Why wouldn’t $GME execs take advantage of the $300/sh stock price to raise capital to transform their business? A $2B cap raise on $22B mkt cap (10%) would dwarf the entire $1.4B market cap at which $GME was trading 3 weeks ago. The obvious buyer? Some of the 58M shares short.
2/ Perhaps Ryan Cohen and his fellow new board members don’t want to ease the squeeze. If $GME short int fell below 100%, Reddit traders may go elsewhere. Or they don’t want to put out an S-1 that shows how bad the $GME business really is. Sunlight can be a bad disinfectant.
3/ My view: A secondary combined with new action by Treasury, SEC, or the brokers to squash $GME speculation will push GME back to $20/share. At a 50% borrow (12.5% for 3 mos), new shorts will take up the battle, much like the second wave of an infantry, and $GME will collapse.
For the record, I am not short $GME. There needs to be a catalyst. I’ll know it when I see it.
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Lost in the entire discussion about banning shorts is this: What do clients want?
1/ Over the past 20 yrs, long/short equity funds delivered about the same absolute return as long only funds (5.1% vs 4.9% CAGR) with just under 60% of the risk (10.3% vs 17.6%). $TSLA $GME
2/ As one would expect, long only funds do better in bull markets, and long/short better in bear markets. The appeal of long/short is they protect clients on the downside (because they short), and thus deliver better overall risk-adjusted returns, the metric clients prize most.
3/ According to Morningstar, clients pay 3x as much for long/short equity funds (1.9%) as for long only equity funds (0.57%), given the expected risk-adjusted return benefits. Growth in long/short equity assets has far outpaced growth in long only equity assets the past 20 years.
1/ “Until last week, the quintessentially absurd bubble was the Dutch tulip mania. In Holland in the 17th century, investors bid the price of simple tulip bulbs up to ridiculous heights. It was the purest of idiotic fantasies.”
2/ “Last week, a similar fantasy reared its head: the idea that GameStop, an ailing retailer whose shares had slumped from $57 to $4 since 2013, should suddenly trade at $350. The speculators have no evidence that this makes any sense: Indeed, they disdain evidence.”
3/ “GameStop’s price-to-earnings ratio is infinite, because the company earns nothing. Its prospects are grim, because it is mainly a brick-and-mortar vendor of video games, a product best sold digitally. But the speculators don’t care. They believe.”
Investors asking what to do with $TSLA after it’s 10% fall post-earnings last week.
1/ Recall TSLA almost always falls after earnings as investors sell-the-news. After +25% YTD run-up, TSLA would likely have retreated after earnings regardless. S&P500 -3.3% last week as well.
2/ $TSLA 4Q missed ($.80 vs $1.03), largely due to weak auto GM % (20.7% vs 24.2% Street) worth $.22), and $100M extra int on early debt conversion offsetting $100M higher ZEV. Big question: Will auto GM issues be one-time, or continue with M3 pricing/Covid sourcing pressures?
3/ $TSLA ‘s cryptic 2021 vol guide is likely their way of warning 1Q vols will be light with S/X refresh, and buyers waiting for new EV tax credit. I am confident they make up vol shortfall in 2H once EV credit passes, S/X refresh complete, and Berlin opens, leveling EU pricing.
“HFs are degrossing” means HFs are closing both long and short positions, taking losses on shorts that blew up, and closing shorts w/ similar characteristics. When HFs close shorts, they need to close longs to keep their nets the same. This is causing today’s weakness. $tsla
2/ Clients pay HFs to go long and short. There are $3T invested in HFS, with ~$1T in equity long/short funds. With leverage of 2x, these long/short funds might have $2T of gross positions (200%), and net positions (longs less shorts) of 20-60%. “Degrossing” = reducing leverage.
3/ When a HF’s $GME short blows up, the PM will likely move to close all similar shorts (“crowded shorts”). Because clients pay HFs to keep nets low (20-60%), closing short positions means they also have to close long positions to keep their nets low until they find new shorts.
2/ Q: Of course I’m still short. It’s up another 30% since we talked two weeks ago. It’s all mo’.
GB: $TSLA MIC Y has a 4 mo wait. It’s entering India. Analysts are playing leapfrog raising PTs. Active mgrs have to own it or get fired. It’s cheap at 80x 2022 EPS vs 55% growth.
3/ Q: Your earnings estimates are like twice consensus.
GB: The Street’s been wrong on $TSLA forever. Why do you listen to them? You really shouldn’t be short going into Biden’s inaugural speech and the FY’21 volume guide at the end of Jan. You’re going to get run over.
The media, as usual, is missing the most intriguing aspect of the story about @elonmusk calling Tim Cook in 2018 about a potential merger. Would $TSLA and $AAPL be interested in a strategic partnership now? I would think they might.
2/ Elon has always welcomed EV competition, because new competitors accelerate EV adoption, which benefits $TSLA most. What’s wrong with picking who you get to compete with, and putting a nail in the coffin of legacy ICE mfrs who will likely use price as a weapon to compete?
3/ $TSLA certainly doesn’t need $AAPL now, but if the Apple iCar was designed just to get people from point A to B, and $TSLA partnered with Apple to build such a productivity vehicle, why is that bad if it knocks everyone else out of the space?