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JonesTrading “At What Point Will Powell Realize He Has Broken The Market’s Pricing Mechanism?”


After a decade of constant lamentation by stock market pundits that the world’s most artificial “bull market”, which after March 23 and “Unlimited QE” everyone finally admits was entirely the work of the Federal Reserve, did not have retail participation and so wasn’t a real bull market, well – we give you Robin Hood.

In the span of just a few weeks, the free retail platform has mutated from a trading venue nobody had heard of to the platform which hosts some of the world’s “best” traders. By which of course we mean millions of bored Millennials dumping their stimulus check into the stock market and hoping for a 100-bagger (and in many cases getting). But that’s not meant to slight the retail daytraders: after all, where else can hundreds of thousands of retail investors swarm bankrupt companies such as Hertz, Chesapeake and Whiting Petroleum, and send their absolutely worthless in any rational financial context stock price soaring, as they did in the past week.

As we summarized it this morning, “you know the euphoria gripping stock markets is off the charts when retail investors have now taken over the market, as we first posted three weeks ago in, “How Retail Investors Took Over The Stock Market” and as Bloomberg repeated today with “Everywhere You Look Under Surging Stocks Is Fervid Retail Buying.” And while there is nothing wrong with a little healthy speculation in a market in which the Fed has eliminated most – if not all – risk, when the frenzied daytrading mob sends the stock of bankrupt Hertz 10x higher on massive volume, pushing its market cap to just shy of $1 billion, it‘s becoming a problem for marketplace integrity. After all, everyone remembers the retail infatuation with cryptos in late 2017/early 2018 which pushed bitcoin to $20K only to see the crypto plunging, resulting in massive losses for retail investors.”

We then asked if Powell really wants to risk turning off another generation of retail investors from stocks when the latest melting-up asset bubble – which is far greater than either the dot com or the housing bubble – bursts with catastrophic consequences for middle class net worth?

We weren’t the only ones: SMBC Nikko analyst Masao Muraki wrote in a note overnight that “soaring risk asset prices (ie imbalances) have reached a point where the Fed may be forced into some kind of action.”

While not many, there are others who likewise were wondering if it is truly the Fed’s intention to reflate a massive bubble which bursts and leaves millions of retail momentum chasers holding the bag, resulting in another generation of Americans who will never come close to the stock market again.

In a Bloomberg article recapping the insane Robin Hood action, namely the flood of retail investors into bankrupt companies…

According to website Robintrack, which uses Robinhood’s data to show trends in positioning but isn’t affiliated with it, individual investors on the app have been flocking to bankruptcy-protected companies in droves. (The site says it downloads popularity data each hour for every stock directly from Robinhood via a public application programming interface, or API. A Robinhood spokesperson declined to comment for this story.)

… something we have covered extensively here in the past week, one thing that stood out was the bevy of incredulous quotes by market veterans including this one from Peter Boockvar:

“It’s great that Vegas is open again, but who needs it when you have the stock market instead. After an incredible run since March, we now have clear froth in parts of the market. We know this level of speculation has coincided with a sharp increase in the activity of retail investors.”

Boockvar added the activity has been encouraged by a “zero rate” and “unlimited QE” environment. And to think of all the abuse we took for the past decade saying the Fed was all that mattered.

But speaking of the Fed, the best quotes came from JonesTrading strategist Mike O’Rourke, who said called the action “Gluttonous Greed. The madness continues. The biggest surprise in today’s trading was that Tailored Brands’ shares actually sold off when it was reported the company was considering bankruptcy.”

But the punchline was the same one both Muraki and we asked earlier in the day: when will the Fed finally step in and gradually let the air out of this insane bubble it has created, or else risk the biggest cash every:

“In this tape, bankruptcies have become the flavor of the day. At what point will Jay Powell and his colleagues at the Federal Reserve realize they have broken the market’s pricing mechanism? The bankruptcies are only a small part of the story.”

We are due for an answer tomorrow when the FOMC announces its latest decision (which may or may not be the launch of Yield-Curve Control), although we doubt that the coward in charge of the Fed will do anything to derail the biggest and final bubble the he himself created and now is fully responsible for.

Which is why until the Fed has no choice and stocks do crash, we are going to get much more idiocy such as this: Robin Hood investors who heard about something called FANG stocks and instead of buying the 4 tech megacaps… ended up buying worthless Chinese real estate company FANGDD (ticker DUO), sending its stock price from $10 to $130 in four hours, and pushing its market cap just shy of $4 billion!

And then of course there is this: with stocks back to all time highs, CNBC had to explain to the Robin Hood trading gurus just what a bankrutpcy means.

We are near all time highs and CNBC is talking about this… pic.twitter.com/z04Cl70IQl

— Thomas Thornton (@TommyThornton) June 9, 2020