IMF Warns Of ‘Gloomy Outlook’ For Global Economy, Slashing Growth Estimates

The International Monetary Fund warned on Tuesday of a slowdown in global economic growth as the world economy continues to take a hit from “increasingly gloomy developments in 2022,” including high inflation, a slowdown in China caused by Covid lockdowns and ongoing fallout from Russia’s war in Ukraine.

The IMF slashed its global growth projections, now expecting global GDP to grow 3.2% this year and 2.9% in 2023, down from previous estimates in April of 3.6% GDP growth for both years.

The group cited a slowdown in the world’s three largest economies—the United States, China and the euro area—as a reason for the revised estimates, warning that the risks to the outlook remain “overwhelmingly tilted to the downside.”

Several “shocks” have hit the global economy as it tries to recover from the pandemic, including higher-than-expected inflation worldwide––especially in the United States and Europe, a worse-than-anticipated slowdown in China caused by Covid lockdowns and “further negative spillovers” from the war in Ukraine.

The IMF also said that high inflation remains a “major problem” as prices have continued to rise in 2022, led by soaring food and fuel costs, arguing that “taming inflation should be the first priority for policymakers” worldwide.

The group now expects global inflation to hit 6.6% in advanced economies and 9.5% in developing economies this year, though prices are expected to return to near pre-pandemic levels by the end of 2024.

The IMF also slashed its growth estimates for the U.S. economy, now forecasting GDP to rise 2.3% this year and 1% in 2023, down from previous estimates of 3.7% and 2.3%, respectively, amid the impact of tighter monetary policy and reduced household purchasing power.

“The outlook has darkened significantly since April,” IMF chief economist Pierre-Olivier Gourinchas said in a statement. “The world may soon be teetering on the edge of a global recession, only two years after the last one.”

“The slowdown in China has global consequences,” the IMF said. “Lockdowns added to global supply chain disruptions and the decline in domestic spending are reducing demand for goods and services from China’s trade partners.” The group now sees China’s economy growing 3.3% in 2022—its lowest pace in four decades and down over 1% from previous estimates.

The World Bank similarly slashed its forecasts for the global economy last month, predicting GDP growth in 2022 of just 2.9%, down from an earlier estimate of 4.1%.

I am a senior reporter at Forbes covering markets and business news. Previously, I worked on the wealth team at Forbes covering billionaires and their wealth.

Source: IMF Warns Of ‘Gloomy Outlook’ For Global Economy, Slashing Growth Estimates

Critics by Pierre-Olivier Gourinchas

The global economy, still reeling from the pandemic and Russia’s invasion of Ukraine, is facing an increasingly gloomy and uncertain outlook. Many of the downside risks flagged in our April World Economic Outlook have begun to materialize. Higher-than-expected inflation, especially in the United States and major European economies, is triggering a tightening of global financial conditions.

China’s slowdown has been worse than anticipated amid COVID-19 outbreaks and lockdowns, and there have been further negative spillovers from the war in Ukraine. As a result, global output contracted in the second quarter of this year. Under our baseline forecast, growth slows from last year’s 6.1 percent to 3.2 percent this year and 2.9 percent next year, downgrades of 0.4 and 0.7 percentage points from April.

This reflects stalling growth in the world’s three largest economies—the United States, China and the euro area—with important consequences for the global outlook. In the United States, reduced household purchasing power and tighter monetary policy will drive growth down to 2.3 percent this year and 1 percent next year.

In China, further lockdowns, and the deepening real estate crisis pushed growth down to 3.3 percent this year—the slowest in more than four decades, excluding the pandemic. And in the euro area, growth is revised down to 2.6 percent this year and 1.2 percent in 2023, reflecting spillovers from the war in Ukraine and tighter monetary policy.

