The Invulnerable Hero*

Siegfried bathes in dragon’s blood, from Fritz Lang’s Die Nibelungen (1924) The I
You have reached the maximum number of free, long-form articles for the month.

Please join here to read the rest of this content.

Paid Members can log in here.

To learn more about Epsilon Theory and be notified when we release new content sign up here. You’ll receive an email every week and your information will never be shared with anyone else.

Comments

  1. Good note Rusty. Narratives inside of narratives inside of narratives on this one, hard to untangle but fascinating. It was fun that ET via Donnelly’s guest post last week was ahead of the crowd on this (not unusual for ET obviously), although I still feel his early take had a lot of gatekeeper narrative to it (kept seeing other’s take home was around ‘the new gen of reddit degenerates’ narrative which I think is total BS). Your note much more fair imo, seems pretty straightforward to me to assume that this has not remotely been all retail and WSB and that cannibalistic institutions happy to join in, yet the low hanging fruit “Boo reddit degenerates” narrative will certainly be opportunistically taken advantage of by Boomers to dismiss and by the rule makers to change the rules, as is already happening.

    I largely agreed with Radigan Carter’s take (highly recommend to ET audience which I expect may not be so fond of it from demographic standpoint) that Boomers et al are vulnerable to naively assuming that anyone who says ‘it is different this time’ is a young fool, while in reality from my middle age ‘stuck in the middle’ perspective the rules of the game a la The Long Now and resulting change in incentives (it is now rational to speculate before music stops), esp for younger people, are a pretty major structural change. And the tools and access have clearly evolved significantly (ET has discussed this much in the past also, perhaps more around fiat news than investing). So I’m with the young people that big changes are afoot and I scoff at anyone who’s dismissive of that. On the other hand the young degenerates think they’ve won something when in reality the rule-makers are like the FED and they will never run out of ammo (ET: Stalking Horse), as you said hardly the revolution some hope for.

    Last my mind is already reeling when I take a small step back…In the last MONTH the following common knowledge events have occurred: 1. US citizens, at least white ones, can violently invade the centers of power and walk away (next time cover your faces fools), 2. US oligarchs will decide who gets to freely use the ubiquitous communication platforms they’ve built and who does not, 3. Digital ‘occupy’ type movements can accomplish much more than physical ones per effort expended, and 4. Financial institutions will simply BITFD any vestigial perception of free markets before they consider addressing root causes. Obviously these types of conclusions will not surprise ET readers but I think there is still a surprising and fundamental lack of mainstream awareness of much of the deeper currents going on here.

  2. Avatar for rguinn rguinn says:

    Wow, great comments, Rech. I’ll take a look for Radigan’s piece on this.

  3. Note that through the pandemic, complex systems without leverage (internet, package delivery, for example) worked fine despite heavy stress and massive volumes. The financial system is uniquely unstable due to leverage.

  4. Avatar for rguinn rguinn says:

    And uniquely unwilling to grapple with that, no matter how many times it raises its head.

  5. I sure hope we find out who was behind the decision that several online trading platforms made today to stop trading in certain stocks all within minutes of each other , just like the major networks all deciding at the same time to switch away from the Presidents news conference the day after the election.

    Just like all the Social Media company’s deciding that of all the thousands of news articles in existence that day - the New York Post article needed to banned. Again at the exact same time!

    There is nothing free and fair about any of this.

  6. Avatar for DRBJR DRBJR says:

    Rusty - Thanks. Quite insightful, as always. I trust you’ll push any data that you find supporting your “suspicions” to us.

    During a media appearance today, I got a spike in responses on social media for suggesting that brokers have the free market right to protect their balance sheet. 2:1 against. With a clear Retail Bros vs. Boomers flavor. So I’d love some detail on your closing thought.

    Fairness + free markets + rule of law: Do you have quick thoughts on what a reasonable response to the recent frenzy would include?

