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Robinhood Glitch Lets Traders Borrow Unlimited Funds To Buy Stocks

Robinhood, the mobile trading app that has more than 6 million users, is contending with a glitch in its platform that enables some traders to use unlimited borrowed money to purchase stocks.

Known as “infinite leverage,” traders took to Reddit forums like WallStreetBets earlier this week to brag about the funds they were able to borrow despite the low amounts of cash in their accounts.

One trader boasted being able to get $1 million in borrowed funds with just $4,000. Another trader claimed to be able to borrow $50,000, purchase shares of Apple and subsequently lose the money. Robinhood traders also posted videos and screenshots showing how they were able to manipulate the platform including providing directions.

First spotted by Bloomberg, the glitch enables traders to inflate their account balances when borrowing money on margin. A common practice among traders, traders borrow money from the brokerage to purchase stocks. The firm, in this case Robinhood and its banking partner, acts as the lender issuing the money based on account balances, creditworthiness, and other criteria. By artificially increasing the account balance the traders were able to get their hands on more money to purchase stocks. In media reports Robinhood said it’s aware of what it called “isolated situations,” saying it’s communicating directly with the customers.

Today In: Money

This isn’t the first time Robinhood has had to contend with missteps since launching in 2013. Last year it made a PR blunder when it was forced to pull its new checking and savings account off the market. It boasted an interest rate of 3% but the product ran afoul of regulators. It held off until October in finally rolling out a cash management account, which now has a 1.8% APY. Despite that misstep and the glitch its dealing with now, Robinhood should continue on its meteoric rise. Since launching in 2013, it has amassed more customers than E*Trade and has a valuation of $7.6 billion.

Venture capitalists can’t get enough of the startup, throwing hundreds of millions of dollars it’s way. In July it raised $323 million giving it the hefty valuation it now commands. It also has aspirations beyond trading. It recently applied for a national bank charter with the Office of the Comptroller of the Currency. Its not clear how far those efforts will go given the OCC is losing its power to grant nonbank entities bank charters.

Robinhood isn’t the only high profile fintech to suffer from technical issues in recent weeks. In mid-October Chime, a popular challenger bank, experienced an outage that lasted more than 24 hours, preventing many of its more than 5 million customers from making payments and accessing their cash. Chime blamed its payment processor, saying it was experiencing problems that brought down Chime’s website and mobile app. In September Chime suffered a similar, albeit briefer, outage.

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A journalist for more than fifteen years, I am a freelance writer reporting on personal finance, entrepreneurship, investments, fintech and technology for a variety of media outlets. What sets me apart from my peers is my ability to take complex topics and explain it to the masses. After years of covering the equities markets as a technology reporter and special contributor to the Wall Street Journal, I embarked on a freelance career providing my readers with invaluable advice on everything from investing to landing a job. With the intersection between personal finance and technology getting blurred, cutting through the fintech noise and getting to the bottom of the story is becoming increasingly important to readers around the globe.

Source: Robinhood Glitch Lets Traders Borrow Unlimited Funds To Buy Stocks

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Why the Debate Over Stakeholder Value Vs. Shareholder Value is All Wrong

The Business Roundtable, a coalition of America’s leading corporate executives, created a firestorm with its August 19 announcement calling for corporations to create value for all stakeholders rather than simply maximizing value for their shareholders. A debate ensued over whether Milton Friedman was right or wrong in 1970 when he famously declared that the social responsibility of business is to increase its profits.

Some commentators accused the executives of abandoning shareholders; others decried that they were “green-washing” or “purpose-washing:” simply making themselves look good without authentic action.

In reality, large corporations have understood for a long time the importance of creating value for all stakeholders, including their employees, customers, suppliers and communities, as well as their investors, and the Business Roundtable statement just updated the executives’ outward-facing communications to confirm a direction that is both underway and unstoppable.

The statement shows a recognition of two facts:

1.       The business case for creating stakeholder value has already been proved. Without creating value for a variety of stakeholders, and without mitigating the risks associated with subtracting value from stakeholders, a company can’t deliver profits to shareholders anyway, at least not over the medium to long term. Creating value for stakeholders, when managed strategically, doesn’t take away from enhancing profits for shareholders, it adds to it. It is part of good management. This is not a zero-sum tradeoff.

2.       The U.S. economy is suffering from fallout from short-termism, that is, investors squeezing profits out of companies with a shorter and shorter time horizon. Companies pressured to deliver greater and greater profit margins to their financial owners in the space of a quarter, or less, might not be making the investments and strategic directional decisions that will allow them to thrive in the longer term.

