Buy and HODL Forever, Legendary Short Seller Throws in the Towel

Mish

Andrew Left of Citron Research, a short seller, attracted the ire of the WallStreetBets a group on Redditt. Today, Left threw in the towel.

Wall Street Underestimates the Force of Robin Hood

At least two hedge funds got carted out betting against GameStop massive rise on a short squeeze.

GameStop, a company that is inherently worth next to nothing in a practical sense soared from obscurity to one of the the most widely discussed topics in the world.

Not Just GameStop

And it's not just GameStop. Dozens of near-bankrupt or fundamentally worthless companies have soared into the stratosphere. 

Wolf Richter at Wolf Street compiled a big list of companies soaring into the stratosphere.

One Day Performance Wolf Street

 Tian Ruixiang Holdings [TIRX] whose American Depositary Receipt (ADR) went public on the NYSE on Tuesday at $4 a share started trading today, and amid various trading halts soared by over 1,000% intraday and closed up 538%. That’s how nuts the whole mania was.

Most of the companies on his complete list I have not heard of. But it also includes Bed Bath & Beyond, Nokia, and Blackberry. 

44 Circuit Breakers Triggered on Wednesday

As part of volatility control, 44 Circuit Breakers Triggered on Wednesday

About 44 circuit-breaker halts were triggered in the first two hours of trading Wednesday amid the rapid ascension of amateur investors armed with Robinhood and their favorite social media platforms.

From cult-favorite GameStop Corp. to stereo headphone and loudspeaker retailer Koss Corp., trading volume soared as gains and losses fluctuated by the minute.

Online brokerages including Robinhood Markets and Charles Schwab Corp. were hit again Wednesday by service disruptions as traders were transfixed by wild swings in shares of GameStop Corp. and other heavily shorted stocks. TD Ameritrade Holding Corp., Morgan Stanley’s E*Trade and Fidelity were also affected, according to Downdetector.com, which tracks user complaints.

GameStop shares, which soared as much as 157% Wednesday, were halted at least twice, while movie theater company AMC Entertainment Holdings Inc. triggered four halts as it more than quadrupled on volume that was roughly 13 times the three-month average.

AOC and Elon Musk Chime In

Yesterday, Robinhood put trading curbs on GameStop. That did not last long as the traders railed against Robinhood. 

AOC is clearly concerned about trading curbs, not the volatility. 

Ted Cruz and AOC on Same Side

Gamestonk

In response to that Elon Musk Tweet, GameStop rose 50%.

Rage Against Wall Street

Bloomberg writer John Authers comments GameStop Is Rage Against the Financial Machine

This is all fascinating. In the space of 12 years, the role of the short-seller has turned on its head. Back in 2008, it was the shorts who upset the status quo, revealed what was rotten in the state of Wall Street, and brought down the big shots. They were even the heroes of a big movie. It was the Wall Streeters who attacked them.

Alienation has deepened since then. Short-selling hedge funds are now seen as part of a corrupt establishment, as is the media. The motives of anyone defending the shorts, or anyone wearing a suit, must be suspect. And there is a deep generational divide; those unable to own their own home and forced to rely on defined contribution pensions have a stunningly unfair deal compared to those a generation older, living in mortgage-free homes with guaranteed pensions. That percolates into anger, and a determination to right the scales by making money at the expense of corrupt short-sellers. 

One respondent warned that the people squeezing the shorts aren’t “a herd of impressionable youngsters with Robinhood accounts. No. They are an experienced & ruthless army of insomniacs followed by a silent legion of rapidly learning new traders. This is a new paradigm that won’t go away.”

Ugly Side of Investing

The Wall Street Journal comments The GameStop Short Squeeze Shows an Ugly Side of the Investing World.

Andrew Left is no stranger to conflict when it comes to investing. He makes a living betting that companies will stumble, and he calls out executives by name.

Companies and their supporters fight back, but the criticism he normally gets is nothing compared with the venom spewed in recent days by stock traders who have come together online to drive up shares of an unlikely momentum stock, mall retailer GameStop Corp.

The angry traders have shared his personal information, hacked into Mr. Left’s social-media accounts and texted Mr. Left and his two children, using threatening, profane and personal language, according to people close to the matter.

The company’s fans have ordered dozens of pizzas sent to his home, well past midnight. Mr. Left even reached out to one online critic after he asked Mr. Left why he made his Twitter account private. “We spoke on the phone, he sounded like 15 years old,” Mr. Left said.

But Mr. Left has also contacted the Federal Bureau of Investigation and the Securities Exchange Commission about the more vicious abuse and what he sees as collusion among the investors. In a YouTube video posted on Wednesday, Mr. Left said he has now closed most of his short position.

“It’s extreme capitalism gone wild,” Mr. Left says. “We’re a nation of gamblers.”

Attack on Hedge Funds

Andrew Left of Citron Research and Gabriel Plotkin of Melvin Capital Management hedge fund manager attracted the ire of the WallStreetBets a group on Redditt. 

Andrew left used to publish a list of short stock ideas. 

Not any more. Today he threw in the towel.

