The state’s revenue department has owned a stake in the video-games retailer since at least 2017, and held about 43,000 shares worth $802,000 at the end of December last year, regulatory filings show.
Although it trimmed its bet to 37,000 shares last quarter, the position’s value still surged more than eight-fold to over $7 million after Reddit users engineered an explosion in GameStop’s stock price.
The Alaskan agency could have scored an even bigger windfall. It held more than 69,000 GameStop shares in the third quarter of 2019, which would have been worth $34 million at the height of the short squeeze.
Separately, Alaska’s revenue department has warmed to Tesla in recent months. It eliminated its stake in Elon Musk’s electric-vehicle company in the second half of 2019, and owned only 2,000 shares at the end of September last year.
However, it bolstered its position to about 127,000 shares during the following quarter, when Tesla joined the S&P 500 index. The agency’s stake was worth more than $85 million at the end of March this year, making Tesla one of its largest holdings.
Overall, Alaska’s stock portfolio rose in value by about 5% to $9.2 billion last quarter. The state doesn’t tax personal incomes or sales, so it relies on oil taxes and royalties, federal funding, and investments to fund its budget.
Elite investor David Einhorn blasted market regulators, called out Elon Musk and Chamath Palihapitiya for juicing assets, and praised GameStop champion Keith Gill in a letter to Greenlight Capital investors this week.
The Greenlight president also highlighted “The Big Short” investor Michael Burry’s Twitter exit, and pushed for greater scrutiny of Archegos Capital, the family office that blew up in March. Einhorn’s latest letter was obtained by ValueWalk.
Here are Einhorn’s 11 best quotes, lightly edited and condensed for clarity:
1. “The Fed wants to be ahead of the curve on the downside to protect the stock market and corporate bondholders the economy. Behind the curve is fine on the way up no matter how frothy the stock market the recovery is.” – suggesting the Federal Reserve cares more about stock prices and corporate profits than the economy.
2. “If we swing a little less hard, we should hit more balls.” – on his decision to short fewer individual stocks after several of Greenlight’s positions were hit during the meme-stock frenzy.
3. “Investors discussing why they think GameStop (or any other stock) should go up or down ought to be encouraged. There is no reason to drag anyone before Congress for making a stock pick.” – defending Keith Gill, who goes by Roaring Kitty on YouTube, for his “great call” on GameStop.
4. “The real jet fuel on the GameStop squeeze came from Chamath Palihapitiya and Elon Musk, whose appearances on TV and Twitter, respectively, at a critical moment further destabilized the situation.” – Einhorn suggested Palihapitiya intentionally disrupted Robinhood because it competes with one of his investments, SoFi.
5. “If regulators wanted Elon Musk to stop manipulating stocks, they should have done so with more than a light slap on the wrist when they accused him of manipulating Tesla’s shares in 2018. The laws don’t apply to him and he can do whatever he wants.”
6. “Quasi-anarchy appears to rule in markets. Sure, Dr. Michael Burry, famed for his role in ‘The Big Short,’ reportedly received a visit from the SEC after tweeting warnings about recent market trends – and decided to stop publicly speaking truth to power. But for the most part, there is no cop on the beat.” – complaining that regulators have been defanged, and corporate executives can break the rules with impunity.
7. “Hometown International owns a single deli in rural New Jersey, yet it reached a market cap of $113 million in February. The largest shareholder is also the CEO/CFO/treasurer and a director, who also happens to be the wrestling coach of the high school next door to the deli. The pastrami must be amazing.” – underscoring the number of questionable companies that regulators are overlooking.
8. “From a traditional perspective, the market is fractured and possibly in the process of breaking completely.” – highlighting a dangerous lack of regulation and the risk of casual investors getting scammed.
9. “It was as if Bernie Madoff had been told to pay a small fine and stop ripping off New Yorkers, but to go ahead and have fun with the Palm Beach crowd.” – criticizing regulators for only slapping the Tether crypto exchange with a $19 million penalty and a New York ban.