The Business Roundtable statement begins: “Americans deserve an economy that allows each person to succeed through hard work and creativity and to lead a life of meaning and dignity. We believe the free-market system is the best means of generating good jobs, a strong and sustainable economy, innovation, a healthy environment and economic opportunity for all.”

For a long time the U.S. was known around the world as a “meritocracy.” U.S. policy aimed to provide citizens with equal opportunity, for example through public education or public libraries, and to reward those who worked hard and applied their talent. The “American Dream” refers to the aspiration of immigrants from around the world that they could come to America and within a generation, see the fruits of their labor rewarded through upward social mobility.

But Michael Young, the U.K. Labour Party strategist who coined the term “meritocracy,” knew that once the most talented workers rose through the capitalist system, over time this new elite would naturally consolidate its power, leaving behind those less equipped to succeed, and eventually stratifying society.

The fact that this has occurred in America is widely known, and most political campaigns on both sides of the spectrum claim to want to address the extreme levels of societal stratification now so evident.

The Business Roundtable has recognized that while corporations must be well-managed for the benefit of their owners, U.S. capitalism needs to find ways to ensure a longer-term vision than the one that has morphed out of the automation of stock trading, the rise of passive investing, and the power of activist shareholders wanting to squeeze value out of a company no matter the broader context.

The investor community itself has been alarmed, as evidenced by the rise of a movement subscribing to “Principles for Responsible Investment,” which promotes inclusion of environmental, social and governance (ESG) criteria in evaluating investments, and which now has more than 2300 signatories representing more than 80 trillion dollars in assets under management.

Tensie Whelan, director of the NYU Stern Center for Sustainable Business, notes the difference between value extraction from a company (through “maximizing short-term profits and boosting stock price, often at the expense of stakeholders other than shareholders”) and value creation for a company. NYU research into certain case studies shows a positive financial return on sustainability investments, with many long-term benefits.

Indeed, sustainability, or attention to ESG factors, is the way large corporations are creating value for the company, and therefore for all stakeholders including shareholders. A European Union directive now requires companies to provide non-financial (ESG) reporting to investors as well as financial reporting. Creating value for all stakeholders isn’t a foreign concept to European companies, whose cultural context has historically favored this idea.

Kudos to the Business Roundtable for bringing its statement on purpose into line with 21st century practices. The statement is a signpost that will most certainly make it easier for companies to implement purposeful strategies.

By: Maureen Kline

Source: Why the Debate Over Stakeholder Value Vs. Shareholder Value is All Wrong

Help us learn more about your experience by completing this short survey: https://www.surveymonkey.com/r/RRKS8LZ Subscribe to Alanis Business Academy on YouTube for updates on the latest videos: https://www.youtube.com/alanisbusines… An outline of the two perspectives related to corporate social responsibility: the shareholder model and the stakeholder model. The discussion also includes support for each perspective, including that of famous Nobel​ prize winning economist Milton Friedman.

What Can a Trader Do With Best Buy Stock?

Chutes Without Ladders

As toddlers, my sister and I used to play the famous board-game where depending on the spot where one lands, the individual either slides down a long chute, or climbs a ladder. I had intended to carry my long position in Best Buy (BBYGet Report) into the holiday season as far back as September. This was one of the first names that I got rid of in early October at an average price of $70 and change.

The broad market selloff that stated there has now surpassed the threshold of what many consider to be the definition of a Correction (-10% from the highs) was just getting in gear at that time. The retailers were making a lot of noise regarding trade with China, and this name was one of the first deck chairs thrown overboard for me as my ship started taking on water. I could have made a better sale a day of two prior, but then again, these shares never looked back once I made that sale either.

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The stock had been so badly beaten that recently I considered buying back what I had sold. As I usually do with the retailers, I visited my local Best Buy location before taking on some shares. I walked around the store, stopped over by the laptops pretending to need help. Nothing. Look around. Employees walk by. Maybe it’s just the department, so I walk over to household appliances. Same thing.

The employees did not seem interested in making a sale that day. I decided to walk out. I put my hands in my jacket pockets in a way that should have drawn interest from the security employee at the door. Again, nothing. Now it may just be my store, and it may have just been a bad day, but I decided not to buy any shares in the company that day. Lucky miss.

Will I Be Back?

To the store? Definitely. I have thought the employees energetic and helpful in the past. They’ll get another chance. The stock may have to prove itself, especially after Bank of America Merrill Lynch made their opinion known this morning. BAML cut it’s rating on BBY to “Underperform” from “Neutral”, so it’s not like they loved the chain to begin with. However, the firm dropped their price objective for BBY from $70 to $50.

