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.
Taiwan’s foreign exchange reserves fell below the US$600 billion mark at the end of last month, with the central bank reporting a total of US$596.89 billion — a decline of US$8.6 billion from February — ending a three-month streak of increases. The central bank attributed the drop to a combination of factors such as outflows by foreign institutional investors, currency fluctuations and its own market interventions. “The large-scale outflows disrupted the balance of supply and demand in the foreign exchange market, prompting the central bank to intervene repeatedly by selling US dollars to stabilize the local currency,” Department of Foreign
Intel Corp is joining Elon Musk’s long-shot effort to develop semiconductors for Tesla Inc, Space Exploration Technologies Corp and xAI, marking a surprising twist in the chipmaker’s comeback bid. Intel would help the Terafab project “refactor” the technology in a chip factory, the company said on Tuesday in a post on X, Musk’s social media platform. That is a stage in the development process that typically helps make chips more powerful or reliable. The chipmaker’s shares jumped 4.2 percent to US$52.91 in New York trading on Tuesday. The Terafab project is a grand plan by Musk to eventually manufacture his own chips for
Taiwan Power Co (Taipower, 台電) yesterday said it plans to resume operations at two coal-fired power generators for three months to boost security of electricity supply as liquefied natural gas (LNG) supply risks are running high due to the Middle East conflict. The two coal-fired power generators are at Mailiao Power Plant in Yunlin County’s Mailiao Township (麥寮). The plant, operated by Formosa Plastics Group (台塑集團), supplied electricity to Taipower’s power grid until the end of last year. Taipower’s decision came about one month after Minister of Economic Affairs Kung Ming-hsin (龔明鑫) on March 10 said that the nation had no imminent
Some robotaxi passengers were left stranded in the middle of fast-moving traffic in a major Chinese city after their driverless vehicles stopped running, according to police and media reports on Wednesday. A preliminary investigation indicates more than 100 robotaxis came to a halt because of a “system malfunction,” police in the city of Wuhan said in a statement, without elaborating. No injuries were reported. One passenger told Chinese media that their robotaxi stopped after turning a corner. An instruction on a screen read: “Driving system malfunction. Staff are expected to arrive in 5 minutes.” After no one showed up, the passenger pushed
RSS