CNBC/Jeff Cox
Dallas Fed President Kaplan stresses need for more spending to keep economic recovery going

Dallas Federal Reserve President Robert Kaplan in a CNBC interview Tuesday backed more spending across a variety of fronts as the economy tries to shake off the Covid-19 pandemic effects.

President Joe Biden has proposed spending $1.9 trillion to provide more cash payouts and enhanced unemployment benefits to Americans, as well as a minimum wage hike, funding for vaccine programs and aid to schools along with state and local governments.

Congressional Republicans have set forth a more modest $618 billion plan that would provide lower direct payments and no funding for state and local governments.

While not endorsing either plan, Kaplan said additional fiscal help is needed for an array of still-pressing priorities.

“It’s critical we have money to do vaccinations and testing. It’s critical that people who are out of work have continued relief beyond March,” the central bank official told CNBC’s Steve Liesman during a “Squawk Box” interview.

“It’s critical we have enough money to reopen schools, and one of the big issues in this pandemic is women with children have disproportionately left the workforce. So getting schools reopened in person, having money for that and money for child care is going to be critical to getting that group back into the workforce. We need it if we’re going to grow faster.”

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CNN Business/Matt Egan
Hedge funds are getting crushed by the worst short squeeze in a quarter century

Hedge funds that bet against GameStop and other stocks have been crushed by the Reddit army — and they’re infecting the rest of Wall Street.

The most heavily shorted stocks have nearly doubled in value over the last three months, according to Goldman Sachs. Those staggering gains created distress for short-sellers, setting off a negative spiral in the broader markets.

“The past 25 years have witnessed a number of sharp short squeezes in the US equity market,” Goldman Sachs strategists wrote in a note published Monday, “but none as extreme as has occurred recently.”

For context, the most heavily shorted stocks with market values above $1 billion rose by a more modest 77% during the second quarter of last year. The current short squeeze also exceeds the 56% rally for those stocks toward the end of the Great Recession and similar ones during the dotcom bubble.

A mob of traders on Reddit’s WallStreetBets page have sent GameStop (GME), AMC (AMC) and other stocks skyrocketing in recent days. GameStop lost a quarter of its value Monday but it’s still up nearly 1,200% on the year.

WallStreetBets successfully triggered an epic short squeeze, where investors that bet against GameStop have been forced to unwind their bets and buy the stock back. That in turn has driven GameStop even higher, creating even more losses for short-sellers.

Melvin Capital, a hedge fund that bet heavily against GameStop, lost a stunning 53% of its value in January. The hedge fund eventually had to get bailed out by Citadel and Point72, two hedge funds that provided a $2.75 billion lifeline.

The enormous losses for hedge funds and other short-sellers spilled over into the broader markets last week. The S&P 500 suffered its worst week since October — and some analysts at least partially blamed the Reddit-fueled mayhem.

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Kitco/Anna Golubova
Gold price to hit record highs in Q2 as retail demand picks up, says Standard Chartered

Even though gold has been stuck in a narrow trading range for the past month, Standard Chartered still sees the precious metal hitting new all-time highs in the second quarter of this year.

“We believe the price risk remains upwards,” said Standard Chartered precious metals analyst Suki Cooper.

The macro-environment remains supportive of higher prices in light of the weaker U.S. dollar projections, negative real yields, more stimulus, dovish monetary policies, and rising inflation expectations, Cooper wrote on Friday.

The start of 2021 also saw retail demand pick up, with January U.S. coin sales on track to match 1999 high.

“Retail demand has had a staggering start to the year. The U.S. Mint has reported sales of 220.5koz, already the strongest month since April 2013 (246.5koz) and the strongest January since 2013 (222.5koz), on track to be the strongest January since 1999,” Cooper noted.

Another trend to keep in mind during Biden’s administration is that coin sales tend to be stronger during Democratic administrations rather than Republican, she added.

Physical demand for gold still remains weak after falling to 11-year lows in 2020. For example, jewelry demand fell to a record low since the start of the database in 1995.

“The physical market started to recover in Q4-2020, led by growth in China and India, but demand from these regions have started to soften, suggesting that investor demand still has to do most of the work to drive gold prices higher,” said Cooper.

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