Evidence shows that the P.P.T. (U.S. Gov’t’s Plunge Protection Team)’s trading desk is working behind the scenes to attenuate the rate of decline of global markets. Even with this support, all markets are plummeting, and commodities markets [and nickel, and wheat, etc] are being prevented from free trading across droves of brokers and other exchanges.
When you were a kid, bartering and trading little cards and toys with other kids, what did you do [or what would you have done] if a desperate kid is coming after your nicest little cards and toys? Yes. You quickly retracted your little cards and toys, making a swift pull-back action as you hoard your toys – thereby protecting those assets from them being taken away. If everybody – if every kid – did this at the same time, this is what is called a liquidity crunch. No buyers. Only sellers but nobody to sell to – The End of the Market – where those still trying to sell set their own outlandish prices because there are no market transactions – there is no market data. Only retraction of the assets that you like. The few kids who were lucky enough to hold the nicest assets were the most envied. They just liked the ‘stocks’.
Evidence also reveals that the Federal Reserve has acted [albeit indirectly] to soften the blow to Citadel Securities (and company) by way of the Federal Reserve Overnight Reverse Repossession Program, which Citadel Securities prominently listed on their annual report. Yet, the securities held as ‘assets’ rather than shorts held as ‘liabilities’ on their annual report have indeed undergone an interruption in the past handful of business days. Global equities are in a top3-historic downfall (first 44 trading days of 2022 is in-line with Great Depression levels of declines). Therefore, Citadel Securities is now clearly in the negative (right now as we speak) when you analyze their long holdings and further estimate what their short holdings are (40% meme-stocks). The good news right now is that the Federal Reserve Overnight Reverse Repossession Program is now in a consistent decline. Money is being actively pulled back, thereby placing further increased pressure on these funds on top of the already-dangerous market backdrop of declines.
However, one thing that a lot of analysts are missing is that Citadel Securities holds both long positions (calls, shares) as well as short positions (puts, short-sales) on the same securities [as well as those short positions not disclosed via: ETFs, Swaps, and those unreported [naked]. So, there is some crossover as Citadel has been trying to abuse the low-borrow-fee [0.5% to 1.75%] to take advantage of historic inflation [8%]. The longer this goes on, the more they are [printing free money] based on the long term inflation-caused arbitrage of their owed-back amount (similar to the benefit of sitting on a long term mortgage while the U.S. dollar dilutes in value).
Essentially, Citadel Securities has attempted to pin meme-stocks, via outsized positions on both sides of the trade, in order to [in their last ditch hope] benefit from this inflation gain at the same time as writing out-of-the-money calls and puts on these meme-stocks while pinning the price [still while egregiously managing order flows between their own off-market exchanges AKA dark pools where they do reroute buy volume, and the lit pools AKA ‘the dump’ pool AKA NYSE where they do reroute sell volume] – all to allow relatively small gains to trickle in so that they can slowly shift their position [in the meme-stocks] from net short to net long over many years. It appears, however, that the historic market backdrop right now proves that their long-term hope is untenable: they cannot control the Fed pulling back, just as they cannot control raw company fundamentals, just as they cannot control new SEC and DTCC passages on disclosure of shorts and swaps, and just as they cannot control demand for the meme-stocks while the DOJ and FBI watch hedge funds’ every move mid-crack-down on short-selling abuses. Nothing can stop the unstoppable.
‘Long story short’ (no pun intended), as Citadel’s cash balance becomes dwarfed by their liabilities (shorts) exceeding their assets (longs), and as the Fed pulls back their resources from their most-exploited “overnight” repo program, there is the highest likelihood right now of a historic unwinding of leverage across global equities markets. Standby for historic volatility, and pay attention to meme-stock winners.
I cannot stress this enough: long-term confidence has gone up with these safe-havens (long term share ownership in the meme-stocks). Next to gold, these meme-stocks are, in my view, the only lifeboats in this volatile market. This is clearly not financial advice – these meme-stocks are simply the nicest little cards and toys out there, and valuable enough to retract, or safely-pull-in-to-own, during this global liquidity crunch that is now coupled with the historic unwinding of global credit.