Despite slowing activity, global inflation has been revised up, in part due to rising food and energy prices. Inflation this year is anticipated to reach 6.6 percent in advanced economies and 9.5 percent in emerging market and developing economies—upward revisions of 0.9 and 0.8 percentage points respectively—and is projected to remain elevated longer. Inflation has also broadened in many economies, reflecting the impact of cost pressures from disrupted supply chains and historically tight labor markets.

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Tech Stock Rally on Alibaba Results May Be Short Lived, as Pandemic Impact on Industry, Consumer Spending Come Into Focus

Alibaba Group Holding’s better-than-expected results may offer only a temporary boost to Chinese technology stocks, as fallout from pandemic lockdowns depresses consumer spending and causes analysts to cut earnings forecasts by as much as 11 per cent.

Alibaba’s shares surged 12 per cent in Hong Kong on Friday after the release of its quarterly report, as the Hang Seng Tech Index rose nearly 4 per cent.

However, major brokerages China International Capital Corp (CICC) and Citic Securities cut earnings projections for the e-commerce giant. They cited the Covid-19 outbreaks that have ravaged about 40 cities in China this year, disrupting supply chains and prompting consumers to tighten their purse strings.

A weak result from Baidu has bolstered the argument. The nation’s biggest search-engine saw its advertising revenue drop 4 per cent from a year earlier in the first quarter, reflecting a tough macroeconomic environment.

The latest brokerage calls reinforce the view that the worst for China’s tech juggernauts is yet to come, as the pandemic takes over from the regulatory crackdown as the factor holding sway over the sector. Alibaba, Tencent soar in Hong Kong as report cards ease earnings concerns

A flurry of high-level government meetings over the last month signal an end to the year-long regulatory storm that wiped out more than US$1 trillion in market cap. Top policymakers have made it clear they want tech platforms to play a bigger role in reviving growth, as the outlines of a consumer-spending slowdown and a “big shock” to industrial profits become clear following lockdowns that started in April.

“Consumer spending and the development of the pandemic are the key to the tech stocks now,” said Dai Ming, a fund manager at Huichen Asset Management in Shanghai. “People won’t spend even online now, with the courier service devastated by the pandemic. The regulatory factor is less of a major concern now.”

CICC reduced Alibaba’s earnings forecast for the financial year by 7 per cent to 131.8 billion yuan (US$19.6 billion) and that for the following year by 1 per cent to 169.1 billion yuan. The investment firm also slashed the price target of Alibaba’s Hong Kong-traded shares by 4 per cent to HK$137, representing 13 times estimated earnings, amid a compressing valuation within the tech sector.

Citic Securities, China’s biggest publicly traded brokerage, also slashed Alibaba’s profit forecast, by 11 per cent to 124.9 billion yuan for this year and by 12 per cent to 147.7 billion yuan for next year. The share-price estimate is set at HK$160.

Alibaba’s customer management revenue (CMR), its biggest source of revenue, will probably decrease by more than 10 per cent for the quarter ended in June as a result of dwindling demand for online shopping and supply-chain disruptions, the brokerage said in a report on Friday.

“Looking to the whole year, investors still need to wait until the recovery in the macroeconomy for the improvement in Alibaba’s earnings,” Citic analysts led by Xu Yingbo wrote in the report. “We estimate that earnings will begin to pick up after the third or the fourth quarter.”

Beijing has reaffirmed its adherence to the zero-Covid policy, which JPMorgan has said the government sees as necessary because of a low vaccination rate among China’s elderly and a fragile healthcare system. The US bank, as well as Swiss private bank Union Bancaire Privee, predict a contraction in China’s growth in the second quarter. Premiere Li Keqiang highlighted the gravity of the situation for the nation’s economy at a meeting this week, saying that it was even worse in some aspects than the aftermath of the Wuhan Covid-19 outbreak in 2020.

Alibaba, the owner of the Post, jumped 12 per cent to HK$90.85 on Friday in Hong Kong. The rally has pared the stock’s loss to 23 per cent this year after a 49 per cent slump in 2021. Revenue for the March quarter rose 9 per cent from a year ago, beating estimates, but the company swung to a net loss in the span on increased investments in new businesses, according to results released on Thursday.

