Sunday, January 31, 2021 1:22:56 AM
SANITY Quack quack. - No, Wall Street Bets is not a revolution
How sweet it is for someone to just simply throw the hype overboard. Sanity. How sweet thought art.
But it does make for a good narrative, granted.
© AFP/Getty Images
Jamie Powell January 28 2021
It’s difficult being a markets journalist sometimes. Things go up for no reason, and then you’re left trying to figure out why. Often, it’s due to some insanely mundane reason like a hedge fund accumulating a position, or some positive third party data you’re not privy to, but nonetheless, a narrative must be found. No matter how preposterous.
Which brings us to this week’s market action in the shares of heavily shorted video game retailer GameStop. You might have heard that they’ve gone up. A lot. At pixel time the share price is $491 in pre-market, a return of 658 per cent in just three short trading days. In the process, they’ve pushed at least one hedge fund .. https://www.ft.com/content/8be64f49-7c90-4fae-8370-c5c5c96d812c .. close to insolvency, and according to market whispers, have caused some serious losses at other shops shorting the stock.
The driving force seems to be the Reddit-forum WallStreetBets -- a 4.4m-strong swarm of retail traders who, via call options and vanilla equity buying, have driven the share price to ludicrous levels.
To some, it’s a sign that the forgotten masses are finally revolting against the corrupt system. Cue David versus Goliath metaphors, comparisons to the Occupy Wall Street movement, and hedge fund managers comparing it ..
It all feels a bit square peg and round hole to be honest.
So, let’s get this straight. The fight back is against who? One singular hedge fund? Wall Street in general? We’re pretty sure market-makers, prop desks and high frequency traders are pretty happy about record volumes .. https://www.ft.com/content/56658052-76fe-4910-8cb7-810039753f7c .. of share trading and call option buying. Investment bankers won’t mind either. Just imagine the suits’ surprise at unexpected fees from fresh equity offerings -- like similarly-squeezed AMC’s $305m raise Wednesday .. https://investor.amctheatres.com/newsroom/news-details/2021/AMC-Completes-At-the-Market-Equity-Program/default.aspx .. -- that, as of a fortnight ago, would have been far less easy to sell. Not to mention of course the news Thursday morning .. https://www.sec.gov/ix?doc=/Archives/edgar/data/1411579/000110465921008352/tm213880d2_8k.htm .. that private equity firm Silver Lake, having financed a convertible bond for AMC in 2018, is now converting the debt to equity, bagging gains of $284m in the process.
And then there’s the small fact that hedge funds are extremely bullish at the moment -- Bank of America’s latest fund manager survey showed that allocation to equities was the highest in two years, with cash levels as a per cent of portfolios at just 3.9 per cent. So perhaps most of the hedge fund honchos don’t mind stocks going up a lot. Just a thought. (We note the S&P 500 had its worst day since October on Wednesday, but that’s another story for another time.)
So what is going on? The simple answer is: people have found a way to get rich quick, and are doing so. Nothing more, nothing less. Sure, it might be kind of fun that a hedge fund is losing a load of money, but that’s not the motivating factor.
In 1999, it was AOL, Cisco and beanie babies .. https://www.ft.com/content/1563d643-332f-3887-8c6e-caf7435f396a . In 2017 it was blockchain plays Kodak .. https://www.ft.com/content/48ac6bde-c821-3d74-9555-7ef9da98bb17 , Long Island Ice Tea .. https://www.ft.com/content/3fa91346-e670-11e7-8b99-0191e45377ec .. and Longfin .. https://www.ft.com/content/1243bcb6-2b05-3f84-bf1e-58caa3501e1c . In 2018, it was the pot stocks .. https://www.ft.com/content/be81691a-40d2-3dba-a154-94fced8c6769?kbc=22a2718b-e50f-4044-ae2c-0100b8767e8f . In 2020, it was Tesla, the electric vehicle SPACs and bankrupt Hertz .. https://www.ft.com/content/92bbbd6a-f0f8-4380-8482-bba30d536194 . Last month it was Bitcoin. This month it’s GameStop. Next month it might take the form of bearish bets on any of the names above. Who knows.
Of course, call option buying has made the most recent rallies more explosive but that doesn’t mean there’s a grander narrative at play, just a different market dynamic. It’s not even that new either. Volkswagen became the largest company in the world .. https://www.ft.com/content/0a58b63a-4294-3e07-8390-c3aabef39a26 .. for a day in 2008 on the back of an option-induced short squeeze, and SoftBank last year reportedly .. https://www.ft.com/content/b330e091-2a59-4527-b958-9213731a526c .. tried to co-opt an already bubbling call option market for its own ends. No one described SoftBank as backing the rebellion then, so what’s changed?
The winners from this episode, undoubtedly, will try to justify their luck after the fact. After all, it’s probably easier to sleep at night telling yourself you got rich off a savvy thesis than an all-in bet on zero where the house, for once, didn’t win.
But at FT Alphaville, we’ll defer to Occam’s Razor and keep calling a duck a duck. Quack quack.
https://www.ft.com/content/159c92fd-3d4a-464f-9bfd-4020fc3f17ef
How sweet it is for someone to just simply throw the hype overboard. Sanity. How sweet thought art.
But it does make for a good narrative, granted.