Best Buy will report its Q4 results on February 19th. Industry consensus is for EPS of $2.57, which would be good for earnings growth of 6.2%. Revenue is expected to print somewhere around $14.7 billion, which will illustrate a contraction year over year for that line item.

The stock trades at just 9.8 times forward looking earnings, and given the general outlook for growth, is it possible that these earnings projections are just too high. If relations with China don’t come to an amicable resolution in the near future… perhaps. That’s the way BAML feels at least for the current quarter, but also makes a point of mentioning the full year.

The Catch

The analyst behind the BAML opinion is not highly rated by TipRanks, at least not yet. The last highly rated, high profile analyst that I see that still has a buy rating on BBY, and a much higher price target ($81) is Piper Jaffray’s Peter Keith. My belief would be that if Keith throws in the towel, that the marketplace will notice. Perhaps at that point I will initiate an entry level long but not without another visit to my local store.

Free Lunch?

So, what can a trader do, other than sit on their hands, and wait to see if another shoe drops? Right now, a trader might be able to sell one BBY $47.50 February 15th put at an implied value of $1.29, instead of taking down an equity stake. Hopefully, this trader pockets $129, and takes his or her significant other out for a nice meal.

The risk is that the shares trade below $47.50 by expiration, and the trader is forced to eat these shares at a net basis of $46.21. Note that expiration is four days ahead of this Q4 earnings release. At the time of publication, Stephen Guilfoyle had no position in the securities mentioned.

By:

Source: What Can a Trader Do With Best Buy Stock? – TheStreet

Earnings Economy Investing Options Stocks Trading Consumer Products

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The Charts of Ralph Lauren Look Bearish Ahead of Earnings

Source: The Charts of Ralph Lauren Look Bearish Ahead of Earnings

Brazil Stock Market Tanks Amid Petrobras Scandal That Keeps On Giving

Well, that didn’t last long. Brazil is no longer the darling of emerging markets, with stocks crashing over 5% on Friday . Blame the political class, again.

There are two reasons for today’s correction. One was an immediate over-reaction to news headlines, the other is a rethinking of key market-friendly reforms needed in Brazil this year.

Yesterday’s arrest of former president Michel Temer reminded everyone that the Petrobras Car Wash scandal, the very scandal that led to two years of recession and a never-ending political crisis, will pull the rug out from under this country in seconds flat. Brazil stocks are now underperforming. But just wait until investors price in a failed pension reform, which is probably just three months away. I think that is already starting to happen and Temer’s arrest was just reminder that Brazil is in crisis-mode, making it difficult to govern.

Temer was pulled in on Thursday by Federal Police officers for his role in the Petrobras crime spree. They said he helped run an “organized crime” ring within the government: a system of pay-to-play contracts with civil engineering firms like Odebrecht building all sorts of stuff for Petrobras and skimming millions of dollars off the top. Dozens of A-list executives have been jailed now for at least three years. And yadda yadda yadda. … Temer was next in line.

To date, of the top political leaders in charge during the Petrobras contract-rigging scheme, only ex-president Dilma Rousseff is still standing. She desperately tried to become senator of her home state of Minas Gerais last October but came in third place, probably not because she loved politics or had nothing better to do for work. Now that she is a private citizen, like Temer, she has lost political immunity.

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Temer: Petrobras presidential jailbird No. 2. AP Photo/Eraldo Peres

Dilma was impeached in a somewhat farcical April 2016 vote by the lower house of Congress for breaching budget laws. She was later indicted in August of that year, making her vice president, Temer, the new interim President. Her impeachment had nothing to do with Petrobras, though the people who instigated it did, with one of them, House Speaker Eduardo Cunha … in jail.

Brazil spent much of the last two and a half years in political chaos because of Petrobras.

Temer was the most disliked president in Brazilian history, with an approval rating struggling to get over 10%. When the election season began in 2018, it became clear that no one from the parties associated with Petrobras was going to win.

They tried hard. Lawyers for jailed ex-president Luiz Inacio Lula da Silva worked overtime trying to convince the United Nations and media influencers from London to New York that he was an innocent man, jailed for his politics. His handpicked successor was Dilma. His second handpicked successor was a former São Paulo mayor, Fernando Haddad. Haddad took it upon himself to admit that he was not his own man, even going so far as printing up and wearing T-shirts emblazoned with the ridiculous campaign slogan: “Haddad is Lula.” He visited Lula in jail for campaign advice. And so as while rubbing the face of the electorate with indicted Petrobras criminals, Haddad got beat by a family-values conservative named Jair Bolsonaro who symbolized the boiled-over anger of those who had had it with anyone affiliated with embattled oil company.

