Archegos Positions Slide Amid Fears Of Stealth Prime Broker Deleveraging

As the calendar turns to April, the words we have lived by for nearly twenty years come to mind. “Higher prices bring out buyers, lower prices bring out sellers - size opens eyes.” Over the last week, it was the size of the losses inflicted on Wall St. banks - all delivered from one SINGLE family office that has caught our attention.

Eight days after the Archegos hit - the scared rabbits across the Street have only been able to quantify a $10B to $12B loss, this fact gives the word “insult” new meaning.

Of course, the pain inflicted comes after the Robinhood blowup, the Melvin Capital collapse and the Greensill implosion in Europe, all idiosyncratic, NOT. The Nasdaq bulls talk up “one offs” - but the these events are piling up which points to a classic, systemic leverage breaking point.

The size and breadth of today’s bull camp incentivizes market participants to downplay encroaching risk. Almost everyone is fully invested and using leverage for more juiced returns. This crowd will go out of their way to tell the bartender it’s only midnight - when a glance toward the watch says it’s half past 2AM. Just think about how long it takes Wall St. banks to come clean to leverage losses. History tells us - the lonely truth will join us one drop at a time.

Bull markets never, EVER die of valuation old age, its the leverage blow-up which triggers the deleveraging and takes the madness out of the crowd. Just look at the ARK ETFs, the marginal - over the top buyer is taking the sword as we speak.

Every hedge fund compliance officer across the Street is now in search of the next Archegos, and they have as much trust in their prime broker as the lovely Marylin Monroe had in the playboy that was JFK.

Incidentally, as McDonald also writes, the plunge in ViacomCBS and Discovery shows us that when growth and tech sell-off hard, it can open up pockets of weakness in the market, "that are potentially systemic. The recent Archegos saga was NOT an anomaly. Bill Hwang is not the only investor who has been levered-long tech and growth stocks. The de-leveraging that took place last week was so important because as yields continues to rise, more of these are coming... When momentum-longs can blow up with Earth shattering monetary and fiscal stimulus, imagine the fallout when said stimulus is withdrawn."

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