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Goldman Admits Reddit Raiders Could Crash the Entire Market

Goldman Warns If The Short Squeeze Continues, The Entire Market Could Collapse

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This article was originally published by ZeroHedge.

Goldman Warns If The Short Squeeze Continues, The Entire Market Could Crash

Last Friday (Jan 22) we advised readers who thought they had missed the move in Gamestop (they hadn't), to position appropriately in the most shorted Russell 3000 names which included such tickers as FIZZ, DDS, BBBY, AMCX, GOGO and a handful of other names, as it was likely that the short-squeeze was only just starting.

We were right and all of the stocks listed above - and others - exploded higher the coming Monday, and all other days of the week, with results - encapsulated by the WallStreetTips vs Wall Street feud - that has become the top conversation piece across America, while on WSB the only topic is the phenomenal gains generated by going long said most shorted stocks. To wit, the basket of top shorts we compiled on Jan 22 has tripled in the past week.

And while some are quick to blame last week's fireworks on the "dopamine rush" of traders at r/wallstreetbets who seek an outlet to being "copped up with little else to do during the pandemic" (as Bloomberg has done, while also blaming widespread lockdowns and forgetting that it has been Bloomberg that was among the most vocal defenders of the very lockdowns that have given us the short squeeze of the century), the reality is that at the end of the day the strategy unleashed by the subreddit is merely an extension of the bubble dynamics that were made possible by the Federal Reserve (of which Bloomberg is also a very staunch fan) pumping trillions and trillions of shotgunned liquidity into a financial system where there are now bubble visible anywhere one looks. In short, main street finally learned that it too can profit from the lunacy of the money printers at the Marriner Eccles building, and some are very unhappy about that (yes, it will end in tears, but - newsflash - $300 trillion in debt and $120BN in liquidity injections monthly will also end in tears).

That aside, one week later, Goldman has finally caught up with what Zero Hedge readers knew one week ago, and all the way down to a chart showing a basket of the most-shorted Russell 3000 stocks...

... Goldman's David Kostin has published a post-mortem of what happened last week, writing that "the most heavily-shorted stocks have risen by 98% in the past three months, outstripping major short squeezes in 2000 and 2009."

He then points out something we discussed in "Hedge Funds Are Puking Longs To Cover Short-Squeeze Losses", noting that while aggregate short interest levels are remarkably low (imagine what would have happened has shorting been far more aggressive marketwide)...

... "the -4% weekly return of our Hedge Fund VIP list of the most popular hedge fund long positions (GSTHHVIP) showed how excess in one small part of the market can create contagion."

As an aside, and as we showed previously, as the most shorted stocks soared...

... hedge funds were forced to cover (as well as paying for margin calls), and as part of the broader degrossing they also had to sell some of the favorite hedge fund names across the industry, in this case represented by the Goldman Hedge Fund VIP basket.

Yet what may come as a surprise to some, even as hedge funds deleveraged aggressively and actively cut risk this week, gross and net exposures "remain close to the highest levels on record" (something which may come as a huge surprise to Marko Kolanovic who has been erroneously claiming the opposite), suggesting that if the squeeze continues, hedge funds are set for much more pain.

According to Goldman Sachs Prime Services, this week "represented the largest active hedge fund de-grossing since February 2009. Funds in their coverage sold long positions and covered shorts in every sector" and yet "despite this active deleveraging, hedge fund net and gross exposures on a mark-to-market basis both remain close to the highest levels on record, indicating ongoing risk of positioning-driven sell-offs."

With that in mind, here are Kostin's big picture thoughts:

It was a placid week in the US stock market – provided one was a long-only mutual fund manager. US equity mutual funds and ETFs had $2 billion of net inflows last week (+$10 billion YTD). Although the typical large-cap core mutual fund fell by 2% this week, it has generated a return of +1.3% YTD vs. S&P 500 down -1.1%. However, life was very different last week if one managed a hedge fund. The typical US equity long/short fund returned -7% this week and has returned -6% YTD.

