Penny Stocks are the ultimate trading craze

Penny Stocks are the ultimate trading craze

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Of all the trading crazes in recent months – Bitcoin, SPACs, meme stocks, non-fungible tokens – the latter has a long history of fraud and scandal. That’s right, low-cost stocks are growing, according to Matt Phillips of The Times, who visited the “low-income neighborhood of Wall Street”.

There were 1.9 trillion transactions in the over-the-counter markets last month, where these shares are traded, according to the sector’s regulator, Finra. This is more than 2,000 percent over the previous year, driven in large part by the increase in retail trade – enabled by the commission-free trade of online brokers – which has also fueled the frenzy over GameStop shares and other speculative assets.

Currency shares have always lent themselves to quick fortunes, given that small inflows to these low-priced and poorly traded stocks can make prices frantic. This also makes them susceptible to fraud like bombs and evictions, updated for the modern era with schemes incubated on social networks. “It’s all just a pool full of sharks,” said Urska Velikonja, a law professor in Georgetown. “It is where the unwary go to be eaten.”

The penny stock frenzy is common in bull markets. The current fervor among retailers has unnerving echoes of the past, according to Tyler Gellasch of the nonprofit Healthy Markets Association. Based on the scale of the recent craze, “the only relevant historical precedent seems to be increasingly the days before the Great Depression,” he said.

Take Jordan Belfort, from “The Wolf of Wall Street”. “Everyone wants to get rich,” he told Matt Belfort, a former “boiler room” operator who pleaded guilty to market manipulation, “and they want to get rich quickly.” He added that an element of naivety sustained this trade: “We all want to believe in Santa Claus, the Tooth Fairy and Bernie Madoff.”

The Fed maintains its policies stable. As expected, the central bank left interest rates at minimum levels, despite improving economic growth forecasts. But Upshot’s Neil Irwin notes that it may be harder for Jay Powell, the Fed’s chairman, to stave off criticism from those who think monetary policy is too lax.

The IRS delays the tax filing deadline. Americans have until May 17 to declare their federal income tax, a delay that aims to help people cope with the economic turmoil of the pandemic and respond to changes in the bailout plan.

Credit Suisse reviews its business after the Greensill scandal. The Swiss bank will separate its asset management division, replace its boss and suspend bonuses on the unit’s role in financing Greensill Capital, the supply chain finance lender that went bankrupt this month.

Gasoline may have peaked. Global demand may never return to pre-pandemic levels, the International Energy Agency said, as more electric vehicles hit the roads and transport habits change. Usage may increase somewhat in places like China and India, but overall consumption in industrialized economies will drop by 2023.

The Senate confirms President Biden’s chief commercial authority. Katherine Tai will become the US trade representative. She is a prominent critic of China’s business practices, signaling that the White House will not completely abandon the tough stance of the Trump administration. Senior US officials will meet their Chinese colleagues for the first time today at a summit meeting in Alaska.

Google said today that it plans to invest $ 7 billion in offices and data centers in 19 U.S. states, becoming the latest technology giant to expand its presence while other companies retreat into a pandemic-agitated commercial real estate market. Google CEO Sundar Pichai shared the plans on a blog, saying the move would create 10,000 jobs at the company this year. (Alphabet, the parent company of Google, employed about 135,000 people in late 2020.)

Google is expanding across the country. The plan includes investments in data centers in locations like Nebraska, South Carolina and Texas. The company recently opened its first office in Minnesota and an operations center in Mississippi. He will open his first office in Houston this year.

“Meeting in person to collaborate and build a community is central to Google’s culture,” Mr. Pichai wrote. Google was one of the first companies to tell employees to work from home and expects employees to start returning to offices in September. When this happens, he will test a “flexible workweek”, with employees spending at least three days a week in the office.

– Alexis Goldstein, senior policy analyst at Americans for Financial Reform, in a Congress Audience which focused on the relationship between brokers like Robinhood and market makers like Citadel Securities.

SPACs have raised more money this year than in the whole of 2020, setting a record for blank checks turnover. More than $ 84 billion has been raised by 264 SPACs to date, according to Dealogic, compared with $ 83 billion raised by 256 acquisition vehicles last year.

SPACs with an estimated $ 135 billion are currently pursuing acquisition targets, according to SPAC Research. Since they typically buy companies five times larger, this implies a purchasing power of well over $ 600 billion, creating a business dispute within the two-year window stipulated in the rules of most SPACs.

  • Lordstown Motors, an electric vehicle company that went public via SPAC last year, said yesterday it was cooperating with a SEC investigation after a short seller accused it of misleading investors about its business prospects.

Hester Peirce is one of the few financial regulators with an online fan base and a nickname. Known to some as “Crypto Mom”, she has raised the profile of cryptocurrencies and blockchain technology since she was appointed SEC Commissioner in 2018. In “Blockchain Policy Matters”, an online program by the Bitcoin Association, a commercial group, Ms. Peirce described his hopes for innovation and regulation in the cryptographic world. DealBook had a preview of the show, which will be posted today.

“Everyone is getting smarter with these things”, Ms. Peirce said that regulators are considering encryption issues. Getting more involved with the private sector “can help us, regulators, to improve our thinking,” she said, which could be “more subtle”.

“We dig ourselves in a small hole,” Ms. Pierce said of the SEC’s refusal so far to approve a fund traded on the Bitcoin exchange. “Many people are looking for a way to access the asset class.” Last month, three bitcoin ETFs started trading in Canada.

She welcomes Gary Gensler, the blockchain professor, as the next head of the agency. President Biden’s choice to lead the SEC has given talks on cryptocurrency and blockchain at MIT since 2018. Ms. Peirce said she was “hopeful” that he will help the agency think “in a more sophisticated way”. She added that Gensler is “more inclined to regulate” than she is, but believes that he can provide the regulatory clarity on the cryptography she sought.

Blockchain technology can solve the problems raised by the meme stock craze. This includes “concerns about settlement times, tracking where the shares are and who owns which shares and when,” said Pierce. Accounting technology distributed like blockchain could eliminate common points of failure in the financial system, instead of centralizing them, said Peirce, adding: “I hope that many of these innovations happen in the private sector, rather than us taking it as a securities regulator. “

Specials

  • Coinbase, the cryptocurrency exchange, said it was valued at $ 68 billion in private markets before its direct listing next week. (Reuters)

  • Negotiations for the merger of three companies owned by Vista Equity Partners and a SPAC backed by Apollo Global Management in a $ 15 billion deal have stalled due to market volatility. (Bloomberg)

  • HSBC is negotiating the sale of its French retail banking arm to an affiliate of Cerberus, with a focus on Asia. (FT)

Politics and politics

  • The Commodity Futures Trading Commission has created a team to assess climate change risks for futures and options markets. (WSJ)

  • Democrats are betting on an increase in corporate taxes to pay their infrastructure improvement bill. (Axios)

  • British companies may face more restrictions on dividends and bonuses in a proposal to revise accounting rules. (FT)

Technology

  • Morgan Stanley is offering major wealth management clients access to three Bitcoin-linked investment funds, the first from a United States bank. (CNBC)

  • Amazon’s salary scale in Alabama may have left it vulnerable to a union. (NYT)

  • On the “Sway” podcast, Brian Chesky of Airbnb talks about trust, security and being “completely speechless” on the day of the company’s IPO (NYT Opinion)

The best of the rest

  • The pandemic helped a 162-year-old German company that makes model trains to discover a new audience. (NYT)

  • An old mathematical pattern could predict the price of Bitcoin. (Fortune)

  • This news article is a non-fungible token. (Quartz)

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