Is The Market Ready for More Archegos Implosions?

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The short of it: Minerd of Guggenheim is the latest to sound warnings about the present financial markets. The simple truth is that there is quite a bit of risk within the financial system today, similar to Japan in the early part of the 90’s. Burry, the financial manager who went against the market in 2008 not only deleted his tweets but went off of Twitter. He warned the world about the insane level of risk taking within the markets and more financial managers like Minerd of Guggenheim agree and note that there could be much more danger ahead as asset valuations continue to tick up in a largely weak economy.

Minerd Sees More Financial Fund Implosions Ahead

Scott Minerd of Guggenheim warns that the financial markets, and participants like yourself, may see another implosion in the hedge fund world. This is important because the Archegos implosion was quite a big deal. An over $80 billion blowup isn’t something that would have as normal in the past. 

But at the current moment, there is a significant flood of liquidity that washes over markets. Further, cash is sloshing around everywhere looking for a home. You are finding this to be true in everything. 

Cash has flooded into stocks, into gold, into gold miners, commodities, housing, and even relatively new asset classes like cryptocurrency. You are seeing new companies come into the markets, EV companies, gaming companies, and a variety of companies that have little no revenue through SPACs or special purpose acquisition companies.

What’s intriguing is that it has gotten quite insane over the past year. 

People are willing to pay top value in Ethereum and other cryptocurrencies for a chance to own digital art via NFT’s.

This is a time of mass hysteria. I repeat, it is a time of mass hysteria.

As such, it is not a surprise that Minerd thinks that Archegos is the first of a few more bursts that will take place within the financial system. But the question is that will these likely blowups in hedge funds matter to the raging stock market? Will the market continue to act risk-on because the Federal Reserve and Treasury Department seem to be working in tandem with Congress to show that it can continue to intervene and minimize any market issues, whether it be rent-oriented, debt-oriented, or other issues?

Where Could Financial Issues Similar to the Archegos Implosion Originate Next?

There are quite a few places where you could see a slew of defaults and financial distress.

Here are a few issues below.

  • The Housing Market as more people are purchasing homes out of their comfort zones.
  • The Housing Market as states like Texas are repealing eviction moratoriums slowly but surely.
  • While savings has gone up, consumer debt is going up as well.
  • Government debts are at elevated levels and debt keeps increasing.
  • A slew of other areas within the centralized and decentralized financial system making highly leveraged bets
  • Shadow Banking
  • Political Risk (Domestic and International)

The fact is that tensions are rising in more ways than one. From nations slowly shifting away from the dollar as the reserve currency, not necessarily a huge threat at the present moment, but a threat nonetheless, to currency devaluation, less productivity, and other internal issues, there’s quite a few issues to be concerned about in 2021. Investor sentiment may be very risk-on due to the “fed put” but a rise in underlying tensions, and more surface level blowups does not bode well for future returns.

Further, if the government is perpetually stimulating, and has been doing so for the past year and half, what happens when the stimulus runs out?