The collapse of the Archegos Capital Management LLC fund last month is only the most recent example of how extreme liquidity can make financial markets more volatile and sometimes lead to bizarre outcomes.
Another dramatic instance came in late January, when shares of GameStop Corp skyrocketed following a buying frenzy coordinated by retail investors eager to defend the video game retailer from funds betting against it.
Shares of GameStop have since retreated, but the episode shined an uncomfortable light on online trading platforms and speculative investment funds involved in the financial melee.
Photo: Reuters
In the case of Archegos, leading banks appear poised for hefty losses following billions of dollars in sudden stock liquidations by a fund that had large market exposure backed by very little cash.
Then there has been the wave of special purpose acquisition companies, known as SPACs, which have entered public markets through transactions with fewer rules than traditional stock offerings.
All of these cases show how a flood of liquidity in the wake of accommodative monetary policy is changing Wall Street.
“Stocks have risen extremely quickly from their lows last March, but there is still plenty of liquidity out there,” Meeschaert Financial Services LLC president Gregori Volokhine said.
The US Federal Reserve has been aggressive in pumping funds into the financial system, while US President Joe Biden and his predecessor Donald Trump signed sweeping fiscal packages that primed households and businesses with funds.
“I just don’t know that we’ve seen this much money hit the system this fast between what we’ve seen in stimulus checks and now what we’re going to see with infrastructure,” said TD Ameritrade Holding Corp market strategist JJ Kinahan, alluding to Biden’s US$2 trillion infrastructure plan announced last week.
Some of the volatility is also the result of investors trying to navigate shifts in the market as the economy rebounds with more people vaccinated against COVID-19 and technology shares that prospered during lockdowns lose some of their luster.
“Enterprising investors know they need to find other vehicles besides software, social networks and e-commerce stocks,” Volokhine said. “They’re looking for ways to make more money.”
Implosions such as Archegos’ can happen when funds are “looking to differentiate their returns, which is harder do in a bull market,” Kinahan said.
The churn in the market is sparking talk of more financial regulation. In the wake of GameStop, lawmakers have grilled online trading platform Robinhood over its moves to temporarily restrict trading amid the frenzy.
Robinhood, which itself plans to go public, has also been questioned about its relationships with hedge funds that do business with it.
The Archegos debacle has focused debate on swaps, derivative transactions that can allow big, high-risk bets with small upfront payments.
The opacity of the swaps market makes it a prime candidate for new rules from the Securities and Exchange Commission, Volokhine said.
Sweeping policy changes under US Secretary of Health and Human Services Robert F. Kennedy Jr are having a chilling effect on vaccine makers as anti-vaccine rhetoric has turned into concrete changes in inoculation schedules and recommendations, investors and executives said. The administration of US President Donald Trump has in the past year upended vaccine recommendations, with the country last month ending its longstanding guidance that all children receive inoculations against flu, hepatitis A and other diseases. The unprecedented changes have led to diminished vaccine usage, hurt the investment case for some biotechs, and created a drag that would likely dent revenues and
Macronix International Co (旺宏), the world’s biggest NOR flash memory supplier, yesterday said it would spend NT$22 billion (US$699.1 million) on capacity expansion this year to increase its production of mid-to-low-density memory chips as the world’s major memorychip suppliers are phasing out the market. The company said its planned capital expenditures are about 11 times higher than the NT$1.8 billion it spent on new facilities and equipment last year. A majority of this year’s outlay would be allocated to step up capacity of multi-level cell (MLC) NAND flash memory chips, which are used in embedded multimedia cards (eMMC), a managed
CULPRITS: Factors that affected the slip included falling global crude oil prices, wait-and-see consumer attitudes due to US tariffs and a different Lunar New Year holiday schedule Taiwan’s retail sales ended a nine-year growth streak last year, slipping 0.2 percent from a year earlier as uncertainty over US tariff policies affected demand for durable goods, data released on Friday by the Ministry of Economic Affairs showed. Last year’s retail sales totaled NT$4.84 trillion (US$153.27 billion), down about NT$9.5 billion, or 0.2 percent, from 2024. Despite the decline, the figure was still the second-highest annual sales total on record. Ministry statistics department deputy head Chen Yu-fang (陳玉芳) said sales of cars, motorcycles and related products, which accounted for 17.4 percent of total retail rales last year, fell NT$68.1 billion, or
In the wake of strong global demand for AI applications, Taiwan’s export-oriented economy accelerated with the composite index of economic indicators flashing the first “red” light in December for one year, indicating the economy is in booming mode, the National Development Council (NDC) said yesterday. Moreover, the index of leading indicators, which gauges the potential state of the economy over the next six months, also moved higher in December amid growing optimism over the outlook, the NDC said. In December, the index of economic indicators rose one point from a month earlier to 38, at the lower end of the “red” light.
RSS