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Carl Icahn Losing $900 Million a Day

May 23, 2023 tremendousblog 2 Comments

Corporate raider Carl Icahn has lost $15 billion since the release of an exposé by Hindenburg Research. That’s over $900 million a day.

The Hindenburg Report

Hindenburg claims that Icahn’s holding company, Icahn Enterprises, is structured like a Ponzi scheme. Repeated share sales support an unusually high 28% dividend.

In brief, Icahn has been using money taken in from new investors to pay out dividends to old investors. Such ponzi-like economic structures are sustainable only to the extent that new money is willing to risk being the last one “holding the bag”.

Hindenburg also alleges that Icahn Enterprises inflates the values of its assets. Since the release of the report on May 2, the stock has fallen by nearly half in just 16 trading days, costing Icahn billions.

From Bloomberg:

“He’s never been humiliated like this,” says Mark Stevens, Icahn biographer and founder of consulting company MSCO.

A History of Losses

Icahn Enterprises stock has lagged for years, weighed down by huge losses. Again from Bloomberg:

It’s hard to argue about Icahn’s lackluster performance of late. This has been a lost decade for Icahn Enterprises stock. The price has fallen more than 60% over the past 10 years, while the S&P 500 has gained about 153%. Dividends have made up some of the difference: Icahn Enterprises has handed stockholders a total return of about 6%. But the S&P has returned roughly 206%.

Icahn made massive bets that a financial crisis was coming. When those short bets didn’t pan out, he lost billions.

Icahn Enterprises’ Future

Now, federal prosecutors are investigating Icahn Enterprises. So far, no charges have been filed.

I don’t know if Icahn acted improperly. But I do know that a 28% dividend isn’t sustainable.

This means you’re paying out the entire value of the company every 3.5 years. This would be an incredible strain even for the most profitable companies.

For a business making big losses, it’s impossible.

I also disagree with Icahn’s bets on a financial crisis. Although crashes come and go, the long term trajectory of markets, technology, and humanity is upward.

Financial engineering and short bets can work — sometimes. But the better approach is to buy great businesses for the long term and bet on the future.

“Never bet against America.” – Warren Buffett
2021 Berkshire Hathaway Annual Letter

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Don’t Wanna Pay 216%? How About a Naked Short?

March 23, 2023 tremendousblog 2 Comments

Cost to borrow shares of AMC Entertainment holdings went through the roof today. From a report out just this afternoon on InvestorPlace:

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The cost to borrow (CTB) fee for AMC Entertainment (NYSE:AMC) has skyrocketed to 215.80% today, up by more than 100% from the reading of 101.76% on March 10. Yesterday’s closing CTB fee reading clocked in at 211.41%. Meanwhile, between March 10 and today, AMC stock has fallen more than 10%. What’s going on?

The CTB represents the yearly fee that short sellers must pay to borrow shares. A higher fee could represent increased short seller demand while a lower fee could represent lower demand. A higher fee could also signal a scarcity of available short shares. Still, AMC’s exorbitant CTB fee could actually be seen as a positive for AMC stock shareholders.

Let’s say you want to short AMC. But you don’t want to pay 216% a year interest because…uh…no one does.

But don’t worry! There’s a dandy alternative.

How about a naked short?

With a naked short, you don’t even have to borrow the shares at all! Instead of 216% interest, how about 0%!

Pretty sweet, right?

One small problem. It’s against the law.

There is strong evidence of massive naked shorting in AMC stock. Fails to deliver hit nearly 12 million shares in the latest SEC report.

That’s absolutely staggering, even for AMC. And keep in mind, most stocks have few if any fails to deliver.

Why are tons of trades failing?

To close a short sale, you need to borrow some shares. But it’s kinda hard to do that right now, at 216% interest.

So why not just cut some corners and naked short? It’ll just wind up a fail to deliver and get swept under the rug.

There’s likely a crime here in plain sight. But for it to matter, the SEC needs to act.

But before shorts laugh at the SEC and pop a bottle of Dom, they should think about the risks.

Half of Wall Street is betting that AMC will crash if APE shares convert. This share conversion dilutes AMC stock holders.

But conversion isn’t certain. And even if it happens, AMC shares have jumped after prior dilutions.

In a way, that makes sense.

Yes, you own a smaller piece of the company after dilution. But this heavily indebted company now has far more capital.

That makes the risk of bankruptcy increasingly remote.

I have no idea where AMC or any other stock is going.

But I do know that people don’t like paying 216% interest. And to avoid it, they just might break the law.

After all, what could happen?

Do you think the SEC will act? Leave a comment and let us know!

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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:

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Short Sellers Lose $17 Billion in 2023

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Shorts Are Covering Even Faster than Jan ’21

February 6, 2023 tremendousblog Leave a comment

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!

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

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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:

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

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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

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

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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:

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

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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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