeps Winning


Image via Chris Li on Unsplash

To many people, Wall Street is viewed as tilted to favor a select few at the top of the pyramid. The number of frauds, questionable tactics and self-dealing over the years amounts to too many to list here.


Recently, a few examples have come to light that will only reinforce this opinion for many people.


Last week, Bill Ackman, founder of Pershing Square Capital Management, sent markets limit-down after a bizarre interview on CNBC, saying "hell is coming."


It has now come to light why Ackman may have been motivated to scare investors. Pershing Square had a $27 million hedge that turned into $2.6 billion as a result of the selloff that continued after his interview.


Ackman said the government's response to the coronavirus had changed his outlook, saying "we became increasingly positive on equity and credit markets last week, and began the process of unwinding our hedges and redeploying our capital in companies we love at bargain prices."


He used the proceeds to buy stocks such as Agilent, Berkshire Hathaway, Starbucks, Lowe’s and Hilton—which he said just a few days earlier is "going to zero along with every other hotel company in the world."


Elsewhere, a handful of U.S. senators dumped their stocks after a closed door meeting on the coronavirus before global markets began their selloff. One of the senators, Kelly Loeffler, is even married to the chairman and CEO of the New York Stock Exchange.


Most of them had similar responses, that the sales were not under their discretion and were made by financial advisors. Since then, they've received calls to resign, with one of the senators, Richard Burr, even being sued for securities fraud.


Lastly, to help with its purchase of billions of dollars of bonds, the Federal Reserve has hired BlackRock to manage the process. That doesn't sound too bad, until you realize BlackRock is one of the largest ETF providers and part of what they can purchase on behalf of the Fed are ETFs.


"BlackRock was selected on a short-term basis to serve as an investment manager after considering their expertise in trading and analyzing agency CMBS in the secondary market, and robust operational and technological capabilities," the Fed said.


Not surprisingly, BlackRock declined to go into details about the scope of the program, saying they will provide more details at a future date.


While these are just a few of the recent examples of how Wall Street has gained its reputation, they certainly won't be the last. At a time when many Americans are struggling as a result of the coronavirus, it appears to be business as usual on Wall Street.


Leftover Crumbs

  • 3.28 million. As the coronavirus has brought the U.S. economy to a standstill, a record 3.28 million Americans filed unemployment claims, according to the Department of Labor. For context, the number of jobless claims for the prior week was 282,000. The tally is far ahead of the record 695,000 in October 1982 and the financial crisis high of 665,000 in March 2009. The increases in some states are truly mind-boggling. Pennsylvania and Louisiana saw claims jump more than 20-fold and 30-fold, respectively.

  • Checks are on the way. After the U.S. Senate passed a $2 trillion stimulus package, Treasury Secretary Steven Mnuchin said Americans can expect the paychecks "within three weeks." The stimulus will provide up to $1,200 for individuals, $2,400 for couples and $500 for every child, based on 2019 tax returns. The amount phases out for those earnings $75,000 per year, while those earning $99,000 per year won't receive a payment. "We’re determined to get money in people’s pockets immediately," Mnuchin said.

  • The Fed has your back. Fed Chair Jerome Powell appeared on NBC’s "TODAY" to remind Americans the Fed is working in the best interest of Americans. "The Federal Reserve is working hard to support you now, and our policies will be very important when the recovery does come, to make that recovery as strong as possible," Powell said. Powell continued, saying "Really the message is this: This is a unique situation, it’s not like a typical downturn. We’ve asked people to step back from economic activity really to make an investment in our public health."

  • McDonald's trims its menu. In a move to simplify operations during the coronavirus outbreak, McDonald's is temporarily removing items from its menu. McDonald's is also considering deferring rent and service fees for its franchisees. "To simplify operations in our kitchens and for our crew ... we are working with our franchisees and local restaurants to focus on serving our most popular choices and will begin temporarily removing some items from the menu over the next few weeks," said senior vice president of operations Bill Garrett.

  • They're not paying rent. The Cheesecake Factory said it will not pay rent at its 294 locations across the U.S. as the coronavirus has forced it to close locations. Its restaurants are currently only able to provide delivery and take-out. "The severe decrease in restaurant traffic has severely decreased our cash flow and inflicted a tremendous financial blow to our business," wrote The Cheesecake Factory CEO David Overton. "Unfortunately, I must let you know that The Cheesecake Factory and its affiliated restaurant concepts will not make any of their rent payments for the month of April 2020."