The GameStop/Robinhood saga is the first sequence of events that will start the entire unraveling of the financial system. This is my prediction for how it plays out:
Put yourself in Robinhood’s cofounder Vlad Tenev’s shoes, the second most hated man in America today. By restricting trading on $GME, $AMC, and a handful of other stocks, you have destroyed the past 7 years of your sweat, blood and tears and torpedoed your IPO. Your reputation is now in tatters. You’re no dummy, nothing could make you decide to restrict your subscribers in purchasing these stocks- unless you can’t fill these orders because logistically, you weren’t able to procure these shares.
I believe that the best explanation of this is by Silent Cal @KarlcTrebor https://twitter.com/kralctrebor/status/1354952686165225478?s=21 The TL;DR of it is that it comes down to a liquidity problem. They basically need to post collateral for every buy order that isn’t balanced out with a sell order. They only have 10.5 billion in their clearing fund. So when everybody is buying $GME and not selling, well, they run through that pretty quick. Which explains why they had to draw on additional lines of credit this morning. And even with that, they had to limit the purchase of these shares.
Regardless, whatever the reason, the above is irrelevant, because the narrative is already set. It took already disillusioned public on the wrong end of a K-shaped recovery and gave them yet another villain, along with Melvin Capital, Citadel and Wall Street. People hate being told what they can or cannot do, and this only increases the buy pressure for $GME. The number of members on Wallstreetbets went parabolic, and the messaging have gotten really focused. The message is this: Buy and hold $GME until the shorts give up their shorts. They have the entire country on their side. Everybody wants a piece of the action. Basically, everyone has figured out that all they have to do is hold. What CNBC and the financial media is missing is that it is no longer about profits and financial solvency for the majority of the holders. It has become a matter of principle now. This fractured country have been looking for something that they can unite against for once. People want justice. They want to see people go to jail. They don’t care if their shares go to $0. They want to see hedge funds go bankrupt. Trust me when I say that the price will hold until something changes.
Now, the shorts have not unwound their position. I don’t believe for a second that Melvin Capital has covered their shorts. Doing so would mean that they are bankrupt and they would have to liquidate all of their long positions. It is obvious that they are doing every trick in the book to manipulate the market to try to drive the price down but for the reasons already discussed, has not and will not work. We know this because the short interest is still at 121%. They can’t cover their shorts because doing so at these prices mean that even if they liquidate all of their other holdings and blow up, it wouldn’t be sufficient to cover. If they liquidate their similarly leveraged long positions, it likely would trigger a sell-off leading to a cascade of liquidations spreading to other larger hedge funds since they are all essentially copy-pastas and run the same playbook. It will quickly cascade to the level of large investment banks like Goldman Sachs like a series of dominos and then we run into a huge liquidity crises like what happened in March of 2020, except bigger since EVERYBODY are leveraged even higher now than they were in March. The market will crash 90%+ as everybody liquidates everything. This will set off the “dollar-wrecking ball” and the “dollar milkshake theory” that Jeff Snider and Brent Johnson have been talking about. It will be a financial Armageddon for the entire world. Pension funds, endowments, 401k, 90% of people’s retirements are going to go poof.This is what will happen if the “unlimited infinite squeeze” is allowed to happen and if people were allowed to buy as much $GME as their hearts desire. This is Scenario #1.
You see, if your are Melvin Capital, you can’t cover because you can’t go bankrupt. Because if you do, then you are the last Jenga brick that brings down the entire tower. Luckily for you, your “parent” hedge fund Citadel has Ben Bernanke as a senior advisor, which means that there is a direct line of communication between you and the highest levels of government, namely Jerome Powell and Janet Yellen. The conversation basically goes like this: “Hey, you need to do something because otherwise, we are going to blow up the entire financial system. You have the weekend to come up with a plan.”
So what will they do? To me, they only have one option. Scenario #2. Obviously, they won’t allow the infinite squeeze to happen, as it will cause the financial Armageddon that is Scenario #1. Therefore, they will have to stop trading on $GME and maybe $AMC and a handful of others on Monday- and this will likely come directly from the SEC. They can’t directly bail out Melvin Capital because it will be political suicide for the democrats. They will likely make Robinhood and Melvin Capital the scapegoats out of convenience. They will “punish” these two entities in an attempt to satisfy the public’s bloodlust by dragging Vlad Tenev and a handful of others in front of a congressional hearing and liquidate Melvin Capital. They will introduce new rules to restrict short selling and also ban options trading to retail investors citing “systemic risk”. They will “buy out” the retail investors who own these shares at likely Friday’s closing price of $325 to “protect the retail investor”. The Fed will print the money to do it. They will THINK that this will placate the public’s anger. But more importantly, they will prevent an imminent financial meltdown.
The American public’s anger will not be placated by the above move. There is so much latent anger built up from the Great Financial Crisis in 2008 that this will only add fuel to the flame. Except the anger will be directed at the establishment. The 40%+ that voted for Trump is already mad at the establishment. This will unite the rest of the country under the same cause. The facts that Ben Bernanke is a senior advisor at Citadel and that Janet Yellen is paid $800,000 in speaking fees from Citadel and Nancy Pelosi bought Tesla call options before Biden announced his new EV initiatives will be amplified. Burn it. The Fuck. Down. And inspired by Wallstreetbets the public have awakened to the realization that they actually have a weapon. Their savings. Ironically, they will weaponize the very stimulus checks that the governments are handing out. The psychology will be “If we can’t get rich, we’ll make sure you can’t either.” They will organize better (remember Wallstreetbets is now a 6 million strong army) and either try to continue to try to blow up short sellers or get more creative, or just simply withdraw all their savings from the stock market and engineer a sell off. THIS is the civil war. It is not right vs left. It is the renegades vs the establishment. And it’s champions will be the likes of Dave Portnoy, Chamath Palihapitya and DeepFuckingValue.
To prop up the market and prevent the entire financial system from melting down, the Fed will have no choice but to do QE infinity and continue to prop up asset prices and now with Janet Yellen in the Treasury, the debt will be directly monetized in the form of direct payments. This will finally cause the inflation, even hyperinflation that Lacy Hunt has warned about if the Fed were to directly monetize the treasury’s debt. Once inflation starts, like a horse out of a barn, it will be nearly impossible to rein it in without turning into Scenario #1. It will spiral out of control and cause incredible amount of pain to EVERYONE, globally, as every Central Bank will have to do the same if the US Fed monetizes the national debt. Once this happens, people will end up owning bitcoin not out of any moral justification or idealism that maximalists espouse, but because it will be the only thing that people will accept for payment for goods and services as the USD is destroyed as a store of value. This is Scenario #2. It will make Scenario #1 look like the Garden of Eden.
I hope I am wrong. But these are the only two possible scenarios I see. I am personally rooting for Scenario #1. At least we can come back from a Greater Depression. Scenario #2 will be a lot more painful for everyone involved. I rather people come to Bitcoin out of choice rather out of desperation. Either way, we’ll know Monday. Good luck Wallstreetbets. I am rooting for your infinite squeeze. Godspeed.
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