The turmoil caused by the WallStreetBets crowd in some parts of the U.S. stock market has caused a veteran American trader to abandon his old game book built for decades.
Larry Peruzzi, head of international trade at Mischler Financial Group Inc. and a veteran of more than three decades in market shares, said he spends less time looking at stock fundamentals and much more time in techniques and chat rooms.
“We’re currently looking at a lot less balance sheets and a lot more in chat rooms, we operate quickly and avoid trying to use any valuation while trading,” Peruzzi said. “It doesn’t make sense, but in 2020/2021 would we expect anything less?”
Markets have been in turmoil last week as traders of the day plunged into stocks like GameStop Corp. and AMC Entertainment Holdings Inc. hoping to wipe out sellers in the short term. It worked: Melvin Capital closed its short position and Citron Capital covered most of its short with a 100% loss. This has the crowd on places like WallStreetBets recently confident, even if the activity is drawing the attention of the Securities and Exchange Commission.
Historically, institutional investors used to welcome retailers for them added liquidity to the markets, Peruzzi said. But it is now causing major trade and liquidity problems, and growing speculation that the funds could be forced to sell some stakes to meet margin calls, he added.
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For now, there is a silver line, at least for companies whose actions are being driven by all activity, Peruzzi said.
“Most of these companies are fallen angels and many live on borrowed time,” he said. “The positive thing about all this irrational trading is that if these companies can act quickly, additional stock offers could give them the capital they need to survive.”