With the average WSB portfolio up double digits this past week, one can see why hedge funds are upset. Anyway, moving on:

The past 25 years have witnessed a number of sharp short squeezes in the US equity market, but none as extreme as has occurred recently.In the last three months, a basket containing the 50 Russell 3000 stocks with market caps above $1 billion and the largest short interest as a share of float (GSCBMSAL) has rallied by 98%.  This exceeded the 77% return of highly-shorted stocks during 2Q 2020, a 56% rally in mid-2009, and two distinct 72% rallies during the Tech Bubble in 1999 and 2000. This week the basket’s trailing 5-, 10-, and 21-day returns registered as the largest on record.

Thanks Goldman, and yes, your "brisk assessment" would have been more useful to your clients if it had come before the event (like, for example, this) instead of after.

Kostin then goes on to point out that the "mooning" in the most shorted stocks took place even though aggregate short interest was near record low (imagine what would have happened had short interest been higher), which is odd because historically, "major short squeezes have typically taken place as aggregate short interest declined from elevated levels. In contrast, the recent short squeeze has been driven by concentrated short positions in smaller companies, many of which had lagged dramatically and were perceived by most investors to be in secular decline" to wit:

Unusually, the rally of the most heavily-shorted stocks has taken place against a backdrop of very low levels of aggregate short interest. At the start of this year, the median S&P 500 stock had short interest equating to just 1.5% of market cap, matching mid-2000 as the lowest share in at least the last 25 years. In the past, major short squeezes have typically taken place as aggregate short interest declined from elevated levels. In contrast, the recent short squeeze has been driven by concentrated short positions in smaller companies, many of which had lagged dramatically and were perceived by most investors to be in secular decline.

Of course, there is nothing "historical" about what happened last week, because - as we all know - the biggest difference between the typical short squeeze of the past and the recent rally in heavily-shorted stocks "was the degree of involvement of retail traders, who also appear to have catalyzed sharp moves in other parts of the market." Why thank you WSB, but that's ok - you will be handsomely rewarded.

Last week we discussed the surging trading activity and share prices of penny stocks, firms with negative earnings, and extremely high-growth, high-multiple stocks. These trends have all accompanied a large increase in online broker trading activity. A basket of retail favorites (ticker: GSXURFAV) has returned +17% YTD and +179% since the March 2020 low, outperforming both the S&P 500 (+72%) and our Hedge Fund VIP list of the most popular hedge fund long positions (GSTHHVIP, +106%).

So why does this matter? One simple reason: contrary to the bizarrely nonchalant optimism spouted earlier this week by JPMorgan's Marko Kolanovic who said "any market pullback, such as one driven by repositioning by a segment of the long-short community (and related to stocks of insignificant size), is a buying opportunity, in our view," Goldman has a far more dismal take on recent events, and writes that "this week demonstrated that unsustainable excess in one small part of the market has the potential to tip a row of dominoes and create broader turmoil."

He then picks up on what he said last weekend when responding to Goldman client concerns about a stock bubble, which we summarized in "Goldman's Clients Are Freaking Out About A Stock Bubble: Here Is The Bank's Response", and which turned out to be 100% warranted, and writes that "most of the bubble-like dynamics we highlighted last week have taken place in stocks constituting very small portions of total US equity market cap. Indeed, many of the shorts dominating headlines this week were (prior to this week) small-cap stocks. But large short squeezes led investors short these stocks to cover their positions and also reduce long positions, leading other holders of common positions to cut exposures in turn."

As a result, Goldman's Hedge Fund VIP list declined by 4%. Which is a problem because as Kostin concludes, "in recent years elevated crowding, low turnover, and high concentration have been consistent patterns, boosting the risk that one fund’s unwind could snowball through the market."

Translation: if WSB continues to push the most shorted stocks higher, the entire market could crash.