Alibaba’s future earnings may risk trailing the estimate, “given the uncertainty of putting the pandemic under control,” said Tang Jiarui, an analyst at Everbright Securities in Shanghai. “The logistics snarls have reduced consumers’ willingness to spend.”

By: Zhang Shidong

Source: Tech-stock rally on Alibaba results may be short-lived

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Welcome To The Vice Age: How Sex, Drugs And Gambling Help Americans Cope With Covid

The pandemic caused millions to lean in to good old-fashioned bad behavior. Two years later, business has never been better for cannabis, gaming and porn—and the high times are here to stay.

On March 13, 2020, everything changed for Doug, a 35-year-old manager at a supply chain logistics company in Chicago. He was told his offices were closed until further notice. Then the stock market took a dive, his 401K plunged, and several family members fell ill with Covid-19. As a father of four, in a house he recently bought, he was afraid for his family’s future.

For Doug, the glass of wine he usually had every night to unwind turned into a whole bottle. “My alcohol consumption turned into a seven-day affair,” he says. He’d usually top it off with some THC-infused gummies. And when sporting events returned, gambling helped him assuage his fear of an uncertain future.

Doug was not alone. As stay-at-home orders swept across the country in March 2020, Americans got high, got drunk, and turned to porn in order to cope with the many fears and anxieties that were symptomatic of the pandemic. Alcohol sales in 13 states surged more than 10% that first month of lockdown while wine sales jumped nearly 9%, according to a study conducted by the University of Buffalo. The number of cigarettes sold in the U.S. also increased in 2020, the first time in 20 years, according to the Federal Trade Commission’s Cigarette Report.

Dr. Peter Grinspoon, a primary care physician at Massachusetts General Hospital and an instructor in medicine at Harvard Medical School, saw more of his patients turn to drugs and alcohol to “blot out reality” after the start of the pandemic than the years before.

“In a perfect world, when under stress, we do yoga, eat tofu, exercise, talk to our best friend, but in reality, most of us rely on some kind of substance,” says Grinspoon, who has specialized in medical cannabis for more than 25 years. “You don’t have to be a rocket scientist to understand that while people are home, bored and lonely they’re going to drink and get high.”

Covid Lows, Cannabis Highs

As the pandemic took an unimaginable toll on thousands of lives a day and brought the global economy to a standstill, it also helped legitimize the legal marijuana industry. With lockdowns rolling across the country in March 2020, many states deemed cannabis dispensaries “essential businesses,” meaning they could stay open along with pharmacies, grocers and liquor stores.

Cannabis sales in Washington state rose 9% over the same month in 2019 to $99 million while in California, weed sales grew by 53% over March 2019 to $276 million. Several months later, on Election Day 2020, five states passed marijuana legalization laws. Overall, the legal cannabis industry had a sky-high year in 2020: legal sales surpassed $17.5 billion, a 46% increase in sales over pre-pandemic 2019.

With Covid attacking respiratory systems, many longtime pot smokers made the switch to edibles. According to Headset, the Seattle-based cannabis analytics firm, sales of edibles grew by 54% across six states—California, Colorado, Michigan, Nevada, Oregon and Washington—during 2020.

Cannabis Laws By State

“In a lot of ways, Covid accelerated the cannabis industry 10 years,” says Aaron Morris, the co-founder of Clackamas, Oregon-based edibles manufacturer Wyld. “It legitimized it in a way as a mainstream coping mechanism along with alcohol.” For Wyld, one of the country’s best-selling edibles brands, the pandemic put the company into overdrive. “Sales got crazy,” says Morris. “It was like toilet paper—edibles flew off the shelves.”

Morris says the pandemic spiked Wyld sales by 20%, but the uptick never slowed. Instead, sales were “boosted permanently,” he says. As a new normal took hold, the only fluctuations Wyld saw in sales were when stimulus checks went out. “Every time the government sent out checks, sales went on steroids for 30 days,” says Morris.

