The discovery late last week that the leopards don’t change their spots and that the former derivatives traders from Deutsche Bank who had reinvented themselves at genius tech venture capitalists at the VisionFund of Sotfbank had been up to their old derivative markets tricks again is likely to dominate markets this week. Tesla in particular is likely to be the main name to watch. After the March fear and panic, we basically saw a burst of greed in July and August as US tech names exploded to the upside thanks to what we now know to be a concerted gamma squeeze orchestrated by the new SoftBank hedge Fund. Now there is likely to be a return to fear; fear of being the bigger fool and the last one in to a ramp. Moreover, there are a lot of professional traders looking to get some money back from being squeezed mercilessly over the last two months. There could be quite a run for the exits.

Rather like the conclusion of an Agatha Christie novel, the evidence was always there, we just didn’t notice. Back in February, the FT reported that Rajeev Misra, the head of the VisionFund and former head of Credit Derivatives at Debacle Bank in 2008 had recruited one of his former colleagues, Akshey Naheta to set up a hedge fund, based in Abu Dhabi and backed by the Mubadala, the Sovereign Wealth fund that also invested in the Vision Fund. Mr Naheta was also instrumental in the fun and games over WireFraud that we discussed back in June (see paging Michael Lewis).

Rajeev Misra, who oversees the Vision Fund, has been pushing to build a multibillion-dollar fund to pursue complex bets on publicly traded companies, according to multiple people with direct knowledge of the matter.

Financial Times February 2020

ZeroHedge, which with all due respect broke the story at the end of last week, before the FT and WSJ, highlights some of the other facts that were hiding in plain sight including the amount of stocks purchased outright by the new SoftBank fund management arm/hedge fund, which amounted to considerably more than the original $2bn suggested back in February by the FT.

SoftBank went long underlying Tech names before the Gamma Squeeze

ZeroHedge also think that the current high level of implied Volatility in stocks like Apple suggest that the former DB traders are still long the underlying – ie haven’t yet taken their notional profits. Meanwhile it suggests that a lot of High Frequency traders were also front running the retail investors that were piling in on the momentum trade triggered by SoftBank and that this too could unwind quickly. As we have seen with past attempts to ‘corner’ markets, like the Hunt Brothers in the Silver market in 1980, or Yasuo Hamanaka of Sumitomo Bank who tried to do the same with Copper in the mid 1990s, the regulators tend to wake up late, but change the rules and punish those that have made them look foolish. It will be particularly interesting to see what tweets emerge from the White House over the next week about ‘foreign manipulation’ of the NASDAQ.

As to SoftBank itself. Well on the one hand as ZH point out, it is probably now too big to fail and is also owned by the Japanese state pension fund and a lot of other Sovereign Wealth Funds, but on the other hand there are a lot of powerful people who are going to be none too happy with their attempts to ‘game’ the market. Perhaps the DB traders might find themselves out of a job. Again.

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