(Cover Photo Source: JESHOOTS)
• The chart above shows GameStop Corp’s parabolic rise YTD, catapulting the stock from being considered a small cap company ($2 billion), to mid-cap ($5 billion) and finally large cap ($10 billion). All this in the space of a fortnight.
• GameStop has been joined by AMC, BlackBerry, Bed Bath & Beyond and Express in the latest episode of the Tail Wagging the Dog on Wall Street, one of the unintended consequences of the extraordinary monetary and fiscal bazookas deployed by global governments.
• An army of retail investors engaged in the synchronised call option buying of the most heavily shorted hedge fund candidates have manufactured an epic short squeeze across these counters, with hedge funds forced to cover increasingly painful short bets by buying the stocks back.
• To our senior investment practitioners at TEAM, these latest developments trigger an uneasy sense of déjà vu.
• Rather than alter the path of interest rates to cool ‘irrational exuberance’, we expect a firm response in the regulatory oversight of financial markets. Examples might include raising margin costs or limiting access to products and/or assets.
• In addition to IPO and SPAC issuance, an explosion in margin debt across exchanges, the performance of unprofitable and most shorted stocks relative to the broader index and record high call vs put volume, many risk indicators that we follow have surged higher in recent weeks.
• Elsewhere, virus mutations continue to manifest across the world, creating a stop-start dynamic for global growth just as markets were pricing in a smooth exit path from Covid, and despite strong rhetoric on the speed of the vaccine rollout from global governments.
• Air pockets across markets during this first quarter, particularly within higher beta areas, would not be a surprise.
• A seismic shift to TEAM’s asset allocation strategy is firmly underway. Stay tuned.