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Bed Bath & Beyond jumps 50% to lead ‘nonsense’ rally in meme stocks; AMC gains 15%

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A “Store Closing” banner on a Bed Bath & Beyond store in Farmingdale, New York, on Friday, Jan. 6, 2023.

Johnny Milano | Bloomberg | Getty Images

A group of highly speculative stocks rallied double digits on Wednesday as retail investors pushed meme names up again in the new year following a dismal 2022.

Bed Bath & Beyond rallied a whopping 50% to trigger the trend in morning trading Wednesday. Shares of GameStop, the original star of 2021’s meme stock mania, climbed more than 10%. AMC Entertainment soared 18%.

Meme stocks rallying one more time

Stock Short interest % float Wed. Gain % off 52W high
Bed Bath & Beyond (BBBY) 48.9% 60% -89%
AMC (AMC) 21% 15% -78%
GameStop (GME) 21% 8% -62%

Source: FactSet

The rally in Bed Bath & Beyond was initially triggered by news that it would lay off more employees in an attempt to reduce costs and stay in business.

The home goods retailer told employees that it is eliminating the chief transformation officer role, which is held by Anu Gupta, on the same day it reported disappointing fiscal third-quarter results. Bed Bath & Beyond is approaching a potential bankruptcy, as its sales decline and losses grow. 

“We don’t love the strength in nonsense stocks like AMC, CVNA, GME, BBBY, PRTY, etc.,” said Adam Crisafulli, founder of Vital Knowledge. “This just means people are blindly chasing.”

During early 2021, a band of retail traders joined forces on social media to bid up a slew of heavily shorted stocks, creating massive short squeezes that inflicted high pain on short sellers. These meme stocks experienced big pullbacks last year when risk sentiment shifted amid aggressive rate hikes. GameStop fell 50% in 2022, while AMC tumbled 75% and Bed Bath & Beyond plunged 82%.

While the short interest in these names has come down from its peak after the jaw-dropping episode, it still remains much higher than average.

About 48% of Bed Bath & Beyond’s float shares are sold short, compared with an average of 5% short interest in a typical U.S. stock, according to S3 Partners. For GameStop, the short interest stands at 21%, down from more than 100% at the height of the meme stock mania in 2021, according to FactSet. AMC has also 21% of shares sold short.

A short squeeze happens when a stock jumps sharply higher, it forces short sellers to buy back shares in order to limit their losses. The short covering tends to fuel the stock’s rally further.

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Business

Wells Fargo agrees to $3.7 billion settlement with CFPB over consumer abuses

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Charles Scharf, chief executive officer of Wells Fargo & Co., listens during a House Financial Services Committee hearing in Washington, D.C., U.S., on Tuesday, March 10, 2020.

Andrew Harrer | Bloomberg | Getty Images

Wells Fargo agreed to a $3.7 billion settlement with the Consumer Financial Protection Bureau over customer abuses tied to bank accounts, mortgages and auto loans, the regulator said Tuesday.

The bank was ordered to pay a $1.7 billion civil penalty and “more than $2 billion in redress to consumers,” the CFPB said in a statement. In a separate statement, the San Francisco-based company said that many of the “required actions” tied to the settlement were already done.

“The bank’s illegal conduct led to billions of dollars in financial harm to its customers and, for thousands of customers, the loss of their vehicles and homes,” the agency said in its release. “Consumers were illegally assessed fees and interest charges on auto and mortgage loans, had their cars wrongly repossessed, and had payments to auto and mortgage loans misapplied by the bank.”

The resolution lifts one overhang for the bank, which has been led by CEO Charlie Scharf since October 2019. In October, the bank set aside $2 billion for legal, regulatory and customer remediation matters, igniting speculation that a settlement was nearing. But other regulatory hurdles remain: Wells Fargo is still operating under consent orders tied to its 2016 fake accounts scandal, including one from the Fed that caps its asset growth.

CFPB Director Rohit Chopra said Wells Fargo’s “rinse-repeat cycle of violating the law” hurt millions of American families and that the settlement was an “important initial step for accountability” for the bank.

Shares of the bank fell 2.5% in premarket trading.

