🚨#JustDarioDaily 🚨

🚨WHY #CHINA MARGIN LENDING NIGHTMARE IS A BIG WARNING ⚠️ TO #US AND #EUROPE #STOCKS🚨

As you know, I am currently in mainland #China, so please forgive me if I am going to be extra careful about anything I write until next week 🙏🏻

Yesterday, #China #stocks suddenly started to free fall in what could have turned into a 1987 style crash if it wasn't for circuit breakers and the big support coming from the Chinese "national team". #Stocks indexes only started to bounce back after trading in about 25% of all listed companies in #China was suspended for the day. What could have triggered such panic selling?

Last week, I warned about a potential big dump coming for #China #stocks due to the unlock of many controlling shareholders' shares post-IPO (see below) and it looks like that is what triggered Monday's mayhem in Chinese #stocks. In a practice very common in investment banking, many brokers lent money to company founders against their pre-IPO shares as collateral in order to secure the IPO mandate. However, what no one could have expected during the "everything is #bullish" years was that by the time the shares became tradable, all the collateral was underwater.

Imagine brokers rushing to sell altogether as fast as possible to cover their margin lending losses in a market that is completely illiquid and you have the perfect recipe for a #stocks disaster. Considering that the selling happened in many #stocks that just IPOed, the crash was more acute because of the already low market cap and razor-thin liquidity. That triggered a chain reaction of margin lending unwinding across the board that only stopped once the circuit breakers were hit one after the other, forcing the selling to stop.

As you can see from chart 1 here, not only are there still 1.55 trillion $CNY of margin loans outstanding, but traders (in particular the "Dumb & Dumbers" hedge funds) levered up big time to #BTFD from mid-September till December 2023 while #stocks kept grinding lower.

All in all, what you are seeing right now happening between #China and #HongKong is a massive liquidation of #stocks collateral (that looks like far from ending).

Now, do you think #China is an isolated case in the world? Of course not! Even if brokers' margin lending eased in western countries since the 2022 peak (see chart 2) and now at about ~400bn $USD in US, in reality, the "indirect" leverage kept growing, fuelling the #stocks bubble. I know I sound like a broken record here (x.com/dariocpx/statu…), but clearly, no one out there can still connect the consumer debt dot with $NVDA and other popular retail #stocks out there that keep running against logic and gravity.

As I said in the title, what's happening in #China is a big warning to people out there still gambling wildly with borrowed money in both the #US and #Europe. Never forget that bubbles bursting make gains disappear, but debts do remain and, like many of our parents learned the hard way during the Dot-com bust, it can be very hard to recover after that.

https://x.com/dariocpx/status/1754687325479518585?s=46

🚨Old post about SoftBank -

⚠️ THE RISK OF A $VIX TURKEY BURSTING OUT FROM THE (SOFTBANK) OVEN ⚠️

Something happened yesterday that has been broadly ignored: the Bank Of Japan printed ~10bn $USD equivalent in $JPY and delivered an adrenaline shot of liquidity to the market. Hold on a second, why the need to inject liquidity through the back door without any apparent need? The answer is straightforward: Softbank is imploding, and they are trying to contain the fallout. 🚨

What would you think a big trader with gazillions of dollars in leverage would do if is in desperate need to achieve 2 goals:

1 - Raise cash

2 - Re-Inflate its portfolio value

The big trader will start shorting options and receiver swaps in the market, regardless of whether it makes economic sense or not. Part of the premium collected will be used to fend off margin calls. Another part will be used to squeeze up stocks and re-inflate the value of the portfolio pledged as collateral to the creditors in the hope they will back off. 👀

What do you think will happen if very large options volumes are traded in that way in a market that is becoming increasingly illiquid the more we move towards year-end? Volatility collapses. What happens when a #stocks pump, as a result of a volatile squeeze, exhausts itself and there are no real buyers left in the market? #stocks liquidity collapses. 🥲

This already happened since last Friday in Europe (x.com/dariocpx/statu…).

In the Japanese #stockmarket, where the #BOJ owns already 70%+ of all #stocks ETFs and as a consequence is the major shareholder in 55 of the companies included in the #Nikkei, liquidity has been evaporating to a trickle with the consequence that the BOJ needs to step in to prop up #stocks every time there is a slight pick up in selling volumes.

