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AMC Shorts Lose $180 Million So Far This Year

March 22, 2023 tremendousblog 1 Comment

This is not investment advice.

Like moths to a flame, short sellers love to bet against AMC Entertainment Holdings. Those bets have cost them a cool $180 million so far this year.

And it’s only March.

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From a new report in TheStreet:

This year alone, thanks to quick rallies in the stock, AMC short sellers have already lost about $180 million.

One of the main reasons why there has been such high demand for short positions in AMC in recent months is the fact that many investors have entered into an arbitrage trade. They’ve shorted AMC and gone long APE due to the share price discrepancy.

Short sellers need to borrow AMC shares. The borrow fees have soared to 160% currently, a staggering rate.

AMC and APE are an obvious pairs trade. The two may converge if APE shares convert into AMC shares, as expected.

So if you short AMC and buy APE, you should make money on both trades. The AMC shares decline due to dilution, while the APE shares rise in value to match the AMC shares.

Sounds great right? Small problem…

AMC has a passionate fan base of retail investors. Those investors are attempting to orchestrate a short squeeze.

And that’s a whole lot easier to do when 25% of the shares are sold short and it costs 160% a year to do it.

The pain has no end in sight.

Retail investors are buying stocks like crazy. They bought at a pace of $1.5 billion a day in the first two months of the year, a record.

Hedge funds shorting AMC, pairs trade or no, are making a big mistake.

Every day, more cash is coming in to squeeze them. And you can’t hold a position forever at 160% interest.

Worst of all, their potential for loss is unlimited.

Any responsible investor would close this trade immediately. But never forget, they’re playing with other people’s money.

What do you think the future holds for AMC and APE shares?

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SVB Fallout

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Goldman Sachs Under Federal Investigation

February 28, 2023 tremendousblog 2 Comments

Goldman Sachs is under multiple federal investigations of its consumer business. The Consumer Financial Protection Bureau and the Federal Reserve are probing areas from credit cards to bank accounts.

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From a new report in the trade journal PYMNTS:

…in its annual report — filed Friday (Feb. 24) — Goldman amended its earlier statement to say it was cooperating with the CFPB “and other governmental bodies relating to investigations and/or inquiries concerning GS Bank USA’s credit card account management practices.”

But that’s not all:

The news comes a little more than a month after reports that the Federal Reserve was investigating Marcus, Goldman Sachs’ consumer business. A report by the Wall Street Journal citing unnamed sources said the Fed is examining the bank’s oversight of the consumer business, its management and governance, and how it handles customer problems.

These investigations could result in huge fines or worse. However, no wrongdoing has been proven thus far.

What we do know is that Goldman is losing a fortune on its consumer bank. Losses total over $3 billion at several units since 2020 alone.

Consumer banking was supposed to help Goldman diversify.

Its mainstays of mergers, IPO’s and trading are boom and bust businesses. But consumers tend to keep their bank account and credit cards in the same place for many years.

Instead, Goldman is posting its worst quarterly results in a decade. Add that to numerous scandals and Goldman is looking like the weak man on Wall Street.

Now that multiple federal agencies are poking around inside Goldman Sachs, there’s no telling what they’ll find. I’m willing to bet there’s more chicanery we don’t yet know about.

I was always reluctant to open a Marcus account, despite the great rates. Doing business with a company with such a checkered history scares me.

I guess I’m not alone.

What do you think investigators will find at Goldman?

More on markets:

SEC Refuses to Address Massive Fraud in Markets

Short Sellers Lose $17 Billion in 2023

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Business, Technology

Short Sellers Lose $17 Billion in 2023

February 21, 2023 tremendousblog 3 Comments

A surprise rally this year has hit short sellers hard. Losses total nearly $17 billion already in 2023:

From a report out this morning in Bloomberg:

Ten of the most-shorted stocks this year delivered almost $17 billion in combined mark-to-market losses for bears through Thursday, according to data-analytics firm S3 Partners. Tesla, which has surged 67% so far in 2023, leads the group by dealing a $7.2 billion blow to traders shorting the stock. The electric-car maker is followed by Nvidia Corp., Apple, Meta, Amazon.com Inc. and Microsoft Corp.

