Tag Archives: GME

Business

Shorts Are Covering Even Faster than Jan ’21

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Short sellers are running for the exits as markets rally. Short covering has hit its highest level in over 7 years, according to a Financial Times report:

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Equity markets have risen sharply so far this year, led by many of the speculative stocks that were clobbered hardest during 2022’s global sell-off. Many of the funds that profited from the rout have found themselves poorly positioned for the rebound, which has recently accelerated as investors sensed that interest rates were close to peaking in many major economies.

The resulting flurry of short covering — when investors buy back stocks they had been betting against to limit their losses — was the largest since November 2015, according to a Goldman Sachs note to clients seen by the Financial Times.

Short sellers tend to pile into the same, heavily shorted stocks. When they rush to close their positions, this can cause a short squeeze.

A short squeeze happens when many short sellers all try to buy at once to close their positions. This can cause a stock’s price to skyrocket.

Short squeezes in stocks like AMC Entertainment Holdings and GameStop in 2021 took down hedge funds including Melvin Capital. Today, those same stocks are some of the year’s best performers.

Despite big increases in heavily shorted stocks, short sellers still have massive exposure. AMC’s short interest has dipped only slightly, remaining at a lofty 29%.

This indicates such stocks could have a lot of room to run. Short sellers will have to buy many more shares to close out their positions.

Shorts are also facing some of the heaviest retail buying in history. Retail buying hit an all-time high of 23% of all stock buys, according to a recent Forbes report.

Retail investors are the biggest buyers of many heavily shorted stocks, including AMC and GameStop.

Over a month ago, I predicted a market rally in 2023. I guess the hedge funds missed that post. 🙂

If the Fed remains dovish, I expect many more losses for short sellers. 2023’s short squeezes could make 2021 look almost quaint.

What do you think the future holds for short sellers? Leave a comment at the bottom and let me know!

More on markets:

As Fed Rates Peak, Are Markets Ready to Take Off?

Major Hedge Fund Down 54% — Survival in Doubt

SEC Refuses to Address Massive Fraud in Markets

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Photo: Melvin Capital founder Gabriel Plotkin

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Business

Short Sellers Down $81 Billion in 2023

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Well, that was fast! With 2023 less than a month old, short sellers have already lost $81 billion.

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Many are running for the exits. From a new report from The Wall Street Journal:

Short sellers who have incurred hefty losses are actively trimming their positions, said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners. Investors betting against stocks have racked up $81 billion of mark-to-market losses on short positions this month through Thursday after accumulating $300 billion in gains in 2022, Mr. Dusaniwsky said.

Markets have rallied this year, with meme stocks leading the way. As short sellers race to close their positions, their losses are likely to grow:

Signs that inflation is cooling have stoked bets among investors that the Federal Reserve will pivot from raising interest rates to cutting them as soon as the second half of the year. That has helped risky assets across the board rise. Especially risky corners of the market, such as stocks with high short interest, have rallied even more. Analysts say that has likely forced short sellers to close out bearish positions to cut their losses—resulting in what is known on Wall Street as a short squeeze. 

Some of the most heavily shorted stocks have been among the best performers so far this year.

Meme stocks like AMC Entertainment Holdings, GameStop, and Bed Bath & Beyond are all up over 20%. The broader S&P 500 is up 6% for the year so far.

In addition to huge market losses, short sellers are also paying stratospheric interest rates to borrow shares. Rates to borrow AMC shares have ranged between 20% and over 100% per year in recent weeks.

It’s no wonder that some short sellers may be resorting to illegal tactics. There is evidence of widespread naked short selling in some heavily shorted stocks.

Common and preferred shares of AMC have seen millions of fails to deliver. These failed trades often occur when a short seller sells stock without borrowing it.

This is called naked short selling and it’s illegal under federal law. It’s also a powerful way to push down a stock’s price without paying any interest.

The coming months could push many short sellers to the brink.

A race to close out positions may cause heavily shorted stocks to rally further. Meanwhile, a more dovish Fed could cause a general market rally, adding to their losses.

Short sellers should avoid meme stocks like the plague. A heavily shorted stock with a passionate fan base is simply too hot to handle.

