Some of
the queries Quakers are asked to consider, are: "Do you maintain strict
integrity in your business transactions and in your relations with individuals
and organizations? Are you personally scrupulous and responsible in the use of
money entrusted to you, and are you careful not to defraud the public
revenue?"
Probably
why there a no Quakers on Wall Street, in the City or Parliament.
In the stock casinos,
fear. No not Fear Of Missing Out (FOMO,) fear of not knowing which other hedge
funds are in the process of blowing up, plus as month-end and end of quarter
arrives, fear that Friday’s and Monday’s chaos will trigger a wave of profit
taking redemptions in the quarter ahead.
Longer term, Friday’s
dramatic hammering of an over leveraged hedge fund is likely to bring in much tighter
regulation in addition to the coming Biden taxes.
However unlikely, was
that it for stocks?
Dow ekes out record, stocks end
mostly lower on jitters tied to investment fund margin call
Last Updated: March 29, 2021 at 4:36 p.m.
ET First Published: March 29, 2021 at 7:21 a.m. ET
Stocks closed mostly lower on Monday amid concerns about
potential spillover after a large investment fund was forced to sell massive
holdings in stocks, causing prices to tumble.
The Dow
Jones Industrial Average DJIArose 98.49 points, or 0.3%, to close at 33,171.37, a record close,
after erasing an earlier losses.
The
S&P 500 index SPXfell 3.45 points, or 0.1%, ending at 3,971.09.
The Nasdaq
Composite COMPslumped 79.08 points, or 0.6%, finishing at 13,059.65.
The
Russell 2000 RUTof small-cap stocks tumbled 2.8% to end at 2,158.68.
On Friday, the Dow notched a 1.4% increase, the S&P 500
added 1.6%, and the Nasdaq Composite Index fell 0.6%.
What drove the market?
The Dow flipped positive in afternoon trade to close up
nearly 100 points, despite lingering jitters tied to reports that Hwang’s
Archegos Capital Management recently sold some $30 billion in holdings to meet
margin calls, according to The Wall Street Journal, citing people familiar with
the matter.
“Are there others? I’m sure there are,” said David Barse,
founder and chief executive of XOUT Capital, of funds that combine leverage
with higher-risk investment strategies that if caught off guard could cause
prices of their holdings to at least temporarily tumble. “I’m sure banks are
looking very carefully at that,” he told MarketWatch, while adding that brokers
are also likely “tightening their risk profiles on clients.”
“My response is don’t own single-stock risk,” Barse said,
“unless you know more about the stock than the marketplace, because it could be
that something you have no control over is going to impair your investment.”
But Barse also said that unlike during the
2008 financial crisis, leverage isn’t being broadly paired with derivatives,
which amplified global financial losses more than a decade ago.
Even so, the bulk asset sales last Friday drove shares of
DiscoveryDISCAand ViacomCBSVIACto register their worst one-day declines on record. Shares of both
companies fell again Monday.
Global investment banksCredit
Suisse GroupCSand Nomura HoldingsNMRon Monday said they were likely to take hits due to the volatility in the market,
but didn’t directly name Hwang’s fund.
“A significant U.S.-based hedge fund defaulted on margin
calls made last week by Credit Suisse and certain other banks,” said Credit
Suisse. “Following the failure of the fund to meet these margin commitments,
Credit Suisse and a number of other banks are in the process of exiting these
positions.”
The buzz around the margin call
comes at the start of a holiday-shortened week, as investors brace for a fresh
round of volatility. Some markets will be closed in observance of Good Friday,
including those in the U.S., and some European markets will remain closed next
week for Easter Monday.
Next, when greed goes
wrong and how! When massive bets funded by the Fed fuelling the Wall Street
mafia, go upside down. Not to worry, the Fedsters will bailout Goldie and the
rest, yet again, should that become necessary.
Below, more of the
unintended consequences of the Great Nixonian Error of fiat money, communist
money. Bad money drives out good money and high stakes leveraged gambling
becomes the only game in town for the central banksters.
Billions in
Secret Derivatives at Center of Archegos Blowup
The forced liquidation of more than $20 billion in holdings
linked to Bill Hwang’s investment firm is drawing attention to the covert
financial instruments he used to build large stakes in companies.
Much of the leverage used by Hwang’s
Archegos Capital Management
was provided by banks including Nomura Holdings Inc.
and Credit Suisse Group AG
through swaps or so-called contracts-for-difference, according to people with
direct knowledge of the deals. It means Archegos may never actually have owned
most of the underlying securities -- if any at all.
While investors who build a stake of
more than 5% in a U.S.-listed company usually have to disclose their position
and subsequent transactions, that’s not the case with stakes built through the
type of derivatives apparently used by Archegos. The products, which are made
off exchanges, allow managers like Hwang to amass stakes in publicly traded
companies without having to declare their holdings.
The swift unwinding of Archegos has
reverberated across the globe, after banks such as Goldman Sachs Group Inc.
and Morgan Stanley forced Hwang’s firm to sell billions of dollars in
investments accumulated through highly leveraged bets. The selloff roiled
stocks from Baidu Inc. to ViacomCBS Inc., and prompted Nomura and Credit Suisse
to disclose that
they face potentially significant losses on their exposure.
