GameStop and Robinhood are linked to all the money supply surges

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by Shaun Richards

It has been quite an extraordinary week and that has just been added to by Elon Musk.The simple addition to Bitcoin to his twitter bio has seen it rise by US $4000 in around 15 minutes. This makes even the move by GameStop which rallied after hours from a close at US $193.60 after hours to US $312 seem quite normal. It seems some limited buying is allowed again and look at the impact.We can add to that this because I am not sure I recall a broker responding to events quite like this before.

Robinhood, the online brokerage at the centre of wild trading in equities this week, has raised more than $1bn from its existing investors and tapped credit lines from banks to shore up its financial position after a turbulent four days. The company has drawn down at least several hundred million dollars via a credit facility with banks led by JPMorgan and including Goldman Sachs, Morgan Stanley, Barclays and Wells Fargo, according to people familiar with the move. ( Financial Times)

They have obviously been taking lessons from central bankers as this is described thus.

A spokesperson for Robinhood early on Friday described the $1bn infusion from its investors as a “strong sign of confidence” that will help it “further serve our customers”.

Perhaps they are regretting this.

Robinhood user who was gifted a single share of GameStop stock when downloading the app in March just sold it for $353, a gain of more than 9,000% ( Wall Street Journal)

There is a group in Nottingham who are not regretting all this but they are somewhat bemused.

Lovely to have all these new followers .. can we just check that you know that you’re following The World Wide Robin Hood Society in Nottingham and not the Robin Hood App .. if so .. a big welcome from Sherwood.

Apparently they are run off their feet with new orders!

Oh and in the time I have been typing this Bitcoin has rallied another US $2000 so net up US $6000.

Money Money Money

Now let me switch to a news release from the European Central Bank which highlights something which is feeding all of this.

Annual growth rate of narrower monetary aggregate M1, comprising currency in circulation and overnight deposits, increased to 15.6% in December from 14.5% in November.

This is as high an annual growth rate as it has seen in its twenty years or so ( I am only counting the period for which the Euro has existed although numbers are calculated for beforehand and it still seems true). A couple of months ago it was nudging the 10 trillion Euro barrier and since then another 121 billion ( November ) and 125 billion ( December) have been added. That gives us an idea of the scale of what is taking place as Elvis Costello blares out from the loudspeakers.

Pump it up, until you can feel it
Pump it up, when you don’t really need it
Pump it up, until you can feel it
Pump it up, when you don’t really need it

These week some ECB sources ( sauces in modern language) have been hinting at yet another rate cut potentially fulfilling some more lines of the song lyrics.

She’s been a bad girl, she’s like a chemical
Though you try to stop it, she’s like a narcotic

Before I move on let me point out that the amount of cash in circulation rose by another 8 billion Euros in December. That means the annual rate of growth is 11.3% which is not bad for something we keep being told is in decline! We get plenty of denials about money printing but if we take the subject literally the answer is yes and on quite a scale. Curiously really because the next step after claiming that money is in decline is to claim that only money launderers, drug traffickers and other criminals use it.

Broad Money

This gives us a link as to where the money is going in the economy or at least it used to.

  • Annual growth rate of broad monetary aggregate M3 increased to 12.3% in December 2020 from 11.0% in November

In theory this flows straight into nominal Gross Domestic Product with the only debate being whether it becomes inflation or real growth. Except these days with the way inflation numbers are so manipulated it is hard to tell.For example the Euro area measure HICP simply omits the fastest growing area which is below.

House prices up by 4.9% in the euro area (EA-19) and by 5.2% in the EU-27 in the third quarter of 2020, compared with the same quarter of 2019.

Even the ECB admits it can be up to a third of consumer/household spending. I will leave that there because there are plenty of apologists for this who will construct all sorts of reasons why this should be so.

So we have a wash of cash and some of it is hard to pin down.For example this month saw a 41 billion increase in money market fund shares out of not much.

So there has been an enormous shove. Care is needed because this is a Euro game and we have been looking at US Dollar investments above.But there are all sorts of links these days and the same is happening with the US money supply.

Oh and did I mention a possible interest-rate cut?

ECB UNLIKELY TO CUT POLICY RATE AS BENEFIT SEEN LIMITED: SOURCES ( @DeltaOne)

For newer readers one of the themes of my work is never to believe anything until it is officially denied. Also I would point out that if the benefits being limited was the criteria here, they would not have made all the other interest-rate cuts either.

Comment

So today’s thesis is that some of the funds created has ended up in GameStop via the creation of the Robinhood traders.Not a direct link but via the way the stimulus cheques have been oiled and implicitly funded by the central banks. Then things get even more awkward because if we briefly put on our central banker hats do we calculate the Wealth Effects at a GameStop share price of US $397 ( it has been rising as I wrote this) or US $193.60? Maybe they will be distracted by personal wealth effects.

Janet Yellen accepted $810,000 in speaking fees from Citadel, owner of Robinhood.

Reporter: Are there any plans to recuse herself from advising the President on GameStop and Robinhood situation?

Psaki: ‘No and she’s an expert and deserves that money.’ ( @IsicaLynn)

There are some really awkward elements to this whole episode.Whilst in isolation it is amusing to see some  hedge funds on the run others will have been on the other side.Also we should be careful about cheer leading for geared investments as they have consequences. Some of the trading halts have been due to the slow settlement process and margin calls on the brokers.

Industrywide collateral requirements for U.S. brokerages yesterday jumped to $33.5 billion, up from $26 billion, in the face of higher stock-specific volatility: DTCC  ( @lisaabramowicz )

Next comes the fact that shares are being pushed to many times their value which means that whilst some will gain most of the Wall Street Bets crowd will lose.

 

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