Tag Archives: Stock Market

Shorts Are Covering Even Faster than Jan ’21

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

SEC Demands Citadel Employee Cell Phone Records

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:

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

Major Hedge Fund Down 54% — Survival in Doubt

SEC Refuses to Address Massive Fraud in Markets

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Photo: Citadel CEO Ken Griffin

SEC Refuses to Address Massive Fraud in Markets

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:

Major Hedge Fund Down 54% — Survival in Doubt

Short Sellers Down $81 Billion in 2023

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

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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.

Short Sellers Down $81 Billion in 2023

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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Photo: AMC CEO Adam Aron

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

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!

More on markets:

Major Hedge Fund Down 54% — Survival in Doubt

Tiger Global Losing $185 Million a Day

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

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Photo: Citadel CEO Ken Griffin

Major Hedge Fund Down 54% — Survival in Doubt

In a brutal year for hedge funds, few have suffered more than Light Street Capital. The fund lost 54% in 2022, over $1 billion.


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From a report out last night in Bloomberg:

Light Street Capital Management’s hedge fund tumbled 54% in 2022, according to a person familiar with the matter, one of the industry’s worst performances last year. 

That drop rivals the 56% decline for Tiger Global Management, and is steeper than Lone Pine Capital’s 36% loss and Whale Rock Capital Management’s 45% slide.  

Light Street was the classic crossover hedge fund. It made big bets on technology companies, both public and private.

Many of those bets were at eyewatering valuations. Tech was crushed in 2022, pushing many such funds to the brink.

What strikes me is how simple Light Street’s strategy was. Its biggest holdings were a who’s who of growth stocks:

Anyone could’ve bought Tesla and hoped for the best. Why should investors pay Light Street 2% of assets and 20% of gains to do what they could do themselves?

Light Street’s 54% loss is abysmal even compared to benchmarks. The S&P 500 lost 18% last year, while the NASDAQ lost 33%.

Investors could’ve bought index funds and avoided hundreds of millions in losses, not to mention outrageous fees.

No wonder the California Public Employees Retirement System (Calpers), one of the most astute investors in the market, hasn’t invested in hedge funds since 2014.

The future for Light Street is bleak. It cannot charge a performance fee again until it more than doubles its fund.

That’s extremely hard to do. And without those juicy performance fees, the best traders will leave.

This is the kind of spiral that took down Melvin Capital. Light Street could be next.

I’m a huge bull on technology. But no stock is a good buy at any price.

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

More on markets:

Tiger Global Losing $185 Million a Day

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

Is SBF Laundering Money As We Speak?

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Photo: Glen Kacher, Founder of Light Street Capital

Google is Losing the AI Race

Today, Google is the king of search. But is it about to be dethroned?


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The search giant seems to face a new competitor every day. ChatGPT launched on November 30, with Perplexity and Allsearch coming shortly thereafter.

The “page of links” is starting to look antiquated.

Meanwhile, with nearly 200,000 employees, Google has released nothing in response. But new reports indicate Google may finally release a competitor this spring:

In addition to an ethical AI chatbot such as LaMDA, Google is now planning to reveal 20 more AI-based products at its I/O conference scheduled for May 2023. ChatGPT has sparked worry about the use and viability of conventional search engines, as the chatbot aims to provide answers to searches instead of just giving relevant links to users.

Taking over 5 months to respond to a mortal threat to your business is unacceptable. Google should’ve worked day and night to produce a ChatGPT competitor within 90 days.

So what’s the holdup?

Google has shown wariness in revealing AI products and services, especially with the raging debate on the ethics of using AI, with the potential for bolstering biases present in training data. All current AI offerings by Google are heavily restricted in terms of what they can be used for.

Large companies are obsessed with risk. Meanwhile, startups have to release something or they’re dead in the water.

By the time Google does release a competitor, it may already be outdated. OpenAI’s GPT-4 may come out in the first half of this year.

I don’t know what GPT-4 will be capable of. But seeing the massive improvement between GPT-3 and ChatGPT, I expect it to be very impressive.

How fast you launch and iterate is especially important in AI because AI tools can improve at incredible speed. From a recent column by economist Tyler Cowen:

ChatGPT, the model released late last year, received a grade of D on an undergraduate labor economics exam given by my colleague Bryan Caplan. Anthropic, a new LLM available in beta form and expected to be released this year, passed our graduate-level law and economics exam with nice, clear answers.

If that wasn’t impressive enough, ChatGPT and another chatbot just passed the United States Medical Licensing Examination. I certainly couldn’t do that!

Maybe Google will release a ChatGPT killer and blow us all away. But I expect to see it fall further and further behind, mired in complacency and risk aversion.

