If you were wondering whether public interest in January’s historic penny stock fiasco had dwindled nearly a week on from peaking, the answer was readily discernible from a quick scan of Bloomberg’s front page Wednesday afternoon.
“SEC Hunts for Fraud in Social-Media Posts That Drove Up GameStop,” one headline said. “Hedge Funds Hunt Frothy Names to Short, Even After GameStop,” another declared. “Yellen Summons Regulators to Discuss Financial Market Volatility,” a third trumpeted.
And I could go on. At this point, I don’t blame Bloomberg. Or CNBC. Or [fill in the blank with your favorite mainstream outlet]. Early last week, I was genuinely irritated at the extent to which the financial media echo chamber looked poised to exacerbate an already percolating situation. But once the ship sailed, there was no not covering it. By the weekend, it made its way onto Saturday Night Live.
Want to see something ridiculous? That’s a rhetorical question. Of course you do. Have a look at the figure below.
It’s self-explanatory, but just in case, RBC’s Michael Tran added some color.
“The notional dollars that fueled the GME and AMC price move rivaled that of the WTI benchmark,” he mused, in a Wednesday note.
“Daily volumes weighted by price suggests $15.9 billion worth of spot WTI trades daily over the past year, which compares to $609 million and $224 million for GME and AMC,” Tran added, before delivering the punchline: “However, $20 billon in trading has underpinned WTI contracts relative to $18.9 billion for GME and $7.2 billion for AMC over the past week, includ[ing] several days in which both GME and AMC capital deployed eclipsed that of WTI.”
What is this madness?! Next you’ll tell me WTI traded at negative $36 last year.
Unfortunately, this is probably going to get “worse” before it gets better, where “worse” just means that regulators and lawmakers will scrutinize the situation to death, creating an endless stream of headlines likely lasting for several months. I’d wager (and, in fact, I kind of did) that GameStop will trade down to $20 before we hear the end of the debate in Washington.
Anyway, getting back to things that matter, the 5s30s is near the steepest since the day after Trump’s election. Yields were cheaper by 5bps out the curve, as the 30-year yield approached highs last seen in March of 2020. Contributing factors included ADP, ISM services, and corporate supply. The refunding announcement came and went without much ado.
“Using last month’s auction process as the most current read on the influence of supply, it’s difficult to argue against the need for a temporary backup in US rates as a concession for the borrowing needs of the federal government if nothing else,” BMO’s US rates team wrote, in a Wednesday afternoon note. They went on to say that “a period of bearishness appears the path of least resistance, leaving… the magnitude of any such move [as] the key uncertainty.” The more well-behaved the assumed rise in yields, the more sustainable it will be, they said, “especially if accompanied by an improving macro narrative.”
Separately on Wednesday, I wondered (aloud) whether markets could be poised for a “good news is bad news” regime given the potential for upbeat data and an improving public health outlook to weigh on stimulus prospects and perhaps force a rethink of the timetable for Fed normalization.
Of course, “normalization” is an extremely relative term. Policy would still be anything but “normal” in the event the Fed were to take tentative steps away from their current stance, and those steps wouldn’t even be “steps” in the first instance. They’d start with words, not deeds.
On Wednesday, the word from Jim Bullard was that “we’re still in the middle of the crisis.” “It’s too early” to have a discussion about tapering asset purchases, he added.
Asked about GameStop, Bullard remarked that “you always have different types of speculative activity going on.” As for whether Fed policy might be exacerbating that activity or otherwise making markets more risky, Bullard said “I’m not really seeing that right now.”
Nobody told Jim about “Roaring Kitty” and his modified version of “value” investing.