‘Big Short’ investor Michael Burry says the stock market is ‘dancing on a knife’s edge’ – and fears he’s being ignored again; GameStop Signals That Short Sellers Need a New Strategy

Feb 22, 2021

$29,676/$300,000 (9.9%)
Gabriella Kusz and Patrick Troy

Observations & Insight

The Spread: Can’t Stop GameStop
JohnLothianNews.com

A number of people appeared before Congress on Thursday to discuss the GameStop trading phenomenon, including Vlad Tenev, CEO of Robinhood. Tenev, who apparently donned his best John Wick costume for the hearing, defended his company’s innocence while apologizing to customers.

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Lead Stories

‘Big Short’ investor Michael Burry says the stock market is ‘dancing on a knife’s edge’ – and fears he’s being ignored again
Theron Mohamed – Markets Insider
Rampant speculation and widespread betting with borrowed money have driven the stock market to the brink of collapse, Michael Burry said over the weekend.
“Speculative stock #bubbles ultimately see the gamblers take on too much debt,” the investor tweeted along with a chart showing the S&P 500 index and levels of margin debt both soaring in recent months.
“The market is dancing on a knife’s edge,” Burry added.
/bit.ly/3aFQzBw

GameStop Signals That Short Sellers Need a New Strategy
Conor Sen – Bloomberg
Last month’s historic rally in heavily-shorted stocks wasn’t just about Reddit, Robinhood and GameStop. It may also have had something to do with the Georgia Senate runoffs.
The impact of two additional Democratic senators on the prospects for fiscal policy and economic growth may have crushed the strategy of selling short the stocks of companies that struggle in an environment of slow economic growth — at least for now. A basket of stocks that might have struggled in an environment where economic growth averaged 2% to 3% a year might do just fine if growth is going to average 5% or more, as economists are forecasting for this year. With Congress looking to spend trillions of dollars to boost the economy, short sellers might need a different playbook to be successful.
/bloom.bg/3boCAiA

UK Broker IG Group Stops Retail Crypto Derivatives Trades After FCA Ban; The firm said it has now reached its internal product limit for exposure to cryptocurrencies after an FCA ban on crypto derivatives in January.
Tanzeel Akhtar – Coindesk
London-listed forex and derivatives trading platform IG Group (IGG) is asking retail clients to close their open spread bet and contract for difference (CFD) positions on cryptocurrencies. According to a post from an administrator on IG’s forum Sunday, the firm has now reached its internal product limit for exposure to cryptocurrencies, and as a result, will be removing them from its offerings. Until then, IG will be increasing its margin requirements, the admin said. The relevant positions on cryptocurrencies must be closed by 15:00 local time on March 24. After that, IG will close any positions still open based on its prevailing bid/ask prices, they said.
bit.ly/3umz6pC

Bitcoin falls below $54,000 as derivatives positions worth over $1 billion are liquidated
Yogita Khatri – The Block
The price of bitcoin has fallen below $54,000 from nearly $58,500 on Sunday as derivatives positions worth more than $1 billion get force liquidated by crypto exchanges. About $1.50 billion worth of open interest was liquidated by crypto exchanges in the last 24 hours, according to tracker Bybt.com. In other words, crypto exchanges liquidated traders’ overleveraged positions.
bit.ly/3aFfqoS

7 reasons why stocks have positive support in the near term despite rising bond yields, according to Fundstrat’s Tom Lee
Emily Graffeo – Markets Insider
Rising bond yields may be giving investors some apprehension about the stock market’s trajectory, but Fundstrat’s Tom Lee says any dips will be buying opportunities.
In a recent note the head of research said many clients are nervous that the bond market may reach a “breaking point” during Fed Chair Powell’s testimony later this week. While Lee said its possible stocks could act “nervously” ahead of and during the testimony, the larger story is that equities have multiple positive supports.
/bit.ly/3aGkXeQ

Bond Selloff Prompts Stock Investors to Confront Rising Rates; If yields rise more quickly and unpredictably than expected, that would be disruptive to assets like shares, many analysts say
Sam Goldfarb – WSJ
The sharp increase this month in U.S. government-bond yields is pressuring the stock market and forcing investors to more seriously confront the implications of rising interest rates. The lift in yields largely reflects investor expectations of a strong economic recovery. However, the collateral damage could include higher borrowing costs for businesses, more options for investors who had seen few alternatives to stocks and less favorable valuation models for some hot technology shares, investors and analysts said. As of Friday, the yield on the benchmark 10-year U.S. Treasury note stood at 1.344%, up from 1.157% just five trading sessions earlier and roughly 0.9% at the start of the year.
on.wsj.com/2P1XaOh

World’s Traders Catapult China to FX Big League on Yield Appeal
Susanne Barton and Robert Fullem – Bloomberg
The Chinese renminbi’s accelerating transformation from a sleepy backwater of the foreign-exchange market into a currency fit to rival global peers has traders setting aside concerns about how much further it can go without reform and buying into its ascent. In London — the world’s center of foreign exchange — there’s more yuan changing hands than ever before. Options on the Chinese currency exceed those referencing the Japanese yen, and buying or selling the yuan is now as cheap as trading the British pound. Against this backdrop, there are signs the renminbi is playing an increasingly larger role in influencing broad dollar moves, according to Wells Fargo & Co.
bloom.bg/3siWsdW

Strategy

7 reasons to buy the dip in stocks as bond yields climb, strategist says
Callum Keown – MarketWatch
Stocks are under pressure at the start of the week, as bond yields rise on hopes a global economic recovery is around the corner. Those hopes have been raised by ongoing COVID-19 vaccine rollouts across the world and the Biden administration’s planned $1.9 trillion relief program.
The yield on the benchmark 10-year Treasury rose to 1.377%, after rising 14.5 basis points last week, as investors continue to flee bonds amid fears inflation will heat up. Yields move in the opposite direction to prices.
/on.mktw.net/3aEEI6B

Events

Registration is open! – FIA Boca 2021
FIA.org
/bit.ly/3qADb6G

The SEC’s new derivatives rule: practical implications for funds
FIA.org
25 February 2021 • 10:00 AM – 11:00 AM EST
The SEC recently adopted Rule 18f-4 under the 1940 Act, which will establish a comprehensive framework for the use of derivatives transactions by registered funds. The rule will replace SEC guidance and staff no-action letters that together have governed the use of derivatives by registered funds for over 40 years with an expansive regulatory framework. Funds will not need to come into compliance with the rule until the summer of 2022, but most fund families will need to devote significant time and resources to prepare for the new regulatory framework in advance of the compliance date.
/bit.ly/2Nq8YZT

A New Virtual Experience
OIC
The Options Industry Conference is Going Virtual in 2021. Join OCC and the options exchanges for the 39th annual Options Industry Conference, April 28-29, 2021. While the conference will be held virtually for the first time in history, the focus will continue to be the key topics facing the options industry today, from the regulatory shifts in the U.S. and Europe to the technological developments that are driving monumental change in markets around the globe.
jlne.ws/2PPGgQh

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