Posted on 01/31/2021 6:31:16 AM PST by TigerClaws
Last Friday (Jan, 22) we advised readers who thought they had missed the move in GameStop (they hadn't), to position appropriately in the most shorted Russell 3000 names which included such tickers as FIZZ, DDS, BBBY, AMCX, GOGO and a handful of other names, as it was likely that the short-squeeze was only just starting.
We were right and all of the stocks listed above - and others - exploded higher the coming Monday, and all other days of the week, with results - encapsulated by the WallStreetTips vs Wall Street feud - that has become the top conversation piece across America, while on WSB the only topic is the phenomenal gains generated by going long said most shorted stocks. To wit, the basket of top shorts we compiled on Jan 22 has tripled in the past week.
And while some are quick to blame last week's fireworks on the "dopamine rush" of traders at r/wallstreetbets who seek an outlet to being "copped up with little else to do during the pandemic" (as Bloomberg has done), the reality is that at the end of the day the strategy unleashed by the subreddit is merely an extension of the bubble dynamics that were made possible by the Federal Reserve (of which Bloomberg is also a very staunch fan) pumping trillions and trillions of shot-gunned liquidity into a financial system where there are now bubble visible anywhere one looks. In short, main street finally learned that it too can profit from the lunacy of the money printers at the Eccles building, and some are very unhappy about that (yes, it will end in tears, but - newsflash - $300 trillion in debt and $120BN in liquidity injections monthly will also end in tears). That aside, one week later, Goldman has finally caught up with what Zero Hedge readers knew one week ago, and all the way down to a chart showing a basket of the most-shorted Russell 3000 stocks...
Goldman's David Kostin has published a post-mortem of what happened last week, writing that "the most heavily-shorted stocks have risen by 98% in the past three months, outstripping major short squeezes in 2000 and 2009."
He then points out something we discussed in "Hedge Funds Are Puking Longs To Cover Short-Squeeze Losses", noting that while aggregate short interest levels are remarkably low (imagine what would have happened has shorting been far more aggressive marketwide) "the -4% weekly return of our Hedge Fund VIP list of the most popular hedge fund long positions (GSTHHVIP) showed how excess in one small part of the market can create contagion."
Hedge funds were forced to cover (as well as paying for margin calls), and as part of the broader degrossing they also had to sell some of the favorite hedge fund names across the industry, in this case represented by the Goldman Hedge Fund VIP basket.
Yet what may come as a surprise to some, even as hedge funds deleveraged aggressively and actively cut risk this week, gross and net exposures "remain close to the highest levels on record" (something which may come as a huge surprise to Marko Kolanovic who has been erroneously claiming the opposite), suggesting that if the squeeze continues, hedge funds are set for much more pain.
According to Goldman Sachs Prime Services, this week "represented the largest active hedge fund de-grossing since February 2009. Funds in their coverage sold long positions and covered shorts in every sector" and yet "despite this active deleveraging, hedge fund net and gross exposures on a mark-to-market basis both remain close to the highest levels on record, indicating ongoing risk of positioning-driven sell-offs." With that in mind, here are Kostin's big picture thoughts: It was a placid week in the US stock market – provided one was a long-only mutual fund manager. US equity mutual funds and ETFs had $2 billion of net inflows last week (+$10 billion YTD). Although the typical large-cap core mutual fund fell by 2% this week, it has generated a return of +1.3% YTD vs. S&P 500 down -1.1%. However, life was very different last week if one managed a hedge fund. The typical US equity long/short fund returned -7% this week and has returned -6% YTD. With the average WSB portfolio up double digits this past week, one can see why hedge funds are upset. Anyway, moving on: The past 25 years have witnessed a number of sharp short squeezes in the US equity market, but none as extreme as has occurred recently. In the last three months, a basket containing the 50 Russell 3000 stocks with market caps above $1 billion and the largest short interest as a share of float (GSCBMSAL) has rallied by 98%. This exceeded the 77% return of highly-shorted stocks during 2Q 2020, a 56% rally in mid-2009, and two distinct 72% rallies during the Tech Bubble in 1999 and 2000. This week the basket’s trailing 5-, 10-, and 21-day returns registered as the largest on record.