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

More on tech:

Me vs. ChatGPT: Who’s a Better Blogger?

GPT-Powered Search with Perplexity AI

They Passed on Apple, Google and Facebook…Here’s Why

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

In 2022, the Fed tightened its vice grip until we squealed. But as interest rates peak this year, markets are in a position for serious growth.


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It stands to reason: if someone is hitting you with a stick, the pain diminishes when they stop hitting you. To confirm this, I looked at four periods of peak interest rates from 1981 to today.

In most cases, markets jumped significantly within a year after the federal funds rate peaked.

Let’s dig into some examples….

Paul Volcker’s Hammer

Federal Reserve Chairman Paul Volcker took interest rates to eyewatering levels in 1981. They peaked at 19% that summer, a far cry from today’s 4.5%.

Markets continued to fall for about a year.

But then, something amazing happened. Volcker crushed inflation and stocks rocketed upward for almost 20 years.

A Stake Through Inflation’s Heart

Like the undead, inflation rose again in 1989. Volcker pushed rates back up to 10% by April, ramming a stake through its cold, black heart.

Markets jumped shortly after, rising about 16% in the next year.

The Go-Go 90’s

After falling to a low of 3% in 1993, the Fed hiked rates to a peak of 6% in the spring of 1995. Chairman Alan Greenspan aimed to cool a red-hot economy and prevent inflation.

Markets ignored him. Stocks went vertical, more than doubling in 4 years.

The Financial Crisis

By the mid-2000’s, the real estate market was out of control. The Federal Reserve took rates from a rock-bottom 1% to 5% by the summer of 2007.

This time, it really was different.

There was no quick rebound even as the Fed took rates to zero. In fact, it took over 5 years for stocks to recover from the financial crisis.

The financial crisis stands out as the worst since the Great Depression. Last year’s S&P 500 return of -18% doesn’t compare to the Great Recession’s -48% bloodbath.

In all, once rates peak, we usually see markets begin to climb in 12 months or less.

As companies look at a future of stable or declining rates, they’re more comfortable borrowing money and making investments. If rates peak mid-year as analysts project, I expect to see markets jump by the end of 2023.

What do you think 2023 holds for markets? Leave a comment at the bottom and let me know!

More on markets:

Tiger Global Losing $185 Million a Day

Is SBF Laundering Money As We Speak?

Why Crypto is Still Massively Overvalued

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Photo: “Governor Jerome Powell speaks at Brookings panel, ‘Are there structural issues in U.S. bond markets?’” by BrookingsInst is licensed under CC BY-NC-ND 2.0

Latest Data: APE Fails to Deliver Hit 7.1 Million

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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Photo: AMC CEO Adam Aron

Seedscout: Where Underestimated Founders Win

Every morning, I have dozens of new LinkedIn messages from founders. I seldom have time to reply. But what if there were a better way for founders and investors to meet?


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Enter my latest investment, Seedscout. Seedscout is an awesome new platform for founders to meet investors.

The magic of Seedscout is that there’s a monthly fee. This filters off people who aren’t serious.

What’s left? Awesome founders I want to meet!

I find myself meeting with almost every Seedscout founder who asks. Meanwhile, my LinkedIn requests languish in digital limbo.

I recently met an amazing founder on Seedscout whose startup is growing revenue at 70% a month. Once I wiped the drool off my chin, I reached for my checkbook!

When a platform gives me deal flow like that, I pay attention to their next intro. Meanwhile, since I rarely find solid deals via cold messages, I often don’t have time to respond to those messages.

For founders without a strong network in venture capital, Seedscout is a super power. You can buy your way in.

With plans starting at $100/month, a scrappy young founder can drive Uber for a few hours and pay for a membership.

Seedscout Founder & CEO Mat Sherman is fanatical about opening up venture capital to all great entrepreneurs. In an industry where just 2% of funding goes to women and just 0.4% to black founders, Seedscout is changing the rules of the game.

In time, Seedscout may replace LinkedIn and AngelList. For me, it already has.

I’m delighted to be an investor in innovative startup. Best of luck to this scrappy team as they take Sand Hill Road by storm!

I’m on vacation for the next two weeks. I’ll see you again on Monday, December 19th!

Until then, please enjoy some classic posts from the archives:

The Startup Pitch Checklist

Mark Twain: Venture Capitalist

North Jersey’s Secret Campground

The Swami Who Taught Me About Politics

The Ultimate Score: Turning $300k into $2.4 Billion on Coinbase

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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.

More on Fundrise in this post.

If you decide to invest in Fundrise, you can use this link to get $100 in free bonus shares!

Misfits Market

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