What do you think is next for short sellers? Leave a comment at the bottom and let me know!

More on markets:

Major Hedge Fund Down 54% — Survival in Doubt

Citadel’s Illegal Trades — The Tip of the Iceberg?

As Fed Rates Peak, Are Markets Ready to Take Off?

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This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 with great returns.

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Photo: AMC CEO Adam Aron

Business

Robinhood Exec Dumped AMC Right Before He Limited Trades, Lawsuit Alleges

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A new lawsuit in federal court in Florida alleges that a top Robinhood executive sold his stock shortly before he limited buying in shares of some meme stocks:

Robinhood Securities President and COO, James (Jim) Swartwout, who Tenev points to as making the ultimate call to PCO, says in an internal chat on January 26, 2021, “I sold my AMC today. FYI – tomorrow morning we are moving GME to 100% – so you are aware.”

When Robinhood froze buying in shares of stocks like AMC Entertainment Holdings, Inc. and GameStop Corp. in January, it caused large losses for many customers. With demand for the stocks artificially reduced, prices plummeted.

Angry as customers were then, I wonder how much angrier they’ll be to know that the top executives of Robinhood may have conspired together to save themselves before throwing their customers to the wolves.

If these allegations are proven, top Robinhood executives could be headed to prison. Such actions are illegal and totally unethical.

One thing I wonder is if Robinhood executives were dumb enough to put this in an online chat, how did they get their jobs in the first place?

There will be no blog next week. I’ll be on a trip to celebrate my grandmother’s 87th birthday!

In the mean time, enjoy a few of my favorite posts:

Why You Should Tell Your Boss You’re Not Coming in on Friday

The Swami Who Taught Me About Politics

How China’s Tech Industry Dies

What if Everyone on Earth Had Super Fast Internet for $1?

The Best Mexican Food Is In…New Jersey?

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.

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Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. 

Business, Uncategorized

Hedge Funds Hit Hard by Meme Stock Losses, Badly Behind S&P 500

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Losses betting against meme stocks have hit hedge funds hard this year. The latest data from Barclay Hedge shows year-to-date gains for equity long/short funds of 8.51%. (This is the type of fund that would typically take short positions in stocks.)

Meanwhile, the S&P 500 has returned 18%.

One of the largest sources of losses for hedge funds this year is short positions in AMC Entertainment Holdings, Inc. Its shares are up more than 18 fold this year, inflicting billions in losses on short sellers. Other meme stocks like GameStop Corp. have also produced large losses.

This continues a pattern of long term underperformance for this strategy:

Investors are losing patience and rapidly withdrawing their money.

If you’re an investor in a fund with a losing strategy, a weak track record, and a habit of betting against the hottest stocks in the market, I ask you: why not try an index fund?

More on hedge funds and AMC:

SHORT SELLERS LOSE $44 BILLION IN 30 DAYS

HOW AMC IS BLOWING UP THE HEDGE FUND INDUSTRY

NEW DATA SHOWS BIG DROP IN AMC FAILS TO DELIVER

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This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account.

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Use this link to sign up and you’ll save $10 on your first order. 

Business

How the Mormon Church Made Millions on GameStop

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There have been a lot of winners in GameStop’s dizzying, over tenfold rise in the last year. An unlikely one is the Mormon Church, which made over $8 million on GameStop shares through its investment arm:

The Church of Jesus Christ of Latter-day Saints’ play for stock in GameStop paid off big-time as the Utah-based faith saw its shares in the video game retailer swell in value from $867,000 to $8.7 million in a matter of months.

Overall, the church’s largest investment fund, managed by Ensign Peak Advisors in Salt Lake City, grew by $2.4 billion in early 2021, continuing a dramatic rebound from pandemic-induced losses last spring and catapulting its total value to $46.5 billion.

More here.

Their timing was superb: Ensign bought 46,000 shares at the end of 2020, just before a short squeeze briefly pushed the stock to prices over $300. The church also scored huge gains on Tesla shares. Ensign Peak Advisors is wholly owned by the Church of Jesus Christ of Latter-day Saints, making it perhaps the only church in the world with its own hedge fund.