In 2019, Wyld generated $25 million in sales and by the end of 2020, it sold $64 million of its natural fruit gummies. By the end of last year, the company nearly topped $110 million in sales.

Morris is obviously pleased with how the company performed, but not surprised. “Everyone loves cannabis, everyone’s at home, you aren’t socializing, so what are you going to do on a Tuesday night or a Friday night?” says Morris. “Everyone just got lit.”

Higher and Higher

Annual state cannabis sales have grown rapidly and consistently since 2019.

In the United States, annual cannabis sales hit $25 billion in 2021, a 43% increase over 2020. Sales in Florida, where only medical marijuana is legal, and sales in Illinois, which has both medical and adult-use, jumped 70% from 2020 to 2021. In Massachusetts, sales increased 85% during the same period.

Despite the growth of edibles, marijuana flower sales didn’t slow down either. For Emily Paxhia, cofounder of cannabis investment fund Poseidon, what sticks out to her from the past two years is the rise in pre-roll sales. Joint sales shot up 47% from April 2020 to October 2021 in California, Colorado, Michigan, Nevada, Oregon and Washington.

Paxhia believes a touch of nihilism is driving this statistic. “I think the pandemic shortened the timeline of how we view and how we live our lives to be focused on today, tomorrow versus what’s happening in five to 10 years,” she says. “Why not just live now and live well now?”

Betting Against Covid

The start of the pandemic hit the gaming industry hard, and as travel restrictions expanded globally, Covid looked like a losing proposition for the house. Casinos across the U.S. shuttered for months due to stay-at-home orders. In Nevada, the country’s gambling mecca, gross gaming revenue dropped from $12 billion in 2019 to $7.8 billion in 2020.

But when vaccines became available and Covid restrictions eased, Americans flocked to Sin City and regional state casinos as gambling became a way for the country to let loose after the height of the pandemic. By the end of 2021, Nevada reported a 10-month winning streak of more than $1 billion in monthly gambling revenue and an annual record of $13.4 billion, an 11.6% increase over pre-pandemic levels.

“People were cooped up for, depending on their risk tolerance, six months to two years,” says Colin Mansfield, an analyst who covers gaming and leisure at Fitch Ratings. “There was a time when there was not much to do from an entertainment perspective except go to a casino. After the shutdown people wanted to go out and have a good time and spend some money.”

The Money Lines

Annual state gambling revenue has recovered from the pandemic thanks to pent-up demand and the rise in mobile betting and iGaming.

And as states were eager for more tax revenue, many pushed through laws to get mobile sports betting programs off the ground. In 2018, there were eight states with legal sports betting and by the end of 2021, 31 states had legal markets with 18 launching mobile sports gambling.

New York, which launched its mobile sports betting program in early January 2022, surpassed $1 billion in wagers in the first two weeks of legalization, double the amount sportsbooks took in on The Las Vegas Strip in all of December. By the last week of February, New York bettors had wagered a total of $3.1 billion since the program launched, translating into $204.6 million in gross gaming revenue and $104.3 million in tax revenue.

Mansfield says the pandemic gambling boom is far from over. The industry is growing as more states are legalizing sports betting and the broader casino market is also expanding. “We’re not forecasting any strong pullback in gaming revenues,” he says. “People like to gamble. I don’t think that’s really going away at all.”

Over time, gambling has made the leap from a vice that cities and states wanted to hide on riverboats and away from big cities to placing it in the center of major entertainment districts. The combination of the pandemic and the expansion of mobile sports betting brought gambling to the “mainstream conversation,” says Mansfield. “You can’t watch a game anymore without hearing about gambling.”

Gaming may be on a serious roll right now, but few are thinking about the long-term consequences. Bill Krackomberger, a veteran professional sports gambler, grew up in the seedier edges of the industry among loan sharks and underground bookies. Legalization of sports betting is a good thing, no doubt, but Krackomberger feels uneasy about how quickly an addictive pastime has gone mainstream.