Thanks Goldman, and yes, your "brisk assessment" would have been more useful to your clients if it had come before the event (like, for example, this) instead of after. Kostin then goes on to point out that the "mooning" in the most shorted stocks took place even though aggregate short interest was near a record low (imagine what would have happened had short interest been higher), which is odd because historically, "major short squeezes have typically taken place as aggregate short interest declined from elevated levels. In contrast, the recent short squeeze has been driven by concentrated short positions in smaller companies, many of which had lagged dramatically and were perceived by most investors to be in secular decline" to wit: Unusually, the rally of the most heavily-shorted stocks has taken place against a backdrop of very low levels of aggregate short interest. At the start of this year, the median S&P 500 stock had short interest equating to just 1.5% of market cap, matching mid-2000 as the lowest share in at least the last 25 years. In the past, major short squeezes have typically taken place as aggregate short interest declined from elevated levels. In contrast, the recent short squeeze has been driven by concentrated short positions in smaller companies, many of which had lagged dramatically and were perceived by most investors to be in secular decline. Of course, there is nothing "historical" about what happened last week, because - as we all know - the biggest difference between the typical short squeeze of the past and the recent rally in heavily-shorted stocks "was the degree of involvement of retail traders, who also appear to have catalyzed sharp moves in other parts of the market." Why thank you WSB, but that's ok - you will be handsomely rewarded. Last week we discussed the surging trading activity and share prices of penny stocks, firms with negative earnings, and extremely high-growth, high-multiple stocks. These trends have all accompanied a large increase in online broker trading activity. A basket of retail favorites (ticker: GSXURFAV) has returned +17% YTD and +179% since the March 2020 low, outperforming both the S&P 500 (+72%) and our Hedge Fund VIP list of the most popular hedge fund long positions (GSTHHVIP, +106%).
So why does this matter? One simple reason: contrary to the bizarrely nonchalant optimism spouted earlier this week by JPMorgan's Marko Kolanovic who said "any market pullback, such as one driven by repositioning by a segment of the long-short community (and related to stocks of insignificant size), is a buying opportunity, in our view," Goldman has a far more dismal take on recent events, and writes that "this week demonstrated that unsustainable excess in one small part of the market has the potential to tip a row of dominoes and create broader turmoil."
He then picks up on what he said last weekend when responding to Goldman client concerns about a stock bubble, which we summarized in "Goldman's Clients Are Freaking Out About A Stock Bubble: Here Is The Bank's Response", and which turned out to be 100% warranted, and writes that "most of the bubble-like dynamics we highlighted last week have taken place in stocks constituting very small portions of total US equity market cap. Indeed, many of the shorts dominating headlines this week were (prior to this week) small-cap stocks. But large short squeezes led investors short these stocks to cover their positions and also reduce long positions, leading other holders of common positions to cut exposures in turn." As a result, Goldman's Hedge Fund VIP list declined by 4%. Which is a problem because as Kostin concludes, "in recent years elevated crowding, low turnover, and high concentration have been consistent patterns, boosting the risk that one fund’s unwind could snowball through the market." Translation: if WSB continues to push the most shorted stocks higher, the entire market could crash. And since Kostin admits that "the retail trading boom can continue" as "an abundance of US household cash should continue to fuel the trading boom" with more than 50% of the $5 trillion in money market mutual funds owned by households and is $1 trillion greater than before the pandemic, what happens in the coming week - i.e., if the short squeeze persists - could have profound implications for the future of capital markets.
While short term it is amusing...long term it will crash the markets
The problem is the Financial industry has been way too clever in pioneering these stupid games. That’s been true for decades now.
The market is going to crash anyway after the reality sinks in that it’s a communist takeover and with all the debt we’re acquiring.
Reddit Preparing To Unleash “World’s Biggest Short Squeeze” In Silver
https://www.zerohedge.com/markets/reddit-preparing-unleash-worlds-biggest-short-squeeze-silver
[Excerpt from above]
The short squeeze:
Buy SLV shares (or PSLV shares) and SLV call options to force physical delivery of silver to the SLV vaults.
The silver futures market has oscillated between having roughly 100-1 and 500-1 ratio of paper traded silver to physical silver, but lets call it 250-1 for now. This means that for every 250 ounces in open interest in the futures market, only 1 actually gets delivered. Most traders would rather settle with cash rather than take delivery of thousands of ounces of silver and have to figure out to store and transport it in the future.
The people naked shorting silver via the futures markets are a couple of large banks and making them pay dearly for their over leveraged naked shorts would be incredible. It’s not Melvin capital on the other side of this trade, its JP Morgan. Time to get some payback for the bailouts and manipulation they’ve done for decades (look up silver manipulation fines that JPM has paid over the years).
The way the squeeze could occur is by forcing a much higher percentage of the futures contracts to actually deliver physical silver. There is very little silver in the COMEX vaults or available to actually be use to deliver [rest at link]
If you don’t wear a mask...
If you use fossil fuels...
If you speak about election fraud...
If you question anyone’s chosen sexuality...
If you have a gun...