10. “If Congress wants to understand why GameStop stock did what it did, or more recently how the ‘Arch-Egos’ fund cornered the market in a handful of stocks, it would be better to call to account the absentee regulators and their philosophical backers.”
11. “‘Arch-Egos’ was able to buy up most of the float of GSX Techedu, causing the stock to soar 400% in the face of unrefuted allegations of massive fraud. The SEC has an ongoing investigation of GSX but appears to not have noticed a single fund (or a small group of funds) essentially cornering the market. A traditionalist could say this was market manipulation and transparently illegal.”
GameStop CEO George Sherman lost out on nearly $100 million of stock this week after failing to meet his performance targets, a SEC filing revealed on Wednesday.
Sherman forfeited roughly 587,000 shares, worth $98 million at GameStop’s closing stock price of $167 on Wednesday. He was granted the restricted shares as an incentive in April 2019, shortly after he was appointed CEO.
The shares were worth as little as $10 million at the start of this year, but would have fetched $284 million during the Reddit-fueled short squeeze in January. That wide range of value underscores how much GameStop’s stock price has whipsawed this year.
Sherman still boasts 1.8 million shares in total, worth $295 million as of Wednesday’s close.
GameStop’s chief merchandising officer, Chris Homeister, also forfeited 119,000 shares this week after underperforming, another SEC filing shows. Those shares were worth almost $20 million as of Wednesday’s close. Homeister still lays claim to 388,000 shares, worth $84 million at the last count.
Sherman, who only joined the company two years ago, could be out of a job soon. GameStop is hunting for a new CEO as it prepares to revamp its business and focus more on e-commerce, Reuters reported this week. Chewy cofounder Ryan Cohen, an activist investor who took a stake in the video-games retailer last fall, has overhauled its board of directors and looks set to become its chairman this summer.
GameStop said Tuesday that its stock is -and continues to be – “extremely volatile.”
Moreover, that volatility is “due to numerous circumstances beyond our control.”
The statement in a regulatory filing is the first such statement from GameStop leadership on its ongoing stock price fiasco that’s seen its shares rise as much as 1600% in a matter of weeks.
Under the “risk factors” section of the annual report, the company’s stock volatility is listed as the primary risk factor related to the company’s stock. It specifically cites “short squeezes” as a primary reason for that volatility.
“The market price of our Class A Common Stock has been extremely volatile and may continue to be volatile due to numerous circumstances beyond our control,” GameStop said in the filing.
GameStop’s stock value has been explosively unpredictable since mid-January.
Between January 15 and January 27, the price leapt from around $35 to just shy of $350. It’s seen similarly huge dropoffs, but months later it’s still in the $180 range.
The reason, of course, is the much discussed “short squeeze” from a large group of individual investors driving up the company’s stock price in an effort to defeat short sellers betting against the stock. It’s been a major topic of discussion for the past several months for loads of people in media and on Wall Street – except for GameStop leadership.
The company has more or less stayed mum for weeks, and even declined to discuss it on its quarterly earnings call this past week. Instead company leadership focused on the company’s ongoing “transformation” led by Chewy cofounder and former CEO Ryan Cohen.
Since Cohen joined the company’s board in January, taking charge of a “strategic” committee soon after, the company made a string of high-profile hires from the likes of Amazon and Chewy.
It is unclear what Cohen’s specific plans are the future of the company, but he broadly outlined plans in an open letter to the company’s board in late 2020.
GameStop, “needs to evolve into a technology company that delights gamers and delivers exceptional digital experiences,” Cohen wrote in the letter, “not remain a video game retailer that overprioritizes its brick-and-mortar footprint and stumbles around the online ecosystem.”
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But the notorious subreddit had claimed they were not the ones behind silver’s rally as they were more focused on members buying into GameStop, AMC, and other heavily shorted stocks.
