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

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.

Related articles by this author: 
This Is The Stunning Way Some Desperate Funds Covered Their GameStop Shorts
Siebert Financial Up 650% As "Wall Street Bets" Short Squeeze Continues
Reddit Preparing To Unleash "World's Biggest Short Squeeze" In Silver
Mark Cuban Presents A "Little Trick" For Creating The Mother Of All Short Squeezes
Siebert Financial Up 650% As "Wall Street Bets" Short Squeeze Continues
GameStop Shares Are Collapsing, Pelosi Says "Will Be Reviewing Issue"

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Bill Johnson 2 months ago Member's comment

Shorting stocks should be illegal.

Peter Craig 2 months ago Member's comment

I read an article a few years ago about the concept that a “perfect” economy would constantly experience deflation. The idea was that technology would continually make goods and services cheaper to provide. It touches on Moore’s law, regarding computers, but how a similar (but not so dramatic) law really applies to everything.

Randall Macfarland 2 months ago Member's comment

"While short term it is amusing...long term it will crash the markets."

Ok with me! I am shorting all of Wall Street. I got all out several months ago because I could see that a major correction was coming and with Biden in office its coming fast.

When the market crashes, and it will, I will move all back in. I rode out the last 3 crashes with well over a 100K losses.

Not this time, not when the future is so easy to see.

William K. 2 months ago Member's comment

Based on all of the additional comments, it is indeed reasonable that additional regulations should be put in place, AND probably better enforcement of those regulations already in place. Crime should not be allowed to pay.

Duke Peters 2 months ago Member's comment

The fact that GS is sweating bullets tells me they’ve been doing their usual lying, cheating and stealing from the common man again. These hedge funds have been allowed to manipulate the markets and damage our investments and retirement funds. Our wonderful progressive former *resident didn’t do a damn thing to these guys after 2008.

Too big to fail = too big to exist!

They can “learn to code” or “build solar panels” along the with pipeline folks who are losing their jobs. Oh the horrors!

Stock Tigress 2 months ago Member's comment

"excess in one small part of the market has the potential to tip a row of dominoes..."

Aren't these people supposed to be the responsible "experts" that know how to hedge risk?

Flat Broke 2 months ago Member's comment

It's a peasant revolt!

Texan Hunter 2 months ago Member's comment

Damn elites were overly short and a peasant revolt caught them. Instead of just taking the L and moving on, they empower their paid for politicians and silicon valley to strike back. Fixing this country won’t be easy.

Anthony Varrell 2 months ago Member's comment

I heard an interesting argument about price inflation. It goes like this: When the price of silver went over $40 an ounce back in the 2008 timeframe, the reason was that with all the money the fed was pumping into the economy, price inflation was expected. But it all went into the stock market and there was no price inflation to speak of. Silver crashed.

But this time they are giving it directly to the “little people”. some making more on unemployment than they made at their jobs. They spend the money. That may be one reason lumber is so high right now. It also may explain the bump in silver and gold.

And add the destruction of the world’s economy via the lockdowns. It does look like we’re living in interesting times.

BTW, Try to buy silver right now. Good luck...

BreakingBad News 2 months ago Member's comment

Which shows that Wall-Street has been cooking the books for far too long. If a person used the same money to back multiple investments it would be considered fraud, when Wall Street does it is is called creative accounting.