If you question our police actions throughout the world...
If you don’t bail out the banks or hedge funds...
If you say illegal immigrant...
You are a hater, racist, and evil and doom will occur.
Exactly I went to cash in my retirement account right after Biden started killing the keystone pipeline and started killing fracking. So a Market crash will do nothing to me from a short term personal asset standpoint. So blame the deplorables all you want.
But seriously Goldman do you think it's because your friends are getting squeezed or because:
the left is marching down the road to communism?
AND
leftist Governors continue to shutdown their states killing wide swaths of small businesses
AND
that rent and mortgage measures will start to ripple into bankruptcies at some point if we don't get opened up like tomorrow.
AND
Biden has personally killed off a million good paying jobs
AND
China has a free reign to continue their economic warfare
Did I mention no one in the middle class cares if you lose your house in the Hamptons like you should have in the debacle of 2008!
Goldman you want to fix this, get the deplorables back to work at real jobs. Then they won't have time to figure out your schemes while they have nothing better to do but day trade their government stimulus checks.
Après moi, le déluge.
“The failed Hedge Fund managers can get a job making solar panels.”
If they can find any silver.
Reddit Preparing To Unleash “World’s Biggest Short Squeeze” In Silver
https://www.zerohedge.com/markets/reddit-preparing-unleash-worlds-biggest-short-squeeze-silver
The key is that _everything_ is leveraged.
_That_ is why the dominoes could fall so easily.
.Gov has been feasting at the bribe trough—so despite the talk talk talk, they have no intention of _doing_ anything about it, and _definitely_ won’t be throwing any of the thousands of financial “market” scam artists in jail.
Wait until everyone wants their money and find out it doesn’t exist
The only thing that keeps inflation in check is scarcity of dollars in people’s pockets. While there are untold trillions of $$ floating around, it is in the coffers of the banks & corporations. The vast majority of real people don’t have enough $$ to live on. Hence, they use credit cards to survive and are perpetual debt slaves. It’s all part of the plan.
The only thing saving the US is that nearly ALL developed countries are in the same boat. Japan is actually worse off than us in terms of debt. Germany may be in the best shape, for now. In a sense, the whole developed world is living in a fantasy land fueled by funny money.
If they funny ever went out of the $$, you would see riots, revolutions and wars that might make WWII look like a Sunday picnic.
>>Goldman Warns If The Short Squeeze Continues, The Entire Market Could Crash<<
“The only bad part is that the windows in modern skyscrapers don’t open.”
True dat!
Might be a hard field for them to break into. They apparently aren't that good with numbers.
Appreciate the vitriol but that's not the solution either unless you want a total depression that will hurt the bulk of Americans while the guy's at the top will still be driving the Rolls and vacationing in the Hamptons...
Bring on serious reform, get rid of "shorts" etc.....
“They are destroying us. It is inevitable. This way they go down with us.”
Losing money seems to be the only thing that will hurt them. I have a lot invested. If the market crashes, I couldn’t care less. If an event like this helps defund the deep state and wipes them out, I couldn’t care less if I go broke. I’d rather live broke and free than frigging serve as a an overtaxed drone and walking welfare check for sickening deep state adventures at this point. I hope many here @ FR agree. That’s all we are to these people ... a frigging source of income and nothing more.
What’s funny is that they’re trying to blame investors for this fiasco ... like we are supposed to sit back and turn our heads the other way when they break the rules getting filthy rich with naked stock shorts (illegal ones at that ... you can’t make money off of stock that doesn’t exist, yet there are more shorts out there on Gamestop than there are stocks in Gamestop).
These maggots are going to ask for a bailout if they lose, and the press is going to run horror stories about all of the death and destruction we will face if they don’t get their billions of dollars back from taxpayers. I’m sure the left won’t mind another bailout for Wall Street’s arrogant mistakes yet again. They have to know, at this point, that they’re on their side ultimately.
You know, we bought our stocks, we knew what we were getting into. I say, let it crash :-) ! We will ultimately win in the end! I’d like to see a douchebag white collar criminal try and live for a day in the real world. They’d probably jump out a window than have to work a real job.
I smell Soros.
People should be more upset what happened to the constitution and free and fair elections this past November. Take down the fiat currency and Crony capitalism now so future generations don’t have to.
sittin on dry powder, waitin on the fail
There’s a big run on silver at the moment. Go try to buy some.
What’s the old saw about picking a CPA?
Ask him what’s 2+2?
The answer you’re looking for is something like ‘What do you need it to be?’...
I’d love to see Chelsea Clintons Husband’s company tank.
TPG Capital, Texas Pacific Group
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