Great Substack on today’s market mechanics - the Darth Griffin name is perfect. 😂
“For those who missed it, Aschenbrenner’s Situational Awareness fund had grown to roughly $45 billion before getting absolutely smoked in July, falling toward $10 billion and forcing the liquidation of most of its public equity portfolio to Darth Griffin over at Citadel.
For years I’ve argued that the modern stock market increasingly resembles a gigantic mechanical contraption driven primarily by passive flows, options positioning, dealer hedging and gamma. The marginal price of a stock isn’t necessarily being set by some guy with a green visor carefully discounting the next 20 years of cash flows.
Increasingly, instead, it can be set by flows interacting with flows interacting with algorithms.
And ever since GameStop, I’ve wondered, and I want to emphasize that this is my speculation, not something I can prove, how often enormous options purchases are being used to manufacture or accelerate momentum underneath the surface of the market.
It also fits the same suspicion I’ve had about this market for years: what looks like fundamental price discovery may sometimes be something considerably more mechanical.
I’ve said for years that I think the market is, in a colloquial sense, rigged. I don’t mean somebody is sitting in a smoke filled room deciding where the Nasdaq closes. I mean the structure of modern markets can create enormous self reinforcing moves that have very little to do with the fundamental value of the underlying businesses.
This isn’t the stock market of the 1980s or 1990s. We now have zero day options, enormous passive vehicles, algorithmic strategies, volatility products, dealer gamma hedging and trillions of dollars responding mechanically to price.
Nothing feels particularly real anymore.”