There has been nothing like this GameStop GME, +67.87% saga in recent memory. It’s still early days. But already we can work out some of the groups who are likely to emerge as losers when the dust settles. At least if history is any guide — which, alas, it usually is. some of the big investors in hedge funds are those massive public sector pension funds around America that are already swimming in red ink. They love ‘allocating’ some of the pension money to ‘alternative strategies’ including ‘long-short equity,’ which is a fancy way of saying they take some of the money needed for the pensions of hacks, teachers, firefighters, hacks, police officers, garbage collectors and hacks and throw them at hedge funds of the type that just got hosed, but good. But these are ‘defined benefit’ or final salary pension plans, so if the money isn’t there for the hacks and others when they retire, it will have to be found, and we all know where. Hedgeye, an investment company in Greenwich, Conn., says the economy, and hence the stock market, is always in one of four ‘quads’ — e.g., ‘slowing growth and falling inflation,’ and so on. Well, after 25 years in this business I can tell you the GameStop affair means we are now in ‘Quad Five’ — defined as the period when Things Get Seriously Weird. Like SPACs and bitcoin, this is bubble stuff, the kind of wacko event you see when the Starship Enterprise finds itself at the edge of the space-time continuum and everything goes nuts. And whatever comes after Quad Five is rarely good. Who will lose? Look in the mirror.
ignorance of how this racket works. Hedge funds are essentially a conspiracy against their investors, who are variously known as ‘limited partners,’ ‘clients’ and ‘total suckers,’ depending on who is listening. The way hedge funds work: When the funds go up, the managers take a big chunk of the profits. When the funds go down, the clients eat the losses. Sure, there is some downside for the managers. But it’s limited. And if things get really bad they just wind up the fund and start a new one. A guy at college with me went into hedge fund management. When his fund went well he pocketed millions. When the market turned his fund collapsed. Did he give back the millions? What do you think? Robinhood customers were blocked from trading by a sudden rule change halfway through the game. How’s that for getting hosed? No wonder they were furious. It would be like the referees suddenly deciding to, say, allow pass interference in the middle of the Super Bowl, just when your opponents had just stopped you scoring another touchdown. (Incidentally, lawyers will NOT be among the losers from this saga.) Robinhood has suffered the triple whammy of disastrous public relations, government oversight woes and a cash call. It’s going to be interesting to see how Robinhood recovers from this debacle — or if it can. Nick Note: The biggest funds and hedge funds are taking 100 billion in loses. Their is no way they the piss ants will pull this off. Its really simple government will have to cover the loss to retirees or stop this insanity. we both know what they will choose.