Monday, March 29, 2021

Big Crowd No Exit

This single hedge fund margin call that rattled global markets was a mere warning as to what is coming. Millennials are about to learn the hard way, they don't have to sell any stonks in order to realize irrecoverable losses...

Just remember this, because you will be hearing it a lot:

"No one warned me"

A relatively obscure hedge fund run by a convicted insider trader named Bill Hwang, just caused the largest and fastest single entity margin call in history. In echoes of LTCM, his Archegos hedge fund was massively levered via derivatives that were underwritten by multiple investment banks. These swap agreements were merely cleverly disguised margin loans. The entire house of cards ironically exploded due to a failed secondary stock issuance in one of the massively levered holdings, ViacomCBS, which was underwritten by Morgan Stanley and Goldman Sachs. They were double dipping and inadvertently imploded their own client. That selloff triggered a margin call in which all of the brokers scrambled to unload their positions and front-run each other out the closing door. In the event, Goldman and Morgan Stanley got out, while Credit Suisse and Nomura sustained massive losses.

In the event ViacomCBS and several other stonks got obliterated, including Credit Suisse and Nomura.

Most pundits wrote off this debacle as a one time ordeal, nothing systemic. What they seem to forget is that this COVID melt-up has funded untold numbers of over-leveraged entities. Including record numbers of latecomer retail traders.

Today, perma-bull Jim Cramer admitted that the IPO/SPAC issuance bubble has gotten way out of hand. He also states that the flood of issuance is now the biggest market risk. And it's not going to abate until something breaks. 

"Between the IPOs and the big SPAC attack and the big secondaries, we’re being flooded with stock right now, so the market’s going to struggle until Wall Street turns off the spigot,” the “Mad Money” host said Monday. “Unfortunately, there’s no sign of that happening yet, so you have to keep being careful.”

You can tell that there’s too much supply because many of these deals have started to fizzle,” Cramer said. “These special purpose acquisition companies just keep coming, even though the whole SPAC ecosystem’s falling apart"

With all this new supply, it’s no wonder the fast-growing tech stocks can’t find a bottom"

The first quarter of 2021 has already seen record IPO issuance in $ proceeds for a single quarter. More than full year 2015, 2016, and 2017:


These same Tech stocks coming under pressure from SPACs and IPOs are now about to undergo the biggest sector rotation driven outflow in history as the first quarter ends.

In summary, today's over-leveraged gamblers are going to wake up one day to massive irreversible losses. On that day, their broker will indiscriminately liquidate their accounts, thus locking in those losses permanently. 

Their Reddit-ordered goal of never selling one stonk will be realized. Just not how they expected. 

In the event, they will take part in the largest global margin call in history.  

Stimulus 3.0 is now "priced in"