Archegos Implosion is a Sign of Massive Stock Market Leverage that Stays Hidden until it Blows Up and Hits the Banks

Banks, as prime brokers and counterparties to the hedge fund, are eating multi-billion-dollar losses as they try to get out of these secretive stock derivative positions.

By Wolf Richter for WOLF STREET:

The implosion of an undisclosed hedge fund, now widely reported to be Archegos Capital Management, is hitting the stocks of banks that served as prime brokers to the fund. The highly leveraged derivative positions, based on stocks, had blown up spectacularly. Banks get into these risky leveraged deals because they generate enormous amounts of profit – until they blow up and banks get hit as counterparties.

Credit Suisse [CS] is down 13% at the moment in US trading after it warned this morning that “a significant US-based hedge fund defaulted on margin calls made last week by Credit Suisse and certain other banks,” and that it and “a number of other banks are in the process of exiting these positions,” and that the loss resulting from this exit “could be highly significant and material to our first quarter results.” The bank deemed it “premature to quantify” the loss.

Nomura Holdings [NMR] is down 14% at the moment in US trading after it warned this morning that “an event occurred that could subject one of its US subsidiaries to a significant loss arising from transactions with a US client.” It estimated the loss from this one client at “approximately $2 billion, based on market prices as of March 26.”

As Credit Suisse pointed out, “a number of other banks” are also involved as counterparties to that one unnamed hedge fund, and have been trying to get out of these positions since last week.

Deutsche Bank got out of its positions unscathed, according to a spokesman, cited by the Wall Street Journal, perhaps because it was properly hedged: “We are managing down the immaterial remaining client positions, on which we do not expect to incur any loss,” he said.

Last week, Archegos – which manages the wealth of former Tiger Asia manager Bill Hwang and his family – received margin calls from these banks that forced it to liquidate its positions. Last week alone, not counting the liquidations today, sales approached $30 billion, according to sources of the Wall Street Journal.

In a margin call, the broker as lender demands that the client put up more collateral if the price of a leveraged position has dropped sharply. If the client fails to do that, the lender will sell the securities to recover the amount owed. But in this case, the sale of the collateral wasn’t nearly enough to cover what is owed, and the banks eat the losses.

Heavily involved in these liquidations were the American Depositary Receipts (ADRs) of Chinese companies, such as Baidu, GSX Techedu, Tencent Music, and shares of US media companies such as Discovery and ViacomCBS. And their shares, after skyrocketing since last March, collapsed.

ViacomCBS [VIAC] has collapsed by 54% in five trading days, including today. But after the ludicrous surge – quadrupling between early August and March 22, and multiplying by 10 since the March 2020 low, amid general market mania – shares are now back where they’d been only two months ago…

The forced liquidations became apparent last week with the sale of huge blocks of shares, including shares of Discovery and ViacomCBS, by Goldman Sachs, Deutsche Bank, Morgan Stanley and other banks, amid swirling rumors that a hedge fund had collapsed.

The positions “may have topped $50 billion,” but those weren’t actual stocks, but derivatives based on stocks, called Contracts for Difference (CFD), and Archegos may have never owned any of the underlying stocks, according to Bloomberg this morning, citing people familiar with the matter. The size of the fund remains unclear, but before all this transpired, it was estimated to have grown to $5 billion to $10 billion, by riding these leveraged trades to the top.

It is also unclear what remains of the fund at this point, but one thing we already know: Some of the losses were eaten by the banks.

A CFD is a contract between the trader, such as Archegos, and the broker such as Credit Suisse, Nomura, Goldman Sachs, etc. It’s a type of equity swap. Leverage can be huge, and trading is opaque and does not involve an exchange, but takes place between the trader and the broker or a market maker or between parties. In the US, CFDs are illegal for retail traders, but not for hedge funds.

The fact that Archegos’ positions were derivatives, rather than actual stocks, allowed it to build large stakes – some of them giving it exposure to over 10% to these companies’ shares – without having to disclose those stakes to regulators, which it would have had to do with regular stock positions of that magnitude. This allowed Archegos’ exposure to those shares to remain anonymous until the trades blew up.

The secretive nature of these trades had the effect that the prime brokers to the fund, such as Credit Suisse, didn’t know about the large-scale involvement of other prime brokers, such as Nomura, Deutsche Bank, and Goldman Sachs. And when they figured it out, it was too late. And last week, when the forced selling started, each prime broker wasn’t alone in unwinding the positions but was doing so against the other prime brokers trying to do the same thing.

This blowup is one more sign of just how much leverage has been built up during this market mania, and how exposed investment banks are to this leverage. How many more hedge funds need to blow up before the banks, in their role as prime brokers to these hedge funds, are beginning to sing the blues, while trying to get out of a myriad of positions?

That the stock market leverage is huge – after a year of central-bank money printing that blew away all prior records – became clear with the only timely measure of stock market leverage that we have, margin debt. It only covers a small part of the overall stock market leverage, but it is reported monthly, unlike the other forms of stock market leverage that are not reported at all, or are reported piecemeal by brokers in their annual reports, or are only reported when they blow up.

And Margin debt, ladies and gentlemen, jumped in a historic manner, by 50% from a year ago, the most ever, to the most ever. Read… Stock Market Leverage Spikes in Historic Manner: Another WTF Chart of a Zoo that Has Gone Nuts

Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

Drone footage of roofs with aluminum and steel shingles. Take in the details of each installation from a bird’s eye view.

These roofs are from our brands: Classic Metal Roofing, Kassel & Irons, and Green American Home. For more information, give us a call!

  202 comments for “Archegos Implosion is a Sign of Massive Stock Market Leverage that Stays Hidden until it Blows Up and Hits the Banks

  1. Wendy says:

    That’s strange. My brokerage margin rules force me to take a loss so they are protected, but if you are a billionaire the broker gets to share in the fun.

    • RightNYer says:

      Take a loss in what sense though? Send you a nasty letter demanding you pay? What if you can’t?

      Archegos is insolvent at this point. The banks can’t get blood from a stone.

      • Wendy says:

        They require my balance be enough to cover any loss on margined shares, and I can’t do enough margin buying to get (them) in trouble. No need for a nasty letter, they will be covered. Apparently margin rules for the little fish are different than the whales.

        What I also find amazing is that via derivatives or other leverage techniques, a person could control over 10% of a companies shares, and not be required to file a 13-F with the SEC. This is truly frightening and could easily destabilize (crash) markets. Just when you thought there couldn’t be another Long Term Capital Management, leave it to the investment banks to bend the rules to set up the next meltdown.

        • cas127 says:

          “a person could control over 10% of a companies shares, and not be required to file a 13-F with the SEC.”

          Not 100% sure but I think the reason is that the hedge funds don’t actually get voting control over actual shares…in essence, they are simply contracting with the banks (who in theory should be laying off some/most/all of the financial risk on third parties) to get/give money depending upon the price movements of the underlying shares.

          And the “middle man” banks allow the hedge funds high leverage (small upfront money can control larger amounts, but at the cost of faster margin calls on smaller adverse price movements).

          So why would banks be exposed…because 1) they never actually found a counterparty to offset some/all of the hedge funds’ position or 2) the hedge fund failed its margin call…leaving the banks as intermediaries/de facto clearinghouses to make good on shortfall to third party counterweight on trade.

          So why did Viacom (the “underlying” whose actual shares were not being traded – but whose share prices formed the basis of the hedge fund-bank contract) fall?

          Likely because one or more of the parties involved (hedge fund – contracting bank – third party risk layoff) were long Viacom in order to partially hedge the trade…but when the share price went against expectations, the Viacom shares had to be liquidated very, very, very quickly (thus the price drop).

          If I am correct, this is less a story about actual share control and more a story about the big banks still operating as de facto custom derivative clearinghouses (or incomplete clearinghouses) rather than simply deposit takers/loan makers.

          (I had thought post 2008 reforms had limited such activity and/or greatly increased their disclosure obligations in this area…but those regulations may have been aborted/derailed by the banks in the following 10 years).

          I also thought these big banks’ custom derivative operations had been ringfenced off from more normal bank operations (so the main bank could not be endangered by a failed subsidiary dealing in derivatives).

        • char says:

          Large positions are not only important because of voting right but also because large positions can’t be liquidated easy. They create a small float. Something important to know with ETF’s , selling options etc.

