2021.04.08

Stylized Margin Call breakfast scene
Archegos

The WSB v. hedgie class war briefly took a back seat last week as an unrelated institutional investor caused Morgan Stanley and Goldman Sachs to do a Margin Call LARP.

Archegos wasn't a scalp taken by retail investors (as initially rumored), it wasn't even a hedge fund or short seller. It was a family investment firm for a tiger cub that had highly-leveraged long positions in American and Chinese media and tech stocks.

Tide goes in, tide goes out, right? The interesting (though probably not uncommon) story came from how Archegos's brokers handled the situation. From CNBC:

The night before the Archegos Capital story burst into public view late last month, the fund's biggest prime broker quietly unloaded some of its risky positions to hedge funds... The basket of shares it was selling... was merely the opening salvo of an unprecedented wave of tens of billions of dollars in sales by Morgan Stanley and other investment banks starting the very next day.

Morgan Stanley handed a bunch of hedge funds the bag on their portion of the eleven-figure portfolio. And to their peers:

Credit Suisse said Tuesday that it took a $4.7 billion hit after unwinding losing Archegos positions; the firm also cut its dividend and halted share buybacks.

As Jeremy Irons's character said, "There are three ways to make a living in this business: be first, be smarter, or cheat. I don't cheat."

Reddit WallStreetBets beary stearn SEC comment
Nikola -> Lordstown

Nikola One in motion

Many months ago, Hindenburg Research (short seller) posted a hit piece on Nikola. Nikola is basically the Fyre Festival of electric vehicles, complete with Billy McFarland knockoff Trevor Milton. There were all kinds of great tidbits from the story, but the big curtain pull was the "Nikola One in motion" video that was superb weasel-wording of their truck rolling down a hill that appears to be flat ground.

WSB has long been fanboys of Tesla/Elon and, since it's the internet, they like calling bullshit on things. So the Hindenburg piece was well-liked, contrary to the CNBC-propagated idea that WSB is totally against short sellers and just wants to take down hedgies.

Well, history repeats, except this time it's Hindenburg calling out Lordstown Motors - some midwest company making an e-truck with in-wheel motors. History almost repeats, anyway. The defense of Lordstown/RIDE got a lot of upvotes.

Reddit WallStreetBets RIDE astroturf DD

I haven't done any research on RIDE. I did some on NKLA and made money on puts back in the olden days. Regardless of whether Lordstown is legit or a Theranos-level bamboozle, there's some pretty clear astroturfing disguised as DD or, at the very least, extreme fanboyism. In the Nikola days, it was pretty low effort - there was a Nikola sub that occasionally took the bait and ventured into WSB for mockery. Now that WSB is prime time, it looks like companies are throwing legitimate money at "viral marketing" that might just turn into a huge investment boost (see GME's new offering).

Reddit WallStreetBets astroturfer account

The account has two posts. Both about RIDE. "Who do us apes hate even more than shorts?" It's such a sad attempt to "fellow kids" the sub while throwing out garbage like "Never bet against America."

Reddit WallStreetBets astroturf downvoting

In the Nikola era, if anyone said, "Never bet against America" the first reply would be, "Sir, this is a casino." The post would be removed, the user would be banned. Zjz must have taken a day off or got himself banned again or something.

There were critical comments, but they were downvoted by probably the same accounts that gave the post a bunch of awards right away. Unfortunately, Reddit is more focused on banning accounts with no-no words and trying to wrap their heads around quotations and sarcasm.
Beyond good and evil lies the memes

Reddit WallStreetBets Jim Cramer facts The Land Before Time

Still, the noncommercial accounts are good for DD and laughs. Jim Cramer facts have been one of the highlights of the WSB-Cramer drama.

Reddit WallStreetBets Jim Cramer chewy chewy cocoa Cohen tweet

Yeah.

Outlook

AOC on the size of the relief package

The flows are also raising fears of a pullback from record highs, given valuations are at the highest since the dotcom bubble of the late 1990s, with the S&P 500 trading at nearly 22 times forward earnings.

"Goldilocks and melt-up are popular terms this week and we think that can be seen through market valuation," said Emmanuel Cau, head of European equity strategy at Barclays.

It was followed by a massive $40 million bet in the U.S. options market on Thursday that the Cboe Volatility Index - often called Wall Streetís fear gauge - will break above the 25 level and rise towards 40 by mid-July.

From Reuters.

More market ATHs, more talk of inflation solving the budget deficit, more extensions on eviction moratoria. Then again, I never bet against America.