“The Silver Squeeze is a hedge-fund coordinated attack so they can keep fighting the $GME fight,” one user wrote last month.
Bayoukhi, who was among users calling for betting on silver, said one can just scroll back five to six months on the WSB forum to find several silver-related posts. Some posts would even mention the Hunt Brothers who managed to push silver prices from $6 an ounce to over $50 an ounce within a year more than three decades ago, he said.
“We’ve kept track of absolutely everything,” he said. “That’s in our extras section, or the information section on Wall Streets Silver reddit. We literally have a section for Wall Streets Bets posts for silver that they’ve deleted or kept up.”
But anyone attempting to post about silver on WSB, including Bayoukhi, was banned from the community because the majority of them didn’t want focus to stray from GameStop, he said. Still, at least 30 to 40% of the WSB forum loves silver, he said. This indicates there was conflicting opinion among members of the subreddit, with some wanting to continue the GameStop short-squeeze, while others wanted to expand it to silver.
“That’s why most of their users are coming to us for silver, because they’re tired of just talking about one stock all day.”
Shortly after Reddit day traders drove up the prices of GameStop earlier this year, silver prices rocketed to their highest since 2013, driven by messages urging Reddit day traders to buy the metal and hike its price. Some members of the community claimed to not be a part of it and banned posts that mentioned silver.
Bayoukhi compared silver to fiat currencies. When asked why he likes silver, he said traditional currencies aren’t backed by anything and 99% of them have failed historically. On the other hand, silver is used in everyday life, such as in solar panels or industrial goods, has affordability, and works as a real store of value and hedge against inflation, he said.
GameStop is back in the spotlight with big upside moves in recent sessions, but new data suggest the price action might not be being spearheaded by retail investors as it was during the January rally led by Reddit’s WallStreetBets platform.
Figures from Vanda Research, which tracks retail investing activity in 9,000 individual stocks and ETFs via its VandaTrack platform, paint a different picture of the most recent rally in Reddit’s favorite meme stock.
“Everybody’s been talking about GameStop,” Viraj Patel, global macro strategist at Vanda Research, told Insider on Tuesday. “You would’ve imagined retail [investors] again were behind that but they’re not because they are buying around a tenth of what they were buying every day of net back in late January,” said Patel who was in London looking at figures from Vanda Research data analytics arm, VandaTrack.
In a tweet on Wednesday, Patel said there was no sign “whatsoever” of a retail-driven short squeeze in GameStop shares.
GameStop shares on Tuesday climbed as much as 28.5% to an intraday high of $249.85. Data from VandaTrack show net dollar purchases on Tuesday were $8.1 million. The shares on Monday popped up as much as 53% to an intraday high of $210.87. On that day, net dollar purchases were $6.1 million.
Patel said there were “big spikes” in daily net purchases by retail investors on January 26 and January 27 when the GameStop retail trade was peaking. On January 26, when the stock soared as much as 95% to $150, net purchases by retail investors were $68.18 million. The following session, the stock rocketed up 157% to an intraday high of $380, with net purchases of $87.48 million, according to VandaTrack.
Looking at the differences in net dollar purchases in January and the latest rally, “it’s almost as if that gap [appears] to me like it’s a different type of trader or investor behind the recent move,” said Patel. “It’s definitely not retail because these volumes just wouldn’t have the same impact on price compared to what we saw back in January.”
He said the fresh upswing in prices was likely driven by institutions.
Though it could be the culmination of a short-squeeze, with big buyers closing short positions, another possibility could be “a few speculative institutional players – long-short fund managers would be the other type that may like GameStop on a short-term basis, part of the reflation, reopening trade in the US,” he said.
“Given the total volume traded (which still remains significant), we know there’s other types of investors buying/selling. Unlike in [January] where the net purchases by retail account for a bigger share of the total volume,” Patel said in a follow-up email.
