Margin Debt Has Collapsed, Option Calls Are Fueling This Market Up.
Here is what we will be getting into today:
Gamma Squeeze and the Options Market.
Norwegian Scientist Find Major Deposits Of Rare Materials, Reduces The Need For China In A Green Future.
Court Victory Could Mean Big Changes for Tech.
Inflation is Supply and Demand at Work.
Newsletter: The Last Bear Standing
Title: The Return of the Calls.
Link: https://thelastbearstanding.substack.com/p/the-return-of-the-calls
Here are the key highlights:
Borrowed money allows stock buyers additional purchasing power & can drive prices up while magnifying returns. The traditional method for leveraged stock buying is known as Margin Debt. It often dramatically increases during bull runs and then rolls over with the market.
Key thing to note about this loop is that higher asset prices in turn provide buyers even greater capacity to take on more debt.
On the way up, leverage is a positive reinforcing cycle. On the way down, the process works in reverse as leveraged investors have less capacity to withstand losses before becoming forced sellers.
This market cycle is no different. Margin debt peaked in Oct 21 at $935b, and has since fallen 35% to just $606b by Dec 22 - roughly back to pre-covid levels.
But while traditional margin debt added fuel to the recent rally and decline, a new powerful form of leverage has taken center stage.
Options are a derivative of the underlying stock that can provide additional leverage. They are priced based on a number of variables, including the current price of the stock. This leverage can be used to magnify returns on an investment.
There is a key difference between margin debt and options leverage. Margin debt is constrained by the current price of the stock, while options have no such constraint. This means that options can be used to make very risky bets on the stock market with very little money down.
This can lead to a feedback loop where market makers buy more underlying stock to hedge their exposure, which in turn puts upward pressure on the stock price. This is known as a gamma squeeze.
The recent surge in stock prices has been driven by call buyers, who are using leverage to bet on further increases. This has been fueled by the growth of the options market, which has been driven by the popularity of meme stocks. While the market has cooled off in recent months, the options market remains active, and it is unclear how long this buying can be sustained.
Website: Epoch Times
Title: Norway Finds Rare Earth Metals That Could Make Europe Less Dependent On China
Link: https://www.theepochtimes.com/norway-finds-rare-earth-metals-that-could-make-europe-less-dependent-on-china_5019784.html
Here are the key highlights:
Norwegian scientists have discovered large deposits of rare earth metals in the country's northern region. The findings have the potential to transform the country's economy and secure its place as a major player in the global market for high-tech and green technology. Furthermore, the findings could make Europe less dependent on China for the critical metals.
China is believed to account for more than 80% of many metals that are needed for green energy solutions, such as rare earth metals used in electric cars and wind turbines. According to Karl Kristensen, China has almost complete control of the market for rare earth metals.
The Norwegian Petroleum Directorate (NPD) was responsible for conducting the research that led to the find. The NPD's research shows that there is a large area of the Norwegian continental shelf with significant mineral resources, particularly in the deep sea, where several of these minerals are concentrated.
The discovery of these minerals on the Norwegian continental shelf is seen as a major step forward in the country's efforts to reduce its dependency on mineral imports and to become a leading player in the production of sustainable technologies.
Magnesium, niobium, cobalt, and other critical rare earth minerals were found in this study. The Norwegian find is a result of the West rebuilding its supply chain for rare earth minerals.
To reduce dependence on China, Western countries are investing in exploration, mining, and processing of these minerals. The United States, for example, is funding projects to extract rare earths from coal and phosphates and is also working on recycling technology to reduce the need for new minerals.
The rebuilding of the rare earths supply chain is a step in reducing dependence on China and ensuring a sustainable future for technology and green energy solutions.
Newsletter: BIG
Title: A Pyrrhic Victory for Meta Over the FTC?
Link: https://mattstoller.substack.com/p/a-pyrrhic-victory-for-meta-over-the
Here are the key highlights:
The recent court victory by Meta over the Federal Trade Commission could actually be good news for those concerned about monopolies in the tech industry.
The court's decision affirmed some of the arguments made by the FTC in its case, including that acquisitions of nascent companies can hurt competition and that companies not currently in a marketplace can still have influence over the marketplace. This could pave the way for more assertive antitrust enforcement going forward.
Ticketmaster has been caught violating sensitive personal health information for years, and they're now under close scrutiny from the Senate Judiciary Committee. The #Beyhive is preparing for another potential Ticketmaster meltdown following the Taylor Swift Eras Tour disaster, and Beyoncé's announcement of her world tour has only added to the pressure. Ticketmaster needs to get its act together and start living up to its privacy promises, or it's going to lose even more business.
The financial sector has been raking in huge profits in recent years, thanks in part to consumers being locked into their bank accounts and credit products. But this situation is about to change, thanks to new regulations that will make it easier for people to switch financial providers. This is good news for consumers, who will benefit from lower prices and better service as a result.
Newsletter: Economic Forces
Title: Inflation Confusion, or When Can Waffle House Raise its Prices?
Link: https://pricetheory.substack.com/p/inflation-or-when-can-honda-raise
Here are the key highlights:
Inflation can be caused by many things, but one of the most common theories is that it is caused by market power. This theory states that when companies have the ability to raise prices without losing customers, they will do so in order to make more money. This can lead to a domino effect, with other companies raising their prices as well.
Inflation can also be caused by an increase in the cost of inputs. Let’s consider a scenario where Honda experiences a bottleneck and can't purchase computer chips. Since they are unable to purchase computer chips, they know their competition Toyota will also be unable to do so. In response to this, both companies know they can raise prices because their competitors will be unable to deal with the bottleneck as well.
If market power were a big deal, companies wouldn’t need the cover of inflation to raise prices. Monopolies can pass on their cost increases and customers can’t flee to other sellers.
Under competition, supply and demand, firms can only raise prices when other firms' costs rise. With competition, firms will raise prices together seemingly under the cover of inflation.
Instead of being evidence that markets are no longer controlled by competition, firms raising prices together is evidence of supply and demand at work.
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