AMC continued to monopolize coverage on mainstream financial media portals Thursday despite multiple headlines and stories with legitimate claims on valuable space above the digital fold.
Apparently, shorts in AMC are looking at paper losses of around $2.75 billion after Wednesday’s absurd dramatics, during which shares of the theater chain rose 100%, taking YTD gains to almost 3,000%. “How much longer can short[s] hold on?” wondered Peter Hillerberg, whose analytics company reckoned that between AMC, GameStop and Bed Bath & Beyond, shorts are in a $4 billion hole on paper. Hillerberg spoke to Bloomberg for yet another article on AMC. I’ve lost count. CNBC was all over it too.
Nearly 20% of AMC shares outstanding were still sold short on Wednesday. Unlike the GameStop fiasco, AMC’s run hasn’t rippled out across the broader market. I guess that means no congressional hearings with any “kitties,” “roaring” or otherwise. According to efficient markets, AMC was more valuable than half of the companies in the S&P 500 on Wednesday (figure below).
On Thursday, the company took investors for an absolutely insane ride. Those interested can read the entire sordid tale in “Surgeon General’s Warning.”
Meanwhile, in news that matters, Russia’s wealth fund is slashing dollar holdings to zero. The shift, which could unfold “within a month,” according to Finance Minister Anton Siluanov, would pare the entirety of the fund’s dollar assets in favor of euros and a mix of yuan, pounds, yen and gold.
The decision comes as relations with Washington fray amid sanctions and a series of cyberattacks blamed on entities with ties to Russia. Currently, the fund is 35% allocated to dollars. Following the change, the mix would be 40% euros, 30% yuan, 20% gold and the remaining 10% split between pounds and yen.
The dollar’s share of global FX reserves dropped to a 25-year nadir in Q4 of 2020 (figure below). The nuance around the Russia story is important (more below), but it will invariably catalyze a deluge of de-dollarization coverage, so presenting the charts is obligatory even if they aren’t strictly relevant here.
In April, the Biden administration sanctioned Russian sovereign debt in retaliation for ongoing Kremlin mischief, including, but not limited to, the SolarWinds hack and ceaseless attempts to meddle with America’s fractious democracy. Janet Yellen called Putin’s conduct “unacceptable.”
Of course, Russia doesn’t exactly enjoy a cozy relationship with the EU or the UK either, but Moscow has long sought to diversify its reserves away from dollars. Geopolitical tensions are running high after hacks brought down a crucial US gas pipeline and briefly threatened America’s beef supply this week.
Read more: It’s About Decorum
The irony in describing this as “news that matters” (relative to the AMC story) is that the 35% of Russia’s wealth fund currently held in dollars is worth around $42 billion. That’s not too much more than AMC’s new market cap. That’s a silly comparison in almost all respects, but it’s an amusing juxtaposition nonetheless. “The transfer, which affects about $119 billion in liquid assets, will take place within the central bank’s reserves making its market impact — if there is one — hard to trace,” Bloomberg wrote.
As a reminder, de-dollarization is a glacial process. The figure on allocated USD reserves (above) only looks dramatic when it’s plotted in isolation. The figure (below) gives you the context.
This could affect market sentiment at the margins, though. Biden and Putin are set for what’s sure to be a frosty summit, and Russia’s support for Belarus’s Alexander Lukashenko continues to exacerbate an already fraught situation.
US equity futures did react to the headlines on Russia’s wealth fund, although the news was set to be lost in the proverbial shuffle as a raft of US economic data loomed.
I’d submit that the symbolism is far more important than any market impact. This may “simply represent a currency overlay to remove dollars from the fund’s exposure via a trade with the central bank,” Bloomberg’s Cameron Crise wrote, suggesting that this “shift” may not even entail any asset sales.
Nomura echoed that. “This is a transfer of euros from the central bank to the wealth fund,” FX strategist Jordan Rochester said. “The central bank [is then] the holder of the USDs and it’s up to them to manage it. [There’s] no initial market impact.”
“Russia cut its holdings of Agency bonds to zero around the time of the GFC, and a couple of years ago slashed its Treasury holdings to basically zero,” Crise reminded folks. “We’ve seen this film before.”
Now we can watch it again. At an AMC theater. Where the popcorn is free if you’re a shareholder.
Russia’s wealth fund aka A Rounding Error . . .