Heavily shorted meme stocks have also delivered painful lessons to short sellers.

AMC Entertainment Holdings is up 38% this year. GameStop Corp has jumped 17%.

What we’re seeing is an overall risk-on attitude. All the assets we hated in 2022, from crypto to meme stocks to tech, are surging in 2023.

Hedge funds shorting meme stocks are in an especially weak position.

The cost to borrow shares like AMC and GameStop is stratospheric, sometimes passing 100% per year. With fees like that, the stock either craters ASAP or you lose a fortune.

Add that to intense retail interest, and you have a recipe for disaster.

I don’t know where markets are headed. But I do know that paying double or triple digit interest rates to short a volatile stock is reckless.

And what of the bigger names, like Nvidia or Microsoft? Well, it so happens those two companies are some of the most likely to benefit from major advances in AI.

Nvidia makes GPU’s, the chips AI relies on. Microsoft owns a huge piece of OpenAI, one of the best companies in the space.

If AI fever begins to power markets, short sellers in those names will be running for cover.

In general, short selling is a poor strategy. Your upside is capped at 100%, your downside is unlimited, and you’re swimming against the generally rising tide of markets.

I prefer to buy great businesses for the long term.

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

More on markets:

SEC Refuses to Address Massive Fraud in Markets

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Photo: Prominent Tesla short seller Jim Chanos. “Jim Chanos and Stephen Roach at Asia Society New York” by Asia Society is licensed under CC BY-NC-ND 2.0.

Business

SEC Demands Citadel Employee Cell Phone Records

February 3, 2023 tremendousblog 2 Comments

The Securities and Exchange Commission has ordered Citadel and several other financial firms to produce employee cell phone records.

From a new report in Bloomberg:

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The Securities and Exchange Commission recently asked Steve Cohen’s Point72 Asset Management, Ken Griffin’s Citadel and several other firms to search through the devices for evidence of business dealings on unapproved channels, according to people familiar with the matter who asked not to be identified discussing the private requests. The SEC is also probing the practices of brokerages, money managers and private equity firms.

Representatives for Point72 and Citadel declined to comment. Neither firm has been accused of wrongdoing.

By law, investment firms must retain all business communications. But sometimes, Wall Street traders would rather no one hears their conversation.

So, many turn to encrypted messaging apps like WhatsApp and Signal. Using their personal phones, traders can evade the scrutiny of their employer, as well as regulators.

What might be in those WhatsApp messages? Time will tell, but violations could include front-running clients’ trades or naked short selling.

The Financial Industry Regulatory Authority (Finra) has fined Citadel for front running clients in the past. Citadel has also received subpoenas in a probe of short sellers.

The SEC has already levied over $1 billion in fines on banks for failing to maintain records. But unless those fines get a lot bigger, nothing will change.

Citadel made $16 billion in profit last year. Any fine in the millions will be nothing more than a speeding ticket.

I urge the SEC to find out what is being hidden in these messages. And when they do, the penalty should sting, big time.

What do you think the SEC will find? Leave a comment and let me know!

Have a great weekend everyone!

More on markets:

SEC Refuses to Address Massive Fraud in Markets

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Business

SEC Refuses to Address Massive Fraud in Markets

January 31, 2023 tremendousblog 14 Comments

The Securities and Exchange Commission (SEC) just released its top enforcement priorities for the year. Rather than dig into systemic fraud in our markets, they’ll be regulating….confetti?

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According to a report out this morning on Reuters, the SEC will be focusing on:

”…behavioral prompts, differential marketing, game-like features…and other design elements or features designed to engage with retail investors on digital platforms.”

In plain English, they’re talking about the confetti some stock trading apps display when you make a trade. But that’s not all.

