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The Circus Comes to Town Today 1/27/21

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Today is Holocaust Remembrance Day.  Over the past year, I have been researching my roots as the American descendant of Polish Jews. I've learned there were cousins who stayed behind, who died in the

A BAD CASE OF OVER SHORTING (AND OVER LONGING) IS NOW BEING UNWOUND 1/ All the FED QE from 2019-2020 great for long short funds. 2/ Long short funds leverage up to go long the most popular s

A BAD CASE OF SHOOT THE MESSENGER And right on que Wall Street Bets is targeted for destruction by the powers that be. The Long short funds are in a very tight spot. Their shorts are de

I just happened to hear Tom Keene at the end of Powell's dung fantasy say that the decline in the market was not a big thing because it was "controlled." 

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 A BAD CASE OF OVER SHORTING (AND OVER LONGING) IS NOW BEING UNWOUND

1/ All the FED QE from 2019-2020 great for long short funds.

2/ Long short funds leverage up to go long the most popular stocks.

3/ They do this by going even shorter on the most shorted stocks (they borrow the stocks sell them and use the money to go long on the markets most loved names).

4/ This leads to a very bad case of over shorting and over crowding on the most shorted stocks.

5/ It also leads to over crowding and an over bought situation for the most popular longs.

6/ Overcrowded short positions get squeezed by Wall Street Bets crowd.

7/ Hedge funds need to unwind short positions to stop losses.

8/ To do this they need to sell their over leveraged longs to get the money to buy back their shorts.

9/ Due to this selling pressure overbought longs go down in mirror effect (this is shown in the chart provided above by Potatohead).

This mostly effects the long short funds rather than pure shorters who don't have any long segment.

So I expect it will not really impact activist short funds with no long segment.

The most shorted stocks have been over shorted and the most popular stocks have been over bought.

This situation (a sort of market barbell effect) is now being unwound.

Basically the long short funds are blowing up because their barbell strategy which provides cheap leverage (i.e. if the shorted stock goes down in value the fund is actually being paid to borrow) no longer works.

This form of leverage has become too expensive and too dangerous.

The hedge funds should replace this "Short Term" (sorry could'nt resist the pun) leverage with cheap long term bank loans or bonds which are currently being inflated away by the FED (after all they have plenty of stock they could pledge as collateral).

They will then be able to cash in on the FED's inflationary gift transfer from debt holders to equity owners...twice...firstly through the stocks they own and secondly through the debt they have.

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A BAD CASE OF SHOOT THE MESSENGER

And right on que Wall Street Bets is targeted for destruction by the powers that be.

The Long short funds are in a very tight spot.

Their shorts are deeply underwater.

Which they need to get out of as quickly and as painlessly as possible.

And because their survival is at stake they won't play fair.

Que Wall Street Bets destruction.

But now there vulnerrabilty has been displayed for all to see.

It will attract bigger and hungrier predators to the feast.

Instead of just the swarm of wall street bets pirahners.

Trade suspension of the most shorted stocks coming up next.

Under the cover of a SEC investigation into the nefarious short squeezers.

All backed by negative stories on short squeezes from the financial press.

If there is no market in the stocks.

Then there is no need to mark the stocks to market.

And therefore no need for any losses to be recorded.

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