“We’re going to see a fallout in about 10 years, not just among regular degenerates,” says Krackomberger. “I’m talking with doctors, lawyers, professionals, Wall Street guys, you’ll see—you won’t be able to get into a Gamblers Anonymous meeting.”

Legal Sports Betting in the the U.S.

Porn This Way

When the pandemic hit in March 2020, Maya Morena, an adult film performer and sex worker living in New York, knew she had to stop meeting clients. The respectable and polite ones disappeared, and it seemed like the only johns willing to pay for sex and risk getting Covid were the “scummy ones.” So, Morena, like millions of other workers in America, started doing business online—she began treating her OnlyFans page like a full-time job.

By the end of that first month, Morena says she made $4,800 producing and selling erotic videos on the U.K.-based streaming platform best known as the billion-dollar tech company that porn built. By January 2021, Morena, who is originally from Honduras, was making $6,000 a month on OnlyFans. As the pandemic wore on and she advertised her page and recruited new customers, she saw her business boom again. By September of last year, she hit $12,000 for the month.

Of course, the idea that anyone can launch an OnlyFans page and start reeling in money by showing a little skin is a lie, Morena says. It requires a lot of hard work. The number of paying users and content creators joining adult streaming platforms like OnlyFans, FanCentro, IsMyGirl, ManyVids, and others, is exploding but only the most dedicated creators can make a living. “It’s a thriving economy that’s ruthlessly competitive,” says Morena.

For OnlyFans, the pandemic helped it become one of the biggest social media platforms seemingly overnight with more than 180 million users and more than 2 million content creators who have earned a collective $5 billion by selling subscriptions to content. In 2019, it had 348,000 creators and 13.5 million users. In 2020, OnlyFans grew revenue by 540%, hitting $400 million.

The popularity of OnlyFans, which has attracted a diverse group of creators from a former pastor to porn stars like Sophie Dee to celebrities like Cardi B, has given birth to a whole new adult-rated streaming economy.

Naked Ambition

Since 2019, the number of content creators on OnlyFans has increased nearly sixfold, while the number of users has expanded by a factor of 13.

Evan Seinfeld, the Brooklyn-born second cousin of comedian Jerry Seinfeld, who launched the online adult content platform IsMyGirl in 2017, says the pandemic turbocharged his business. In 2019, Seinfeld had 500,000 users on his platform and 8,000 creators. By the end of 2020, 25,000 creators signed up and 1.5 million users joined. Today, the site hosts 2.5 million users and 50,000 creators, who collectively make millions of dollars a month.

“Everybody’s business is booming and growing,” says Seinfeld. “When people are alone in the house, people crave stimulus, they crave stimulation, they crave sexual excitement.”

While many sex workers and performers may have first joined a site out of desperation, he says, many eventually realized that selling erotic content to lonesome people stuck at home was a sustainable business.

Adds Seinfeld: “A lot of people needed a pandemic to realize that people who aren’t paying your bills don’t really have a right to have an opinion about how you earn your living.”

Or enjoy life.

Two years into the pandemic, Doug from Chicago is doing better financially—no other industry was in more demand than supply chain logistics—but he held onto some of his new vices, which he describes as “comforts.” Before the pandemic, he was trying to live a healthier life and moderate his food, drug, and alcohol intake. But his perspective has changed—happiness, not moderation, is part of his new approach.

“I’m enjoying the comfortability of my life,” says Doug. “Does it come with a few asterisks? Yes. But we’re not going to live forever.”

Follow me on Twitter. Send me a secure tip.

I am a staff writer on the vices beat, covering cannabis, gambling and more. I believe in the many virtues of vices. Previously at Forbes, I covered the world’s richest people as a member….