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A supporter of former Brazilian president Luiz Inacio Lula da Silva cries in hopes of his release outside the federal police department where Lula is serving a 12-year sentence for corruption in Curitiba, Brazil, on  Dec. 19, 2018. No one has heard from him or about him since the start of the new year. AP Photo/Denis Ferreira

By The Way, Where’s Lula?

Lula has been totally absent from the headlines. The biggest fish fried by the Federal Police made himself part of the daily news cycle in the fall of 2018. The New York Times gave him op-ed space where he sold his political persecution story to the world. (I tried to get an opposing view in the NYT, arguing that he was not a political prisoner, but they rejected it. Tudo bem.)

Now, the disgraced founder of the Workers’ Party is spending the next 12 years in jail, at least. No one is outside his prison quarters cheering “Good morning, president Lula” anymore. He is alone and—mostly—forgotten.

His lawyers are no longer blasting reporters’ Whatsapp accounts with their latest filings of a habeas corpus or a statement by someone who works for the UN Human Rights Commission saying that the Petrobras investigators used their legal powers to jail him unlawfully. Those days are suddenly gone. And they are gone, obviously, because the election is over and the Workers’ Party lost. Lula’s “political persecution” was what it was: a political campaign for the Workers’ Party.

The Car Wash investigation isn’t picking parties to plunder.

Temer’s Democratic Movement Party, a big-tent party of wealthy Brazilian oligarchs, one of the oldest parties in the country, also lost big in last year’s election because of Petrobras. In fact, every party that was part of the government, even those that were part of the majority opposition, got handed their walking papers because of this scandal.

It is no surprise that Temer was arrested. If the courts don’t get you, the voters will.

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Supporters of presidential candidate of the Workers’ Party Fernando Haddad, dressed in a banner written in Portuguese: “Haddad is Lula 13. AP Photo/Eraldo Peres

Brazil’s new government rose to power out of sheer hatred of politicians like Temer and Lula. But this new government is surrounded by noise. Temer’s arrest will likely push Bolsonaro’s already declining public opinion polls lower, especially if Brazilians do not see their economic outlook improving.

Some 68% view Bolsonaro as either “good” or “very good,” with numbers for “very good” declining 15 points since his inauguration in January.

At the start of the year, Jan Dehn, head of research for the Ashmore Group, a $74 billion emerging markets asset manager in London, told me he was giving Bolsonaro until the end of the first half to get something done — on pension reform, in particular. That has been the one issue propping up Bolsonaro’s stock price. As soon as the market feels pension reform is in jeopardy, Brazil’s stock market turns the other way, and Bolsonaro is governing over political crisis and weakening investor sentiment, not much different than Temer did.

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Jair Bolsonaro, Brazil’s president, said of Temer’s arrest: “Each person has to be responsible for their actions.” Andre Coelho/Bloomberg

© 2019 Bloomberg Finance LP

Bolsonaro: Governing Above The Noise

It is difficult to govern in Brazil due to all the different political alliances. This is not a two-party system. Considering the difficulties already involved in the Brazilian congress, throw political crisis on top of that and it becomes even harder.

Bolsonaro was relatively quiet on Temer’s arrest, preferring to say that, “Each person should be held responsible for their actions.”

Bolsonaro wasn’t elected on an economic platform. He was always an anti-Lula, law-and-order vote.

His government’s economic team is led by BTG Pactual founder Paulo Guedes, a University of Chicago-educated markets guy who has set the course for a somewhat overambitious list of economic reforms. Bolsonaro basically put Guedes in charge of the market.

Given the complex process in approving Guedes’ measures, from pension reforms to privatization, delays are more likely today because of uncertainty surrounding Petrobras investigations than they were last week. The Car Wash investigations are not over, and that means key members of congress could, in theory, be focused on other matters, or perhaps, lose their post in key cabinet positions in worst case scenarios.

Bolsonaro’s small political party—the Social Liberal Party—was not part of the Petrobras scandal, so it is possible they will not be scrambling like the congressional leaders were under Temer’s Administration when arrests were made of private citizens affiliated with them.

On the bright side, that means Bolsonaro has a better chance to inoculate himself from the Petrobras-related arrests like the eight individuals arrested on Thursday.

If he can do that, then smaller reforms like payroll tax breaks and Petrobras asset sales might get done earlier this year. Pension reform is unlikely to go anywhere until the end of the year, Morgan Stanely analysts said in a report. This is a very different view from a month ago when consensus estimates were for some type of pension reform to be competed by July.

The rest of Bolsonaro’s economic agenda depends on how well he can separate himself and his team from the Petrobras brat pack. He will have to remind them that he is president because he was never part of that group in the first place.

