The old saying "its the bus you don't see that hits you" is never more appropriate than now. Unless you've been hiding under a rock, then there is no possibility you could have missed the GameStop (GME) saga.
Let's be clear here: a short squeeze to infinity is something that breaks the game. Even at $500/share GME shorts are on the line for >$45bn and even that amount will cause massive negative ripple effects through all parts of the financial ecosystem - funds, brokers, leverage providers, market makers, etc. At $1000, $5000 and the domino effect will probably trigger a Financial Crisis No2. Buffet was absolutely right when he warned about derivatives being the financial weapons of mass destruction... it just took awhile for people to figure out how to use them.
Especially at this moment in time, the US government/Fed cannot allow that to happen. So in all likelihood they stop the game: put GME, AMC, etc into a long suspension. Eventually they either make everyone liquidate their positions or a more creative (and less politically damaging solution) could be to co-ordinate GME, AMC, etc to do a huge capital raise (e.g. 100% of their float) at $X price which crystallizes their valuation: essentially the Shorts pay a big fine while the Longs get an anchor valuation and their prime reason for holding disappears. Either way, more regulation is coming to the markets. If the political and financial establishment cannot step up to the plate soon, then this thing could lead to a global panic.
I continue to add black swan hedges and trim the positions within my portfolio. The GME exposure makes XRT hedges attractive (and cheap if GME soars tomorrow). A more aggressive position could be some type of shorting of listed brokerage firms, financial institutions, etc. An extreme scenario could make counterparty risk a serious concern. I hope I'm overreacting but this could very well turn out to be a nuclear missile to Earth rather than a rocket ship to the Moon.
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