This story is developing. Please check back for updates.

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Business

Justice Department tells bankers to confess their misdeeds

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U.S. prosecutor Marshall Miller (C), William Nardini (R) and Kristin Mace attend a news conference in Rome February 11, 2014.

Tony Gentile | Reuters

Banks and other corporations that proactively report possible employee crimes to the government instead of waiting to be discovered will get more lenient terms, according to a Justice Department official.

The DOJ recently overhauled its approach to corporate criminal enforcement to incentivize companies to root out and disclose their misdeeds, Marshall Miller, a principal associate deputy attorney general, said Tuesday at a banking conference in Maryland.

“When misconduct occurs, we want companies to step up,” Miller told the bank attorneys and compliance managers in attendance. “When companies do, they can expect to fare better in a clear and predictable way.”

Banks, at the nexus of trillions of dollars of flows around the world daily, have a relatively high burden for enforcing anti-money laundering and other legal and regulatory requirements.

But they have a lengthy track record of failures, often due to unscrupulous employees or bad practices.

The industry has paid more than $200 billion in fines since the 2008 financial crisis, mostly tied to its role in the mortgage meltdown, according to a 2018 tally from KBW. Traders and bankers have also been blamed for manipulating benchmark rates, currencies and precious metal markets, stealing billions of dollars from developing nations, and laundering money for drug lords and dictators.

The carrot that Justice officials are dangling before the corporate world includes a promise that companies that promptly self-report misconduct won’t be forced to enter a guilty plea, “absent aggravating factors,” Miller said. They will also avoid being assigned in-house watchdogs called monitors if they fully cooperate and bootstrap internal compliance programs, he said.

Remember Arthur Andersen?

The first incentive carries extra weight for financial firms because guilty pleas can cause catastrophic issues for the highly regulated entities; they could lose business licenses or the ability to manage client funds unless they’ve negotiated regulatory carveouts.

“The message every corporation should hear is that the best way to avoid a guilty plea — for some companies, the only way to do so — is by immediately self-reporting and cooperating when misconduct is discovered,” Miller said.

Officials have generally sought to avoid inadvertently triggering the collapse of companies with enforcement actions after the 2002 indictment of accounting firm Arthur Andersen led to 28,000 job losses.

But that has meant that over the past decade, banks and other companies typically entered deferred prosecution agreements or other arrangements, coupled with fines, when misdeeds are found. For instance, JPMorgan Chase entered DPAs for its role in the Bernie Madoff pyramid scheme and a precious metals trading scandal, among other mishaps.

Uber compliant

Even in cases where problems aren’t immediately found, the Justice Department gives credit for managers who volunteer information to the authorities, Miller said. He cited the recent conviction of Uber‘s ex-chief security officer for obstruction of justice as an example of their current methods.

“When Uber’s new CEO came on board and learned of the CSO’s conduct, the company made the decision to self-disclose all the facts regarding the cyber incident and the CSO’s obstructive conduct to the government,” he said. The move resulted in a deferred prosecution agreement.

Companies will also be looked at favorably for creating compensation programs that allow for the clawback of bonuses, he said.

The department-wide shift in its approach comes after a year-long review of its processes, Miller said.

Crypto hint

Miller also rattled off a list of recent cryptocurrency-related enforcement actions and hinted that the agency was looking at potential manipulation of digital asset markets. The recent collapse of FTX has led to questions about whether founder Sam Bankman-Fried will face criminal charges.

“The department is closely tracking the extreme volatility in the digital assets market over the past year,” he said, adding a well-known quote attributed to Berkshire Hathaway‘s Warren Buffett about discovering misdeeds or foolish risk-taking “when the tide goes out.”

“For now, all I’ll say is those who have been swimming naked have a lot to be concerned about, because the department is taking note,” Miller said.

—With reporting from CNBC’s Dan Mangan

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Business

Wall Street layoffs pick up steam as Citigroup and Barclays cut hundreds of workers

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A trader, center, wears a Citigroup jacket while working on the floor of the New York Stock Exchange (NYSE) in New York.