          Those CODs are hegded. Some are naked but most are hedged by the stocks. So if you take a position of 10% in a firm who’s floate isn’t that large (like those chinese internet companies or probably Viacom) add ETF’s than the float will defacto become very small because the hedging activity because of your COD’s will lock up most of the open market stock. This also explains the explosion in the value of the stock

        • Nacho Libre says:

          Regulations most of the times are backwards looking. Not really safeguarding against future failures. There is no section on CFDs in the thousands of pages of Dodd-Frank.

          There is however one type of regulation that always does the trick – it’s called “skin in the game”. As long as the banks are eating these losses and unable to pass it on to taxpayers, they will become smarter.

          Looking at how swiftly GS and MS got out of the mess indicates this loss won’t be passed onto taxpayers. Phew. Pass the popcorn please.

    • K says:

      The secretive nature of these CFD contracts means that hedge funds can enter into many of them and the banks do not know. Thus, after whatever remains is taken by other banks, some banks may get squat.

      I know that banks are already in deep guano, which is clear since the “Federal” Reserve cartel that they own would not have ventured out of its concealment through lies, pretending to be a government agency, to GIFT them $2 TRILLION dollars for their uncollectible mortgage backed securities recently otherwise. How many more hits can they take, since they are probably legally insolvent and their “Federal” Reserve may not be able to funnel unlimited trillions to them?

      Their own derivatives’ bets are apparently GINORMOUS and the numbers reported are almost unbelievable: it is unbelievable that any legitimate, financial institution could be so reckless and corrupt as to make such GINORMOUS gambling bets. When will the Lehman Brothers moment arrive?

      I personally am switching all that I own to conservative positions in companies likely to undergo only limited stock price collapses. The predicted stock market collapse may occur this year when the next hedge fund takes a dive.

      Read about some billionaires’ recent changes in their investments. The banksters’ derivatives and other gambles are reportedly way TOO GINORMOUS for the US government to again bail them out by itself.

      • mike says:

        This is why the “wizard of Omaha” referred to derivatives as weapons of financial destruction. He is correct and they should be banned before it destroys all of us. Glass-Stegall needs to be the law of the land once again and banks need to be prohibited from all stock market transactions including manipulating gold and silver prices.
        (do you hear that JP Morgan?)

        • Jack says:

          That is too late mike !

          Too late by 12-15 years, playing catch up will not help to restore the economy to any semblance of real economy.

          This is a known fact by all the Central banks, governments where these banks operate in their jurisdictions and to wider observers community ( that includes the folks in WS, who contributed and continue to contribute to this site).

          The FED proposed to re-write the rules after the 2007-8 FC , the new rules are messing with Central principles of both ( good economics and simple mathematics!).

          We now are hostages to these policies as much as they are hostages to their incompetence.

          The underlying problem of massive liquidity sloshing around looking for a harbor to anchor is YET to play out.

          Once we ran out of SPACS, IPO’s, and a real estate inflated bubble to accommodate our Trillions of brand new spanking Stimmies, we went looking for ( emerging markets) to shove more wood and light more fires everywhere else.

          China’s tech companies are a fair example at play now, although the likes of alibaba, ten cent and baidu are down by (30-40%)! They still constitute a huge overinflated value and an- unreasonable rise in normal enterpris value with NO underlying strong fundamentals, just like ( our beloved TESLA, UBER, and WE WORK)!

          the real problem that the FED have to contend with though haven’t come to a head yet, the elephant in the room so to speak that we merrily ignore until we get squashed by it, that will come sooner than we might expect, the yields are approaching the point of No return, the magic 2.5% , once we reach that , we’ll be looking at a rate rise of up to 3.7% or more!

          What are we going to do then?

          How is an extra 5 trillion dollars in stimulus and infrastructure funding going to play out from there?!

          There are NO answers!!

          Just like the FAKE VIRUS have wrecked havoc in the international trade, economies, and the lives of millions and millions of us, this will be even more crippling!

          What I am afraid of is, that it will lead to ( international conflicts) beyond the instigator’s control.

          It will be ( GOD FORBID) a mess.

        • K says:

          Amen. You are so very right. I curse President Clinton and all of those involved when he reportedly repealed the Glass Steagal Act.

        • K says:

          Dear Jack,

          The so-called “reforms” after the 2008 collapse were poison pills. E.g., the provisions that allow banks to go after depositors funds over the FDIC insured amounts.

          Can you imagine the outcry if they actually did that? Similarly, believe it or not, if one major, bankster bank goes under, all of the banks, credit unions, etc., some of whom may be legitimate, will have to use all of their assets to bail them out.

          Thus, since the banks are engaged in GINORMOUS derivatives gambling, the rules put all other, relatively innocent banks and credit unions at risk. I no longer trust that most funds are protected. However, the banksters’ “Fed” will just print trillions to bail out the banks if a massive failure occurs.

          What will happen then given the GINORMOUS derivatives bets? Such printing of hundreds of TRILLIONS or more would assuredly result in massive hyperinflation. Thus, say hello to Zimbabwe type hyperinflation if these derivatives bets go wrong.

        • K says:

          One more thing, US companies often have Enron-style financial tricks and are fraudulent. God knows that huge numbers are overleveraged and are unlikely to survive the coming rate hikes when they must roll over their huge debts in a bad economy.

          However, they cannot compare to the truly shameless, Ponzi schemes: mainland Chinese, CCP-controlled companies. If US organized crime established its own companies and forbade anyone from ever looking at their finances or whether they were truly profitable, those companies would still be more trustworthy than mainland Chinese companies.

          I would much rather invest in tulips than in mainland Chinese companies, which are defrauding Americans to fund the CCP’s PLA and gleefully are immune from prosecution or retaliation by CCP protection. The CCP operates like organized crime, which it truly is, so if a CCP member defrauds Americans, he is likely to get a higher social score not to get punished.

          I look forward to Wall Street’s Benedict Arnold-like tactics since they are now advancing into and investing in mainland China. If they annoy the CCP members, they may get killed and have their organs harvested and sold for the CCP’s profit.

          That would be a real shame. Let us hope that the banksters and Wall Streeters all move to mainland China.

        • Depth Charge says:

          The FED has created this entire mess with artificially low rates and cheap money sloshing around everywhere, desperately seeking yield. And every time something blows up they’re there with even more liquidity. It is asinine.

          The FED is like an arsonist disguised as a firefighter. Every time a fire breaks out they’re there to “extinguish” it, but their tanker truck is filled with more fuel, not suppressors. So they make the fire larger and larger and more destructive, and they stand back and say “we’ve got plenty more fuel!” These guys need to be fired, IMMEDIATELY.

        • nodecentrepublicansleft says:

          It’s almost like this country learned absolutely nothing from the Global Financial Meltdown of 2008.

          It’s too bad the govt that represents the citizens won’t protect it from these drunk gamblers that give not a shit if they wreck the entire economy in their quest for wealth and power.

          It’s greed and short-term thinking that’s leading to our demise.

    • shandy says:

      Central Banks are buying everything in sight.
      There is no way to stop this financial theft.
      Get use to it plebs, we are about to eat much more crow.

  2. Problem isn’t leverage it’s stocks that go down. No stock should ever go – down. Some may not go up as fast as others. Fact you are unwinding a winning position, no one ever went broke taking profits. Banks are involved, where is the SEC? Doug Nolands piece this week is about Turkey, and their debt which is deeply embedded in the EU and by extension Am banking system, and since the NYSE is never the problem, opened down 1/2% back to even, these cross border trades in EM currencies (Tiger Asia?) sounds like the problem. Margin calls are made after rogue asteroid hits earth.

    • sunny129 says:

      SEC is no different to Security industry, as FAA to Aviation industry!

      Foxes are picked from the same industries to manage the corresponding (hen houses) industries. The treasury Secy always from one of the BIG investment banks!
      The whole Federal regulatory apparatus is captive to the industries for DECADES! Just sickening!

      • EdYooper says:

        The public citizenry are seen are customers first and last and information about citizens is not our private business but instead is a marketable commodity.

        That’s how business and their captive “regulators” see us, most of the time.

        Sanders may be an angry old man but he is dead right about who has gained all the power.

        • nodecentrepublicansleft says:

          Of course, he’s frustrated.

          He sees what America could be if we could pull our heads out of our asses.

        • NoDec: Stigolitz said putting the wealth in a few hands makes it much easier to raise taxes. Hi, I am your Representative. I know you are barely above the poverty line but you have to understand why rich people should keep their money.

  3. 635 says:

    If you owe $10,000 to the bank, you have a problem. If you owe $10,000,000 the bank has a problem

    • MonkeyBusiness says:

      Depends on the amount of capital the bank has obviously. If the bank’s capital is 2 billion then 10 million might not be a problem. Also there’s all sorts of ways banks can protect themselves, like asking for collateral.