The fund’s assets total over $100 billion, greater than the GDP of Ethiopia. The church has banked up over $6,000 for each member, a staggering rainy day fund. This money comes primarily from all members being required to donate 10% of their income to the church, a practice called tithing.

I’ve always found the Mormon church fascinating and have read several books about it. I was intrigued to find out they played a part in something as far removed from religion as the GameStop saga!

Dig into these posts for more on GameStop:

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This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

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My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. I’ll also get $10.

Business

GameStop Pays Off $216 Million in Debt

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It’s no secret that GameStop shares have gone vertical, up more than ten fold this year. Besides making millionaires of a lot of Redditors, this also lets GameStop sell more shares at high prices, enabling them to raise capital with ease.

And raise they did, to the tune of $550 million in April. They recently used that money to completely pay off their long term debt:

The company said it completed its voluntary early redemption of $216.4 million of its 10.0% senior notes due 2023. The voluntary redemption covered all of the outstanding 10.0% notes, which represented all of its long-term debt.

More here.

At 10%, this debt was costing GameStop over $20 million a year. Getting rid of it should give them more room to fund their planned transformation into an e-commerce business, which is being led by Chewy co-founder and soon-to-be GameStop board chairman Ryan Cohen. On the other hand, this share raise dilutes existing GameStop shareholders, making their stake worth less.

GameStop still has $146 million in short term debt and a revolving line of credit, per their most recent annual report, but that is likely under lower interest rates than those long term bonds. I wouldn’t be surprised to see the short term debt paid off early as well.

In all, GameStop seems to be seizing the opportunity to use its high stock price to fund its transformation. Whether they can actually pull that transformation off remains to be seen.

Dig into these posts for more on GameStop:

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Fundrise

This platform lets me diversify my real estate investments so I’m not too exposed to any one market. I’ve invested since 2018 and returns have been good so far. More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get your management fees waived for 90 days. With their 1% management fee, this could save you $250 on a $100,000 account. I will also get a fee waiver for 90-365 days, depending on what type of account you open.

iHerb

The only place I buy vitamins and supplements. I recently placed an order and received it in less than 48 hours with free shipping! I compared the prices and they were lower than Amazon. I also love how they test a lot of the vitamins so that you know you’re getting what the label says. This isn’t always the case with supplements.

Use this link to save 5%! I’ll also get 5% of however much you spend, at no cost to you.

Misfits Market

My wife and I have gotten organic produce shipped to our house by Misfits for over a year. It’s never once disappointed me. Every fruit and vegetable is super fresh and packed with flavor. I thought radishes were cold, tasteless little lumps at salad bars until I tried theirs! They’re peppery, colorful and crunchy! I wrote a detailed review of Misfits here.

Use this link to sign up and you’ll save $10 on your first order. I’ll also get $10.

Business

Departing GameStop CEO Gets $179 Million Payout

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GameStop CEO George Sherman will be leaving the company soon, but not empty handed:

As a condition of his exit, GameStop is speeding up the time frame for Sherman to receive the shares, generating the award.

Sherman, who has been CEO since April 2019, forfeited $98 million worth of stock this month because he did not meet performance targets, GameStop disclosed last week.

Still, he stands to receive a stock payout currently worth $179 million because GameStop granted him more shares linked to his tenure at the company rather than to his performance as most companies do with their CEO, said Eric Hoffmann, a vice president at compensation consultant Farient Advisors LLC.

This strikes me as bad policy and poor corporate governance, especially for a company that is losing a lot of money and facing rapidly declining sales. Why should an executive be rewarded simply for sticking around, as opposed to actually accomplishing something?

Why should an executive be rewarded simply for sticking around, as opposed to actually accomplishing something? $GME

I am hoping the new board, which will be chaired by Chewy founder Ryan Cohen and includes several other former Chewy executives, will put a stop to payment for no performance. After all, GameStop is already being robbed enough:

Two dozen cars squealed up to a GameStop store in Emeryville early Thursday and their occupants smashed the front door glass, broke inside and rifled the store shelves, police said.

An unknown amount of goods, including collectible figurines, was taken from the store at 3980 Hollis Street shortly after midnight.