Michael Nagle | Bloomberg | Getty Images

Global investment banks Citigroup and Barclays cut advisory and trading personnel this week as Wall Street grapples with sharp declines in revenue and dimming prospects for next year.

New York-based Citigroup let go of roughly 50 trading personnel this week, according to people with knowledge of the moves who declined to be identified speaking about layoffs. The firm also cut dozens of banking roles amid a slump deal-making activity, Bloomberg reported Tuesday.

London-based Barclays cut about 200 positions across its banking and trading desks this week, according to a person with knowledge of the decision.

The moves show the industry has returned to an annual ritual that’s been part of what has defined life on Wall Street: Cutting workers who are deemed to be underperformers. The practice, which had been on pause the last few years amid a boom in deals activity, returned after Goldman Sachs laid off hundreds of employees in September.

While shallow in nature, especially compared with far deeper cuts occurring in tech firms including Meta and Stripe, the moves may only be the start of a trend if capital markets remain moribund.

Equity issuance plunged 78% this year through October as the IPO market remained mostly frozen, according to SIFMA data. Debt issuance has also fallen off as the Federal Reserve boosts interest rates, slumping 30% through September.

No reprieve in 2023

In recent weeks, executives have grown pessimistic, saying that revenue from robust activity in parts of the fixed-income world has probably peaked this year, and that equities revenue will continue to decline amid a bear market in stocks.

“Most of the banks are budgeting for declines in revenue next year,” according to a person involved with providing data and analytics to the industry. “Investors know the general direction of the market, at least in the first half, and the thinking is that client demand for hedging has probably peaked.”

Among Wall Street players, beleaguered Credit Suisse is contending with the deepest cuts, thanks to pressure to overhaul its money-losing investment bank. The firm has said it is cutting 2,700 employees in the fourth quarter and aims to slash a total of 9,000 positions by 2025.

But even workers toiling at Wall Street’s winners — firms that have gained market share from European banks in recent years — aren’t immune.

Underperformers may also be at risk at JPMorgan Chase, which will use selective end-of-year cuts, attrition and smaller bonuses to rein in expenses, according to a person with knowledge of the bank’s plans.

Morgan Stanley is also examining job cuts, although the scope of a potential reduction in force hasn’t been decided, according to a person with knowledge of the company. Lists of workers who will be terminated have been drawn up in Asian banking operations, Reuters reported last week.

To be sure, managers at Barclays, JPMorgan and elsewhere say they are still hiring to fill in-demand roles and looking to upgrade positions amid the industry retrenchment.

Spokespeople for the banks declined to comment on their personnel decisions.

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Business

Berkshire Hathaway Q3 earnings BRK

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Berkshire Hathaway Chairman and CEO Warren Buffett.

Andrew Harnik | AP

Berkshire Hathaway on Saturday posted a solid gain in operating profits during the third quarter despite rising recession fears, while Warren Buffett kept buying back his stock at a modest pace.

The Omaha-based conglomerate’s operating earnings — which encompass profits made from the myriad of businesses owned by the conglomerate like insurance, railroads and utilities — totaled $7.761 billion in the third quarter, up 20% from year-earlier period.

Insurance-investment income came in at $1.408 billion, up from $1.161 billion a year earlier. Earnings from the company’s utilities and energy businesses came in at $1.585 billion, up from $1.496 billion year over year. Insurance underwriting suffered a loss of 962 million, however, while railroad earnings dipped to $1.442 billion from $1.538 billion in 2021.

Berkshire spent $1.05 billion in share repurchases during the quarter, bringing the nine-month total to $5.25 billion. The pace of buyback was in line with the $1 billion purchased in the second quarter. Repurchases were well below CFRA’s expectation as its analyst estimated it would be similar to the $3.2 billion total in the first quarter.

However, Berkshire did post a net loss of $2.69 billion in the third quarter, versus a $10.34 billion gain a year before. The quarterly loss was largely due to a drop in Berkshire’s equity investments amid the market’s rollercoaster ride.

Berkshire suffered a $10.1 billion loss on its investments during the quarter, bringing its 2022 decline to $63.9 billion. The legendary investor told investors again that the amount of investment losses in any given quarter is “usually meaningless.”