Source: Welcome To The Vice Age: How Sex, Drugs And Gambling Help Americans Cope With Covid


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Alcohol Addiction 101 – What You Should Know For most adults, moderate or social alcohol use is not problematic, however, approximately 18 million American adults have an alcohol addiction. Here is some basic information to help individuals navigate problematic alcohol use.


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Global Merger & Aquisition Volumes Hit Record High In 2021, Breach $5 Trillion For First Time

Global dealmaking is set to maintain its scorching pace next year, after a historic year for merger and acquisition (M&A) activity that was fueled largely by easy availability of cheap financing and booming stock markets.

Global M&A volumes topped $5 trillion for the first time ever, comfortably eclipsing the previous record of $4.55 trillion set in 2007, Dealogic data showed. The overall value of M&A stood at $5.8 trillion in 2021, up 64% from a year earlier, according to Refinitiv.

Flush with cash and encouraged by soaring stock market valuations, large buyout funds, corporates and financiers struck 62,193 deals in 2021, up 24% from the year-earlier period, as all-time records tumbled during each month of the year.

Investment bankers said they are expecting the dealmaking frenzy to continue well into next year, despite looming interest rate hikes.Higher interest rates increase borrowing costs, which may slow down M&A activity. However, deal advisers still expect a flurry of large mergers in 2022.

Accommodative monetary policies from the U.S. Federal Reserve fueled a stock market rally and gave company executives access to cheap financing, which in turn emboldened them to go after large targets.

The United States led the way for M&A, accounting for nearly half of global volumes – the value of M&A nearly doubled to $2.5 trillion in 2021, despite a tougher antitrust environment under the Biden administration.

The largest deals of the year included AT&T Inc’s (T.N) $43 billion deal to merge its media businesses with Discovery Inc (DISCA.O); the $34 billion leveraged buyout of Medline Industries Inc; Canadian Pacific Railway’s (CP.TO) $31 billion takeover of Kansas City Southern (KSU.N) ; and the breakups of American corporate behemoths General Electric Co and Johnson & Johnson (JNJ.N) .

According to a survey of dealmakers and advisers by Grant Thornton LLP, over two-thirds of participants believe deal volumes will grow despite challenges posed by regulations and the pandemic.

Deals in sector such as technology, financials, industrials, and energy and power accounted for the bulk of M&A volumes. Buyouts backed by private-equity firms more than doubled this year to cross the $1 trillion mark for the first time ever, according to Refinitiv data.

Despite a slowdown in activity in the second half, dealmaking involving special purpose acquisition companies further boosted M&A volumes in 2021. SPAC deals accounted for about 10% of the global M&A volumes and added several billions of dollars to the overall tally.

Analysts say the U.S. economy has proven resilient in the face of pandemic-related challenges, and many expect the global economy will still expand at a well-above-trend pace.

After initially tumbling in December, world stocks recovered over the holiday period as investors became reassured economies could handle the surge in Omicron coronavirus cases, and are heading back toward record highs.

“As far as COVID is concerned, for now, market participants may stay willing to add to their risk exposures, and perhaps push equity indices to new highs, as several nations around the globe held off from imposing fresh lockdowns, despite record infections around the globe the last few days,” said Charalambos Pissouros, head of research at Cyprus-based brokerage JFD Group.

The dollar index fell 0.418% on Friday. On Wall Street, New Year’s Eve trading ended near record highs on Friday. read more

All three major U.S. stock indexes scored monthly, quarterly and annual gains, notching their biggest three-year advance since 1999.

Reuters GraphicsInvestors have held onto expectations for resilience in the global recovery into 2022 and the prospect of further gains if money remains cheap and corporate profitability high.

This year’s “everything rally” has seen a wall of cheap central bank cash, government stimulus and strong economic rebounds out of the pandemic make it hard not to profit from soaring asset prices.

U.S. stocks have powered the global rally as record-breaking earnings figures from Big Tech companies excited investors. This week the S&P 500 hit another record high.


