Stock Market: The Purge Of The Fraudsters

 (Drivebycuriosity) - The stock market is getting rattled. Stocks like GameStop, Nokia, AMC Entertainment, GSX and others are having stratospheric rises. People are buying massively stocks which had been extensively shorted.

 

 

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Hedge Funds and other speculators have been betting on falling stock prices (by going short or shorting). They borrowed their stocks from a bank and sold the shares immediately in the hope that their stock prices will fall and then they could buy back these stocks for much less.

The recent rallies by GameStop, AMC and other heavily shorted stocks forces these short sellers to quit their bets and to buy the shorted stocks back - which has been accelerating their rise (short squeeze). I believe that the recent movement started last year with Tesla. The producer of electric vehicles had been a favorite object of the short seller crowd but better fundamentals caused the stock to climb and burned the short sellers. A short squeeze cost the Tesla shorts $40 billion in 2020 ( source).

I think we are seeing now a healthy process - a cleansing. Some hedge funds - like Muddy Waters & Citron Research - are specializing in short selling. They are often working together by spreading rumors - which are compliantly distributed by Bloomberg, Wall Street Journal and other media - to drive stock prices down after they had shorted them. 

Until recently some hedge funds and their followers attacked GSX Techedu Inc, a fast growing Chinese Internet education company. Yahoo Finance reported in September 2020 that "Carson Block from Muddy Waters Research claimed in May that almost 80% of the users in the GSX platform were fake, FT noted. Whereas another short seller from Citron Research, Andrew Left, feels that conducting proper audits could bring down the stock price to zero and lead to delisting the company" (  finance.yahoo). And what ground? feelings?

 

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Even Tesla got attacked by Andrew Left & Co. In May 2020 Andrew Left declared "whoever bought it at these prices has to flush it out, and when it flushes, it's going to flush hard" ( businessinsider). In March 2019 Muddy Waters declared "Tesla will go bankrupt" (youtube ). Really?

There has been a cult around short sellers. Famous short sellers like Jim Chanos ("China will crash"), Bill Ackman, Whitney Tilson & Carson Block are celebrated in the New Yorker, Bloomberg, Business Insider and other media (bloomberg). Some are treated like rock stars (bloomberg). The influential magazine The New Yorker claims, "shorting helps counterbalance investor overconfidence, corporate puffery, and Wall Street’s inherent bullish bias" ("In Praise of Short Sellers" newyorker). The magazine also declares that shorting "contributes to the diversity of opinion that healthy markets require".

The recent development - and the frauds - throw a shadow of doubt on these claims. Andrew Left & Co. are the vermin of the stock market. Their business model is based on lies & fake news. Now we are watching the purge of the fraudsters.