And since Kostin admits that "the retail trading boom can continue" as "an abundance of US household cash should continue to fuel the trading boom" with more than 50% of the $5 trillion in money market mutual funds owned by households and is $1 trillion greater than before the pandemic, what happens in the coming week - i.e., if the short squeeze persists - could have profound implications for the future of capital markets.

Tyler Durden Sat, 01/30/2021 - 18:30

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Government

CDC Director: Unvaccinated Police, Government Workers To Be Sent For “Education And Counseling”

CDC Director: Unvaccinated Police, Government Workers To Be Sent For "Education And Counseling"

Authored by Steve Watson via Summit News,

Appearing on Fox News Sunday, the CDC Director Rochelle Walensky declared that the Biden regime is…

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CDC Director: Unvaccinated Police, Government Workers To Be Sent For "Education And Counseling"

Authored by Steve Watson via Summit News,

Appearing on Fox News Sunday, the CDC Director Rochelle Walensky declared that the Biden regime is planning to provide vaccine hesitant police and other government workers with “education and counseling” to make them “comfortable” about taking the shots.

Walensky told Chris Wallace that “We have seen that these mandates are getting more and more people vaccinated.”

“What we know from the police workforce is there have been more deaths from the coronavirus over the last year and a half than all other causes of death for that workforce combined,” she claimed, adding “So we believe it is very important to get these people vaccinated.”

Then came the kicker.

“There is a plan, should these people not want to be vaccinated, towards education and counseling to get people the information they need so that they are feeling comfortable in getting vaccinated,” Walensky declared.

Watch:

As we have continually noted, police and firefighters all over the U.S. have formed resistance groups against the vaccine mandates, and many officers have made videos of themselves signing off after being forced to resign.

Washington State trooper Robert LaMay, who infamously signed off after 22 years in the job by telling Democrat Governor Jay Inslee to “kiss my ass”, has warned that the Biden administration has “awoke the sleeping giant,” and that “extreme” numbers of police are walking off the job.

Watch:

Former Cincinnati and Detroit police chief James Craig told Tucker Carlson last week that “This is all by design. It’s not by accident,” further declaring that Democrats forcing good cops out of their jobs is a continuation of the “utterly ridiculous defund the police” agenda.

Watch:

Watch the latest video at foxnews.com

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Tyler Durden Tue, 10/26/2021 - 09:15

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Government

Bond Market Crash Will Surprise Only The Uninformed

Bond Market Crash Will Surprise Only The Uninformed

By Bloomberg macro commentator and analyst Tommi Utoslahti

A global bond market meltdown is only a matter of time. One fine morning, traders will wake up to find all benchmark yields sharpl

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Bond Market Crash Will Surprise Only The Uninformed

By Bloomberg macro commentator and analyst Tommi Utoslahti

A global bond market meltdown is only a matter of time. One fine morning, traders will wake up to find all benchmark yields sharply higher, 10 to 20 basis points or more, and no buyers around.

Bond price indicators are flashing deep red right now, from decade-high inflation expectations to waning auction demand and whispers of depressed liquidity. Last week, the U.S. 5-year breakeven rate briefly topped 3% for the first time since the maturity was restarted in 2004
Bloomberg’s U.S. Treasury index is on track for its worst annual loss since 2009, and that’s only the beginning. Expect the Treasury 10-year yield to top 2%, Bunds to end their two-year trek in the sub-zero wilderness and Gilts to continue pushing higher toward levels last seen in 2018.

It’s not a taper tantrum. The time for that passed months ago, and the Fed’s well-telegraphed intention to start slowing its $120 billion monthly bond purchases at next week’s meeting is all baked in.

Bonds will collapse on investors’ delayed realization that inflation is here to stay, and won’t be tamed without serious policy tightening.