The SEC will also be regulating how funds can use certain words:

…funds with keywords such as “green,” “sustainable,” “ethical,” or “socially responsible” in their names will have to reflect an emphasis on these areas through their investing choices.

As if investors couldn’t simply look at the holdings and see if Exxon Mobil is there or not!

Combatting widespread financial fraud is nowhere in the SEC’s agenda.

Illegal naked short selling pervades our markets. Millions upon millions of trades fail to clear each day, especially in heavily shorted stocks like AMC Entertainment Holdings and GameStop.

But the SEC won’t be looking into that.

Despite $8 billion in losses on FTX, cryptocurrency regulation won’t be a focus for the SEC this year either. Why bother with that when the SEC could be requiring “a summary of registrants’ human capital resources,” whatever that is?

It’s no wonder author Jesse Eisinger called the feds “the chickensh*t club.”

The SEC is a toothless regulator. It busies itself with make-work, avoiding the real issues plaguing our markets.

Gary Gensler and the SEC need to start going after the real criminals.

What do you think of SEC enforcement? Leave a comment at the bottom and let me know!

More on markets:

Short Sellers Down $81 Billion in 2023

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Photo: “CMI 101: Demystifying Derivatives with CFTC Chairman Gary Gensler” by Third Way is licensed under CC BY-NC-ND 2.0.

Business

Short Sellers Down $81 Billion in 2023

January 30, 2023 tremendousblog 2 Comments

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:

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

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Photo: AMC CEO Adam Aron

Business

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

January 27, 2023 tremendousblog 7 Comments

South Korea has fined Citadel Securities for illegal stock trades made with high frequency algorithms. From a report out last night in Reuters:

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South Korea’s financial regulator has imposed a fine of 11.88 billion won ($9.66 million) on U.S.-based Citadel Securities, saying it disturbed the local stock market with high-frequency algorithm trading.

The Financial Services Commission (FSC) said in a statement released on Thursday the firm had distorted stock prices with artificial factors, such as orders on the condition of “immediate or cancel” and by filling gaps in bid prices.

These illegal trades were no isolated incident. Regulators found improper trades in thousands of stocks over a period of nearly a year:

The firm carried out such trading on an average of 1,422 stocks per day from Oct. 2017 to May 2018, totalling more than 500 billion won worth of trades, according to the statement.

Citadel’s illegal trades stand out as some of the most egregious ever in South Korea:

The Commission said it was the first time it had imposed fines on such high-frequency trading on the South Korean stock market, which has a high proportion of retail investors and little competition among algorithmic traders.

Citadel used strategies such as flash orders to gain an illegal advantage over other traders. This practice involves offering to buy or sell and then retracting the order in a fraction of a second.

Flash orders let you see the prices at which other traders are willing to buy or sell. This gives you an illegal edge over your competition.

In Korea, Citadel used these strategies to take advantage of mom and pop retail traders, which I find particularly heinous.

Citadel’s algos don’t stop in Korea.

The firm was recently fined by the US Financial Industry Regulatory Authority (FINRA) for frontrunning its customers. By placing trades ahead of customers, Citadel made money for its own account.

Breaking the law appears to be quite lucrative for Citadel.

Citadel Securities posted record revenues of $7.5 billion last year. Citadel’s hedge fund made even more, approximately $28 billion.

I think Citadel is using these illegal flash orders all over the world. They may also be using other illicit tactics we don’t know about yet.

After all, if you go to the trouble to create a program that can make you money, why not use it in as many places as possible?

The reality is that these speeding tickets will never stop Citadel. Fines in the millions are a cost of doing business for a multi-billion dollar operation.

Securities regulators worldwide should find out what exactly Citadel is doing in their markets. If they find more wrongdoing, they should simply ban the firm from trading for a period of years.

Nothing but a severe penalty will stop them.

Who says crime doesn’t pay?

What do you think is the future for Citadel? Leave a comment at the bottom and let me know!