Source: Global M&A volumes hit record high in 2021, breach $5 trillion for first time | Reuters


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Get to know everything about what Post-Merger Integration (PMI) means, 4 Steps to PMI Success and possible challenges of PMI.

Post-merger integration is the process of unifying two entities and their assets, people, tasks, and resources in a manner that creates the most value for the future of the enterprise by realizing efficiencies and synergies.

From an IT perspective, PMI is a complex process requiring the leadership of enterprise architects to ensure a smooth process. According to the 2021 LeanIX M&A Report, nearly 90% of EAs are involved in post-merger integration, with the following use cases named as most prevalent.


As Internet Frenzy Drives Its Stock Price, AMC Warns Investors About The Dangers of Buying In

After tumbling more than 25 percent from its morning opening price and facing a brief suspension in trading, shares of AMC Entertainment recovered some of their losses Thursday in the latest phase of the meme stock frenzy.

The stock closed at $51.34, down about 12 percent from its morning opening price of $58.02, but still nearly double its closing price of a week ago.

AMC’s whipsaw is being propelled by retail investors — many active on Reddit’s WallStreetBets forum — mirroring the trading mania that swept through markets earlier this year alongside GameStop and other companies that institutional investors had bet against. And its rise is just as untethered from financial performance.

Short-sellers have increased their bets against AMC in the past month. On Wednesday, it surged 95 percent to a record $62.55. The same day, company executives unveiled a new portal to connect with individual investors, complete with offers of free popcorn, exclusive screenings and other perks.

Thursday’s swings came after the company announced plans to offer 11.5 million shares and cautioned investors that the market does not reflect the fundamentals of its movie theater business.

But thrill-chasing investors have been rewarded with a staggering run-up. AMC shares began the year at just over $2, exploding nearly 3,000 percent by the closing bell on Wednesday. Since the beginning of May, shares have climbed more than 500 percent and have more than doubled over the past several days.

In a filing Thursday with the Securities and Exchange Commission, the company highlighted the extreme price fluctuations of its stock and the stark disconnect between the passions of retail investors and its actual operations.

“We believe that the recent volatility and our current market prices reflect market and trading dynamics unrelated to our underlying business, or macro or industry fundamentals, and we do not know how long these dynamics will last,” AMC said in the filing. “Under the circumstances, we caution you against investing in our class A common stock, unless you are prepared to incur the risk of losing all or a substantial portion of your investment.”

The company went on to list several risks to investors, including rapid and substantial price spikes and falls; the fickle sentiment of online trading communities; share prices that diverge from the company’s financial performance; and the market dynamics of a “short squeeze.”

As with GameStop’s previous flash mob ascent, AMC’s wild ride is tied to pessimistic traders who believe that its shares will fall back down to Earth. AMC, given its weak earnings and high debt load, has drawn the attention of short sellers — investors who bet against a company and who stand to make money when a stock price falls.

But in cases where the bearish bet fails to pan out, and the stock price rises, short sellers still have to cover their borrowed shares and are forced to buy the stock back at the higher price. This is known as a “short squeeze,” which can fuel a cycle of even higher prices, as short sellers buy more shares to mitigate their losses and drive prices up.

“Folks, this is a great time to double down into AMC,” wrote one Reddit user, expressing a shared sentiment of trying to weather the harsh downturn. “The squeeze hasn’t even happened yet. Remember GME?”

But the high-stakes fantasies of crushing short sellers while increasing gains are often met with the harsh turns of the market. Other traders are urging caution, warning against the pull of FOMO, or the fear of missing out, and getting caught in the hype of massive winnings.

“For you noobs,” wrote another Reddit user, referring to newcomers, “Don’t FOMO, 99% of you won’t become life changing rich. The people posting $200k gain porn are the same ones with $80k to YOLO into memes. Don’t yolo your rent money, or life savings, or any money you can’t afford to lose.”