Equally serious concern stems from the fact that a big part of the recent inflation spike is supply-shock driven. Conventional policy tightening would do little to resolve supply-chain problems, leaving policy makers unable to directly influence rising prices.

If all that sounds unrealistic, or just a mere tail risk scenario, consider this: wagers for Bank of England rate hikes over the next year have been ramped up to more than 100 basis points in only a few weeks. A Hundred basis points! Saying that aloud would have been seen as a joke as recently as early September.

Perma-bulls often point out that yields fell following the 2013 taper tantrum. That is correct, but it only happened after the Treasury 10-year yield had surged about 140 basis points in four months and took well over a year to return to where it was before the selloff. A similar move now from August lows would take Treasuries above 2.5%.

The biggest difference is in the macro backdrop. In 2013, the headline U.S. inflation rate was well below 2% -- it’s been over 5% for five months now. The ISM index of prices paid for inputs is hitting levels not seen for a decade and the inflation expectations of the University of Michigan consumer survey are the highest since 2008.

Everyday consumer items are only about to get more expensive amid stubborn supply-chain disruptions. There’s an energy crunch brewing in many of the developed economies and crude oil appears more likely to hit $100 than fall back toward $50.

Fed Chair Powell on Friday said that “risks are clearly now to longer and more persistent bottlenecks”. Other Fed officials have earlier acknowledged that “transitory” has become a dirty word. And the global financial commentariat is now more often talking about “policy error.”

Treasury yields are now almost exactly where they were just before the 2013 taper tantrum or the 2016 reflation trade following Trump’s election victory. In both cases, yields eventually topped 3%.

Portfolio holders suddenly find themselves bracing for potentially massive losses. Duration hedging will only work to drive bond prices lower. The dollar should benefit from the dual tailwind of higher U.S. yields and haven demand.

Risk assets won’t be able to ignore severe bond market carnage. Earlier this year, when 10-year Treasuries were testing 1.70%, the S&P 500 index retreated about 5% before resuming its rally. Investors shouldn’t count on such a benign reaction this time. Wall Street near records and the VIX at its lowest since the pandemic started show that stocks are hopelessly unprepared for tighter funding conditions.

It’s not all gloom. Previous cycles have shown that the world economy can handle higher borrowing costs. Equities may even see firmer yields as a sign of a strong economy. But there’s no denying recalibration to higher yields after years of ultra-low rates will be a painful exercise for those not ready for it.

Tyler Durden Tue, 10/26/2021 - 09:50

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Carbon nanotube-based sensor can detect SARS-CoV-2 proteins

CAMBRIDGE, MA — Using specialized carbon nanotubes, MIT engineers have designed a novel sensor that can detect SARS-CoV-2 without any antibodies, giving a result within minutes. Their new sensor is based on technology that can quickly generate rapid…

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CAMBRIDGE, MA — Using specialized carbon nanotubes, MIT engineers have designed a novel sensor that can detect SARS-CoV-2 without any antibodies, giving a result within minutes. Their new sensor is based on technology that can quickly generate rapid and accurate diagnostics, not just for Covid-19 but for future pandemics, the researchers say.

Credit: MIT

CAMBRIDGE, MA — Using specialized carbon nanotubes, MIT engineers have designed a novel sensor that can detect SARS-CoV-2 without any antibodies, giving a result within minutes. Their new sensor is based on technology that can quickly generate rapid and accurate diagnostics, not just for Covid-19 but for future pandemics, the researchers say.

“A rapid test means that you can open up travel much earlier in a future pandemic. You can screen people getting off of an airplane and determine whether they should quarantine or not. You could similarly screen people entering their workplace and so forth,” says Michael Strano, the Carbon P. Dubbs Professor of Chemical Engineering at MIT and the senior author of the study. “We do not yet have technology that can develop and deploy such sensors fast enough to prevent economic loss.”