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Tiger Global Losing $185 Million a Day

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

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Business

Latest Data: APE Fails to Deliver Hit 7.1 Million

December 30, 2022 tremendousblog 11 Comments

Fails to deliver in shares of AMC Entertainment Holdings Preferred Equity (APE) reached staggering levels in December. Failed trades hit over 7.1 million shares in the latest SEC report before falling to end the period.

AMC issued these preferred shares in August as a way to raise capital. Since then, they’ve fallen steadily, losing over 75% of their value.

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Failed trades in APE shares peaked on December 2nd at 7,134,531. AMC shares also showed elevated fails to deliver, at nearly 300,000 shares.

Huge numbers of failed trades in APE preceded a substantial drop in the stock price. The shares lost 23% of their value in the next week alone.

A persistent pattern of huge fails to deliver can be a sign of naked short selling. This illegal practice involves selling short shares you never borrowed.

Naked shorting is a powerful way to crush a stock. If you don’t have to find any shares to borrow or pay interest, you can short as many as you like!

We’ve also seen persistent, massive fails to deliver in AMC’s common shares. Like APE, that has been coupled with a major fall in price.

So what’s going on?

My bet is that hedge funds are breaking the law and naked shorting AMC and APE shares. Why else would these huge numbers of failed trades persist for so long?

To get a sense of how out of line these fails to deliver are with other stocks, let’s do a comparison. Here are the fails to deliver on December 2nd for some of the largest stocks in the market:

Amazon: 40,406

Apple: 319

Berkshire Hathaway (Class B shares): 36

Google: 151,519

Microsoft: 9,233

These stocks are hundreds of times the size of AMC. And yet, AMC sees more failed trades than all of them.

Combined.

The SEC must investigate the chaos in AMC and APE shares. It’s the only way we can have a fair, efficient market for everyone.

What do you think of the failed trades in AMC and APE? Leave a comment at the bottom and let me know.

There will be no blog on Monday for New Year’s. Thanks for a great 2022 and see you on Tuesday!

More on markets:

Is SBF Laundering Money As We Speak?

New Report: AMC Fails to Deliver Hit 4.3 Million

Tiger Global Losing $185 Million a Day

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Business

New Report: AMC Fails to Deliver Hit 4.3 Million

November 30, 2022 tremendousblog 5 Comments

Fails to deliver in shares of AMC Entertainment Holdings reached extraordinary levels in November. 4.3 million shares have failed to clear by November 14th, the latest data available.

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This new report, out today from the SEC, shows the highest levels of fails to deliver in months. This is particularly striking given the much lower fails to deliver in the largest stocks.

Let’s see how many fails to deliver some of the largest stocks in the market had on November 14th:

Amazon: 253

Apple: 0

Google: 0

Microsoft: 11,553

These companies are hundreds of times larger than AMC. But somehow, a little theater chain dwarfs them all in failed stock trades.

Fails to deliver can happen for benign reasons. But a long and persistent pattern of fails to deliver, as in AMC stock, can point to something more nefarious.

Huge numbers of failed trades can indicate naked short selling. This is the illegal practice of selling short shares you never borrowed.

It’s a potent way to crush a stock’s price. After all, if you don’t have to borrow a stock, you can sell short all you want!

Increasing failed trades may be related to higher borrowing costs for AMC shares. With fees going from 20% to up to 100% a year, borrowing shares is more expensive than ever.

It’s a lot cheaper to naked short sell. Unfortunately, it’s also against the law.

I urge the SEC to investigate the long term pattern of chaos in AMC shares. Only a full investigation can restore confidence in markets.

What do you think of this huge fails to deliver number? Leave a comment at the bottom and let me know!

Today is the blog’s second birthday! Thank you guys for a great two years! 🙏

There’s a lot more to come!

More on markets:

Tiger Global Losing $185 Million a Day

Hedge Funds Lose Billions as FTX Implodes

Is SBF Headed to Prison?

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