      • Monkey, if the collateral is heading down the toilet bowl, the banks are left holding a very empty bag. Capital ratios are a joke right now, the banks have been given every leeway to not meet certain requirements to keep the party going.

        • MonkeyBusiness says:

          Understood. I am just saying in theory banks can protect themselves. They just chose not to, because of both regulatory capture as well as competition.

        • mike says:

          Not the community banks whose required minimum capital ratio is 9%. The giant “supposedly too big to fail banks are exempt from 9% and their capital ratios offer no protection to the taxpayer when they go down playing with derivatives. Check out the capital ratios of the giant banks and you will be shocked.

        • Jdog says:

          The question that begs to be answered is what is the true value of collateral?
          With asset values insanely inflated, and banks lending on those assets at market value, when the asset values are “revalued” at much lower than what the banks assessed them at, the banks own a lot of thin air….

        • close JDOG, collateral value is intrinsic. The question what is the value of ‘the’ money relative to collateral, assuming quality of debt, etc. That value is always different. Musk’s collateral is different than Bezos. In the very near future price to book ratios will be all the rage. The quality of collateral (and the money behind the operation) varies from industry to industry. Alan Watts said “the Depression was a failure of people to agree that twelve inches equals one foot”. Is that not always the case? Hence the expression, “Your money is no good here..”

      • Avraam Jack Dectis says:

        .
        Might be interesting to know what kind of leverage,

        I noted in Wikipedia that Cyprus, where many CFD are sold, they LIMITED the leverage to two percent.

        .

  4. JC says:

    ” In the US, CFDs are illegal for retail traders, but not for hedge funds.”

    Another WTF moment.

    • Jacklynhunter says:

      GAAP doesn’t apply to hedge funds until 3 weeks after a trade. You can do any accounting you want and as long as your journal entries are reversed before the end of week three you are good according to the regulators.

      Cash accounts don’t work that way though so you can see why we have a problem.

    • fajensen says:

      CFD’s are available for “retail” in Europe, pioneered by Saxo Bank.

      Now, the “Retail CFD’s” must be different from those in the article, because the way they work are exactly like the Bucket Shop of the Olden Days. A “Retail CFD” is just an OTC-derivative that has a value fixed as the nominal value +/- the price of the underlying asset, times a leverage factor, times the odds as a fraction between parimutual bets on all prices offered. If the asset price moves in the wrong direction, the buyer of the CFD is stopped out at a fixed loss limit.

      This kind of CFD doesn’t involve “The Market” at all, “The Market” is just a generator of price movements for driving the game with.

      This is quite brilliant – for Saxo Bank: In the normal case, clients will exchange real money for binary tokens / or entries in a ledger, they then use those tokens to buy CFD’s with. If they lose, Saxo gets to keep the real money, if they Win, they will think they are very clever and carry on “investing” until Saxo has won all of their money. Because the game is zero-sum, the “only*” way for Saxo to “blow up” is to take one side of the bet to juice the odds because nobody is buying the other side of some CFD.

      And Yet, Saxo managed to do exactly that with the Swiss-Franc debacle, the court cases are still ongoing.

      O.O.W’s Banks are really thick!

      *) The other way is to blow the clients money on something else, like MF-Global did.

  5. fred flintstone says:

    Just the start. Anybody with any bank lending background knows in his/her gut right now that after a decade of low rates and a rapidly evolving real estate and business environment that banks are hiding billions and billions in rotten loans. Loans that might appear solvent but the collateral is depreciated significantly. Just waiting for a push to fall over.

    • Depth Charge says:

      They’re booking forbearance as “performing.” Welcome to Bullsh!t World.

    • Jon W says:

      But the govt can just bail. The key thing to watch this time is the politics – there are lots of workers who graduated into the GFC and saw how the bailouts worked out (asset owners got rich, they became rent/debt slaves). In my opinion, they are not going to support the same thing again. The bankers and politicians will say there is no other option, but the disillusioned will vote Trump/Bernie/etc, if that person is saying there is.

      THAT is how it comes crashing down. I’m convinced if it wasn’t for the growing cohort that is on the losing side of all these plays that they can basically keep it going forever. There is no market for this stuff now – that ended a decade ago. But there is still a democracy, and I can’t see this surviving that process. Those at the bottom are not going to vote to get shoved into the bottom of the Ponzi scheme so that a bunch of billionaires can tumble out of the top.

      • RightNYer says:

        Depth Charge said the other day in another article that he thinks the “elites” have overplayed their hand here. I agree with him, and I agree with you.

        I liken what the elites are doing to sticking your finger in a bird cage because you think it’s funny to watch their reaction. You keep doing it, and eventually you’ll get bitten.

        The elites have tried to steal as much of the nation’s wealth as possible, all while pushing and pushing against the middle class. Eventually, the little guy being pushed will be pushed too far, and he’ll explode.

        I think the end of this game is closer than anyone wishes to acknowledge.

        • Trailer Trash says:

          Dear Leaders promoted all the democracy and freedom happy talk but forgot that people might actually believe in those ideals. Even worse, they might want to fight for their beliefs.

          Fighting for one’s beliefs is a foreign concept to the elite who now only fight for a bigger piece of the pie. Dear leaders better hope no one remembers that stuff about watering the Tree of Liberty with… what was it again? Something about tyrants?

        • Thomas Roberts says:

          Alot of movements in America are reaching their endgame soon. Also looking at the average age of congressmen, a generational shift in congress, could also happen soon. Right now, no one can say when (maybe months, maybe in a decade) or what the outcome will be. Any new movements could potentially rise very fast and take effect. Something will happen though; I have no idea what.

      • bungee says:

        no way. they bail everyone out. EVERYONE. the people wont allow defaults anymore than the fed. but this time they’re wise and will demand cash money for themselves as well. but defaulting, crashing and then jailing bankers and such… never gonna happen. print the dollar to zero is the only political will. plan on it.

        • RightNYer says:

          Yeah, except as you said, they can’t bail everyone out without destroying the currency. The bailouts for the “elites” don’t appear to crash the system, because they are just a stealth transfer of wealth from the middle class to the elites. But a bailout requires a transfer from someone else. If you bail out EVERYONE, who will be the source of the “transfer?”

        • Trailer Trash says:

          RightNYer wrote: “If you bail out EVERYONE, who will be the source of the “transfer?”

          Importers to the US are the source for as long as they are willing to be paid in rapidly devaluing dollars. When they stop accepting dollars, it’s game over.

          Uncle Sam is speeding up the process by imposing sanctions, embargoes, and economic warfare on everyone.

      • Turtle says:

        I don’t know. As long as Joe and his pals in Congress keep sending the average voter a thousand dollars every few months, they’ll be in a good place for re-election. Look at all the stuff people are buying!

        • nodecentrepublicansleft says:

          I don’t think Biden wanted to inherit a global pandemic, tens of millions unemployed and all the other headaches.

          Remember the shit-show Obama inherited? Same deal. Nobody wants the garbage cards in their “hand”, but you gotta play with what you were dealt.

          So Joe and his people see an economy teetering on collapse due to a variety of reasons. They have to take some sort of action.

          Did you complain when W started a war AND cut taxes on the rich?

          Did you complain as we flushed $1B/week into Iraq for 2 decades?

          Did you complain when Trump gave the corporations and wealthy massive tax breaks they didn’t need? (And a few pennies for the slobs at the bottom but their tax breaks, small as they were, were temporary.)

          So Biden is in a no-win situation. If he tries to do anything resembling trickle up, a whole bunch of snowflakes cry about $ going to regular people.

          It’s fascinating how trillions every year in corporate welfare gets no complaints, but a few thousand bucks to regular people elicits such ridiculous complaints.

          You might want to check out what other, more civilized nations are doing for their citizens in this pandemic. It makes the few bucks the US gives their people look like chump change.

      • Depth Charge says:

        “Also looking at the average age of congressmen, a generational shift in congress, could also happen soon.”

        Right. Congress is full of a bunch of 80 year olds who have been in power for almost 5 decades and presided over the entire fleecing of the country, going back to when it began. And this is on both sides of the aisle. These people should be in prison for their crimes.

    • char says:

      It is not the low rates, though it doesn’t help.
      The World is going through a lot of change in how the World operates. A mall is worthless is nobody shops B&M. A coal-mine is worthless if the power is generated by wind. An office is worthless if most WFH. Oil well is worthless if cars are battery powered. A cow farm is worthless if people drink fake milk and and eat fake meat hamburgers. Etcetera, etcetera.