The swings for AMC are particular to that company and not to theater chains as a whole. The stock prices and underlying business of rival outfits are far more stable than AMC; as the pandemic fades they have shown sturdier financials and a more orderly stock rise with traditional investors. The share price of Cinemark, the country’s third largest theater chain, has risen 44 percent since the start of the year while London’s Cineworld, which owns AMC runner-up Regal, has seen its stock price climb 52 percent.

David Trainer, chief executive of New Constructs, an investment research firm, said AMC’s surge is yet another sign of the reckless meme stock investing landscape. “AMC Entertainment’s business was trending in the wrong direction even before the Covid-19 pandemic,” he said.

Even before the pandemic, AMC was struggling to break even as it faced a heavy debt load thanks to years of expansion. The company took in $5.5 billion in revenue in fiscal 2019, a number consistent with 2018, but lost a small amount, $150 million. The lockdowns and film-release postponements of the pandemic hurt it further. AMC lost more than $500 million during the first three months of the year and registered a loss of $4.6 billion in 2020, according to SEC filings.

Box office receipts have recently shown promising signs, however. Despite the rise of streaming during the pandemic, “A Quiet Place Part II,” the first major theater-exclusive studio release in eight months, has grossed $61 million in its first six days of release, a number just shy of the $63 million of the pre-pandemic original film in 2018. Theaters hope that momentum can be maintained with future releases, such as this month’s “F9,” and is not simply a function of post-lockdown novelty.

AMC is also using the issuance of the 11.5 million shares to raise money and pay down its debt. That — along with the sale of 8.5 million shares to Mudrick Capital earlier this week and the conversion of a $600 million debt note by investor Silver Lake Partners into stock this winter — has raised nearly $2 billion for the chain.

AMC chief executive Adam Aron had said the sum could allow AMC to execute on “highly attractive theatre acquisition opportunities.”

Many analysts, however, believe that major expansion is a question mark given AMC’s large debt load. Even with the fresh $2 billion, the company is still believed to owe between $4 billion and $5 billion to lenders, including interest. It has closed some 60 theaters since the start of the pandemic, about 10 percent of its overall locations, and few of them are expected to reopen.

Some observers hold out hope the company could take over locations from Pacific Theatres/Arclight Cinemas, a 300-theater Southern California chain that had been forced to close this spring; such a move would require only the assumption of leases and rebranding, not a full-scale infrastructure investment. Aron stoked the possibility by saying this week AMC is “in discussions, for example, with multiple landlords of superb theatres formerly operated by Arclight Cinemas and Pacific Theatres.”

But the company would have fierce competition to take over some of those locations, particularly some desirable Arclight outlets, and would also be competing with some of its own theaters, if it were successful.

AMC could look to further reduce its debt by selling some of its European locations. AMC has about 3,000 screens in Europe, a little less than 30 percent of its overall total.

With the meme stock frenzy continuing, analysts said, AMC’s stock swings were understandable and might not stop any time soon.

“The company’s announcement of a raise has clearly sent the stock into yet another whirlwind of volatility and it is no surprise that it was followed by myriad disclosures from the company urging investors to exercise caution,” said Nicole Tanenbaum of Chequers Financial Management.

Given AMC’s heavy indebtedness, it makes sense for the company to fortify its balance sheet by paying down some of its debt by issuing new shares, she said. And as it offers loyalty perks to shareholders, “the company is clearly leaning into the mania,” she added, “as AMC appears to be looking to ride this wave as far as it can take it.”

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Hamza Shaban is a business reporter covering national and breaking news. He joined The Washington Post in 2017 as a technology reporter. Previously, he covered tech policy for BuzzFeed News.

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Steven Zeitchik covers the business of entertainment for The Washington Post, examining the industry’s trends, challenges, issues and ideas. Before joining The Post, he covered entertainment for the Los Angeles Times for eight years. He also did reporting tours for The Times in places including Ukraine, Egypt, Germany and the Bill Cosby trial.

Source: As Internet frenzy drives its stock price, AMC warns investors about the dangers of buying in – The Washington Post


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