A Curious Conundrum

For those that may not be up to speed on the twists and turns that happen regarding Wall Street. There’s one currently ravaging all the old so-called “norms.”

One of those norms is the well entrenched pecking order of market dominance. i.e., Those who have the most AUM (assets under management) are considered: “Top dogs,” “Purebreds,” “Alpha class,” ____________(fill in you own). All others are looked upon by this same group as: curs, wannabes, and the like.

However, there’s something currently happening that may upend this stratification in ways most never considered, and it is this…

The outcasts are out wallstreeting the in-crowd.

That outcast group is currently known as “Wall Street Bets” which is a group of rag tag traders armed with stimulus checks, credit cards and whatever coinage they’ve found in the sofa cushions and leveraging it up to infinity using call options trading on platforms such as Robinhood™ and others.

And they’re not just picking the pockets of the so-called “best and brightest.” Rather, they’re grabbing many of Wall Streets’ premier hedge funds wallets and a few other “jewels” to boot. Maybe literally.

What’s also been intriguing is that much to the chagrin of Wall Street, they are relishing both the fight, as well as hypocrisy of anyone and any regulatory body trying to shut them down. It’s a stunning role reversal with questions that are as ponderous as they are intriguing, for they have suddenly put some of Wall Street’s elite into outright insolvency or redemption terror.

So now the questions and what to do about them become interesting indeed. Such as…

Will both Wall Street, as well the regulatory bodies e.g., SEC (securities exchange commission) et. al. now have to change its position from outright demagoguery and repeated calls for banning of the dreaded “Short Seller” in favor of protecting them?

And no, that’s not a misstatement, because in some respects – both the SEC, Federal Reserve, along with the Biden administration, has asserted itself into this current kerfuffle. And when things like that happen? i.e., When was the last time you seen a regulatory agency along with an administration just “monitor” then not impose some measure meant to “fix” a complex issue with some form of simple, but usually exacerbating the original issue even further?

It’s OK, I’ll wait.

Here’s the real issue at hand broken down to its most simplistic example…

How is it that when shares of companies such as Tesla™ and others were skyrocketing to meteoric heights fueled on the pain and suffering (see: losing $Millions) of short sellers needing to cover at any price by people like the aforementioned with its CEO Elon Musk, relentlessly taunting and in some instances blurring the lines between breaking securities laws and more. That was OK?

Yet…

If large Hedge Funds (aka “Friends of the Fed) are suddenly caught flat-footed in their short positions by a concentration of “Home-gamers” armed with their stimulus and doing nothing more than 10X’ing (and more, some much more) at the expense of these same funds that used their own version of stimulus known as “QE” (quantitative easing). That’s not OK?

Currently the entire apparatus of both the finance industry, as well as political is freaking out. (Not to mention the “Clown prince of Buzzer Bangers, but I digress.)

Again, just to illuminate a bit of what’s happening: One of these have allowed some of the participants to pay off student loan debt, credit card debt and more. The other?

It’s allowed some of those participants to buy anther yacht, Lambo’, mansion, and invites to exclusive “rubbing shoulders with the regulatory and political elite” parties the others would never gain admission. Ever.

Guess which one is being shut down, currently? Hint: they don’t watch CNBC™, Bloomberg™, or Fox Business™ hoping to be the next “in rotation fund-manager” interviewed for how “smart” they are. As a matter of fact – they scorn them all, the “buzzer banger king” being a favorite target.

Again, because this point is far too important: Suddenly short selling Hedge Funds need to be saved because retailers have found a way to take money out of their pockets, rather than the other way around. Jim Cramer, in his first book “Confessions of a Street Addict” (May 2002 Simon & Schuster™) and other places confessed to using illegal dirty trick tactics to help his short positions in his early Wall Street days.

Here’s how he described such things in a later interview…

“A lot of times when I was short at my hedge fund … meaning I needed (a stock) down, I would create a level of activity beforehand that could drive the futures,” said Cramer. “It’s a fun game and it’s a lucrative game.”

“Jim Cramer draws fire over manipulation comments” Rueters™ March 20, 2007

Ah yes, good times indeed, no?

Well, no, that is, when the “home-gamers” suddenly find out how to game the gamers. That can’t be allowed. And currently – that is precisely what is happening.

Below are two examples of what was allowed, and what is not. Spot the difference if you can. To wit:

(Chart Source)
(Chart Source)

But not too worry we’re assured, because one of the foremost architects of all this (i.e., completely obliterating any and all true price discovery and the notion of anything resembling efficient markets) is now “on the job.”

Janet Yellen.

Good times, good times indeed, yes?

Another point that should not be lost on anyone is the other curious conundrum which is this:

It was these same hedge funds (relative term) that paid exorbitant amounts of money for “privileged information” (i.e., front run order flow) from platforms such as Robinhood and others, to game the system as to profit astronomically by their front running trades. And it is now these same funds screaming holy murder to shut these same traders down.

You just can’t make this stuff up folks.

© 2021 Mark St.Cyr

Note: This is not trading or investing advice of any sort. This commentary is for “big picture” discussion purposes only. Please read, or re-read the “About This Site” page for any questions or clarifications.