Tag Archives: Stonks

Short Sellers Lose $44 Billion in 30 Days

Short sellers had a disastrous June:

Overall, U.S. short sellers are down -$44.49 billion in net of financing mark-to-market losses over the last thirty days.

The #1 source of short seller losses? AMC, by a wide margin, at $2.8 billion. AMC was also the #2 stock in the entire market in increased short exposure in June, a little behind Tesla, which has a market cap more than 25 times as large.

How can we describe this behavior by short sellers? Delusional? Suicidal? Or perhaps rational, given the incentives hedge funds are facing. Numerous funds are down heavily on bad bets against meme stocks. Once a hedge fund is well into the red, it has to make back its losses to even have a chance of earning its 20% performance fee. (That fee is collected only on gains over the capital invested.)

So, the deeper in the hole a fund gets, the more incentive it may have to make risky bets. Only a huge payoff on a volatile stock (like AMC) can get them back in the black, earning those sweet, sweet performance fees.

Unfortunately, this exposes investors who have already lost much of their capital to enormous risks. If I were an investor in a hedge fund that bet against meme stocks, which fortunately I am not, I’d pull my money out ASAP before they lose it all. It’s hard to make money shorting anything in such a hot market, but shorting one of the most popular stocks out there is a recipe for disaster.

The hedge funds were just lucky that June is a short month.

More on AMC:

HEDGE FUND TORCHED BY AMC

AMC + UFC = JACKPOT

AMC’S S-3 WITHDRAWAL: WHAT DOES IT MEAN?

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AMC’s S-3 Withdrawal: What Does It Mean?

There is a lot of talk lately on Twitter and Reddit about AMC’s withdrawal Tuesday of an obscure SEC form called an S-3. Form S-3 is a filing that registers securities. In this case, the securities were convertible bonds, or bonds that can convert into stock when the holder chooses.

Many on social media conclude that this withdrawal is somehow part of a plan by AMC to kneecap short sellers. I’m not quite clear on how that would work, but removing the possibility of a lot of new share issuance does keep a tighter market in the shares, making a short squeeze somewhat more likely.

But I think the key part of the S-3 withdrawal is this:

The Registrant confirms that no securities have been issued or sold under the Registration Statement.

It appears to me that AMC is simply withdrawing an SEC filing that no longer reflected reality, thus keeping their regulatory filings current. They didn’t issue shares under the agreement, so
the shares couldn’t have been sold short. In all, there doesn’t seem to be a clear connection between the withdrawal of the S-3 and short selling in AMC.

This excellent video explains the situation well:

I won’t pretend to be an expert on S-3’s. Is it possible I’m missing something? Absolutely, and I’m curious to hear your perspective in the comments at the bottom of the page.

That said, we don’t need to draw any conclusion from the S-3 withdrawal to have strong evidence of illegal activity by short sellers in AMC. As I covered yesterday, repeated fail-to-delivers in a heavily traded stock like this, along with serious short interest, powerfully suggest illegal naked short selling.

Whatever the S-3 means, there’s more than enough evidence of misconduct already.

More on AMC:

AMC ON THE THRESHOLD LIST: STRONG EVIDENCE OF NAKED SHORT SELLING

HEDGE FUNDS LOSE $12 BILLION ON AMC AND GAMESTOP

HEDGE FUNDS’ AMC DOOMSDAY SCENARIO

(Full disclosure: I don’t have and have never had any position in any AMC securities, long or short. I just find the phenomenon of a 28-fold increase in a stock in 6 months interesting as an investor.)

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

Hedge Funds Burn $6 Billion In a Month Shorting AMC (and Others)

Several hedge funds that lost a fortune shorting GameStop in January have sustained further losses betting against meme stocks like AMC:

Melvin Capital and Light Street Capital, two US hedge funds hard hit by the January rally in stocks popular with retail investors, suffered further losses in May.

Hedge fund losses from betting against five popular meme stocks — GameStop, Bed Bath & Beyond, AMC, BlackBerry and Clover Health — total about $6bn since the start of May, according to the data firm Ortex Analytics. Peter Hillerberg, Ortex’s co-founder, said funds had recently reduced their short positions in meme stocks but that short interest remained “at very high levels”.

These losses are likely heavily concentrated in AMC, since it outperformed all the other stocks on that list by a wide margin in May, nearly tripling in value.

Hedge funds have been hit so hard that their prime brokers, the banks who fund their trades, are cutting them off:

Wall Street’s top brokers are quietly tightening their rules for who can bet against retail traders’ most-popular meme stocks.

The changes mean some hedge funds and other institutional investors now face higher collateral requirements or are limited from shorting certain stocks, the people said, asking not to be identified discussing internal policy decisions.

Hedge funds have been moving toward options and away from short selling to place their bets against AMC and other meme stocks. But losses from bearish options bets can also be substantial, as Mudrick Capital recently proved. Such trades may not be covered under some of these policies against short selling. Jefferies, however, has wisely included naked option positions (a particularly risky trade) on the list of meme stock bets it will no longer handle.

I have to wonder how long investors in hedge funds will put up with massive losses in volatile stocks, even as index funds post solid returns with minimal fees. If the hedge fund managers guess right on the direction of a highly volatile meme stock, they pocket 20% or more of the gains. If the stock moves against them, it’s the investors who are left holding the bag.

Heads they win, tails you lose.

More on AMC:

Photo: “Hedge Fund” by Paul Robertson is licensed under CC BY-ND 2.0

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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.

New Stimulus Checks Could Set GameStop Off Like Never Before

With the House about to approve another $1.9 trillion in stimulus, the final hurdle before the legislation is signed by President Biden, I found myself wondering what this means for shares in GameStop and other meme stocks.

Those stocks took off big time in January, as personal income increased 10% month over month. Most Americans received a $600 stimulus check in December of 2020. A couple weeks later, shares in GameStop, AMC and others took off.

That stimulus is dwarfed by the new one, which will mean $1,400 checks for most Americans along with expanded unemployment, child tax credits, and other benefits. If a $600 check set meme stocks on a tear, what will $1,400 do?

Indeed, the expectation of stimulus payments may already be boosting GameStop shares, and may continue to do so in the future:

Market strategists have said tens of billions of dollars of U.S. President Joe Biden’s coronavirus relief package could indirectly find their way into shares, possibly boosting “meme stocks” that are heavily promoted by retail traders in online social media forums such as Reddit’s popular WallStreetBets.

My view of this company is that it’s lacking in fundamental value and should be avoided. However, it definitely wouldn’t surprise me if the stimulus gave the shares a short-term pop. The question is, how long will it last? You don’t want to be left without a chair when the music stops.

For more on GameStop and other meme stocks, check out these posts:

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