The GameStop short-squeeze that shook markets in January probably won’t be the last of its kind, according to Wellington Management’s Owen Lamont.
The market researcher said he anticipates more short squeezes in the future in illiquid names and “little corners of the market,” on an episode of the Exchanges at Goldman Sachs podcast published Wednesday.
“It seems to me that we’re in a market where prices are moving a lot. It’s probably not that horrible if a couple stocks every now and then go crazy. But I’m more concerned about the whole system being fragile,” he said.
The price of GameStop’s stock surged in January after investors rapidly purchased shares of the highly-shorted video game retailer, causing short sellers to close their positions and drive the stock’s price up even higher. Lamont said this squeeze was different from ones throughout history, like Volkswagen in 2008, because GameStop’s price was driven up by “many small traders,” as opposed to a few large players.
“The events of January just made it seem like our system is more fragile,” Lamont said on the podcast.
He emphasized that short-squeezes are rare in well-functioning, liquid markets, and there shouldn’t be a scenario in which prices are moving so much in response to sentiment changes.
The long-time academic researcher explained the concept of “noise trader risk,” where traders make market prices move round but rational traders who don’t want to bear the risk exit.
“In that story, volatility begets volatility,” Lamont said. “And the crazy prices in volatility are a self-reinforcing cycle. So, I’m not sure whether it’s the illiquidity that’s causing the volatility today, or the volatility that’s causing the illiquidity. But somehow, we’re in a situation where market prices, at least in a handful of names, seem out of whack.”
Gabe Plotkin’s hedge fund Melvin Capital gained a chunky 22% in February, according to reports, but the investment firm remained in a deep hole after being battered during the GameStop saga.
The 22% gain, reported by numerous outlets, well outstripped the 2.6% rise in the S&P 500 across the month.
Yet Melvin Capital lost 53% in January after hemorrhaging money on its bet against video-game store GameStop, which skyrocketed when amateur traders organizing themselves on social media website Reddit got behind the stock.
The $8 billion fund needs to produce gains of 75% before earlier clients break even, Bloomberg reported. That is a tall task, even for a fund that posted average yearly returns of around 30% from 2014 to 2020.
However, hundreds of millions of dollars have flowed into the fund from investors who are confident in Plotkin’s abilities, Bloomberg said. Insider has contacted a media spokesperson for Melvin Capital for comment.
Melvin’s February gains are in part due to tweaks to Plotkin’s trading strategy. In testimony to Congress on the GameStop saga in February, Plotkin said he had “learned” from the episode. “I am taking steps to protect our investors from anything like this happening in the future,” he said.
For example, Plotkin has stopped using exchange-traded puts – contracts that allow investors to make money if a stock falls – which show up on regulatory filings and allowed his bets to be singled out by day-traders, Bloomberg reported.
The fund took an injection of $2.75 billion in cash from hedge funds Citadel and Point72, the latter run by Plotkin’s mentor Steve Cohen, as the day-trading frenzy rocked the firm.
He also said in his Congressional testimony he would avoid situations where lots of investors are betting heavily against a stock.
Crowded shorts are vulnerable to the types of so-called short squeezes that battered Melvin in January. Squeezes happen when short-sellers are forced to buy back the stock to cover their positions, driving the stock price upwards.
Billionaire investor Bill Gross made an ill-timed bet against GameStop in January that left him down as much as $15 million at one point. However, he held on until the video-game retailer’s stock plunged, and walked away with about $10 million.
Gross, who cofounded Pimco and ran its flagship Total Return fund, now manages money for his family and foundation. He used options to wager that GameStop’s stock price would fall, he said on the Citywire Selector podcast this week.
“I knew I had an advantage over Reddit and the boys,” Gross said, highlighting his access to real-time options and volatility data on his Bloomberg terminal. However, he opened a bearish position on GameStop well before its shares peaked at north of $480 on January 28, and paid the price.
