The market did not appear to be amused with the idea of Masayoshi Son, gunslinging riverboat gambler.
Investors on Monday delivered their verdict vis-à-vis Son’s multi-billion dollar speculative bet on further gains in high-flying US tech stocks, pushing shares of SoftBank more than 7% lower to start the week.
News that the Japanese conglomerate spent billions buying calls on mega-cap US tech names won SoftBank the somewhat dubious title of “Nasdaq whale” Friday, fanning concerns that Son “is embarking on a risky endeavor in unfamiliar territory”, to quote a somewhat euphemistic assessment from Bloomberg Television.
To recap, for the umpteenth time in a week, early in August, Son announced a new asset management arm targeting stakes in publicly-traded companies, with Apple, Amazon, and Facebook among the first investments. Subsequent reports suggested the new unit would spent nearly 20 times its initial capital of $555 million.
But the structure of Son’s wagers on the US tech space “have been deeply controversial even within SoftBank”, sources told FT, whose reporting over the last 72 hours is rife with language that suggests the positions were met with palpable internal consternation, most of which echoes familiar, yearsold criticism of Son and high-profile flameouts.
“When there is a tech bubble, Son is usually not too far away from the action”, Nikkei quotes one senior markets strategist as saying on Monday, underscoring why there’s a generalized sense of angst around these trades.
It doesn’t help that SoftBank’s positions have been placed in the context of what, on a generous interpretation, can be described as retail investor “froth” in the options market around the same stocks. A less generous interpretation might lead one to call it a retail “mania”, which began earlier this year.
As documented a half-dozen times (at least) over the past month, and crystallized Sunday in “Frankenstein“, Son and other institutional investors have seemingly managed to piggyback on months of speculative call-buying by small-time players, subsumed derisively under the “Robinhood’ers” label.
That, in turn, turbocharged the self-feeding gamma loop, which then drove up the value of existing holdings in the underlying. All of this into a market that was already operating under the kind of “perpetual motion machine” dynamic described by Howard Marks more than three years ago.
Toss in the compelling (to say the least) fundamental case for tech in a post-pandemic world, and you get parabolic nonsense, for lack of a better way to describe this situation.
Myriad reporting on what has already become an absurdly over-exposed story, cites the following chart from Jason Goepfert, of Sundial Capital Research, who on Friday noted that “the smallest of traders… have gambled nearly $40 billion on stocks” in a month. The visual (below) is a fixture of the social media frenzy around this tale.
“The dip in stocks… was not enough to deter options traders”, Goepfert wrote. “In fact, they doubled down, spending even more on speculative upside calls”. Now, small traders’ notional exposure is up to some $500 billion, apparently, versus Son’s $30 billion.
On one hand, it’s understandable that this story has received the attention it has. After all, there’s no more compelling, more accessible narrative in the market than US tech’s inexorable rally and these dynamics are a big part of it.
On the other hand, the associated coverage (whether on social media, blogs, or in the mainstream) is becoming unduly obsessive. In one particular case (which, in keeping with my steadfast commitment to avoid directly disparaging anyone, I won’t mention by name), it’s borderline manic, underscoring longstanding, sincere concerns about the author’s apparently undiagnosed (and certainly untreated) Bipolar 1.
SoftBank is, of course, a sizable holding for all kinds of “big league” (sorry) investors, but suggesting that this particular roll of the dice from Son somehow puts the public finances of Norway in jeopardy or imperils the balance sheet of the Bank of Japan, is patent nonsense.
Remember, the entire world is, in one way or another, long US tech, whether it’s via “lottery ticket” OTM calls, call spreads, outright ownership of the shares, an index fund, a 401(k), or something as simple as owning an iPhone, ordering from Amazon, binge-watching Netflix, or relying on Zoom to conduct business in the new work-from-home regime.
To quote the rallying cry from every pandemic-related corporate marketing campaign, “we’re all in this together”. We’re all bullish US tech. We’re all Masayoshi Son. We’re all the “Mighty Call Trading Legion” of small investors betting big on the FAAMG cohort.
Because each and every day, we wake up and gamble a piece of ourselves on the assumed viability of a reality in which the world only turns because Apple, Amazon, Google, Facebook, and Microsoft, say it does.