Reality bites traders, memers and crypt-iots
Melvin Capital is maybe the first — but certainly won’t be the last — hedge fund hammered out of business as markets wean themselves off the heroin of cheap money that has propelled stocks and just about everything else for the past two-plus years.
Hedge-fund investors, even those who run train wrecks like Melvin, do have a way of making it through tough times. They still have their homes in the Hamptons or Miami as collateral, and often much more than a few million bucks stashed away for a rainy day.
So don’t cry for the big guys taking it on the chin. The question is, do the average investors who became day traders in recent years and chased the bubble in crypto, meme stocks and other inflated assets deserve our sympathy?
Yes, hedge funds and market pros are capitulating, a fancy Wall Street word for surrendering to the reality that stocks or any of our bubble-induced assets are overvalued and you need to sell fast. But these wanna-be hedgies are generally holding on hard by using their “diamond hands” on crypto, meme stocks and everything that kept going straight up over the past year. They’re providing a buffer to the institutional selling, meaning that as bad as things are on the Nasdaq, S&P, crypto and a lot more, they could be even worse if/when the little guy starts selling.
Do they know something the rest of us don’t? They think so, which is why they’re the last ones out of this market. And it’s why we shouldn’t be hand-wringing about their losses. They had it coming in spades.
Among the biggest absurdities arising from the Fed-induced market bubble of the past two years is how many of these novice traders thought they were smarter than the market pros. They piled into stocks during the pandemic shutdowns because there was nothing better to do. And who can blame them? The Fed was pumping astronomical amounts of liquidity into the system, making s …