The $VIX spot in the US closed the last session at 12.85, crushed by an overwhelming options activity. Things became so absurd as of late that 80% OTM strike put options are the cheapest IN MODERN TIME HISTORY! x.com/themarketear/s…

Alright, now that I have presented how cash is being siphoned from the market (by Softbank), let’s move to the second part. 😉

$ARM is the biggest and most valuable holding in the Softbank portfolio. Now, what value do you think the market is giving to all the other assets in Softbank's balance sheet when their 90% stake in $ARM is valued now at ~57bn$ and Softbank Group market cap is ~60bn$? 3bn$ 🤭

As I flagged in this post, Softbank is so highly leveraged that they are even borrowing billions against their own stock as collateral (x.com/dariocpx/statu…). Furthermore, Masa Son already pledged 35% of his own shares as collateral to the personal loans he got from banks.

Do you understand now why $ARM is being squeezed up as much as possible? If $ARM goes down, then Softbank stock goes down, and that puts Softbank stocks posted as collateral in danger of being liquidated, accelerating the death spiral of the company. Since the company Q3 results disappointed and $ARM stock opened gapping down that day, the squeeze has been so powerful that it is now up 23% since then (chart 1). $ARM results have been reported on November 8, while on November 9, Softbank reported results, posting such a big loss that many brokers skipped a heartbeat! (x.com/dariocpx/statu…). However, Softbank stock didn't lose any value since reporting results! Chart 2.

Softbank has a problem though, they cannot sell any $ARM stock till next year because of the IPO lock-up, and their brokers know it. This means that, in the same course of events we saw with Archegos a while back, it might be not far from running out of cash and collateral to keep running all its schemes.

The $VIX turkey isn't dead inside the Softbank oven, as many do believe, and rest assured it will escape if Masa Son doesn't manage to keep the door shut. How far are we from a volmageddon? In the post below my last update, feel free to make your own considerations 🤷🏻‍♂️


https://x.com/dariocpx/status/1731479086030340326?s=46

⚠️#Tokyo #stocks open in 1.5h and still no news $NYCB 1bn$ (mini) rescue has been signed…

Big deal? No big deal? Soon we will know 🍿

Waiting ‼️‼️‼️

https://x.com/dariocpx/status/1766956032138605008?s=46

💥“Japan's wage hikes create game-changing inflation dynamic as #BOJ meets” - #Nikkei

As discussed last week (below), #Japan fell into a bad situation and is now facing a wage-prices spiral with real wages stuck since almost 2 years (even using the ridiculously underreported political adjusted official #CPI figures) increasing the pressure on #BOJ to do something 🤷🏻‍♂️

Will they have the guts to do so this is the real question for the #BOJ because they know it will hit global #stocks badly 🙄💥

https://x.com/dariocpx/status/1769506921583948275?s=46

💥Just to help everyone to picture the magnitude of things today better I highlighted in the chart 1987 Options Volumes (when computer based strategies triggered the infamous Black Monday #stocks crash)….

💥💥💥💥💥

https://x.com/dariocpx/status/1769564574779584773?s=46

🚨Meanwhile, in a galaxy far far away from #tech #stocks and the almighty #mag7……

No one got spare change for them? 🥲🚨

https://x.com/dariocpx/status/1769723346634133531?s=46

💥 BREAKING: THE #BOJ POLICY DECISION IS NOW OUT 🚨

Muted reaction from #stocks so far…

https://x.com/dariocpx/status/1769931454879076812?s=46

Rates raised.

"Between 0 & .1%"

Up from negative rate.

Expecting more of first domino than fireworks, but let's see what happens from here 🙏🙏

🟥🟥🟥🟥🟥

https://x.com/asekin113/status/1769932748293362169?s=46

➡️Basically the #BOJ told #stocks traders: “we are not going to buy #stocks anymore but we will keep printing $JPY for you to do so”

Narrator: and they told #Japan people “sorry but you are screwed” 💥

https://x.com/dariocpx/status/1769938848740782335?s=46

🟥🟥🟥🟥🟥

Another coincidence before the events… 🤷🏻‍♂️


Personally I never believe in coincidences, in particular when it’s too obvious 🙄

1 - $USD showing pretty risk-off flows on a Friday (Post below)

2 - $VIX bid right before US #stocks close for the week

3 - And then after #stocks close #ISIS terrorists attack in #Moscow begins

https://x.com/dariocpx/status/1771319981663514887?s=46

⚠️⚠️⚠️⚠️⚠️

Were these in anyone bing card to happen on the SAME day? 😳

- #Fed activates emergency liquidity facility (x.com/dariocpx/statu…)
- Israel retaliates against Iran
- #stocks Options OPEX day
- #Bitcoin  halving

Narrator: holy cow, brace for volatility… ⚠️

🟥🟥🟥🟥🟥

https://x.com/dariocpx/status/1781140631223775323?s=46