“I got in too early,” he said. “I got short around $150 or $100 and at a decent size. I was losing millions of dollars and that’s not a good feeling when you go to bed.”
“Matter of fact, you wake up three or four times in the middle of the night and you check out GameStop on the black market,” he continued.
While Gross admires Tesla CEO Elon Musk and views him as a “modern Thomas Edison,” he didn’t enjoy it when the executive tweeted “GameStonk!!” on January 26, throwing his weight behind the short squeeze.
“Musk is a little devil and he enjoys playing these games,” Gross said. “He’s just a frisky guy and so I didn’t resent that, but it doubled the stock and that’s when I lost the most sleep – it was after Musk did that.”
“He probably should have known better, because that’s close to yelling ‘fire’ in the theater,” the investor added.
Gross thought about giving up and stomaching a loss, but he was confident that some of the day traders driving up the stock wouldn’t be able to resist cashing out.
“I’m not regulated here like some of the hedge funds, and my broker’s not calling me for margin and so on,” he said. “At $400 I said, ‘Hell no,’ and so I doubled up to catch up, which was for me a very ballsy move.”
Gross also analyzed the volatility of GameStop stock and determined that he was almost certain to come out ahead.
“It was one of those slam-dunk moments where yes, you could lose money, yes it could go to $1,000, but the volatility was priced so high that it was really hard to lose,” he said.
“Risk-reward, it became one of those ‘you’re the casino,'” Gross continued. “That’s when I doubled up, I sold more calls, and basically got out. I made a lot of money, maybe $10 million. But I was down $10 million and maybe down $15 million.”
Gross felt vindicated that his assessments of the human nature and herd psychology at play, as well as the swings in the stock, were correct.
“It was a nice, intellectual, non-emotional moment for me in which I correctly analyzed the social aspects and the fact that people would turn on the group and sell before others thought they were gonna sell, and the volatility being so high priced that it was really hard to win,” he said.
Regardless, Gross gave kudos to the Wall Street Bets community for their ingenuity.
“Their strategy to attack and squeeze shorts, certainly with GameStop, was a good one,” he said. “I was really not expecting the stock to go through $10, $20, $30, $40, $100, $200, $300, $400 within the space of a few days.”
However, the astounding stock rally was never going to last, he said in a research note on February 2. “Even without regulatory action, the plan was doomed from the beginning,” he wrote.
Gross described the investors who bought options with 750% daily volatility as “fish at the poker table” in an earlier research note. He added that a “musical chair, me-first exit” from GameStop was inevitable and the price was bound to return to normal levels.
In late January 2021, shares of a company called GameStop stock, which had been trading around $2.57 per share, suddenly shot up, eventually as high as $500 – when users of the Reddit website subgroup Wall Street Bets began buying up shares.
This was bad news for a lot of other investors, known as short-sellers, who had bet the stock would keep falling. Unlike most investors, who want their stocks to appreciate, short-sellers make money when stock prices go down and lose money when they go up.
So when GameStop started gaining, these short-sellers were caught in what’s called a short squeeze. They had borrowed to support their pessimistic investment, and they now had to pay it back – by buying GameStop shares at the higher prices. Or else, hang on – and risk losing even more money.
A short squeeze is a stock market phenomenon, something that happens to investors and traders who have acted on the assumption that an asset (a stock, usually) is going to fall – and it rises instead. Here’s how it happens.
What is a short squeeze?
To understand a short squeeze, it helps to understand short selling, aka shorting, a sophisticated investment strategy in which traders or investors sell stocks they don’t actually own, in hopes of buying them back later for less money.
It works like this: A short-seller borrows shares (usually from their broker) they think are due for a fall or to keep on falling, and sells them on the open market at the current price. When the stock’s price drops, as the short-seller was betting it would, they then buy the shares back for the new, lower amount. They return the borrowed shares to their stockbroker, keeping the difference in price as profit. In the interim, they’re charged margin interest on the shorted shares until they pay them back.
