DIS - Wall Street Breakfast: South Korea Restricts Short-Selling

2023-11-06 11:55:00 ET

Summary

• South Korea bans stock short-selling until June 2024, pushing KOSPI and KOSDAQ higher.
• Berkshire Hathaway jumps after Q3 results; DISH Network posts results miss.
• U.S. recession may be closer than you think - Deutsche Bank.

Listen below or on the go on Apple Podcasts and Spotify

South Korea halts shorting stocks until June. (0:15) DISH Network tumbles as CEO departs (2:48) The U.S. is closer to a recession than you think. (4:07)

This is an abridged transcript of the podcast.

Our top story so far

Taking aim at the shorts.

South Korea has prohibited stock short-selling until June 2024.

In response, the benchmark KOSPI jumped 5.7% and the tech-heavy KOSDAQ soared 7.3%. Both had their best sessions since late March 2020.

Short-selling, where traders sell borrowed shares with the aim of buying them back later at a lower price, is a risky and costly strategy that requires a margin account and collateral. It also has the potential for unlimited losses since the stock's price can rise indefinitely.

The SEC has issued controversial bans on shorting certain stocks before, covering hundreds of financial equities during the financial crisis of 2008. It was discussed again during the banking crisis earlier this year.

Many say regulatory intervention was needed to protect companies and stabilize markets. Others argued that the restrictions were not only unnecessary but also harmed market quality, stability, and discovery. In turn, those could impact liquidity and pricing efficiency, while short-sellers may use other instruments like futures, options, and swaps to get around any bans.

In today’s trading

Stocks are taking a breather after the S&P ( SP500 ) saw its best gain of 2023 last week. The major averages are slightly higher.

Bonds are more sprightly again, though. The 10-year Treasury yield ( US10Y ) is back near 4.65%, indicating some solid appetite from sellers below 4.6%.

Allianz adviser Mohamed El-Erian says the volatility we’ve seen in a benchmark security like the 10-year isn’t normal, nor is it “desirable as it undermines constructive financial intermediation, harms the global financial standing of the US, and risks breaking something.”

Now looking to active stocks and earnings

Berkshire Hathaway's ( BRK.B ) ( BRK.A ) Q3 operating earnings jumped 41% year over year with strong performance in its insurance businesses, both in underwriting and investment income. Those were partially offset by profit declines at its utilities, energy, and railroad businesses.

The company bought back $1.1 billion of its common stock during the quarter, compared with ~$1.4 billion in Q2, bringing year-to-date purchases to $7 billion. Berkshire Hathaway held ~$157 billion in cash on its balance sheet as of Sept. 30, 2023, compared with $147.4 billion on June 30.

DISH Network ( DISH ) shares plunged. The company said W. Erik Carlson intends to resign as president and CEO effective Nov. 12. That accompanied a miss on the top and bottom lines for Q3 .

Net pay-TV subscribers decreased ~64,000 in the third quarter, compared to a net increase of ~30,000 in the year-ago quarter. The company closed the quarter with 8.84 million pay-TV subscribers, including 6.72 million DISH TV subscribers and 2.12 million SLING TV subscribers.

Bumble ( BMBL ) fell after CEO Whitney Wolfe Herd said she is stepping down from the dating company she founded nearly a decade ago. She will be replaced by former Salesforce ( CRM ) executive Lidiane Jones, who became the CEO of Slack in January.

And German vaccine maker BioNTech ( BNTX ) reported a decline of ~74% top line and cut its full-year guidance , reflecting the lower demand for the COVID-19 vaccine it co-developed with Pfizer (PFE).

In other news of note

Walt Disney ( DIS ) has turned to the beverage world to tap a new chief financial officer . The company named PepsiCo ( PEP ) CFO Hugh Johnston as its new finance chief to take over after the departure of Christine McCarthy earlier this year.

The move is effective Dec. 4. Johnston will take over from interim CFO Kevin Lansberry. He joined PepsiCo in 1987 and held a variety of roles.

And in the Wall Street Research Corner

A U.S. recession may be closer than you think .

Deutsche Bank strategist Jim Reid points out that the U.S. economy is getting near the trigger of the Sahm Rule. The rule, created by former Fed economist Claudia Sahm to forecast recessions more in real time, says a recession is indicated when the three-month unemployment rate average rises 0.5 percentage point above the low rate of the previous 12 months.

Red says, "When this happens, the US economy has always been in, or about to be in, recession (using post WWII data). It is currently 0.33 percentage point above the lows. So one to watch."

"The fascinating thing about markets is that the path to a hard landing is often via the appearance of a soft landing first," Reid added. "So we’re in this window where the data is softening, but if it only ends up softening a bit and then stabilizing, then it's great news."

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