      We live in a time of an incredible amount of change and unlike previous times when change was mostly added industry and the population was growing are we now in a time that a lot of industry will disappear and a population will not increase

      • MiTurn says:

        “population will not increase”

        Char, I can’t help but wonder how the excess population of Africa will somehow end up in the declining areas of population in Europe. The pressure in Africa is building to move north.

        • char says:

          A lot will go to Europe but to get the population growth rates we had in the past the numbers need to be enormous. That i don’t see happening. You also have to remember that the population growth because people are getting older is going to stop/

        • 728huey says:

          At any rate, there were huge predictions of overpopulation back in the 1970’s and early 1980’s because population growth appeared to be exploding. In reality health care improved to the point where older started living longer, and the average life span increased from 68 to 75 years for men and from 72 to 80 years for women. Also, the birth rate in developed countries began declining and precipitously so in Europe and Japan. It began in China thanks to rising industrialization and their one child birth policy imposed back in the 1980’s. This also doesn’t take into account birth control which drove birth rates down even further plus the number of women joining the workforce which resulted in later marriage and family formation. The only reason the birth rate in the USA remained relatively flat compared to the declines in Europe and Japan was immigration. But birth rates are even beginning to decline here, which is going to be a big issue with regard to Social Security and Medicare since current benefits are being paid by current workers.

    • Mira says:

      Sweeping the undesirable under the carpet, will it ever catch up with them or is it that no one cares as long as the game continues.
      “We’ll just ignore the dirt under the carpet & continue .. put this on red please while I go get another drink.”

  6. Timothy J McLean says:

    The fact that Bill Hwang, who was convicted of insider trading about 10 years ago is allowed to get so over levered shows me that the sales people at GS and CS are ruling the roost over the compliance departments.

    • Wolf Richter says:

      The other way around. In terms of Wall Street, an insider trading conviction is a badge of honor and an official sign that you understand how it works.

      • Michael Gorback says:

        LOL!

        Maybe they should get tattoos of dollar bill tears under their eyes like real gangstas.

        The more ink you have on your face the higher your status. Gives a whole new meaning to The Blue Man Group, and cheaper than a Ferrari.

      • VoltaMom says:

        Unless you are Martha Stewart

        • RightNYer says:

          In her defense, Martha Stewart was not convicted of insider trading. She was convicted of an oft-abused statute called “making false statements,” which basically means that unscrupulous prosecutors can conduct endless rounds of questioning and “investigations” hoping you trip up somewhere about some unimportant fact, even if accidentally.

        • Harrold says:

          Martha was convicted of four counts of obstructing justice.

          Martha was found to have tried to hamper the SEC investigation of her stock sale by providing misleading information and attempting to tamper with a phone message from her broker Peter Bacanovic.

        • nick kelly says:

          MS was convicted of obstruction of justice. There was no ‘trip up’ needed. She instructed the broker to write a retroactive order to ‘sell if it hits X’. Phone records showed the call from the CEO friend just before her ‘sell’ order. Lab analysis dated the ink to a very recent date: i.e., just after the phone call tipping her off. There was never a need to for her to go to jail if she’d just admitted the tip. Pay back the profit and pay a fine.
          She was the one who turned the equivalent of a traffic ticket (for her) into a jail term.

          A criminal lawyer gave some good advice on this matter: when under criminal investigation, before you get your divorce lawyer or your securities lawyer, or a lawyer who handles personal injuries, to file a line of s@@t with the court, talk to a lawyer who specializes in this area.

        • nick kelly says:

          Trivia: I personally know a man, an idiot., who BS’ d his way into a perjury conviction, when he had zero connection to the crime. He was flattered by the cop attention to him as possible witness, and started saying stuff they wanted to hear. Perjury in Canada is a pretty much auto 2 years.

          For a really juicy read on perjury, enter ‘Why did Lord Archer go to prison’ (4 years for a member of UK House of Lords and best selling author.)

    • cas127 says:

      In the real world, compliance departments are the ball gagged guy from Pulp Fiction. Or the vinyl suited dude made to live in the steamer trunk.

    • Mira says:

      Bill Hwang is a very generous man .. he gives & gives.
      GRACE & MERCY FOUNDATION .. Hwang’s family foundation.
      Doggonit if they aint something else.
      I am intrigued by charities .. do they actually perform as charities ??
      Australia .. Link Community Transport .. a nickel & dime operation I assume .. offer dirt cheap services to eligible persons .. only that they do not actually service any community .. it is all a big pretend.
      Therefore I assume it is a money laundering – tax evasion shindig.
      What else ..
      We rely on charities to pick up the weary who have fallen on hard times .. if they do not do this then the government needs to acknowledge this & take up the sword itself .. otherwise poverty will never be eradicated.
      Are we pretending that there is a good Samaritan system in place .. looks like it.

      • Mira says:

        What’s more government monies pour into there rackets & are never seen again ..

        • Mira says:

          The Salvation Army sell second hand clothes on line ..
          Forty bucks for a top .. $40 .. give me a break .. it’s used man & I am on the dole & so they shop at Kmart.

        • VintageVNvet says:

          Gotta go to the SA stores M, at least where I am in the saintly part of the tpa bay area.
          I have not bought a new shirt in many years, since learning about the bargains at SA and other thrifty places, and frequently get ”like new” excellent quality biz and leisure ”tops” ( $60-100 ones ) sometimes with the tags still on for under $5.

      • IdahoPotato says:

        His charity has $500 million in assets. In its tax filings, the charity lists zero “direct charitable activities” and “program-related investments”.

        His charity does show purchases of swap losses and offshore trusts from his fund, though.

  7. TimTim says:

    Is Tweetypie Hwang the Canary in the financial mine?

  8. 2banana says:

    FYI.

    On March 22, 2021, ViacomCBS announced plans to sell $3 billion worth of new stock.

    ViacomCBS is already in debt up to its eyeballs.

  9. timbers says:

    Those darn vaccines again like gremlins causing all these financial bubbles. If only we could get inflation up over 2% so we could start doing some real job creation.

  10. gorbachev says:

    After the 2008 debacle, how could the fed or whoever
    is in charge let this and other opacities continue.

  11. timbers says:

    The same Fed that recently approved Buy! Buy! Buy! backs for banks.

  12. Depth Charge says:

    The stock market is up on this great news.

  13. MCH says:

    And meanwhile, the housing market is partying like 1999. Now with active media cheerleading, just saw an article about a house in suburbs of DC with 88 offers, mostly all cash.

    Thank you media, let’s just keep pumping the insanity bubble up more. Buy NFTs now, while they are cheap, buy Cryptos now, while they are cheap, ditto, real estate, ditto stocks…. cause the arrow only goes from lower left to upper right…. ever.

    Hey I have some digitized dog shit I like to put on the NFT market, anyone interested? It’s absolutely rare and one of a kind, there will never be the exact same pile of dog shit like this pile again… ever.

    • MarkinSF says:

      Yep. One in the SF Chronicle about a house in suburban Sacramento fielding 122 offers! Sold in 3 hours.

      • Petunia says:

        And you think this normal? Somebody needs this house to price at the selling price.

        • MarkinSF says:

          No. I don’t think this is normal. I think it’s insane. The other odd thing is the seller settled on a buyer for $450k (listed @ $399k) but there was at least one other offer at over $500k. I can only guess that the accepted offer waived contingencies and will have to put some money into it.

      • Anthony A. says:

        Obviously the house was priced too low! (we are still at $125/sq.ft. here on the north side of Houston).

        Please send more California people with CASH!

        • Michael Gorback says:

          Don’t listen to Anthony! Keep your California out of my Texas.

        • Anthony A. says:

          Michael, don’t worry, they are all going to Austin. Right after one hot summer roasting there, they will all go back to California.

        • MiTurn says:

          “Right after one hot summer roasting there, they will all go back to California.

          Anthony A, same affect here in northern Rockies snow country. After two or more winters, the newbies can’t take it anymore and move out. Realtors call this the ‘winter kill’ and then sell the house for them that they prior sold to them. Rinse, repeat….

    • RightNYer says:

      I’d say a cash offer is less indicative of a bubble than highly leveraged, speculative offers.

      Still bad, but could be worse.

      • Jon W says:

        Most of them have probably just cashed up what they know will be worthless bubble assets into semi-worthless fiat. They are now trying to get rid of the fiat.

