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Once the 10-year yield hits 3% all hell could break loose

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It could be a bad day for the markets once the yield on the benchmark 10-year Treasury hits 3 percent, closely followed trader Art Cashin told CNBC on Thursday.

“That 3 percent level is both a target and a kind of resistance. Everybody knows it’s like touching the third rail,” said Cashin, UBS director of floor operations at the New York Stock Exchange. “The assumption is once they do it, all hell will break loose. So we’ll wait and see.”

As of early Thursday, the 10-year yield was slightly lower, around 2.91 percent, down from Wednesday’s four-year high of 2.95 percent. Wall Street fears returned Wednesday afternoon after minutes from the Federal Reserve‘s latest meeting sent bond yields rising and stocks into a tailspin. The last time the 10-year yield traded above 3 percent was in January 2014.

“Initially, yields moved down, stocks rallied like crazy,” Cashin recalled about Wednesday, moments after the Fed minutes. “Then about 8 minutes into that move, stocks looked back and noticed bonds had changed their mind.”

The sharp moves seen on Wednesday were probably due to “our friends, the long-lost ‘bond vigilantes,'” Cashin told “Squawk on the Street.”

The term “bond vigilantes” was a term coined by market historian Ed Yardeni during the 1980s, referring to traders who sell their holdings in an effort to enforce what they consider fiscal discipline. Selling bonds sends yields higher due to the inverse relationship between bond prices and bond yields.

“We’re going to need a couple weeks to see if the ‘bond vigilantes’ really are back or not,” Cashin said. “Or whether it was simply a fluke. But remembering what ‘bond vigilantes’ look like, it certainly had finger prints on them.”

U.S. stocks ended their session lower Wednesday, with the Dow Jones industrial average closing down nearly 167 points after rising more than 300 points earlier in the day.

The stock market had gotten off to a roaring strong start in January after rallying in 2017.

But stocks tanked in early February after a higher-than-expected wage number in January’s jobs report sparked fears of inflation and rising rates. Stocks on a closing basis eventually bottomed out on Feb. 8, briefly plunging into 10 percent correction territory. The market had been up for six-straight sessions before declines on Tuesday and Wednesday.

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Amazon’s ‘Lord of the Rings’ will cost at least $465 million

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Still from “Lord of the Rings: The Fellowship of the Ring.”

New Line Cinema

Amazon’s ‘Lord of the Rings’ television show is shaping up to be a costly endeavor for the tech company.

On Friday, New Zealand’s minister for economic development and tourism revealed that the fantasy drama will be one of the most costly television series ever made, with its season one price tag coming in at around $465 million.

“But what I can tell you is Amazon is going to spend about $650 million in season one alone,” Stuart Nash told Morning Report. The figure he provided was in local currency.

The production figure is massive and likely the largest sum any studio has spent to produce a single season of television. For comparison, HBO’s “Game of Thrones” cost around $100 million per season. Season one episodes cost around $6 million each and eventually rose to around $15 million by season eight.

Amazon shelled out around $250 million for the rights to the Tolkien property in 2017.

“This will be the largest television series ever made,” Nash said.

The figures, released as part of the New Zealand government’s Official Information Act, were first reported by the New Zealand-based outlet Stuff. Their report indicated that Amazon is looking to film five seasons in the country and possibly produce a spin-off series.

Amazon’s spending in New Zealand will trigger a tax rebate of around $114 million and has been flagged as a “significant financial risk” by the country’s treasury. There’s no cap on how much Amazon is allowed to spend, and therefore, New Zealand could be on the hook for hundreds of millions of dollars to help subsidize the project.

However, the production will likely bring a large financial boost to the local economy, as Amazon pays for local labor, hotels and food, among other things. Then there is the future tourism bump. Peter Jackson’s “Lord of the Rings” and “Hobbit” trilogies were a big boon to New Zealand, as they brought in travelers from around the world.

The “Lord of the Rings” series is currently in production and expected to debut in late 2021.

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Morgan Stanley had $911 million loss in Q1 tied to Archegos meltdown

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Bill Hwang in 2012

Emile Warnsteker | Bloomberg | Getty Images

Morgan Stanley posted blockbuster results for the first quarter, but a single prime brokerage client cost the firm nearly $1 billion.

In its earnings results, Morgan Stanley said Friday it had a $644 million loss from a “credit event” for that client, as well as $267 million in related trading losses.

