Could SpaceX Become Systemic?
Submitted by QTR's Fringe Finance
For years I’ve been asking how weird things have to get before we admit the stock market is outright fundamentally broken. After watching SpaceX surge after hours today, I think the answer is obvious: the market is already broken. The real question is how much more absurd things need to get before everyone else notices.
SpaceX crossed above $3 trillion in market cap in after-hours trading. That makes it worth more than Amazon and Microsoft.
Microsoft generates hundreds of billions of dollars in annual revenue and well over $100 billion in annual profit.Amazon generates more than $700 billion in annual revenue and tens of billions in annual profit.
SpaceX is now being assigned a higher valuation than both.
SpaceX’s relatively limited float makes it an ideal candidate for manipulation squeeze dynamics. Near the close of after-hours trading, the stock had briefly approached $230 per share. In a single day, roughly $650 billion of market capitalization was created for a company losing billions of dollars a year.
$650 billion. Not over a year. Not over a decade. In a single day. And tomorrow options begin trading, and as I’ve predicted, I’d bet it’s going to squeeze harder.
That’s the part that should make everyone uncomfortable. Because I’ve spent years writing about what happens when options activity becomes the primary driver of price action.
We’ve already seen the playbook: call buyers show up, dealers hedge, the stock rises, momentum traders chase, more calls get purchased and the cycle repeats.
At some point, price stops measuring value and starts creating value. The valuation itself becomes the bullish thesis. The company’s industry and its fundamentals become totally meaningless. And you officially have a market doing the opposite of what it should be doing.
And that’s why tomorrow matters. Because options begin trading on a company that has already demonstrated extraordinary squeeze dynamics. And so has its sister company.
I’ve been writing for years that modern markets are increasingly driven by mechanical forces rather than fundamental analysis. Tomorrow may provide one of the clearest demonstrations of that thesis yet.
My expectation is that the introduction of options trading in SPCX will not improve price discovery. It will further distort it. If aggressive call buying emerges, dealer hedging activity could create the same type of reflexive feedback loops that drove some of the most spectacular (and totally nonsensical) moves in Tesla and other momentum names over the last decade.
At that point, price movement has nothing to do with business fundamentals and everything to do with market structure...(READ THIS FULL COLUMN 100% FREE HERE).