Why I'm not getting complacent after the recent rally; I'm glad to see Ryan Cohen facing a lawsuit over trades and gains with the stock of Bed Bath & Beyond
1) A new Heard on the Street column in the Wall Street Journal echoes what I've been saying in recent weeks...
I've argued from the beginning that President Donald Trump doesn't want a recession or stock market crash – so he'll ease up on his tariff proposals.
Here's the WSJ column: The Stock Market Gets Complacent About a 'Trump Put' Again. And here's an excerpt:
The S&P 500 has gained about 7% over the past week, recovering from a big plunge earlier in April, and is once again trading at a forward price-earnings ratio of above 20.
Investors apparently believe the administration will continue to de-escalate its trade war. What gives them relief above all, however, is that Trump no longer appears impervious to turmoil on Wall Street. Markets are again seen acting as a deterrent to disastrous economic policy.
That said, despite the recent rally, I'm not getting complacent...
While the Trump administration may create exceptions for large companies and favored industries, many small businesses across America are on the brink.
I've also mentioned this point a few times in previous e-mails. And this recent New York Times article has more details: 'Things Have Ground to a Halt': Tariff Uncertainty Paralyzes Businesses. Excerpt:
Businesses are rushing to cancel factory orders or halt shipping containers before they leave China, unable to afford the tariff when the ships arrive in America. They are pausing capital investments and new hiring, and scaling back spending to only the bare necessities. Future products are being scrapped, because they are no longer financially viable.
And the logistics firms, marketing agencies and others in the ecosystem of companies that support small businesses are feeling the sting as the wheels of commerce slow down.
Meanwhile, as you would expect, the largest companies have more levers to pull...
For example, the largest retailers built inventory beforehand and can strong-arm suppliers into lowering prices or buying advertising.
But even they will soon be impacted, as this new WSJ article notes: Retail Giants Manage to Keep a Lid on Prices but Warn It Can't Last. Excerpt:
[America's largest retailers] are pressuring their suppliers to absorb cost increases and dropping free perks from corporate offices. They have paused some shipments of goods from China and are leaning on inventory that has already been imported to the U.S.
So far, most prices have held steady overall. The average price of some 10,000 everyday household products sold online by Walmart (WMT), Target (TGT), and Amazon (AMZN) is effectively flat since April 2, according to a Wall Street Journal analysis of data harvested by e-commerce-data firm Traject Data. Prices at the retailers are generally down since January, the data show.
The article also notes that the CEOs of Walmart, Target, and Home Depot (HD) met with Trump last week. And as the WSJ continues, they had a strong message:
They warned Trump that higher prices would be difficult to avoid and said certain products could become scarce if retailers decide not to sell them to avoid tariff costs.
And in the automotive sector, things are changing so rapidly in that General Motors (GM) did something I've never seen before...
It reported first-quarter earnings this morning (and also pulled its previous profit guidance for 2025), but delayed its conference call with investors by just two days, to Thursday.
That was because of expectations for the Trump administration to change its automotive-sector tariff policies today, in advance of the president's speech tonight in Detroit. The WSJ has more details in this new article: Trump to Soften Blow of Automotive Tariffs. Excerpt:
President Trump is expected to soften the impact of his automotive tariffs, preventing duties on foreign-made cars from stacking on top of other tariffs he has imposed and easing some levies on foreign parts used to manufacture cars in the U.S., according to people familiar with the matter.
The decision will mean that automakers paying Trump's automotive tariffs won't also be charged for other duties, such as those on steel and aluminum, according to people familiar with the policy. The move would be retroactive, the people said, meaning that automakers could be reimbursed for such tariffs already paid. The 25% tariff on finished foreign-made cars went into effect early this month.
All of this underscores why I continue to believe that broadly "sitting tight" is the best move – neither buying nor selling across the board.
I think the Trump administration is going to ease up on tariffs, but a lot of short- and long-term damage has already been done.
2) On a different note, I was pleased to see the recent news that GameStop (GME) CEO Ryan Cohen is facing a lawsuit over trades and profits he made on the stock of Bed Bath & Beyond before the company went bankrupt.
Unfortunately, the wheels of justice sure do turn slowly... and the U.S. Securities and Exchange Commission ("SEC") failed to investigate.
Here's an excerpt from a Reuters article from last week, GameStop CEO must face Bed Bath & Beyond lawsuit, with more details:
Ryan Cohen, the billionaire chief executive of GameStop, must face a lawsuit by the company once known as Bed Bath & Beyond to recoup $47.2 million of profit from trading its stock before the home goods retailer went bankrupt.
U.S. District Judge Naomi Reice Buchwald in Manhattan on Friday said Cohen and his RC Ventures must defend against a claim they bought and sold a more than 10% Bed Bath stake within six months, making them liable as insiders to repay "short-swing" profits.
Longtime readers might recall that I called Cohen out back in August 2022...
In my August 17 e-mail that year, I had highlighted the ridiculous and unwarranted run-up in the stock of Bed Bath & Beyond during trading that morning. I thought the company was in a death spiral because I didn't think it had enough liquidity to build inventory for the holidays and would therefore have to file for bankruptcy.
In that e-mail, I concluded by predicting that:
Today's spike in [the stock of Bed Bath & Beyond] smells like a blow-off top to me, and I expect the stock will be back under $10 per share very soon.
Sure enough, as I noted the next day on August 18...
[The stock of Bed Bath & Beyond] is crashing today on news that Ryan Cohen, the founder of Chewy (CHWY) and the chairman of GameStop, whose 11.8% stake in BBBY excited the WallStreetBets speculators on Reddit, disclosed in an SEC filing yesterday that he may dump his entire stake (and may, I suspect, have done so yesterday): Bed Bath & Beyond shares fall after investor Ryan Cohen reveals intent to sell entire stake.
As I said, Cohen's trading patterns reeked of a classic pump and dump:
First, on Monday, Cohen filed a Form 3 showing that he had bought far-out-of-money call options that expire in January with strike prices of $60, $75, and $80 per share, multiples of the $10 to $15 share price at the time.
This highly aggressive, bullish-seeming bet caused the stock to soar on Tuesday: Bed Bath & Beyond soars as much as 70% as meme traders talk up Ryan Cohen's call options purchase.
Then, Cohen added fuel to the fire by filing an amended 13D showing that he owned 9.45 million shares of [the stock of Bed Bath & Beyond]. But this was unnecessary because it was unchanged from his previous 13D filing on March 25, so I think he filed it to cause a further run-up in the stock.
Having successfully pumped the stock up 100% to 200% in a couple of days, Cohen is dumping/has dumped it on the unsuspecting retail investors who foolishly got caught up in the hype he generated.
I called it a "total disgrace." And as I continued in that e-mail, that morning I did something I had never done before:
I reported Cohen's actions to the SEC using its website to "Report Suspected Securities Fraud or Wrongdoing" and checked the boxes for "manipulation of a security" and "pump and dump scheme." I hope the SEC investigates...
Best regards,
Whitney
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