Andrew Left Throws in the Towel

"We uncovered more fraud than any non-governmental agency out there. We helped bring down drug pricing against the interest of hedge funds. But now after 20 years we noticed something. We started Citron to be against the establishment. We have become the establishment. As of today, Citron Research will no longer be publishing short selling research."

Summation

"Wall Street clearly underestimated a generation raised on highly coordinated Friday night World of Warcraft raids."

I can guarantee you this will end badly, but I cannot tell you when. 

Holding or if you prefer "HODLing" worthless or nearly worthless companies is not the route to long-term success.

Service Issues

As an aside someone just informed me they are having service issues with Robinhood. 

So consider my post from last October: Robinhood Accounts Looted and No Customer Service to Call

I have not heard more complaints of looting but customer service still seems to be lacking.

Mish

Comments (112)
No. 1-33
Tengen
Tengen

Has been very satisfying watching these hedge funds squirm and cry crocodile tears. They've enjoyed a rigged casino for so long that any negative reaction provokes genuine shock. How dare the peasants revolt!

Taibbi wrote a good article about this yesterday with the fetching title "Suck It, Wall Street".

simb555
simb555

Short sellers have a point. They have exposed many frauds over the years such as Enron and World Com. Buying stocks will be more hazardous without them.

Eddie_T
Eddie_T

Reinforces my long held commitment to never shorting anything, ever.

To Da Moon
To Da Moon

What's the best way to play it though? Put premiums are like 60% of the strike price. Writing calls is prohibited on most platforms. Shares aren't available to short. All most can do is sit back and watch with horror/fascination.

Steve_R
Steve_R

This is what happens when the Fed loses control, new highs($511) for Game stop were at 6am eastern Thursday morning. This is not retail traders that is doing that. This is an attack on the short sellers. When you have 40% short float, this sets up a massive short squeeze.

One-armed Economist
One-armed Economist

No friggin cries from the sophomores when things melt!

Realist
Realist

I am watching this all with great amusement. There are both positives and negatives of all this new activity. One negative is that some people will be severely hurt by taking on too much risk.

However, there will be a very big positive in the long run: You have enticed millions of younger people to begin to take an interest in investing (though I admit, that most of them are actually speculating right now). This bodes well for the future as many of them will eventually "learn" about investing because of their new levels of interest. Suddenly 18-30 year olds are asking questions about how to invest. That is a good thing in the long run.

Of course, I will not deviate from my very well diversified investment portfolio, of which stocks are just a portion. This is just noise.

Mr. Purple
Mr. Purple

“It’s extreme capitalism gone wild,” Mr. Left says. “We’re a nation of gamblers.”

Damn straight. The Hobbesian war of all against all. Nasty, brutish and short.

You had a nice run, capitalism.

Mish
Mish

Editor

Naked shorting is illegal, except of course for market makers who at some point will be the only ones short and that is when the stock will crash.

But I am not sure this is entirely the Hedge Funds fault. The big brokerages are supposed to deliver the borrowed shares for shorting.

Did they?

Frilton Miedman
Frilton Miedman

To me, the outcome is obvious.

I've been following the GME/Wallstreetbets Saga.

Keep an eye on GME, if they don't take this windfall and use it to immediately update their business model for online streaming, this is the short of the century.

Millennials have a childhood affinity for this Brick/Mortar retailer, but at the end of the day GME needs to compete with Steam online.

bradw2k
bradw2k

I read that GME had something like 140% short float before this started. Sounds like some fraud going on.

Another thing I wonder: if it is so easy to focus on one heavily-shorted stock and squeeze it to the sky, why weren't the big bag pros already doing that? ... Or is it just that the story isn't over and a bunch of Robinhooders are going to find out what it means to be a bag holder? That is actually concerning, surely some of these kids are going to get completely destroyed. How many are using leverage that they will not be able to cover? Someone behind the leverage is going to be left with a bill.

Scooot
Scooot

I thought one of the Fed’s mandates was price stability :)
They’re not doing very well.

Moe G7
Moe G7

Hi Mish, I was waiting and hoping you will cover this story ~2 days ago. I kept on checking your blog many times during the last 2 days. Obviously I’m only saying this because I care about what you have to say abs was disappointed not to see what you have to say about it sooner.

Martin Jarla
Martin Jarla

Kids coordinating a short squeeze to sustain a bubble. central bankers coordinating multiple short squeezes to sustain the global bubble. The Kids just learnt from their masters how to create wealth...

PecuniaNonOlet
PecuniaNonOlet

You can laugh or criticize all you want but with the now permanent Fed Put and Plunge Protection Team on call 24/7, why not get in on the casino action. It seems stonks will always go up no matter what. My son, siblings, friends, everyone I know is now buying stonks. Way worse than the dot com bubble.

I officially joined the frey. I hear the plan is to bring JP Morgan down by buying SLV and other silver related stonks, yeah I'm in. I have been buying and will continue to buy. Who knows, maybe I'll make $50 million by the end of the year.

Disclaimer: I own SLV and other silver stonks. Do your own due diligence, this is just an idiot running away to join the circus. This is not financial advice. Choo Choo, the money train is leaving the station.