Shares of Buffett’s conglomerate have been outperforming the broader market this year, with Class A shares dipping about 4% versus the S&P 500‘s 20% decline. The stock dipped 0.6% in the third quarter.

Buffett continued to buy the dip in Occidental Petroleum in the third quarter, as Berkshire’s stake in the oil giant has reached 20.8%. In August, Berkshire received regulatory approval to purchase up to 50%, spurring speculation that it may eventually buy all of Houston-based Occidental.

The conglomerate amassed a cash pile of nearly $109 billion at the end of September, compared to a total of $105.4 billion at the end of June.

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Business

This tech stock could be a ‘new home’ for mega-cap investors, MoffettNathanson says

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US

Supreme Court asked to block Biden student debt relief program

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Supreme Court nominee and U.S. Court of Appeals Judge Amy Coney Barrett on Capitol Hill in Washington, October 21, 2020.

Ken Cedeno | Reuters

The Supreme Court on Wednesday was asked to block the Biden administration’s student loan debt relief program, which is set to take effect this weekend.

The Brown County Taxpayers Association, a Wisconsin group, directed the emergency application to delay implementation of the debt relief plan to Justice Amy Coney Barrett, who is responsible for handling such requests from the 7th federal appeals court circuit, which contains that state.

The emergency filing from the association asks that President Joe Biden’s plan to cancel up to $20,000 in student debt for millions of borrowers be suspended while its lawsuit unfolds. The Biden administration could start processing borrowers’ requests for student loan forgiveness as soon as this Sunday.

The U.S. Department of Education opened its application for student loan forgiveness in a beta test on Friday, and more than 8 million people submitted requests for relief over that weekend. The application officially launched on Monday.

The White House did not immediately respond to a request for comment.

Legal challenges against student loan forgiveness

The legal challenges that have been brought against the president’s plan continue to mount.

Six Republican-led states — Arkansas, Iowa, Kansas, Missouri, Nebraska and South Carolina — are trying to block Biden’s plan, arguing that the president doesn’t have the power to issue nationwide debt relief without Congress. They’re also claiming that the policy would harm private companies that service some federal student loans by reducing their business.

A federal judge earlier this month dismissed The Brown County Taxpayers Association’s lawsuit against the Biden administration, finding it didn’t have standing to bring its challenge.

The main obstacle for those hoping to foil the president’s action is finding a plaintiff who can prove they’ve been harmed by the policy. “Such injury is needed to establish what courts call ‘standing,'” said Laurence Tribe, a Harvard law professor.

Tribe said he isn’t convinced that any of the current lawsuits filed have successfully done that.

This is a developing story. Check back for updates.

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Business

Social Security COLA will be 8.7% in 2023, highest increase in 40 years

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Azmanjaka | E+ | Getty Images

Amid record high inflation, Social Security beneficiaries will get an 8.7% increase to their benefits in 2023, the highest increase in 40 years.

The Social Security Administration announced the change on Thursday. It will result in a benefit increase of more than $140 more per month on average starting in January.

The average Social Security retiree benefit will increase $146 per month, to $1,827 in 2023, from $1,681 in 2022.

The Senior Citizens League, a non-partisan senior group, had estimated last month that the COLA could be 8.7% next year. 

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The confirmed 8.7% bump to benefits tops the 5.9% increase beneficiaries saw in 2022, which at the time was the highest in four decades.

The last time the cost-of-living adjustment was higher was in 1981, when the increase was 11.2%.

Next year’s record increase comes as beneficiaries have struggled with increasing prices this year.

“The COLAs really are about people treading water; they’re not increases in benefits,” said Dan Adcock, director of government relations and policy at the National Committee to Preserve Social Security and Medicare.

“They’re more trying to provide inflation protection so that people can maintain their standard of living,” Adcock said.

How much your Social Security check may be

Beneficiaries can expect to see the 2023 COLA in their benefit checks starting in January.

But starting in December, you may be able to see notices online from the Social Security Administration that state just how much your checks will be next year.

Two factors — Medicare Part B premiums and taxes — may influence the size of your benefit checks.