        • RightNYer says:

          That could be. But, much of the “wealth effect” doesn’t come from people actually liquidating their stocks to buy other things. Because of course, if any significant number of people “cashed out,” the values would plummet. What people often do is spend their OTHER money (cash savings, job income, etc.) because they feel emboldened by their stock portfolio “cushion.”

          That’s why I always say that the wealth effect is ephemeral. It’s not actually creating wealth, all it’s doing is pulling consumption/growth forward. Once the bubble pops, people reduce their consumption, as the stock “cushion” is gone.

        • MCH says:

          Just let them put into the real fiat like crypto or better yet sure to grow in the future ideas like NFT.

          Speaking of which the steaming pile of dog shit I plan to digitize and slap onto block chain is still available and with a low starting bid of $50 M (cause that dog shit is definitely worth 25x more Dorsey’s first tweet), own a piece of rare and unique work today.
          🐶💩

        • doug says:

          MCH – could you fractionalize that? I would buy .00000000001 of it…

        • MCH says:

          Sorry Doug, NFT can’t be fractionalized like a Satoshi, but you can find like minded individuals who are willing to spend on such a once in a life time opportunity. I’m happy to sell to institutional investors. Just get 1B of them and each of you can pay $0.05. It’s easy, there are at least 1B suc… I mean people who make at least $5 a year, so, it’s only 1% of the annual income with a chance for exponential growth.

          Just imagine, if the NFT market goes 10x, all of a sudden, it’s real meaningful money to those earning $5 a year. Think it can’t happen, take a gander at bitcoin.

    • TimTim says:

      One could argue a number of ways that the only things cheap right now be silver and gold…

      • Depth Charge says:

        A 40% dealer premium on an ounce of silver is far from cheap. It’s laughable.

        • sunny129 says:

          Do option trading on Silver ETFs and make $ in both directions!
          Why buy when you can trade!? Same with gold!

        • Depth Charge says:

          “Do option trading on Silver ETFs and make $ in both directions!
          Why buy when you can trade!? Same with gold!”

          Because I’m not a gambler. So I am sitting this ridiculous situation out.

        • Lone Coyote says:

          Could it be that the “spot” price isn’t actually representative of the real price of silver?

          (Not like JPM got slapped recently for manipulating the metals market or anything.)

        • cb says:

          @ Sunny 129 “Do option trading on Silver ETFs and make $ in both directions!
          Why buy when you can trade!? Same with gold!”
          ________________________________________

          and how do you do that without gambling?

        • cb says:

          @ Sunny129
          ___________________

          show us an example

        • Depth Charge says:

          There is some truth to that Lone Coyote, but that’s not the whole story. Dealers jacked up their premiums because they don’t want to sell at the lower prices. Quite simply put, they’re gouging. It’s disingenuous, and I’ve stopped buying as a result.

        • Massbytes says:

          Reference your comment below…that is why I quit buying also. What a ripoff and they get you coming and going. Now I know why I see people offering to sell their gold/silver directly. Trouble is, I would be nervous about the safety of the transaction and whether it was real or not.

    • Heinz says:

      The Great Fed Swami Powell recently proclaimed that there has been a ‘very strong rebound’ in housing market, but he soothingly notes that: “So there’s a one-time shift in demand that we think will get satisfied – also that will call forth supply and we think those price increases are unlikely to be sustained.”

    • char says:

      ” Now with active media cheerleading,”

      When has the media not cheered house buying? It is one of their biggest clients

    • Brant Lee says:

      My cash is in the bank, where it’s safe, right? Hmmmm. Has to be better than holding stocks, crypto or gold, right? Hmmmm.

      I hope I’m not accountable if the bank is doing some illegal crud with my
      (free to them) cash.

    • Turtle says:

      Now you can buy plays from NBA games. I don’t know who Langston Galloway is but you can own one of his three pointers for only $2,500. Buy now or be priced out forever, my friend!

  14. This is just the tip of the Derivatives Iceberg, and the U.S. and global financial systems are the Titanic headed for certain disaster. It is estimated that the total outstanding financial derivatives in the world are in excess of $400 Trillion. If just 3% of these very opaque and highly leveraged instruments implode and lose just 50% of their values in a matter of days, that is $6 Trillion coming out of the hides of investment banks, hedge funds, and global investors. Not an insignificant sum. Capital ratios are very thin right now, thank you S.E.C. the Fed, and bank regulators (an oxymoron if there ever was one).

    That these instruments trade under the radar is not surprising. If the Average Joe Investor knew how much dynamite was laying on the railroad tracks, he or she would have taken the bus to Cash and Out long before this. But Average Joe is dancing to the tune of record margin debt, so he or she does not want grim reality to ruin the party. BUT REALITY IS STARTING TO COME HOME.

    This is just one Black Swan in a flock of Black Swans that have the potential to darken the Spring sky. The monumental shift in overall confidence in these trades is already underway; the exit door to the burning theater is about to get jammed with “NOTHING DONE” TRADES.

    • TimTim says:

      Be more like angry hippo moment than black swan moment if anything like that happens…

    • sunny129 says:

      Drevitatives trades are highly opaque and at the mercy of industry owned and decided by ISDA, just like CFD, visible few big players.

      B/c Trillions involved only very entities are privy to know unless a big ‘shark’ like LEH or GS, is in trouble! They will lie and cover over it as long as they can! Read the questionable actions of ISDA during GFC!

      Wonder why Germany-Deutcsh bank is still listed!?

      • char says:

        It obvious does not have any money left otherwise they would have lost a bundle in this.

        ps. Deutsche being smart/lucky with this seems unlikely to me

        • Char, I agree. Deutsche Bank is an insolvent financial institution with enough political connections in Germany to currently keep its doors open, even if grossly in violation of many German & EU banking standards. But it will not be here in 2 years time. Wallpapering a decayed edifice is only a very temporary “fix” until the next storm comes.

      • cb says:

        ISDA ?????
        _________________________

        posting with acronyms are like writing in pig-Latin

        • pbfurn says:

          You are quite correct but he is not the only one who does it frequently. It makes them feel smarter and covers their laziness.

    • Martok says:

      Good article Wolf and I’m curious what the underlying equity, and or “bet” that caused Archegos to fold?

      I speculate that other hedge funds made the same or similar “bets” and believe there has to more to come.

      This Just came out from Bloomberg:

      “What might be the largest margin call in history is causing consternation among those on Wall Street worried about hidden leverage and its potential to fry the financial system. The forced selling of more than $20 billion of apparently swap-linked shares at Bill Hwang’s Archegos Capital has triggered a hunt for other areas of excess—from margin debt to options and bloated balance sheets—after stocks at the center of the fiasco plunged and investment banks warned of losses. Hwang’s travails are portrayed as everything from a long-overdue market comeuppance to an isolated case of risk-taking run amok. The blowup is an example of “leverage gone wrong,” said Sameer Samana of Wells Fargo, and perhaps an ominous sign of things to come. Nevertheless, the rising fear through the weekend that Monday would end in calamity was answered with something closer to a whimper. The S&P 500 Index was barely registering the weekend’s tribulations, its 57% rally since March 2020 intact. —David E. Rovella”

  15. David Hall says:

    The CBS Viacom (VIAC) stock closing price is below its 1995 high. The sell off has been linked to derivatives and/or margin debt. CBS is one of the most popular TV networks.

    Lehman Brothers was involved in issuing CDS. These credit default swaps insured purchasers against mortgage defaults. The real estate market was hot for so long, people did not believe prices would ever go down. People defaulted on mortgages and gave the keys to their homes to the banks. The CDS derivatives written by Lehman Bros. failed. Lehman Bros. was bankrupt before the Federal government could prop up the financial sector.

    Citigroup is down more than 85% from its 2007 high as a result of its exposure to the real estate market recession.

    • sunny129 says:

      When the (derivatives) counter parties to other ‘counter’ parties’ liability and ins coverage DON”T match out, the trouble starts. like LEH in 2008!

      Before LEH, first Bear Sterns ghot into trouble! May be something else is going on, there!?

  16. Tony says:

    yes, but why doesn’t the media tell us what CFD security they held that was over-leveraged resulting in the liquidation of other securities. It’s like telling a story without a main character.

    • Wolf Richter says:

      Tony,

      Some of those underlying stocks are listed in the article, including one with a chart (Viacom).

      • Tony says:

        The margin call from the CFD triggered the liquidation of the other assets, e.g. VIAC, BIDU, etc. It was a forced liquidation after the fact. Something has to trigger a margin call in order for a broker to liquidate other positions in your portfolio.

