After Gamestonk will hedge funds now threaten U.S. solvency itself?

stroopwafel

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So the other day I read somewhere that hedge funds on the cayman islands sold 400 billion dollar worth of U.S. government bonds of which 100 billion in the last two months alone(mind that Cayman islands have only 60k residents so that would mean 8 million per resident lmao).

But ofcourse the real reason is that cayman islands have about 11k hedge funds that own about 80% of hedge fund capital that is estimated to be about 3400 billion dollars. Cayman islands is known for their very mild fiscal regime but it also provides hedge funds the opportunity to anonomously speculate. Ofcourse one of the most recent examples is when they tried to short sell Gamestonk which angried an army of small reddit investors.

As expected, this however in no way discouraged hedge funds to massively short sell the biggest fund in the world: the U.S. with it’s state deficit of 28k billion dollars. This means that hedge funds are now willing to risk a confrontation with the Federal Reserve who is able to print money and buy state bonds in unlimited supply.

None the less hedge funds have accomplished to lower the share price of government bonds. The efficiency on 10 year bonds has increased from 0,9% beginning this year to 1,6% now. Hedge funds probably think those bonds will lower in value with Biden going on a spending spree. They anticipate this will lead to inflation and an increase in interest rates.

The hedge funds are taking a huge gamble here but by short selling this massively they undermine the solvency of the U.S. itself. It’s a sign on the wall that the financial power of the fast money community is growing each day. There is no stopping these vultures.
 
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stroopwafel

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I am confused. Did hedge funds buy or short sell US bonds?
So the other day I read somewhere that hedge funds on the cayman islands bought 400 billion dollar worth of U.S. government bonds of which 100 billion in the last two months alone(mind that Cayman islands have only 60k residents so that would mean 8 million per resident lmao).
This must ofcourse be sold. I'll edit the error.
 

Generals

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This must ofcourse be sold. I'll edit the error.
Makes more sense. This said I am not sure if we can compare this with the Gamestop "incident".
In this case the funds believe the increase in interest rates will reduce the value of the bonds they hold. What else are they supposed to do? Betray their investors by knowingly keeping a bad investment? This was a smart divestment based on their analysis. On the other hand in the case of gamestop they purposely invested into a company's demise.
 

stroopwafel

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Makes more sense. This said I am not sure if we can compare this with the Gamestop "incident".
In this case the funds believe the increase in interest rates will reduce the value of the bonds they hold. What else are they supposed to do? Betray their investors by knowingly keeping a bad investment? This was a smart divestment based on their analysis. On the other hand in the case of gamestop they purposely invested into a company's demise.
Hedge funds are short selling those bonds with the intent to lower their index price. Similarly how they speculated on Gamestonk's demise(which was imminent considering physical sales of videogames is on it's way out) so are they speculating Biden will go on a spending spree(thousands of billions of dollars for infrastructure, climate problems, poverty programs etc). They speculate this will lead to inflation and an increase in interest rates(that the central banks suppress for countries to go into massive deficit at the expense of people with savings accounts). At this point you could argue they are speculating at their investors behalf but by short selling those bonds so massively(and anonymously from the cayman islands) they are creating a self-fulfilling prophecy(similarly like a plummeting stock price) but in this case one that could threaten U.S. solvency.
 

Generals

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Hedge funds are short selling those bonds with the intent to lower their index price. Similarly how they speculated on Gamestonk's demise(which was imminent considering physical sales of videogames is on it's way out) so are they speculating Biden will go on a spending spree(thousands of billions of dollars for infrastructure, climate problems, poverty programs etc). They speculate this will lead to inflation and an increase in interest rates(that the central banks suppress for countries to go into massive deficit at the expense of people with savings accounts). At this point you could argue they are speculating at their investors behalf but by short selling those bonds so massively(and anonymously from the cayman islands) they are creating a self-fulfilling prophecy(similarly like a plummeting stock price) but in this case one that could threaten U.S. solvency.
Do mind short selling is quite different from selling, i'd propose editing the OP again ;)
But than yes it is a shitty and dick move. I do wonder however if in the case of US Bonds the impact will be as big as large scale shorting can be for normal/endagered companies.
 

Agema

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The hedge funds are taking a huge gamble here but by short selling this massively they undermine the solvency of the U.S. itself. It’s a sign on the wall that the financial power of the fast money community is growing each day. There is no stopping these vultures.
Do hedge funds really want to undermine the solvency of the world's largest economy, that they rely on for a huge chunk of their profits and most of their executives live in?

Quick answer: no.

At most, hedge funds might fire a few mild warning shots across the bows of the USA in the hope Biden will get cold feet and not come after international tax havens. But if Biden does really come after international tax havens, the hedge funds are definitely not going to save the village by destroying it.
 