    • More or less transparency for hedge funds?
    • Clarification or regulation for groups like r/WSB - is a statement like "Everyone buy $XYZ (rocket emoji) so it goes up and we all make lots of money" manipulation? Or must there be false claims? Should a group banding together to do mass market actions be allowed? Encouraged? Outlawed?
    • Rules for brokerages on what stocks and / or conditions are acceptable for buying today?
    • I'm sure you have others - these are just conversation starters...
  7. Thomas Peterffy was interviewed on Bloomberg just prior to the close and threw out some interesting numbers. 3 million open option positions on GME, average contract value of $10,000. So, there are $30 billion worth of derivative bets on what was a sub $20 billion stock. This is how the short interest exceeds the float. And, one side has lost $30 billion (the shorts) and one side has made it. But, the shorts are being force liquidated as they no longer have account value. His concern (judge for ourselves his veracity) is that the clearinghouse integrity is in question and this can take down the brokerage firm when the client has no money to make good. His estimate is that IBKR has about 5% of the accounts with a position in GME and their system automatically liquidates as account values hit thresholds of no margin. He doubts all firms have their system. And, I just saw a headline that Robinhood is having to draw on credit lines. Once again, leverage is at play when things go this haywire.

  8. Avatar for rguinn rguinn says:

    Good conversations starters and very good questions - let me suggest that we move the detail to the forums so that we can hear from more people than just me (ie - please start the thread!).

  9. Avatar for rguinn rguinn says:

    Yep, I’ve seen a couple other reports even outside of dark pools that show some of the volumes, too. It’s tough to make heads or tails out of what kind of trades they are and I don’t want to overextrapolate. But from sheer volume and 100+ years of history alone, the idea that institutions weren’t heavy on both sides of this thing strains credulity.

  10. Avatar for rguinn rguinn says:

    Yep. We’ve created an industry that needs too much of it everywhere to generate the returns (and comp structures) people expect.

  11. Avatar for Wraith Wraith says:

    This is a great piece, Rusty.

    Everything you guys have talked about related to the broader societal implications of the narrative maps supports your conclusions here.

    We can see it in real-time. The polarized WSB/HF narrative is now being invaded by new groups on the far ends of the larger spectrum (and add very little constructive to the specific events at hand). AOC supporters chiming in supports the outcomes you are saying are possible here.

    More participants in a confusing donnybrook rarely add to better or more understandable outcomes.

  12. There was this guy who wrote…
    “This isn’t how capitalism is supposed to work! This isn’t how elections are supposed to work! This isn’t how politics is supposed to work! This isn’t how free speech is supposed to work! This isn’t how the Fed is supposed to work (they’re out of bullets)!”

    Amazing how much oxygen and paper have been wasted, when it really is all you need to know. I do believe the irony of all this, will be that, the statement above will be written about a million times and a million different ways on “Wall Street Bets” in the coming weeks.

  13. I second Rusty’s comment Rech. It’s always wonderful when somebody else’s perspective helps locate a few more edge pieces of the big puzzle.

Continue the discussion at the Epsilon Theory Forum

Participants

The Latest From Epsilon Theory

DISCLOSURES

This commentary is being provided to you as general information only and should not be taken as investment advice. The opinions expressed in these materials represent the personal views of the author(s). It is not investment research or a research recommendation, as it does not constitute substantive research or analysis. Any action that you take as a result of information contained in this document is ultimately your responsibility. Epsilon Theory will not accept liability for any loss or damage, including without limitation to any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Consult your investment advisor before making any investment decisions. It must be noted, that no one can accurately predict the future of the market with certainty or guarantee future investment performance. Past performance is not a guarantee of future results.

Statements in this communication are forward-looking statements. The forward-looking statements and other views expressed herein are as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated in any forward-looking statements, and there is no guarantee that any predictions will come to pass. The views expressed herein are subject to change at any time, due to numerous market and other factors. Epsilon Theory disclaims any obligation to update publicly or revise any forward-looking statements or views expressed herein. This information is neither an offer to sell nor a solicitation of any offer to buy any securities. This commentary has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Epsilon Theory recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.