The entire strategy hinges on the bearish view that the stock is going to drop in value. But what if it goes up instead? That’s when a short squeeze happens.
When a stock rises sharply and suddenly, short-sellers scramble en masse to buy shares to cover their position (their loan from their broker). Each of these buy transactions drives the stock even higher, “squeezing” the short-seller even more. They have to keep covering their positions or get out totally – at a loss.
How does a short squeeze happen?
Here is how a short squeeze scenario unfolds:
You identify a stock you believe is overvalued, and take a short position: borrowing and selling shares at today’s high price in anticipation the price will go down and you will be able to buy replacement shares at a much lower price.
Instead, something happens causing the price of the stock to start going up. That “something” can be the company issuing a favorable earnings report, some sort of favorable news for its industry – or simply many other investors buying the stock (as happened with GameStop).
You realize you are unable to buy the stock back at a low price. Instead of sinking, it’s climbing – and it exceeds the price you bought it for. At this point, you must either buy replacement shares at a higher price and pay back your broker at a loss, or buy even more shares than you need – in hopes that selling them for profit will help cover your losses.
All this increased buying causes the stock to keep going up, forcing even more short-sellers like yourself into a tighter vise. You have the same choices as above, only the stakes keep mounting, and so do your potential losses.
Protecting yourself against a short squeeze
There are specific actions you can take to try to protect yourself against a short squeeze or to at least alleviate its grip.
Place stop-loss or buy-limit orders on your short positions to curb the damage. For example, if you short a stock at $50 per share, put in a buy-limit order at a certain percentage (5%, 10% or whatever your comfort level is) above that amount. If the shares rise to that price, it’ll automatically trigger a purchase, closing out your position.
Hedge your short position with a long position – that is, buy the stock (or an option to buy the stock) to take advantage of rising prices. Yes, you’re betting against yourself, in a way, but at least you lessen the damages of the losses and benefit from the price appreciation.
Predicting a short squeeze
Short squeezes are notorious for descending quickly and unpredictably. Still, there are signs a short squeeze may be coming:
Substantial amount of buying pressure. If you see a sudden uptick in the overall number of shares bought, this could be a warning sign of a pending short squeeze.
High short interest of 20% or above. “Short interest” is the percentage of the total number of outstanding shares held by short-sellers. A high short interest percentage means a large number of all a stock’s outstanding shares are being sold short. The higher the percentage, the more likely a short squeeze may be building.
High Short Interest ratio (SIR) or days to cover above 10. SIR is a comparison of short interest to average daily trading volume. It represents the theoretical number of days, given average trading volume, short-sellers would need to exit their positions. The higher this number, the more likely a short squeeze is coming. Both short interest and SIR are on stock quote and screener websites such as FinViz.
Relative Strength Index (RSI) below 30. RSI indicates overbought or oversold conditions in the market on a scale of 0 to 100. A stock with a low RSI means it’s oversold – that is, trading at a very low price – and possibly due to increase; a high RSI indicates the stock is extremely overbought – trading at a high price – and possibly due to drop. Any RSI below 30 signals an imminent price rise, which could lead to a short squeeze. A company’s online stock listing usually includes its RSI, often under its Indicators section.
The financial takeaway
A short squeeze can result when a stock – especially one that had been declining in price – suddenly goes up for whatever reason.
This puts short-sellers, who bet the stock would drop or to keep on dropping, in a bind. They sold shares they didn’t actually own, and now, to cover their positions – repay the stock they borrowed -they have to buy increasingly expensive shares. Each of these buy transactions drives the stock even higher, forcing more short-sellers to spend more or get out at a loss. They call it a squeeze but it becomes more like a vicious cycle.
There are indicators to predict a short squeeze, and ways to protect yourself against one. But overall, a short squeeze is one of the facts of life for a short-seller – and a reminder of the risks that sophisticated trading strategies like short selling carry.