But that doesn’t mean this will necessarily end well. And it certainly doesn’t mean that all (or even most) large Wall Street firms are mad about what’s going on. In fact, some of them are downright elated.
Virtu Financial is publicly traded and the company feasts on two things – volatility and the easily harvestable trading mistakes of other players. They’re getting a major influx of both things at once right now and you can see the company’s stock price racing back up to its prior high, which occurred during the massive volatility of 2018. (...)
For HFT firms and market makers, volatility + volume = profits. Wall Street does not feel attacked by this, outside of the long-short hedge fund complex (which definitely does). If anything, Wall Street’s entrenched interests are very heavily rewarded by all this activity – because Wall Street does not pick sides. They get paid by both sides of the trade and make even more money when there is a scramble to lay off risk. “Wall Street” is not one of the roosters in this cockfight, Wall Street is the f***ing ring.
And then off Wall Street there’s this whole other complex of large players who are also feasting on this recent barrage of retail trading acrobatics. They’re not appearing on television or tweeting, they’re ringing the register. “Sold to you, Reddit and TikTok, and by all means please keep buying.” You will not hear anyone say this out loud. They don’t need even need to say it among themselves. There’s a lot of smiling and winking going on; there will be no electronic traces of a knowing smirk when the inevitable crash happens and the regulators shout CUI BONO? for the television cameras.
Petition writes about the supposed stock market “revolution” brought about on internet message boards these past few weeks. It turns out that a few unimportant hedge funds were blown up, but most of the real beneficiaries of the madness are not kids. They’re gigantic private equity firms, bondholders and landlords.
For example, the massive technology and media-oriented PE firm Silver Lake Partners just saw their AMC debt holdings swing from a loss of $200 million to a gain of $100 million on paper, as a result of the stock’s rapid rise. The company was able to raise hundreds of millions of dollars by selling stock and then re-engineer their various loans and liabilities thanks to the enthusiasm of the amateur equity buyers.
Except none of this seems to be taking into account that while, sure, shorts like Melvin Capital and Citron Research got smoked by a bunch of RedBull-IV’d basement traders,** plenty of other Wall Street-y institutions are having what seems like heaps of fun getting in on the F*cking. We mean, we’re looking at Silver Lake Partners — a private equity firm WITH $72B UNDER MANAGEMENT — and, call us crazy, but they’re, like, a private equity firm. They seem to be right up there with those targeted by WSB. We’re sure they were thinking about the “little guy” when they converted their debt into equity and systematically dumped their equity holdings (as the price ascended, of course) into the market while also ridding themselves of their $100mm 10.5% first lien notes, completely severing ties to AMC while the market drooled all over itself…
Note the average price per share! Reuters tallies the sale proceeds at $713mm. We would check that math and/or calculate the IRR but, frankly, we are afraid our tech will spontaneously combust and/or Johnny may throw himself out the window in a fit of disbelief, frustration and jealousy (with maybe a pinch of admiration). Suffice it to say, they did alright.
Sold! To the man-child eating chicken tenders at 2 o’clock in the afternoon! Next auction!
by Joshua M. Brown, The Reformed Broker | Read more:
Image: uncredited
[ed. See also: Five questions for the Congressional hearings on GameStop, Reddit and Robinhood (RB); and, just generally: Stimulus, More Stimulus and Taxes (Big Picture).]