Gergar12

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The reason is that Jerome Powell is implementing MMT or modern monetary theory. So in exchange for killing dividends(which companies are doing as well), and passive income, and basically eating the old, and the upper-middle-class who own US bonds he's propping up the rich who own most of the stocks, and ETFs.
 

stroopwafel

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The reason is that Jerome Powell is implementing MMT or modern monetary theory. So in exchange for killing dividends(which companies are doing as well), and passive income, and basically eating the old, and the upper-middle-class who own US bonds he's propping up the rich who own most of the stocks, and ETFs.
Olivier Blanchard first came up with that theory but even he thinks Jerome Powell is too extreme. The theory postulates that if you can keep credit cheap then states can borrow in unlimited supply and money is basically free. It's pretty much a financial cuckoo land. Governments go into massive deficit, central banks suppress the interest rates and inject more money into the economy(primarily the financial and stock market) without risk of inflation(which is bogus as it just manifests differently than currency devaluation like inflated stock or property prices).

The hedge funds actually speculate that these government bonds will lose their value as a result of this deficit as credit ofcourse isn't free, and the costs can only be kept low for so long. By short selling these bonds at these amounts they could eventually accomplish the central banks from falling in their own sword. That's why I said this puts them in direct confrontation with the Federal Reserve that is actually able to suppress the interest rates and print more money but even they couldn't prevent the hedge funds from lowering the price of these bonds.

If anything, if it wasn't evident enough hedge funds prove the failure of this theory.

Do hedge funds really want to undermine the solvency of the world's largest economy, that they rely on for a huge chunk of their profits and most of their executives live in?

Quick answer: no.

At most, hedge funds might fire a few mild warning shots across the bows of the USA in the hope Biden will get cold feet and not come after international tax havens. But if Biden does really come after international tax havens, the hedge funds are definitely not going to save the village by destroying it.
Biden can't do much. He's dependent on the capital markets and the deficit is short selled by the hedge funds through these bonds. It's like being bend over backwards and then having to say thank you. It's not even in his power to lift a finger. The question is more how far he's willing to go to please them.
 

Agema

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Biden can't do much. He's dependent on the capital markets and the deficit is short selled by the hedge funds through these bonds. It's like being bend over backwards and then having to say thank you. It's not even in his power to lift a finger. The question is more how far he's willing to go to please them.
Biden is limited by Congress much more than he is by capital markets.
 

Ravinoff

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You can read the full gigantic post here, but fuck me this has the potential to be nuclear.

 

Gergar12

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Increase in capital gains tax proposal.

Damn Biden's going hard on the rich.
 
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SilentPony

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I mean its the stock market, its all just made up numbers that have no real value in real life. Its all hypothetical, theoretical money that someone might be able to spend if they go through a bunch of hoops to prove its real.
 

Agema

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Damn Biden's going hard on the rich.
He should do.

Our governments spent a ton bailing out these arseholes over the last ~15 years, and with government debt and inequality up the wazoo, they just want to go back to life as normal draining all the wealth of the world into their own pockets and salting it away for themselves.

One of the aspects of the Trump presidency was that a lot of his supporters were hostile to elements of capitalism and the business elites. Honestly, when the Republican Party of all parties is captured by this sort of sentiment, everyone has to realise just how obvious a play it is to go after the rich. The Republicans in Congress will still block everything of course, because they're still bought out by their business buddies and have a "Fuck you" principle of obstructing everything the Democrats try on principle. But it should be obvious to everyone by now that increasing numbers of Westerners do not believe the post-Reagan/Thatcher neoliberal system works for them.
 

TheMysteriousGX

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Threatening the United State's money is one of the most suicidally stupid things somebody can do and unlike other nation states, Hedge Fund Managers do not actually physically own any part of the United State's industrial base to use as leverage.

If they keep pushing, I suspect a few hedge fund managers will end up committing suicide by shooting themselves twice in the head.
 

Dalisclock

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Increase in capital gains tax proposal.

Damn Biden's going hard on the rich.
Wall Street is mad? There's not a violin small enough to play for their woes.

Biden is less mediocre then I expected(after Trump, not being a racist creepo dumpster fire is enough to avoid the "bad" pile for at least a couple years), edging towards Good territory. Keep up the press and you might make it, Joe.
 

Silvanus

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Increase in capital gains tax proposal.

Damn Biden's going hard on the rich.
Almost doubling, to 43.4% for the very wealthiest.

Good. A huge amount of capital is going to be needed to address climate change, shifts in energy production, major infrastructure & health investments. And this is exactly where the burden should fall.

Articles abound in outlets like the Financial Times about how the proposals are being widely condemned... articles which solely quote hedge fund managers or millionaires.

Fuck them, frankly.
 

Gergar12

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Hopefully, this will stop the stupid stock buybacks that execs keep doing vs spending it on R&D and labor.