Wall Street has started to look beyond life after COVID-19 and massive stimulus. The Friday aftermath with Archegos Capital’s massive margin calls that led to the liquidation of over USD20 billion in stocks won’t be immediate. With the S&P 500 index only down modestly, the damage appears to be contained. Credit Suisse and Nomura are down over 13% after warning over potentially significant losses, while Goldman Sachs is down a few percentage points over losses that are being reported as likely immaterial. Morgan Stanley has been quiet, while some traders believe they were probably in the same position as Goldman Sachs and likely.
It does seem like the Friday beatdown for Viacom CBS, Discovery, and many Chinese tech stocks is a one-off event. Undoubtedly the over-leveraging done by Archegos Capital Management, run by former Tiger Asia manager Bill Hwang, will force every prime brokerage to review their books. When you look at the stocks that were incorrectly bet on, Wall Street must ponder if the V-shaped stock market recovery got out of hand.
A US-based hedge fund defaulted on margin calls and while the reopening of the economy trade will continue, the path higher for US stocks will be complicated and filled with fresh risks. US stocks will likely finish the year much higher, but markets will remain on edge as hedge scrutiny will intensify.
Bitcoin is surging after Visa signaled they will become the first major payments network to settle transactions in USD coin (USDC). Surprisingly, Ethereum is not outperforming Bitcoin as Visa will use a dollar-based stablecoin over Ethereum’s blockchain. The world is going crypto and a couple more Wall Street giant endorsements should be what is needed to take prices toward USD75,000 over the next couple of months.
Colombia’s central bank unanimously voted to keep rates steady at 1.75%, ending a string of decisions that had a minority call for more stimulus. The Friday policy decision was the first for both co-directors Mauricio Villamizar and Bibiana Taboada. Inflation is still too low, the lowest since the 1950s and the fear is that additional rate cuts could trigger a mass exodus of foreign capital. The situation in Colombia is becoming optimistic and the central bank might remain on hold for the majority of the year.