        • Tony says:

          What I mean to say is Goldman caught wind of this guy using up all this leverage and then triggered the sell off….they had to have known…and then all the big banks margin called Hwang. What’s also funny is they literally did business with this clown back in the day and still let him have credit!

  17. Phoneix_Ikki says:

    Reading this article reminds me of a title of another article I was reading on a housing blog

    “The Moral Hazard Has Created The Belief You Can’t Lose”

    Certainly feels this way until stuff like this give you a little glimpse that the other direction can happen and gravity maybe do exist..

    • Petunia says:

      Maybe this is why houses are selling for insane prices, they are the underlying asset, in a CFD. If the house prices don’t go up, the margin calls can start. This would explain offers in the thousands over asking and the over a hundred offers on a house. Hedge funds can afford this if they are not paying the insurance premium on a CDS. Anything to keep the prices up. For sure real estate agents would collaborate.

      • timbers says:

        Don’t be silly, Petunia…those houses and their buyers obviously must have been vaccinated and that’s why their prices are going up. Powell practically said so.

      • sunny129 says:

        The collateral for the Global mkts the current value of which is 6 times the Global GDP are various ‘derivatives’ built on (borrowed debt+leverage) the ‘assumed’ value of the stocks/bonds. This illusion lasts as long as perception for THAT is supported by Fed & other CBers!

        The party will go on, NOT until the punch bowl taken away. Fed’s permanent PUT is here to continue that!

      • Depth Charge says:

        Since house prices are set on the margin, you only have to buy a single house for an inflated price to raise the value of the entire neighborhood. It doesn’t take many inflated sales to distort an entire marketplace.

        • RightNYer says:

          Depth, absolutely right. The housing market right now is like the market for Bitcoin. The people who hold the supply are not selling (in the case of housing, because of a combination of they still need places to live and why would they sell when prices are only going to go up?!, and in the case of Bitcoin, because so many of the early adopters are so blinded by greed that they will never sell and realize profits.

          So inventory for both is very thin.

          Of course, the stock market, and really any market, functions the same way. That’s why it annoys the hell out of me when people say “The S&P is worth $45 trillion” or whatever, implying that all of it can be sold for $45 trillion one day. Obviously, there isn’t enough cash in the world for that, so if volume picked up significantly, prices would plummet.

          I suspect that is what is going to happen with the housing market once foreclosures are allowed again.

        • cb says:

          @ RightNYer and Depth Charge
          __________________________________

          That is why it would seem important to know how many dollars are in existence, who owns them and where they are.

          Of course when you have a FED that can digitize dollars at will that information becomes less meaningful, if not meaningless, as the dollars become continuously worth less, if not worthless.

        • Heinz says:

          Remember the staid old days when housing was treated more like a consumption item (shelter) that generally appreciated at roughly the overall rate of inflation? Me too.

          Current housing market is a Frankenstein monster of a ‘market’ that is being used chiefly as a speculative investment and secondarily as shelter.

          It is behaving in line with so many other current bubble markets that we know so well, and that are fueled by all the loose ‘money’ sloshing around the economy.

          When housing et. al. falls down from its frothy air pocket the sound will be deafening. Poor suckers that got enticed in at the top nosebleed prices will be hurt the most.

      • Lynn says:

        whoa.. that’s a thought..

        What are CDS and CFD?

    • Michael Gorback says:

      Phoeneix, high reward = high risk. However, if you fail so spectacularly that you threaten the financial system the debt serfs will pick up the tab. I think Donald Trump explained that principle in the The Art of The Comeback.

      “Give me a place to stand and with a lever I will move the whole world.” – Archimedes

      Right up until it turns out that the guy who sold Archimedes the lever swapped in a cheap inferior lever instead of the one he ordered.

      Then the lever snaps, the whole world goes rolling off uncontrolled into chaos except for Archimedes, who is only taking a hit on the cost of his broken stick.

  18. Jacky says:

    Wolf,

    Thanks for explaining but two points didn’t make sense after reading the article:

    1) If the prime brokers are counterparties to Archegos, then shouldn’t Archegos’s collapse result in a massive fortune for the counterparties (like Credit Suisse and other banks)?

    2) The instrument being traded is CFD, right? Why or how does that result in the collapse of underlying stocks like VIAC?

    • cas127 says:

      Both very good questions.

      Let’s speculate and step through it.

      1) Archegos (Arch Egos?) was long Viacom. but with heavy leverage (ie, a small adverse price move would force quick margin call).

      2) Banks had financed Archegos trade *and* were initial counterparties (didn’t have time to find 3rd party trade opposite…in fact, maybe *never* found independent counterparty for all potential trade liability).

      3) Unexpected Viacom share issuance/dilution hits share price, which in turn triggers massive margin call on levered Archegos.

      4) To try and meet margin call on Viacom long derivative trade, Archegos forced to liquidate *actual* shareholdings (not long derivatives) including Viacom maybe (this would be counterproductive . since it would push Viacom further down…but in existential crisis Archego may have thought Viacom liquidation would work at some ratio of share sales/margin call rqmt.)

      5) So all this activity (share sales-dilution, derivative margin call liquidation) pushes Viacom down quite a bit.

      6) Archego can’t meet margin call and goes under. But if bank is still partial counterparty, then bank is out money too because Archego went under owing bank money.

      7) So Viacom might take hit even though its own shares were never involved (maybe) with initial derivative trade (due to impact on portfolio valuations of third parties who *do* hold Viacom actual shares.).

      8) And bank is out money because (it never laid off all derivative trade counterparty risk) and now failed Archegos cannot pay bank what it is owed (even though bank was on right side of trade).

      Just guessing here to try and make sense of it all.

      • Dan Romig says:

        cas127,
        That sounds like a bookie taking action on a game, getting tilted heavily to one side, and not laying off the action in Vegas to keep themself balanced out evenly.

        Full disclosure: my only betting takes place within my investment portfolio. It seems like enough action already. Gambling on a pro sports game has so many people hooked ‘on the action,’ it’s truly amazing.

        • cas127 says:

          “like a bookie”

          That is pretty much it, 100%.

          People don’t realize the trillions in (albeit) notional risk swaps that the money center banks have engaged in historically.

          In the early days, the excuse was that such operations helped to reduce risk in the banks’ loan books.

          Later, as the swap desks grew enormous, the excuse was…huge fees.

          But I thought post 2009 reforms had limited such bank operations (or heavily ringfenced them in a subsidiary) and greatly up’ed the banks’ disclosure/reporting obligations to the Fed.

          Perhaps these reforms got aborted or derailed in the subsequent years.

          Presumably, the banks’ “living wills” do take these customized derivative desk operations into account.

    • Petunia says:

      If the hedge fund is long the stock, the contract is a hedge in the opposite direction to lock in a price. If they are long and the stock keeps going up, the hedge goes down and needs more collateral. With leverage this could unbalance the hedge. As the stock goes up the contract is losing money faster. Now you have to sell shares to make up the loses and the trade unwinds badly. The real shares are sold and that’s how they are affected negatively in the market.

      • cas127 says:

        With all this derivative-based risk management going on in the market, you would think more players would be really, really, really worried about counterparty failure and/or incredible underlying valuation errors…

        The more complicated the “fix” is, the more people should be asking themselves if the game is worth the candle in the first place…

        After a few multi trillion iterations, the whole “gotta dance while the music is playing” excuse starts to wear thin.

        There are plenty of mkt players who should just sit the f**k down.

        • Petunia says:

          On Wall St. complexity always hides fraud. It’s no accident most of the trading is in complex derivative products. Truly, The Golden Age of Fraud.

  19. The truth shall win out says:

    Please explain why the comment to the obvious flaw in your argument was deleted. The selloff you hang your hat on was virus lockdown induced. Asserting otherwise and cancelling dissent is disingenuous to say the least.

    • Wolf Richter says:

      The truth shall win out,

      Before you accuse me of having deleted your comment that you posted under the name of Charles Ponzi, at least have the intelligence of checking under the correct article. You’re looking under the wrong article. Now go back and look under the right article (the Ponzi article), and you will find your comment. Sheesh.

      • Depth Charge says:

        Tough crowd, huh Wolf? I admit it has taken me some time to get used to your rules as well, but I’m still trying. I do enjoy your analysis so am trying to stay on the right side of things.