The standard Medicare Part B premium will be $5.20 lower next year — to $164.90, down from $170.10. Those payments are often deducted directly from Social Security benefit checks.

“That will mean that beneficiaries will be able to keep pretty much all or most of their COLA increase,” Mary Johnson, Social Security and Medicare policy analyst at The Senior Citizens League, told CNBC.com this week.

That may vary if you have money withheld from your monthly checks for taxes.

To gauge just how much more money you may see next year, take your net Social Security benefit and add in your Medicare premium and multiply that by the 2023 COLA.

“That will give you a good idea what your raise will be,” said Joe Elsasser, an Omaha, Nebraska-based certified financial planner and founder and president of Covisum, a provider of Social Security claiming software.

How the COLA is tied to inflation

The COLA applies to about 70 million Social Security and Supplemental Security Income beneficiaries.

The change is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W.

The Social Security Administration calculates the annual COLA by measuring the change in the CPI-W from the third quarter of the preceding year to the third quarter of the current year.

Benefits do not necessarily go up every year. While there was a record 5.8% increase in 2009, the following two years had 0% increases.

“For seniors, because they spend so much on health care, those years were difficult,” Adcock said.

A similar pattern may happen if the economy goes into a recession, according to Johnson.

What the COLA means if you haven’t claimed benefits yet

If you decide to claim Social Security benefits, you will get access to the record-high COLA.

But you will also have access to it if you wait to start your benefit checks at a later date, according to Elsasser.

If you’re 62 now and don’t claim, your benefit is adjusted by every COLA until you do.

The amount of the COLA really should not influence claiming.

Joe Elsasser

CFP and president of Covisum

What’s more, delaying benefits can increase the size of your monthly checks. Experts generally recommend most people wait as long as possible, until age 70, due to the fact that benefits increase 8% per year from your full retirement age (typically 66 or 67) to 70. To be sure, whether that strategy is ideal may vary based on other factors, such as your personal health situation and marital status.

“The amount of the COLA really should not influence claiming,” Elsasser said. “It doesn’t hurt you or help you as far as when you claim, because you’re going to get it either way.”

How a record-high increase may impact Social Security’s funds

Social Security’s trust funds can pay full benefits through 2035, the Social Security Board of Trustees said in June.

At that time, the program will be able to pay 80% of benefits, the board projects.

Tetra Images | Tetra Images | Getty Images

The historic high COLA in 2023 could accelerate the depletion of the trust funds to at least one calendar year earlier, according to the Committee for a Responsible Federal Budget.

Higher wages may prompt workers to contribute more payroll taxes into the program, which may help offset that. In 2023, maximum taxable earnings will increase to $160,200, up from $147,000 this year.

What could happen to future benefit increases

While 2023 marks a record high COLA, beneficiaries should be prepared for future years where increases are not as high.

If inflation subsides, the size of COLAs will also go down.

Whether the CPI-W is the best measure for the annual increases is up for debate. Some tout the Consumer Price Index for the Elderly, or CPI-E, as a better measure for the costs seniors pay. Multiple Democratic congressional bills have called for changing the annual increases to that measure.

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Business

Miner Piedmont unveils plans for new lithium refining plant in push for domestic EV supply chains

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Piedmont Lithium announced Thursday that it plans to build a new lithium refining plant in Tennessee, as the U.S. rushes to develop domestic supply chains for raw materials critical to the energy transition.

Thursday’s announcement comes on the heels of the largest climate funding package in U.S. history, which President Joe Biden signed into law in August. The package includes incentives to jumpstart domestic supply chains for electric vehicle batteries, although Piedmont said plans for the plant were in development prior to the Inflation Reduction Act.

Now that the company has selected the site in McMinn County, it will begin the process of securing the necessary permits, which can be lengthy. Still, the company is targeting construction beginning in 2023, with production starting in 2025.

When fully operational, the plant will produce 30,000 metric tons of lithium per year, making it the largest lithium refining facility in the U.S, according to the company. Piedmont said it will churn out enough material to supply roughly 500,000 electric vehicles annually.

Piedmont currently has no active mines in the U.S., so once the facility is up and running it will process spodumene concentrate from Piedmont’s international operations in Quebec and Ghana.