The diagnostic is based on carbon nanotube sensor technology that Strano’s lab has previously developed. Once the researchers began working on a Covid-19 sensor, it took them just 10 days to identify a modified carbon nanotube capable of selectively detecting the viral proteins they were looking for, and then test it and incorporate it into a working prototype. This approach also eliminates the need for antibodies or other reagents that are time-consuming to generate, purify, and make widely available.

MIT postdoc Sooyeon Cho and graduate student Xiaojia Jin are the lead authors of the paper, which appears today in Analytical Chemistry. Other authors include MIT graduate students Sungyun Yang and Jianqiao Cui, and postdoc Xun Gong.

Molecular recognition

Several years ago, Strano’s lab developed a novel approach to designing sensors for a variety of molecules. Their technique relies on carbon nanotubes — hollow, nanometer-thick cylinders made of carbon that naturally fluoresce when exposed to laser light. They have shown that by wrapping such tubes in different polymers, they can create sensors that respond to specific target molecules by chemically recognizing them.

Their approach, known as Corona Phase Molecular Recognition (CoPhMoRe), takes advantage of a phenomenon that occurs when certain types of polymers bind to a nanoparticle. Known as amphiphilic polymers, these molecules have hydrophobic regions that latch onto the tubes like anchors and hydrophilic regions that form a series of loops extending away from the tubes.

Those loops form a layer called a corona surrounding the nanotube. Depending on the arrangement of the loops, different types of target molecules can wedge into the spaces between the loops, and this binding of the target alters the intensity or peak wavelength of fluorescence produced by the carbon nanotube.

Earlier this year, Strano and InnoTech Precision Medicine, a Boston-based diagnostics developer, received a National Institutes of Health grant to create a CoPhMoRe sensor for SARS-CoV-2 proteins. Researchers in Strano’s lab had already developed strategies that allow them to predict which amphiphilic polymers will interact best with a particular target molecule, so they were able to quickly generate a set of 11 strong candidates for SARS-CoV-2.

Within about 10 days of starting the project, the researchers had identified accurate sensors for both the nucleocapsid and the spike protein of the SARS-CoV-2 virus. During that time, they also were able to incorporate the sensors into a prototype device with a fiber optic tip that can detect fluorescence changes of the biofluid sample in real time. This eliminates the need to send the sample to a lab, which is required for the gold-standard PCR diagnostic test for Covid-19.

This device produces a result within about five minutes, and can detect concentrations as low as 2.4 picograms of viral protein per milliliter of sample. In more recent experiments done after this paper was submitted, the researchers have achieved a limit of detection lower than the rapid tests that are now commercially available.

The researchers also showed that the device could detect the SARS-CoV-2 nucleocapsid protein (but not the spike protein) when it was dissolved in saliva. Detecting viral proteins in saliva is usually difficult because saliva contains sticky carbohydrate and digestive enzyme molecules that interfere with protein detection, which is why most Covid-19 diagnostics require nasal swabs.

“This sensor shows the highest range of limit of detection, response time, and saliva compatibility even without any antibody and receptor design,” Cho says. “It is a unique feature of this type of molecular recognition scheme that rapid design and testing is possible, unhindered by the development time and supply chain requirements of a conventional antibody or enzymatic receptor.”

Quick response

The speed with which the researchers were able to develop a working prototype suggests that this approach could prove useful for developing diagnostics more quickly during future pandemics, Strano says.

“We’re able to go from someone handing us viral markers to a working fiber optic sensor in an extremely short amount of time,” he says.

Sensors that rely on antibodies to detect viral proteins, which form the basis of many of the rapid Covid-19 tests now available, take much longer to develop because the process of designing the right protein antibody is so time-consuming.

The researchers have filed for a patent on the technology in hopes that it could be commercialized for use as a Covid-19 diagnostic. Strano also hopes to further develop the technology so that it could be deployed quickly in response to future pandemics.

###

The research was funded by a National Institutes of Health Rapid Acceleration of Diagnostics (RADx) grant.


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