        • Wolf Richter says:

          Depth Charge,

          You’re doing great with your comments almost all of the time. I have deleted many of my own comments due to bad behavior. So this happens to everyone. And if it happens to you, don’t sweat it. And don’t take it personally. I don’t take it personally either when I delete my own comments, most of the time 😂

        • Turtle says:

          How about an article, “Wolf Gone Wild: My Most Outrageous Deleted Comments”. That one about smoking crack and microwaving one’s head was hilarious, so I’m thinking the deleted ones might be even better?

      • Javert Chip says:

        Well, I guess the truth just won out, in a really laughable and embarrassing kind of way.

        • Jack says:

          JC , WR and DC!

          we could have a long thread on this subject!

          Isn’t it infuriating to delete your own comment and just laugh it off like that ?! 🤣🤣😎

          Business as usual, No hard feelings here, we’re bouncing ideas of each other and learning from the great master at the end of the day,

          Charles Ponzi will get used to it , just like we got used to the FED’s WTF roller coaster 🤣🤣

  20. sunny129 says:

    IMHO
    The value and the direction of the BET (up or down) went AWRY for one or more parties, when VIAC lost nearly 50%, suddenly!

    May Be Wolf can comment more!

  21. Martok says:

    Good article Wolf and I’m curious what the underlying equity, and or “bet” that caused Archegos to fold?

    I speculate that other hedge funds made the same or similar “bets” and believe there has to more to come.

    This Just came out from Bloomberg:

    “What might be the largest margin call in history is causing consternation among those on Wall Street worried about hidden leverage and its potential to fry the financial system. The forced selling of more than $20 billion of apparently swap-linked shares at Bill Hwang’s Archegos Capital has triggered a hunt for other areas of excess—from margin debt to options and bloated balance sheets—after stocks at the center of the fiasco plunged and investment banks warned of losses. Hwang’s travails are portrayed as everything from a long-overdue market comeuppance to an isolated case of risk-taking run amok. The blowup is an example of “leverage gone wrong,” said Sameer Samana of Wells Fargo, and perhaps an ominous sign of things to come. Nevertheless, the rising fear through the weekend that Monday would end in calamity was answered with something closer to a whimper. The S&P 500 Index was barely registering the weekend’s tribulations, its 57% rally since March 2020 intact. —David E. Rovella”

  22. MonkeyBusiness says:

    Early estimates say 6 billion loss across banks.

    • WES says:

      So did anyone win $6 billion?

      • cas137 says:

        Maybe the “loss” to banks is simply not getting the money they are owed by Archegos if banks ended up a trade counterparty.

        Or, if banks laid off all trade risk, then maybe those disappointed/screwed counterparties (because Archegos is bankrupt) are demanding that bank that sold them other side of Archegos trade, pay off, since Archegos can’t.

        (Market reputation realities maybe forcing middle man bank to act as quasi-guaranteeing clearinghouse).

        Just guessing.

      • MonkeyBusiness says:

        That does not matter. Banks losing billions matter because that’s usually how crises start.

    • cb says:

      6 Billion seems barely relevant in a world of Trillions dollar counterfeiters, I mean money digitizers.

      hardly a blip for the FED to paper over should they choose to step in.

  23. Auldyin says:

    The planets are definitely starting to move.
    How much more pain can Deutsche Bank take?
    Merkle must have their back.
    Will this be the final straw before the election in Germany? She’s on a straw already.

  24. John says:

    Wolf,
    Thanks Wolf, so this is the so called dark pools. The pools no one knows about,until now, even more! SEC. looking to delist Chinese stocks, Viacom/CBS looking to sell shares at such an inflated price certainly caused some of this unwind IMO.

  25. Ron says:

    The wolves are feasting on each other big boy stoke out little guy watch movie trading places I believe wolf any report on your short thanks

    • Turtle says:

      Are you using voice to text?

      • MiTurn says:

        I’m with you Turtle. Punctuation is hard!

        • Anthony A. says:

          Ron is a Bot.

        • Wolf Richter says:

          There are several people here who are vision impaired to varying extents period they use speech dash to dash text and text dash to dash speech software comma dictating what they want to write period but they would have to dictate punctuation marks comma which is a pain period so its sorry it hyphen s easier to just skip the punctuation marks period

    • Lisa_Hooker says:

      Ron, please review Victor Borge’s landmark work on phonetic punctuation and apply to your future comments. Thanks.

  26. Ron says:

    Also wolf no pun intended on wolves comment keep up great work

  27. RoundAbout says:

    I feel sorry for the investors who got in the offering at $90 a share for viac. sp down 55% but Viacom has raised 3 billion. Little more than they bargained for I suppose.

    Covid drop from about $40 to $11 last year. Back to pre covid levels at around $45. So, I bought in today. Just following rubber band theory.

    • cb says:

      ” Just following rubber band theory.”

      I hope you are not on the wrong side of the snap-back.

  28. Sir.PiratePapirus says:

    I use CFDs as well to increase leverage, but can’t believe that such big fund would use them to invest. The only possibility is that he had some trades that went bad and tried to use CFDs to make up the loss, which i think is what set alarm bells ringing with the banks. I don’t think it was a margin call per se rather forced liquidation of some sort where the banks realized what massive exposure to risk they had with this guy. Some of this trades where shorts actually and some long, we are only talking about stocks that went massively down, but on friday there was massive buying of futures as well that i gather was this guy’s short positions so he was long specific names and short the index via CFDs of ETFs of index futures as a hedge. A pretty shitty trading practice overall, a panicked positional move basically and the reason he used CFDs was because he couldn’t get levered up with anything else. Crazy that someone would trade in this way with billions just absolute bonkers.

    • SnotFroth says:

      Remind me of the purpose of all this again. Capital application, or something? Tell me it’s not just a game for the insiders to get rich at the expense of the rest of society.

      • Sir.PiratePapirus says:

        There is no purpose SnotFroth apart from wanting to make money, which in a sense is everything, the more the better…and through all this chaos and mayhem the hope and theory is that capital will get allocated where it is desirable and necessary so society can be economically better then before. It doesn’t have to be unjust but it is unjust precisely because people loose their humanity driven by the same desire that drives the allocation of capital, the idea that money is everything.

        • Dan Romig says:

          Sir. Pirate,

          Money is a lot, but as I watched Mick Schumacher make his debut in Formula 1 last weekend, my thoughts were with his father Michael. Since December 2013, the man has been in bad shape from a skiing accident that did severe brain damage. He has a lot of money, but couldn’t be at the track to watch his son.

          I watched Michael drive his Ferrari to victory in Montreal back in ’97. He was so precise and skilled at his craft.

          Life throws curveballs at you sometimes …

        • IdahoPotato says:

          “It doesn’t have to be unjust but it is unjust precisely because people loose their humanity driven by the same desire that drives the allocation of capital, the idea that money is everything.”

          The Hwang dude is the pastor of a church in NYC and has a direct hotline to God, apparently. “When we create good companies through the capitalism that God has allowed, it enhances people’s lives….God delights in those things,” Hwang said in a video posted online in 2019.

    • Fat Chewer. says:

      Real men write naked calls. So it is said in the lore of Wolf Street.

      • Sir.PiratePapirus says:

        @Dan Roming, mate you brought back so many memories….M.Schumacher …there is, nor will there ever be a better driver…people talk a lot about Sena but for me Schumacher is the king. The race at Silverstone if i remember correctly in the rain..Schumi was punished and forced to race last he went from last place to podium, absolute masterclass. It’s nice his son is racing now as well.

        • Lisa_Hooker says:

          Juan Manuel Fangio and then Stirling Moss (championships notwithstanding), then Jim Clark. They were true car drivers. Then everything became progressively automated when high tech took over. Operating a non-synchro gearbox with your heel and toe is hard when you’re braking.

        • Dan Romig says:

          Lisa_H,

          When in Montreal, I walked the course during all practice sessions, qualifying and the race. This gave me quite the perspective on all that was happening. What stood out to me, was the way Michael gained at least a tenth of a second as he entered pit lane by sliding the ass-end of the car to within a centimeter of the side wall as he made the last left-hand turn & brought it down to the max speed just as he hit the pit lane marker line. Nobody else came close to his entry time.

          It was a display of finesse and an attention to detail that was his hallmark: analyze every aspect and shave off every fraction possible.

          I agree with you that there are many great drivers – then and now. The two top place finishers in the season’s opening F1 race are by far, IMO, the best two drivers currently racing.

          Funny thing about my M4: I can have the computer match engine revs with each downshift, or I can heel-toe and do it old school. When I’m out and about (yeah, say it Fargo style with me), I prefer to let the computer work its magic. Rarely do I have an opportunity to feel the need to do it myself – although I can, but it’s cool to have the technology choose!