That client was Bill Hwang’s Archegos, Morgan Stanley CEO James Gorman said during a conference call with analysts, confirming what a person with knowledge of the situation told CNBC earlier.

While Morgan Stanley was the biggest prime broker to Archegos, other banks suffered larger losses. Credit Suisse, which CNBC has reported was the No. 2 broker to Archegos, took a $4.7 billion hit to unwind the losing bets and shuffled top managers because of the meltdown. Nomura said it could face $2 billion in losses.  

During his scheduled call with analysts to discuss the quarter, Gorman said Archegos owed it $644 million after its meltdown in late March.

“We liquidated some very large single stock positions through a series of block sales culminating on Sunday night, March 28,” Gorman said. “That resulted in a net loss of $644 million which represents the amount the client owed us under the transactions that they failed to pay us.”

He added: “Subsequently, we made a management decision to completely de-risk the remaining smaller long and short positions,” Gorman said. “We decided we would be out of the risk as rapidly as possible, and in so doing, incurred an incremental loss of $267 million. I regard that decision as necessary and money well spent.”

Morgan Stanley may have been misled by the family office, CFO Jon Pruzan said during the call. The bank held collateral for Archegos based on facts that turned out to be untrue, he said.

Archegos representatives could not immediately be located for comment. Its previous communications firm said it no longer represented the family office.

At least part of the Archegos loss was driven by the fact that Morgan Stanley had been an underwriter on ViacomCBS shares the previous week, so it held off selling a block of the company’s stock until Sunday, which caused the bank to be later in selling than others, Gorman said.

During the call, an analyst asked Gorman if the episode would change the firm’s approach to risk management in the prime brokerage business.

“I think we’ll certainly be looking hard at family office-type relationships where they are very concentrated and you have multiple prime brokers and frankly, the transparency and lack of disclosure relating to those institutions is just different” from hedge funds, Gorman said. “That’s something I’m sure the SEC is going to be looking at and that’s probably good for the whole industry.”

— CNBC’s Dawn Giel contributed to this report.

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‘Roaring Kitty’ stands to rake in millions on his GameStop options bet Friday

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The Reddit logo is seen on a smartphone in front of a displayed Wall Street Bets logo in this illustration taken January 28, 2021.

Dado Ruvic | Reuters

It could be a big payday for Keith Gill, the Reddit trading crowd’s favorite and the man who inspired the epic GameStop short squeeze.

Friday is the expiration date of Gill’s 500 call options contracts he bought at the beginning of 2021. Gill — who goes by DeepF——Value on Reddit and Roaring Kitty on YouTube — attracted an army of day traders who piled into the brick-and-mortar video game stock and call options, pushing the shares up 400% in a single week in January.

GameStop closed at $156.44 a share on Thursday, up 730% for the year. Assuming Gill still holds the contracts and sells them Friday, at a $12 strike price, he will make more than $7 million on his position (The options cost the buyer $10,000 in total.)

It’s unclear if Gill has already closed his position at a profit. His last update on Reddit’s r/WallStreetBets forum was on April 1, which showed 500 outstanding call options in a position worth more than $8 million at the time. (The post was not independently verified by CNBC so we are assuming that it is his actual account.)

Gill has also been holding 100,000 shares of GameStop, which he bought earlier this year at around $27 apiece, according to the screenshots he posts on Reddit. As of April 1, the stake gained more than $16 million. It wasn’t clear if he sold the shares this month.

The investor was a former marketer for Massachusetts Mutual Life Insurance. Through YouTube videos and Reddit posts, Gill encouraged a band of retail traders to squeeze out short selling hedge funds in GameStop.

The action got so wild at one point that brokerages including Robinhood had to restrict trading in the stock as it blew up their clearinghouse margin. The mania also led to a series of congressional hearings featuring Gill around brokers’ practice, and gamifying retail trading.

Gill owned 10,000 shares of GameStop at the end of 2020 and increased his holding to 50,000 shares in January and to 100,000 in mid-February. Judging from the updates he posted on Reddit, he never sold his GameStop stakes amid the monstrous short squeeze or in the aftermath.

The GameStop story is still far from over. Besides the scrutiny the saga brought on around retail trading, the company itself is in the middle of a transformation, hoping to capitalize on the massive rally in the stock price.

GameStop announced a $1 billion stock sale at the beginning of April to accelerate its e-commerce transition led by activist investor and board member Ryan Cohen, who is Chewy’s co-founder. The company also hired former Amazon and Google executive Jenna Owens as its new chief operating officer.

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