Michael Steinberg
Investment Research and Consulting
The Short Squeeze
The recent trading frenzy and massive short squeeze in Gamestop was a welcome change. The hedge funds got taken to the cleaners by the concerted effort of the social media traders. It was nice to see the Wall Street crowd hoisted on their own petard, but the situation is unlikely to end well for most of the Robin Hoodies and others. What goes up must go down and Gamestop has already begun its slide. The issue with playing on a short squeeze is the buying dries up once the shorts have covered. Without that demand, holding a played out stock is dealing with the burning match. Who is left holding it? The answer is already here as Gamestop continues to sink.
In Washington there are already cries to put checks on the system and investigate both short selling and the social collective buyer’s forum.
It’s all bullshit. The rules are already on the books. The real problem is the lack of enforcement by the SEC. The rules for short selling are clear. Before a firm can sell short they must either have shares in their inventory or have made arrangements to borrow stock for delivery. It is a rule honored oly in the breach. Repeatly over the past thrity years I have seen numerous stocks attacked by short sellers, supported by major trading firms where there was no stock available to borrow or buy, yet the SEC does not enforce the rule resulting in situations where well over 100% of a company’s stock has been sold short without any cover. Merrill Lynch was a leader in this scam during the 1990s, now it seems every big player whether a firm or a hedge fund has entered the game with a wink to the SEC.
And yet there is a claim of a level and transparent market even as our politicians pass rules preventing legislators from insider trading even as they do it on a daily basis with hardly a comment unless it is done by a legislator who is politically out of favor.
If you are going to play with the herd you had better be nimble or you are likely to get trampled.
Michael14Steinberg February 2nd, 2021
Posted In: Uncategorized