The White House has vowed to monitor illegal short selling activity after bank stocks have taken a massive plunge.
Shares of PacWest Bancorp (NASDAQ:PACW) fell more than -50% on Thursday and are down more than -70% in the past week alone.
Volume surged to 106.9 million, six times its average trading volume of only 17 million.
(Reuters) U.S. federal and state officials are assessing the possibility of “market manipulation” behind big moves in banking share prices in recent days, a source familiar with the matter said on Thursday, as the White House vowed to monitor “short-selling pressures on healthy banks.”
Shares of regional banks continued to fall this week after the collapse of First Republic Bank, the third U.S. mid-sized lender to fail in two months.
Short sellers made $378.9 million in paper profits on Thursday alone from betting against certain regional banks, according to Ortex.
Increased short-selling activity and volatility in shares have drawn increasing scrutiny by federal and state officials and regulators in recent days, given strong fundamentals in the sector and sufficient capital levels, said the source, who was not authorized to speak publicly.
“State and federal regulators and officials are increasingly attentive to the possibility of market manipulation regarding banking equities,” the source said.
White House press secretary Karine Jean-Pierre said the Biden administration was closely watching on the situation.
Temporary Short Selling Ban
“This volatility is being fueled by emotion and misinformation that does not reflect the strong underlying fundamentals of our banks,” Johnson said in a statement.
“These institutions remain resilient and well-capitalized, and Americans can rest assured their deposits are safe.”
The S&P 600 bank index dropped over 3% on Thursday.
PacWest Bancorp shares tumbled over 50% after it confirmed it was exploring strategic options.
Western Alliance Bancorp denied a report from the Financial Times that said it was exploring a potential sale, and said it was exploring legal options.
Its shares plummeted more than 38%, with trading in the stock halted multiple times.
The increased short-selling activity has triggered some calls for a temporary ban, but an SEC official told Reuters on Wednesday the agency was “not currently contemplating” such a move.
The SEC first warned investors in March, during a previous period of high market volatility surrounding the collapse of Silicon Valley Bank and Signature Bank, that it was carefully monitoring market stability and would prosecute any form of misconduct.
Short sellers feel the pain in the stock market’s 2023 rally, says the Wall Street Journal.
The market’s comeback in 2023 has been difficult news for one group of investors: short sellers.
Short sellers profit from the declines in the market, which we saw much of in 2022.
However, the stock market has been performing surprisingly well this year despite talks of a looming recession.
The Wall Street Journal reports that short sellers are down $81 billion this year alone as the markets begin to bounce back.
“Short sellers who have incurred hefty losses are actively trimming their positions”, said Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners.
“Investors betting against stocks have racked up $81 billion of mark-to-market losses on short positions this month through Thursday after accumulating $300 billion in gains in 2022”, Mr. Dusaniwsky said.
Experts are expecting heavily shorted stocks to squeeze as more short sellers begin to close their positions.
Is short squeeze season here?
Investors and analysts say the rally appears to be driven by a few things.
Signs that inflation is cooling have stoked bets among investors that the Federal Reserve will pivot from raising interest rates to cutting them as soon as the second half of the year.
That has helped risky assets across the board rise.
Especially risky corners of the market, such as stocks with high short interest, have rallied even more.
Analysts say that has likely forced short sellers to close out bearish positions to cut their losses — resulting in what is known on Wall Street as a short squeeze.
Retail favorites such as AMC stock, MULN, and others seem to have bottomed out earlier this year.
“We’re seeing a mirror image of the performance within the equity market. The worst performers last year have been leading this year,” said David Lefkowitz, head of Americas equities at UBS Global Wealth Management. “It does look like some re-risking and short covering.”
“A lot of these stocks rallying were highly shorted, long duration names with earnings way out in the future. With a significant decline in the discount rate, those earnings are now worth more,” said Sameer Bhasin, principal at Value Point Capital, a New York-based family office.
Every retail investor holding a position in AMC wants to know, when will shorts close their positions?
And I don’t blame you.
This one is a little tricky.
See, it’s like saying, “when will retail investors sell their positions?”
Welcome to Franknez.com – the blog that fights for you, the retail investor. Today I want to discuss shorts closing.
Let’s get started!
Retail investors have been waiting patiently for AMC Entertainment stock to rip.
You’ve been holding through the ups and downs and even buying the dips.
And although we did see AMC’s share price surge in 2021, the short sellers are still here in 2023.
So, why aren’t shorts closing their positions yet?