For media or event bookings related to Brazil, Russia, India or China, contact Forbes directly or find me on Twitter at @BRICBreaker

I’ve spent 20 years as a reporter for the best in the business, including as a Brazil-based staffer for WSJ. Since 2011, I focus on business and investing in the big eme…

Source: Brazil Stock Market Tanks Amid Petrobras Scandal That Keeps On Giving

The Stock Market Is Shrinking. That’s a Problem for Everyone – Jeff Sommer

1

The American stock market has been shrinking. It’s been happening in slow motion — so slow you may not even have noticed. But by now the change is unmistakable: The market is half the size of its mid-1990s peak, and 25 percent smaller than it was in 1976.

“This is troubling for the economy, for innovation and for transparence,” said René Stulz, an Ohio State finance professor who has written a new report on these issues for the National Bureau of Economic Research.

When I say “shrinking,” I’m using a specific definition: the reduction in the number of publicly traded companies on exchanges in the United States. In the mid-1990s, there were more than 8,000 of them. By 2016, there were only 3,627, according to data from the Center for Research in Security Prices at the University of Chicago Booth School of Business.

Because the population of the United States has grown nearly 50 percent since 1976, the drop is even starker on a per-capita basis: There were 23 publicly listed companies for every million people in 1975, but only 11 in 2016, according to Professor Stulz.

 

This puts the United States “in bad company in terms of the percentage decrease in listings — just ahead of Venezuela,” he said. “Given the size of the United States, its economic development, financial development and its respect for shareholder rights,” he added, one might expect that tally to be climbing, not falling.

In his new paper, “The Shrinking Universe of Public Firms: Facts, Causes, and Consequences,” Professor Stulz surveyed the body of academic research on the topic. In an interview, he said that the casual observer may not entirely grasp the implications of the changes that have taken place.

“The headline is that the number of public firms is shrinking, but it’s not just that,” he said. Profits in the overall market are now divided among fewer winners. And as capital-intensive companies have been supplanted by those whose value is largely found in their intellectual property, the marketplace is less transparent — with troubling consequences.

Consider these big shifts:

■ The companies on the market today are, on average, much larger than the public corporations of decades ago. Fast-rising upstarts are harder to find.

In 1975, 61.5 percent of publicly traded firms had assets worth less than $100 million, using inflation-adjusted 2015 dollars. But by 2015, that proportion had dropped to only 22.6 percent.

Because of this, Professor Stulz said, “It’s not possible for the general public to invest in a diversified portfolio of really small, publicly traded companies in the way they could a few decades ago.”

■ Profits are increasingly concentrated in the cluster of giants — with Apple at the forefront — that dominate the market. For a far larger assortment of smaller companies, though, profit is often out of reach. In 2015, for example, the top 200 companies by earnings accounted for all of the profits in the stock market, according to calculations by Kathleen Kahle, a professor of finance at the University of Arizona, and Professor Stulz. In aggregate, the remaining 3,281 publicly listed companies lost money.

In theory, as a shareholder, you are entitled to a piece of a company’s future earnings. That’s one of the main arguments for buying stock in the first place. But the reality is that you often are buying a piece of a money-losing proposition. Aside from the top 200 companies, the rest of the market, as a whole, is burning, not earning, money.

■ A quirk of accounting is at the root of some of that profit deficit, especially for smaller and younger companies. Increasingly, value resides in intellectual property — “intangibles” like software and data and biological design — rather than in the production of physical objects like cars.

But under generally accepted accounting principles, or GAAP, which American companies must follow, research and development must be deducted from corporate income — and those charges can reduce or eliminate profits. (Capital expenditures — in physical things like factories — appear on corporate balance sheets, not income statements, and don’t reduce profits.)

Without deep knowledge of a company’s critical research — which businesses may be reluctant to share, for competitive reasons — it’s difficult for outsiders to evaluate a start-up’s worth. That makes it harder to obtain funding, and it may be partly responsible for certain trends: why there are fewer initial public offerings these days, why smaller companies are being swallowed by the giants, and why so many companies remain private for longer.

That creates opportunities for private equity firms, which have insider access to innovative start-ups that may never go directly to the public markets. Meanwhile, Main Street investors are consigned to a less diverse universe than they may realize.

 

There’s a broader problem. Our visibility into the inner workings of public companies isn’t great, but we know far more about them than we do private companies, which aren’t required to disclose nearly as much information.

And these changing dynamics mean we know far less about many of the creators of American profits and jobs than would otherwise be the case.

In a democracy in which corporations already have enormous clout, that is worth worrying about.

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