One reason for the widening fallout is the borrowed funds
that investors use to magnify their bets: a margin call occurs when the market
goes against a large, leveraged position, forcing the hedge fund to deposit
more cash or securities with its broker to cover any losses. Archegos was
probably required to deposit only a small percentage of the total value of
trades.
The chain of events set off by this
massive unwinding is yet another reminder of the role that hedge funds play in
the global capital markets. A hedge fund short squeeze during a Reddit-fueled
frenzy for Gamestop Corp. shares earlier this year spurred a $6 billion loss
for Gabe Plotkin’s Melvin Capital and sparked scrutiny from U.S. regulators and
politicians.
----Much about Hwang’s trades remains unclear, but market participants
estimate his assets had grown to anywhere from $5 billion to $10 billion in
recent years and total positions may have topped $50 billion. Hwang didn’t
respond to requests for comment.
CFDs and swaps are among bespoke
derivatives that investors trade privately between themselves, or
over-the-counter, instead of through public exchanges. Such opacity helped to
worsen the 2008 financial crisis and regulators have introduced a vast new body
of rules governing the assets since then.
·Tiger Cub’s family office now at center of epic
margin call
·Bank removed him from blacklist, financed his
positions
Bill Hwang, a former hedge fund manager who’d pleaded
guilty to insider trading, was deemed such a risk by Goldman Sachs Group Inc.
that as recently as late 2018 the firm refused to do business with him.
Those misgivings didn’t last.
Wall Street’s premier investment bank, lured by the tens of
millions of dollars a year in commissions that a whale like Hwang paid to rival
dealers, removed his name from its blacklist and allowed him to become a major
client. Just as Morgan Stanley, Credit Suisse Group AG and others did, Goldman
fueled a pipeline of billions of dollars in credit for Hwang to make highly
leveraged bets on stocks such as Chinese tech giant Baidu Inc. and media
conglomerate ViacomCBS Inc.
Now Hwang is at the center of one of the greatest
margin calls of all time, his giant portfolio in a messy and painful
liquidation, and Goldman’s reversal has thrust it right into the mayhem.
According to two people with direct knowledge of the
matter, Hwang’s Archegos Capital Management was forced by its lenders to dump
more than $20 billion of stocks on Friday in a series of market-roiling trades
so large and hurried that investors described them as unprecedented.
Goldman even emailed clients late Friday to inform them
that it had in fact been one of the banks selling. The email, a copy of which
was seen by Bloomberg, detailed a total of $10.5 billion in trades. The message
didn’t name Hwang or Archegos.
Representatives for Goldman, Morgan Stanley and Credit
Suisse declined to comment. Efforts to reach Hwang and his associates at
Archegos were unsuccessful.
In inflation news, more warnings and rising bond yields.
From
housebuilders to toymakers, businesses are sounding the inflation alarm
Markets have been jittery about the prospect of resurgent
inflation, given it eats away at the interest bonds pay and cuts into the
present value of companies' future cash flows
Mar 29, 2021 • 4 hours ago
Investors are fretting over
inflation. Scores of U.S. companies are saying they are right to.
A growing list of businesses are
warning that supply-chain bottlenecks, increasing raw material costs and higher
labour expenses are beginning to bite.
Manufacturing behemoth 3M Co. has
flagged rising air and freight costs to ship its goods, while Walmart Inc. has
warned on the congestion in U.S. ports. Mobile home manufacturer Legacy Homes
and Williams-Sonoma Inc., the purveyor of Breville espresso machines and
Wüsthof knife sets, have seen an uptick in wage costs. And Barbie Doll-maker
Mattel Inc. has warned on the rise in plastics prices, which were exacerbated
by the winter storm in Texas that took petrochemicals plants offline.
“Costs are going up everywhere,”
said Ted Doheny, chief executive of packaging maker Sealed Air Corp. “It’s
DefCon 4 (for) us right now. It’s a big deal.”
These first flickers of inflation —
and the fact that many S&P 500 companies say they are responding by raising
their own prices — have fed a debate among investors as the U.S. economic
recovery accelerates. Are these a signal that the kind of chronic inflation
long ago tamed by the U.S. central bank could be about to roar back?
“People are thinking it’s
transitory, or maybe hoping it’s transitory,” said Peter van Dooijeweert, managing
director of multi-asset solutions at Man Solutions. “Because no one really
knows what else to do.”
Central bankers and investors expect
inflation to accelerate this year as government stimulus and pent-up demand
from more than a year of social curbs pumps up the U.S. economy.
One market measure of inflation
expectations, the 10-year break-even rate, climbed to its highest level since
2013 last week, at 2.36 per cent. Officials with the Federal Reserve have also
lifted their inflation forecasts. The Fed’s preferred gauge, the core personal
consumption expenditures index, is now expected to reach 2.2 per cent by the
end of the year from 1.4 per cent now, according to the most recent Fed
predictions. Three months ago, the central bank’s officials had been pencilling
in a 1.8 per cent increase.
Following the markets on both sides of the Atlantic since 1968. A dinosaur, who evolved with the financial system as it was perverted from capitalism to banksterism after the great Nixonian error of abandoning the dollar's link to gold instead of simply revaluing gold. Our money is too important to be left to probity challenged central banksters and crooked politicians.
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