Scooot
Scooot

I read somewhere today that there were large net sales of an S&P 500 ETF this week. This is what happens when markets get out of hand. Long term holders begin to exit leaving more of the ownership in the hands of speculators. One day they realise and there’s no staircase, only a lift shaft.

amigator
amigator

Hmmm we maybe getting close to a top....But I have thought that before..

Greggg
Greggg

Notice how the politicians vilify Robinhood for restricting trade on GME and never mention that shorts were 140% of float. As long as most of the public miss the significance, the politicians will sign some new legislation that Wall Street wrote and delivered with a note that their future campaign funds depend on this new bill being passed.

Rbm
Rbm

So what is elon musks deal in this. I keep seeing headlines rise on musk tweets. Either making money or making revenge????

Mackkenzie
Mackkenzie

It's a bizarre world when the anti-establishment short sellers, trying to point out corporate fraud, are viewed as the "establishment" enemy by robinhood millennials. Even crazier, the short sellers are now humbled and agree to only play long games going forward.

Strange bedfellows indeed. We now have a world where incompetent, fraudulent, CEOs running near bankrupt firms are the heroes of the Robinhood millennials and anyone trying to undo them is evil.

Sechel
Sechel

This used to bother me but who really cares. If it makes for a better learning environment for the kids maybe its OK. It bothered me for years when bridges got renamed around here. Didn't really change anything. Sure I use the old names in protest but there are bigger fish to fry.

To Da Moon
To Da Moon

If this isn't an indicator of a top, I don't know what is. Definitely risky to try to go short any of these, and probably impossible for a lot of them, but there's gotta be a way to make some money off this if it's a top.

Call_me_Al
Call_me_Al

I agree with Left that the U.S. is a nation of gamblers (frankly 'investing' has been a euphemism for gambling for more than a generation as far as stawks are concerned).

I disagree with Left's sentiment that this is capitalism gone wild. There is equality here (in the sense of the masses being able to bring financial pain to the large funds), but it sure isn't capitalism.

Felix_Mish
Felix_Mish

Such entertaining comments on this posting! Up-votes for all. Really. What a fun read.

More seriously, consider the fragility of a "market" in which a lot of players are explicitly following the herd - owning Vanguard-ish, S&P/Russell ETF-ish shares, that is. The explicit, automated nature of the herd-ness along with the a total disconnect between owners and particular companies - well, what could possibly go wrong?

TexasTim65
TexasTim65

Looks like RobinHood is getting another margin call.

ZH has a story about it with a link to RobinHood main page where they are effectively cutting off all trading in 51 stocks. Story suggests RobinHood may not have all the money it needs and that's why it's cut off trading. If true and RobinHood shuts down then the mania will die quickly and some may lose their profits/money entirely.

Jackula
Jackula

Wall Street and Central Banks policies have so distorted the markets the fundamentals are weak at best. The strong have been taking from the weak big time over the last thirty years and its been getting steadily worse as politicians abdicate their roles as referees or actually arre getting bribed by the wealthy to look the other way. Humans are at their strongest when they organize effectively in groups. I see no difference between this and hedge funds getting large groups of very wealthy folks to invest in their fund to have more market power. Reasonable position limits for investors and groups of colluding investors should have been set long ago, naked shorting violations go unpunished, and leverage limits are way too generous. These markets are being exposed as the corrupt casinos they are.

Goblueguy
Goblueguy

Sell both a call and a put and create a short straddle, volatility is something like 700%. The premiums for this are almost the same as the stock price.

FromBrussels
FromBrussels

Plain vanilla buying and/or selling THAT s what stock markets should be about! Options, margin shit, short fucking and all the other casino hustling should be illegal !

Soft_coding
Soft_coding

Mish, Gamestop is not worthless. They still are often the firs retailer to launch major consoles and unlike other dying brick and mortar brands, are in a highly profitable and growing industry. I think walmart is more worthless than gamestop, because of how notoriously bad their half-assed online experience is

Six000mileyear
Six000mileyear

Short sellers are the only ones REQUIRED to buy stocks in the future. During a sell-off, shorts provide market liquidity and price support as they cover their positions. Sell-offs would be deeper without short covering.

Mr Left's mistake was making public comments on social media that drew the attention of people who wanted to silence him through a short squeeze. Poker players don't become champions showing all of their card while betting is still taking place.

Casual_Observer
Casual_Observer

At the end of the day the big money will win. The retail speculator (not investor) that doesn't sell Gamestop is a reminder of February of 2000 in tech stocks. Everytime the retail investor thinks he is the smartest guy in the room, is the end, not the beginning.

Casual_Observer
Casual_Observer

These hedge funds and day traders really have no redeeming value to society. Many of them could be helping with the pandemic but instead will find that money isn't going to rescue you from death.

RonJ
RonJ

What the FED has created.

In the end it isn't supposed to matter anyway. The elites of the World Economic Forum are colluding to "Build Back Better." It is Klaus Schwab's intention for the common people to own nothing and be happy.


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