          Javert Chip has it figured out. When he wants to get his M8 near the limit – take it to a track.

          P.S. Lisa_H, I too enjoy reading all your comments!

      • Lisa_Hooker says:

        That was me in one of my more frustrated moments.

        • Fat Chewer. says:

          I thought it was you, LH. You have a wonderful sense of humor. I don’t think there’s ever been a day go by when one of your comments hasn’t made me laugh. Thank you! A bit of humor is definitely needed in these strange times.

    • Petunia says:

      A Master of the Universe wouldn’t be caught dead trading in the millions, it’s billions or go home.

  29. Tom S. says:

    And in the face of a multibillion dollar leverage related insolvency the 10 year yield continues to float upward seemingly making all the debt more and more expensive. The knee in the yield curve gets more dramatic each day the DOW sets a new record. How high will it go before the twist and the taper? Record returns with no risk and no inflation at the same time!

    Almost 100 years since people truly lost trust in the banks and kept their money in mattresses until the day they died. Now most are gone and with them the experiences and lessons of the depression. We can sit at the palace fountain and wait for our water to trickle down.

  30. Hernando says:

    This must be good news for stocks because futures are up again….

  31. Anthony says:

    Time to listen to “They’re Coming to Take me Away” from the 1960’s. I listened to it in 2000 and 2007…time again…..ho ho

  32. 2BFrank says:

    Move along folks, nothing to see here, billionaires go bus, (apart from the odd island they own), the banks pay, the Fed prints, Jo average is locked out, and life carries on as normal, the empire goes on.

    • Wisoot says:

      It can never go bust. Think on it. Never. Not even if a hacker broke in and rerouted a million quadrillion quadrillion. Continuing to prop up and legitimise, by participation, an infinite valued system officially certifies an individual as living in the past when stocks were stocks and gold was value. There is only now. What do you want your now to look like? What do you have to do to make it reality? What legacy do you want to hand over to the kids?

  33. raxadian says:

    [In the US, CFDs are illegal for retail traders, but not for hedge funds.

    The fact that Archegos’ positions were derivatives, rather than actual stocks, allowed it to build large stakes – some of them giving it exposure to over 10% to these companies’ shares – without having to disclose those stakes to regulators, which it would have had to do with regular stock positions of that magnitude. This allowed Archegos’ exposure to those shares to remain anonymous until the trades blew up]

    Honesty what it will take for these kind of “loopholes” to be closed down? Because a financial crisis was not enough.

  34. A says:

    Don’t you love it when billionaires go on CNBC to shame Robinhood users for taking excess risk… Then they go out and do stuff 100x worse in the shadows.

    • Anthony A. says:

      They go on CNBC for the ego trip. They don’t give a damn about Robinhood as it’s just something to talk about when in the camera.

    • Javert Chip says:

      A

      You do make an interesting point.

      Another interesting point is why didn’t regulators actually regulate “family trusts” the same way other hedge funds are regulated?

      I understand part of’s the SEC mission is to insure fund investors are receiving accurate & meaningful information from the fund (presumably, the SEC assumes this is minimal in a family trust).

      The other part of the SEC mission is where the SEC massively failed: protecting the market from bad actors. The potential of $30B-50B-??B blowing up due to secret activity by bad actors (especially ones previously banned from industry participation due to insider trading & other illegal activity) is just as real (maybe more so) than the same event from a regulated fund.

      Yea, the fund manager deserves our opprobrium, but so does the SEC. Frankly, it’s hard not to imagine this “family trust” loophole resulting from some very well-placed campaign contributions.

  35. Willy2 says:

    – When I read this article I simply don’t get what went wrong. These CFDs don’t involve any physical ownership of the underlying stock/assets. But then why were banks then selling those stocks ???

    • Javert Chip says:

      Willy2

      Just because a financial instrument (eg: derivative) doesn’t involve physical ownership of the underlying stock/asset, does not mean there is no financial risk.

      Derivatives (ie: calls, puts, plus a thousand other animals in the derivative zoo), provide the opportunity to make or lose money, generally in a (sometimes VERY) leveraged manner.

      That “opportunity” (or option) is, itself, worth money and it’s value literally changes second-by-second. That is why most derivatives also come with margin requirements between counterparties. This fund’s undisclosed risks were so large that the liquidation caused by the margin call caused further negative impact, resulting in a downward spiral.

    • Javert Chip says:

      Willy2

      Certain derivatives will also result in counterparts (the banks in this case) hedging their risk by buying some of the underlying asset targeted by the option.

      In tis case, the price of the underlying stock appears to have simply dropped too fast to recoup the losses.

  36. Micheal Engel says:

    1) VIAC ==> good for them. They hit a Lazer coming from 2017. // CMCSA is next.
    2) Yesterday my French baguette was great for me.
    3) It raise my blood sugar and my candida hotel had a party.
    4) Gliadin ripped my organs like a burb wire.
    5) Wheat germs are ==> legal Opioid.
    6) Today I bought my second French baguette and a dbl espresso, because I didn’t sleep all night (fake).

  37. Micheal Engel says:

    SPX is down, because both Putin and Xi signed a treaty with Iran.

  38. RP says:

    My father used to say ” the best way to deal with crooks…is not deal with them”.

    If a guy convicted of a crime, insider trading, and is then lent billions, which are then lost…the banks only have themselves to blame for the losses.

    • Javert Chip says:

      RP

      Not to excuse any of the sheer stupidity of the banks (they all explicitly knew who they were dealing with), the regulators were also MIA in this fiasco.

  39. Mira says:

    Billy Hwang .. who would trust him .. please.
    So .. the banks lent him money hand over fist believing him to be lucky = portfolio valued at even US100 billion.
    The luck changed & they called for cash .. he had none & the portfolio was sold off ASAP.
    According to BOSS HUNTING Money talks & bullshit walks.
    What a clever way to shift big money from one place to another using a chump in the guise of Bill Hwang ?? = The distribution agency:
    I imagine that his actual net worth is only what is in the vault = the tax exempt & untouchable charity = US$500 million ??

  40. Mira says:

    And .. maybe there was no ‘real’ money at all .. maybe it was to introduce new money into the banking system / economy = US$100 billion hot off the press ??

  41. Micheal Engel says:

    1) China signed a trade deal with Iran. The best trade deal negotiator in the world doesn’t understand why.
    2) Putin sign a trade deal with Iran as a response to US insults.
    3) The mainstream media doesn’t get it.

    • Makes you wonder if the problem wasnt’ currency exchange, or political messaging, or North Korea? This guy was big on Christian charities. Maybe his own people did him for playing nice with big US banks?

  42. Aaron says:

    I wonder how much the uncoupling of the banks “reserve requirements” are fueling the unbridled speculation amongst them. Is what you write about here one of the effects of that? What else might be happening as a result of that action last year.

  43. Rubicon says:

    Jack laments the erosion of “international trade.” For average western customers.

    However, the 1%ers are doing very, very well in their targeted trade.
    Example: Italy – have greatly increased their sales of luxury items to China, the US, Europe in the last few years. Same thing going on in the EU/parts of the US and elsewhere.

    While there’s little productivity required to make these goods, it’s the 1% who are gobbling up these little trinkets.

    “Little productivity” means only a paltry sum of workers are needed to be employed – all to meet the needs of the Super Wealthy.
    Naturally, none of that profit trickles down to the average citizens.

    “The Great Reset” as espoused by Karl Schwab/Gates isn’t new. Way back when —Robert McNamara and Kissinger were talking about this.
    They seemed to foresee the day when the 1% wealthiest would find millions of citizens in The West as sloth and useless.

    Thusly, we commoners are seeing trade shortages here, there, everywhere simply because we have become unwanted nuisances for the Super Wealthy.

  44. kiers says:

    SEC, to Steve Cohen: “You’ve been insider trading”

    This is my hypothetical fly on the wall image:

    Cohen, to SEC: “Ok Ok, I’ll stop the public hedge fund and open a family office”.

    SEC: “You have our blessings”.

    Media, about Cohen: “He’s been punished enough, took a plea”.

    Now I see family offices in a NEW LIGHT!

  45. Fake money is being used to create fake financial assets that every so often go boom in the night.

    Bummer.

  46. eraak says:

    Banks get into these risky leveraged deals because they generate enormous amounts of profit – until they blow up and banks get hit as counterparties.

  47. Theophilus Punuval says:

    This will be remembered as the First Domino of what will come to be referred to as “Lehman 2.0”. Next!?

Comments are closed.