Korean Regulator: Sorry, Suckers... (Money Printer Pro at 8:30 AM)Too little too late... in a world full of forced selling.
I’ll be Live Right Here for Subscribers at 8:30 am this morning. [The morning PDF is below the paywall] Good morning: I went on a heater on Friday about the intervention… but didn’t have enough time to dive head first into the saga of the hedge fund Situational Awareness. Both Korea/Japan and the collapse of this hedge fund are interlinked, as the short sellers pressed stocks down further and further in tech, taking Korean leveraged traders down with the ship. It’s an incredible force of nature to witness… like school of killer sharks banging on a single piece of ice holding one seal, and then suddenly, the bigger ice sheet holding 1,000 seals about 100 yards away breaks off from the mainland, and drifts them right into the middle of the feeding frenzy. I start our week - separating my free analysis from my paid analysis. Over at the free letter, I’ll be turning my attention to the upcoming Fed symposium in Jackson Hole. In the past, this symposium’s primary theme has aligned with policy decisions. The most famous incident in recent memory is Jerome Powell promising pain in 2022… and then sinking the equity market all the way into the bottom of the GILT Crisis and a panic at Meta that forced the company to abandon its reckless spending on the Metaverse. This year… as the world is awash in debt, the focus is on stablecoins and rewiring the debt system… as yields rise and stablecoins place pressure on regional bank reserves. I’ll be drilling into this, because I expect a bigger shake up in the wiring of the system, and I want to be able to explain it to you before people catch onto what’s happening. But over here… I have to keep my focus on one specific chart. That’s VWAP.
I’ll walk you through that over at our morning show… Sorry SuckersIn one week this summer, South Korean brokers closed out roughly 350,000 customer accounts that could no longer cover their loans. And they gave margin calls to about 3% of the population… or about 1.2 million people. That’s bad enough for a nation where the cost of real estate has gone insane, and people are openly speculating in the stock market instead of having any real pathway to home ownership. But the bottoming came on Wednesday night - as evidenced by our VWAP reading. And now, we just saw an 18% pop on the KOSPI across two days. That happened because the construction was complete. Here’s the real issue. On July 29, Korea’s Finance Minister Koo Yun-cheol apologized to the nation. He said that certain products should never have been approved and promised to limit them to professionals (whatever that really means). The apology came… of course… after the money was gone. This was an entire economy that replaced real estate with a brokerage account, centered the entire stock market around two names in the AI buildout, and then watched as people speculated on their own nations top two names. And then in May, the country approved leveraged ETFs on individual stocks, and watched as people pumped 14 trillion won into them with little understanding of how decay works. When the KOSPI shed about 40% of its value from the June high, it experienced a one-stretch that was worse than any point during the 1997 Asian Financial Crisis. The double-levered Hynix fund collapsed more than 80% from its peak. The Samsung version lost nearly 75%. And all the while, Korea’s levered ETF complex had ballooned from about $10 billion to about $50 billion, four times the relative size of anything comparable in America. Meanwhile, the whole concept mirrored he work of “King Leopold” and his Situational Awareness fund. A 24-year-old fund manager held overly concentrated bets on similar AI names using borrowed money. And after the fund lost 67% of its value in July, it had to sell its public portfolio to Citadel. By July 31, JPMorgan declared the Korean ETF unwind finished and estimated hedge funds had slashed their leverage by around 90%. Then came the surge. The shares stripped from those 350,000 accounts at the bottom recovered violently, in someone else’s possession. The people who financed the episode watched from the sidewalk. The market never says it’s sorry. It leaves that to the finance ministers, who schedule the apology for the week after the liquidation. This is a cold, brutal sport… and people need to treat it as so. Let’s get to this morning’s market update…... Continue reading this post for free in the Substack app
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