© AFP/Getty Images
Jamie Powell January 28 2021
It’s difficult being a markets journalist sometimes. Things go up for no reason, and then you’re left trying to figure out why. Often, it’s due to some insanely mundane reason like a hedge fund accumulating a position, or some positive third party data you’re not privy to, but nonetheless, a narrative must be found. No matter how preposterous.
Which brings us to this week’s market action in the shares of heavily shorted video game retailer GameStop. You might have heard that they’ve gone up. A lot. At pixel time the share price is $491 in pre-market, a return of 658 per cent in just three short trading days. In the process, they’ve pushed at least one hedge fund .. https://www.ft.com/content/8be64f49-7c90-4fae-8370-c5c5c96d812c .. close to insolvency, and according to market whispers, have caused some serious losses at other shops shorting the stock.
The driving force seems to be the Reddit-forum WallStreetBets -- a 4.4m-strong swarm of retail traders who, via call options and vanilla equity buying, have driven the share price to ludicrous levels.
To some, it’s a sign that the forgotten masses are finally revolting against the corrupt system. Cue David versus Goliath metaphors, comparisons to the Occupy Wall Street movement, and hedge fund managers comparing it ..
.. to Black Lives Matter. Protest stock pumping, or something.2)its a revolution that started with people not trusting central authority.Its a call for transparency and fairness. in many ways its happening in parallel with the social unrest we see in our country.the mob attacking the capitol,the BLM protests following George Floyd's murder
— Mike Novogratz (@novogratz) January 27, 2021
It all feels a bit square peg and round hole to be honest.
So, let’s get this straight. The fight back is against who? One singular hedge fund? Wall Street in general? We’re pretty sure market-makers, prop desks and high frequency traders are pretty happy about record volumes .. https://www.ft.com/content/56658052-76fe-4910-8cb7-810039753f7c .. of share trading and call option buying. Investment bankers won’t mind either. Just imagine the suits’ surprise at unexpected fees from fresh equity offerings -- like similarly-squeezed AMC’s $305m raise Wednesday .. https://investor.amctheatres.com/newsroom/news-details/2021/AMC-Completes-At-the-Market-Equity-Program/default.aspx .. -- that, as of a fortnight ago, would have been far less easy to sell. Not to mention of course the news Thursday morning .. https://www.sec.gov/ix?doc=/Archives/edgar/data/1411579/000110465921008352/tm213880d2_8k.htm .. that private equity firm Silver Lake, having financed a convertible bond for AMC in 2018, is now converting the debt to equity, bagging gains of $284m in the process.
And then there’s the small fact that hedge funds are extremely bullish at the moment -- Bank of America’s latest fund manager survey showed that allocation to equities was the highest in two years, with cash levels as a per cent of portfolios at just 3.9 per cent. So perhaps most of the hedge fund honchos don’t mind stocks going up a lot. Just a thought. (We note the S&P 500 had its worst day since October on Wednesday, but that’s another story for another time.)
So what is going on? The simple answer is: people have found a way to get rich quick, and are doing so. Nothing more, nothing less. Sure, it might be kind of fun that a hedge fund is losing a load of money, but that’s not the motivating factor.
In 1999, it was AOL, Cisco and beanie babies .. https://www.ft.com/content/1563d643-332f-3887-8c6e-caf7435f396a . In 2017 it was blockchain plays Kodak .. https://www.ft.com/content/48ac6bde-c821-3d74-9555-7ef9da98bb17 , Long Island Ice Tea .. https://www.ft.com/content/3fa91346-e670-11e7-8b99-0191e45377ec .. and Longfin .. https://www.ft.com/content/1243bcb6-2b05-3f84-bf1e-58caa3501e1c . In 2018, it was the pot stocks .. https://www.ft.com/content/be81691a-40d2-3dba-a154-94fced8c6769?kbc=22a2718b-e50f-4044-ae2c-0100b8767e8f . In 2020, it was Tesla, the electric vehicle SPACs and bankrupt Hertz .. https://www.ft.com/content/92bbbd6a-f0f8-4380-8482-bba30d536194 . Last month it was Bitcoin. This month it’s GameStop. Next month it might take the form of bearish bets on any of the names above. Who knows.
Of course, call option buying has made the most recent rallies more explosive but that doesn’t mean there’s a grander narrative at play, just a different market dynamic. It’s not even that new either. Volkswagen became the largest company in the world .. https://www.ft.com/content/0a58b63a-4294-3e07-8390-c3aabef39a26 .. for a day in 2008 on the back of an option-induced short squeeze, and SoftBank last year reportedly .. https://www.ft.com/content/b330e091-2a59-4527-b958-9213731a526c .. tried to co-opt an already bubbling call option market for its own ends. No one described SoftBank as backing the rebellion then, so what’s changed?
The winners from this episode, undoubtedly, will try to justify their luck after the fact. After all, it’s probably easier to sleep at night telling yourself you got rich off a savvy thesis than an all-in bet on zero where the house, for once, didn’t win.
But at FT Alphaville, we’ll defer to Occam’s Razor and keep calling a duck a duck. Quack quack.
https://www.ft.com/content/159c92fd-3d4a-464f-9bfd-4020fc3f17ef
It was Plato who said, “He, O men, is the wisest, who like Socrates, knows that his wisdom is in truth worth nothing”
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