Eventually, the company hopes to use lithium that’s mined domestically. The company has plans for a mine as well as another plant in North Carolina, although CEO Keith Phillips said it’s challenging from a permitting perspective, since both the mine and the plant are on the same site.

Albemarle runs the only meaningful lithium mine in the U.S., which is in Silver Peak, Nevada. Additionally, only 2.1% of lithium is refined in the U.S., according to data from Benchmark Mineral Intelligence. China dominates the industry, refining more than half of global lithium supply.

Should Piedmont’s North Carolina mine and plant secure the required permits, however, the company forecasts its lithium output doubling, with the company supplying one million electric vehicles per year.

Piedmont Lithium’s announcement also comes as automakers are rushing towards vast electric vehicle fleets. By some forecasts, there simply won’t be enough lithium to meet demand in the foreseeable future. The International Energy Agency estimates that in order to meet the goals set forth in the Paris Agreement, lithium demand will grow by over 40 times by 2040.

Building new mines takes years. They’re capital intensive and can face permitting challenges. There are also those opposed to new mines, who argue that the world should instead focus on existing production.

Piedmont’s Phillips noted that in just the last year $33 billion has been announced for electric vehicle battery manufacturing plants in the U.S, which would require 500,000 metric tons of lithium annually.

“That is more than all the lithium hydroxide produced in the world currently, so clearly the industry is facing a critical resource shortage,” he told CNBC. “Anyone who can produce material to supply this market – especially domestically in the United States – will be in a favored position.”

Piedmont plans to invest around $600 million developing the Tennessee facility.

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Business

Berkshire Hathaway BRK earnings Q2 2022

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An Andy Warhol-like print of Berkshire Hathaway CEO Warren Buffett hangs outside a clothing stand during the first in-person annual meeting since 2019 of Berkshire Hathaway Inc in Omaha, Nebraska, U.S. April 30, 2022.

Scott Morgan | Reuters

Berkshire Hathaway’s operating profits jumped in the second quarter despite fears of slowing growth, but Warren Buffett’s conglomerate was not immune to the overall market turmoil.

The conglomerate’s operating earnings — which encompass profits made from the myriad of businesses owned by the conglomerate like insurance, railroads and utilities — totaled $9.283 billion in the second quarter of 2022, Berkshire reported Saturday morning. It marked a 38.8% increase from the same quarter a year ago.

However, the company posted a $53 billion loss on its investments during the quarter. The legendary investor again asked investors to not focus on the quarterly fluctuations in its equity investments.

“The amount of investment gains/losses in any given quarter is usually meaningless and delivers figures for net earnings per share that can be extremely misleading to investors who have little or no knowledge of accounting rules,” Berkshire said in a statement.

Stocks tumbled into a bear market during the second quarter after aggressive rate hikes from the Federal Reserve to tame soaring inflation sparked fears of a recession. The S&P 500 posted a more than 16% quarterly loss – its biggest one-quarter fall since March 2020. For the first half, the broader market index dropped 20.6% for its largest first-half decline since 1970.

The conglomerate’s Class A stock fell more than 22% in the second quarter, and it’s now down nearly 20% from an all-time high reached March 28. Still, Berkshire’s stock is outperforming the S&P 500 significantly, down 2,5% versus the equity benchmark’s 13% loss year to date.

Berkshire said it spent approximately $1 billion in share repurchases during the second quarter, bringing the six-month total to $4.2 billion. However, that’s a slower repurchase pace than the one seen in the first quarter, when the company bought back $3.2 billion of if its own stock.

The conglomerate showed a massive cash hoard of $105.4 billion at the end of June even though the giant has been more active in deal-making and picking stocks.

The “Oracle of Omaha” has been steadily adding to his Occidental Petroleum stake since March, giving Berkshire a 19.4% Occidental stake worth about $10.9 billion. Occidental has been the best-performing stock in the S&P 500 this year, more than doubling in price on the back of surging oil prices.

In late March, the company said it agreed to buy insurer Alleghany for $11.6 billion — marking Buffett’s biggest deal since 2016.

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