What do retail investors need to do to squeeze hedge funds out of their money?
Let’s discuss it.
Are shorts obligated to close their positions?
Let’s start with the fundamental question.
Are shorts obligated to close their positions?
Now, there are currently no rules regarding how long a short can hold before closing out their position.
However, lenders do have the right to demand the seller closes their position with minimal notice.
This is rare and only occurs if the the seller isn’t paying the interest fee, or the interest fee is ridiculously high.
“A short position may be maintained as long as the investor is able to honor the margin requirements and pay the required interest and the broker lending the shares allows them to be borrowed.” – Investopedia
When an interest fee is extremely high, it makes a stock difficult to borrow which obligates the short seller to close their positions.
Short sellers are burning big money to keep these positions open in 2023 though.
You’ll want to keep an eye on this interest as it will determine just how much shorts are bleeding.
I update AMC’s short interest data (and others) here daily.
Why does the “Cost to Borrow” fee matter?
The cost to borrow fee is an interest that short sellers must pay for borrowing AMC shares to short the company stock.
These fees are currently at an all-time high.
Short sellers will hold in hopes to drive AMC’s share price right back down to the floor.
However, AMC is trending upwards now and has absolutely no intention of going back down.
Analysts data and AI predictions all point towards a high possibility of a short squeeze.
Even Fintel’s short squeeze score has been as high as 80-90% in recent weeks.
This short borrow fee is going to continue to go up as AMC stock becomes harder to borrow.
For short sellers, a low short borrow fee is in their favor.
Hedge funds much rather pay the fee and stubbornly continue to hold their positions against retail investors.
But, if the short borrow fee is high enough to hurt the borrower, they will be more inclined to close their positions before losing an excruciating amount of money.
Addressing shareholder concerns is important, whether you agree or not.
Does It Even Matter?
Some of you care about your money, your finances, your investments, and some of you simply don’t.
To some, being part of an embracing community, being known in a community, and embracing the movie theatre industry, but more specifically AMC Entertainment, is more important than monetary gains or financial abundance at this point.
And is that even a bad thing?
You just want to be heard; you want to fight evil in the markets without a care about money.
Or maybe you’re simply in the middle.
Let us know who you are – leave your story down in the comment section below.
Tiger Global Management is down 34% this year through March.
The speed of the reversal has shocked just about everyone, considering that Coleman is celebrated as one of his generation’s brightest stars, a standout among the elite money managers mentored by the famed Julian Robertson, Bloomberg.
Tiger Global Management treads rocky waters
The bad run has been fueled by massive bets on stocks that have been hammered, such as fast-growing tech companies in the U.S and China.
Tiger Global hedge fund lost 7% last year, its first annual drop since 2016 and its third total, according to Bloomberg.
Tiger Global told clients in a letter that it’s opening up both its hedge and long funds to a limited amount of capital from existing investors to bolster positions in stocks that underperformed
However, we see the results in the first quarter of 2022 has not been what the hedge fund anticipated.
Built by Coleman and his partner Scott Shleifer, Tiger Global has long been seen as a throwback to the industry’s glory years, when double-digit returns were the norm and ‘hotshot managers’ unerringly backed winning companies and shorted the losers.
Across the firm’s $35 billion in funds focused on public companies, this year’s losses have triggered a more than $10 billion hit to investors that include foundations, endowments and pension funds, as well as Tiger Global insiders.
Coleman’s personal wealth has dropped by $1.3 billion, according to calculations by the Bloomberg Billionaires Index.
Coleman’s hedge fund headed towards worst year
Tiger Global hedge fund may be on track for one of its worst years yet.
The blue in this chart indicates the hedge fund’s losses in 2008, 2016, 2021, and 2022.
The firm’s first serious bump was during the 2008 financial crisis, when it lost 26%, followed by a 1% gain the next year.
While markets were already jittery this year due to high inflation and expectations of rate hikes, Russia’s war against Ukraine triggered a flight from risk.
The Russia-Ukraine conflict has affected every corner of the financial sector.
“We expect that each of these companies will grow their revenues and profitability over the long term, regardless of recent events and the various other challenges that the world will face over the short, intermediate, and long-term,” Ackman said.
What do you think led to Ackman’s complete business remodel?
After all, Pershing Square was one of the hedge funds that benefited from Fannie Mae and Freddie Mac half a decade ago.
Short sellers made approximately $100 million according to S3.
In a time where short sellers are under extreme scrutiny, do you think it’s possible this billionaire is trying to stay away from the likes of the Justice Department?