Dig into these posts for more on GameStop:

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Business

Short Sellers Have Abandoned the Stock Market

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Short sellers have abandoned the stock market after massive losses in GameStop shares, among others:

According to data from Goldman Sachs, median short interest as a percentage of float across the S&P 500 has fallen to 1.6%, near the lowest reading since 2004.

More here (see the April 19 post.)

But that’s not all. As downward pressure on stocks from short sellers has all but disappeared, upward pressure via margin buying is exploding. Margin buying lets traders borrow money to buy more stock than they could otherwise afford. All those buy orders push up prices:

While the bears head for the hills, the bulls double down. Data from FINRA released today (thank you, Kevin Duffy) show that margin debt among member firms reached a record $822.5 billion in March. That’s up 35% from the average for March across 2018 and 2019 and 82% above last year’s virus-influenced figure.

These are worrying signs for stocks. True believers mortgaging themselves to the hilt along with a lack of skeptics looks like an excessively frothy market to me. I cut back my allocation to stocks several weeks ago, buying beaten-down Treasury securities instead. Especially if your portfolio is out of balance, with stocks accounting for a share that’s above your target due to recent gains, it may be time to take some profits.

Especially if your portfolio is out of balance, with stocks accounting for a share that’s above your target due to recent gains, it may be time to take some profits.

For more on the stock market, check out these posts:

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Business, Life

In GameStop, An Unlikely Community

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I spent some time browsing the GME sub* on Reddit yesterday, curious what some of the stock’s most fervent supporters are saying. What I found surprised me.

The most striking discussions were intensely personal. One poster described saving up his GameStop winnings for sex reassignment surgery, a lifelong dream (usernames redacted):

Other posters, who call themselves “apes” in a reference to the movie Planet of the Apes, were extraordinarily supportive. Some even expressed a determination to hold the stock to help the original poster, even though one person selling or holding won’t have a material impact on the price. There were a few salty words for hedge funder Ken Griffin though:

It struck me that, in a time when people are forced to be apart, humans have managed to create community in the most unlikely of places. It says something about the human spirit than even in a disembodied online world, where the topic is an intangible financial instrument, brotherhood (and sisterhood) flourishes. I find it rather beautiful.

That said, I encourage the posters to simply support each other as people, rather than tying that to a stock. Take it from a professional investor: a stock doesn’t know you own it and doesn’t care about you. It’s a legal construct that gives you ownership rights in a company. And truth be told, it’s a shaky business. I’d hate to see such nice people get hurt.

For more on GameStop and the Reddit trade, check out these posts:

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*A sub, or subreddit, is a thematic category on the discussion website Reddit

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Business

Hedge Fund Loses Half Its Value on GameStop Trades

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Melvin Capital, the hedge fund that dug itself into a hole during the GameStop saga, extended its first-quarter losses to 49%.

The firm, founded by portfolio manager Gabe Plotkin, saw a 53% decline in January, reversed some of that loss by gaining 22% in February, but slid another 7% in March, Insider’s Bradley Saacks reported on Friday.

More here.

The GameStop mania has come with incredible trading volume and rapid price moves. Collectively, hedge funds have taken losses of over $1 billion a day at certain points:

To put the gravity of the situation into perspective, on 27 January at the height of the GameStop saga, 24 billion shares were traded on US exchanges, surpassing the previously set record by 4 billion shares traded in the 2008 global financial crisis.

According to data and analytics firm S3 Partners, by 27 January short sellers had accumulated losses of more than $5 billion in 2021, including a loss of $1.6 billion on the 22 January and $917 million on 25 January.

Hedge funds seemed to have largely abandoned their positions. The percentage of GameStop stock sold short is down to 26% from over 100%. In January, it was hard to even borrow the stock at all to sell it short. Now, that’s cheap and easy to do, if you dare:

…a quick check with my broker verified that GME shares are available to borrow at 0.5% borrow rate, indicating that they are likely not in scarce supply

I expect hedge funds to pull back from shorting numerous stocks popular on Reddit, such as Palantir, AMC, etc. Losses like that may be too painful to take, no matter how good the fundamental case against those companies may be.

For more on GameStop, check out these posts:

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Photo: “Retail GameStop” by ccPixs.com is licensed under CC BY 2.0