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Tesla Short-Sellers Lose $1 Billion (cnbc.com)
An anonymous reader quotes CNBC:
A bullish call from a Wall Street analyst capped off a rough week for Tesla short sellers, with Nomura Instinet advising clients that the electric car maker's shares could rally 42 percent over the next year. The stock rose 1.7 percent Friday and is now up 10 percent on the week. One of the most shorted stocks in the United States, Tesla shares cost investors betting against the company more than $1 billion in losses on Wednesday alone after the stock rallied 9.7 percent. Adding to the short woes, the stock is up 13.5 percent in June and up 21 percent since April. More than 30 percent of Tesla's floating stock is currently sold short, according to FactSet.
Last week long-time Open Source advocate Bruce Perens (Slashdot reader #3,872) argued this is fueling Musk's anger at the press: [A] great many investors are desperate to see Tesla's stock reach a much lower price soon, or they'll be forced to buy it at its present price in order to fulfill their short positions, potentially bankrupting many of them and sending some out of the windows of Wall Street skyscrapers. These investors are desperately seeding, feeding, and writing negative stories about Tesla in the hope of depressing the stock price. Musk recently taunted them by buying another 10 million dollars in stock, making it even more likely that there won't be enough stock in the market to cover short positions. If that's the case, short-sellers could end up in debt for thousands of dollars per shorted share -- as the price balloons until enough stockholders are persuaded to sell. Will short-sellers do anything to give Tesla bad press? You bet.... Musk is stuck with a press that feeds negative stories about Tesla seeded by short-sellers, business competitors and the petroleum industry, and even the U.S. Government...
Musk is far from the only one who suffers from this abuse. I was personally involved while the Linux developers were hounded by bad press for years from Forbes and lesser entities, backed by a large software company we all know (and who is, surprisingly, funding more Open Source these days), based on SCO's unfounded lawsuit. Time proves them wrong, but don't expect them to admit it, nor should you hold your breath for an "I'm sorry".
And on Musk's plan to rate the credibility of news sites, Perens writes that "The world would be a better place if this was done honestly, with integrity, and well. Musk is one who has improved the world by going where conventional wisdom said he'd fail..."
Last week long-time Open Source advocate Bruce Perens (Slashdot reader #3,872) argued this is fueling Musk's anger at the press: [A] great many investors are desperate to see Tesla's stock reach a much lower price soon, or they'll be forced to buy it at its present price in order to fulfill their short positions, potentially bankrupting many of them and sending some out of the windows of Wall Street skyscrapers. These investors are desperately seeding, feeding, and writing negative stories about Tesla in the hope of depressing the stock price. Musk recently taunted them by buying another 10 million dollars in stock, making it even more likely that there won't be enough stock in the market to cover short positions. If that's the case, short-sellers could end up in debt for thousands of dollars per shorted share -- as the price balloons until enough stockholders are persuaded to sell. Will short-sellers do anything to give Tesla bad press? You bet.... Musk is stuck with a press that feeds negative stories about Tesla seeded by short-sellers, business competitors and the petroleum industry, and even the U.S. Government...
Musk is far from the only one who suffers from this abuse. I was personally involved while the Linux developers were hounded by bad press for years from Forbes and lesser entities, backed by a large software company we all know (and who is, surprisingly, funding more Open Source these days), based on SCO's unfounded lawsuit. Time proves them wrong, but don't expect them to admit it, nor should you hold your breath for an "I'm sorry".
And on Musk's plan to rate the credibility of news sites, Perens writes that "The world would be a better place if this was done honestly, with integrity, and well. Musk is one who has improved the world by going where conventional wisdom said he'd fail..."
I wish you well Mr. Musk. You have inspired many people, and you surely have integrity in this world of Wall Street defeatists.
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Completely ignoring the ethical concerns to run off and manufacture a narrative of mysoginy and harrassment . . . the same Gamergate-style behavior all over again.
It does not matter what the stock price was a 12 months ago, short stocks have to buy the stock back when there is demand. It is like gambling, you borrow someones else's shares and hope the price will go down enough that you can buy it back. If the price does not go down, eventually they are going to have to buy it for something they did not want to pay.
The gambling part is when and how much you will have to buy it back for. They could just buy it back early, but they they wait until the market determines that they have to buy it back and it is usually when the price is much higher than they expected and puts them into a hole.
They really should outlaw short positions, it is just another way to gamble for financial institutions .
I've been looking at the stock market reporting for the last couple of years, and to make it interesting I bought some Tesla stock awhile ago.
My take is that all of the "important insightful" news reports we see about companies boil down to the following:
1) Reporter picks some stock to report on
2) Plugs the numbers into an algorithm that spits out a recommendation
3) Writes an article justifying that recommendation
Notably, reporters don't write about a stock because something happens or because it's a particularly good investment, and they don't muse any personal skill at analysis for the article - they basically take whatever is happening at the moment and use it to justify whatever is going on with the stock.
Daily market reports are always "Dow is down x% due to *this* thing happening in the world", as if the world incident is driving stocks. (As I write this, one of the top stories is "Dow posts best week since March as traders shake off G-7 trade jitters". The two linked points of information are unrelated.)
In the case of Tesla, the company is taking all their profit and borrowing extra to invest in manufacturing facilities. From the viewpoint of the algorithms, Tesla is burning through cash with no hope of recovery, as the chart on this page shows.
Any other company with Tesla's numbers would be a lousy investment. We see this all the time in other companies - burn through VC cash over a couple of years and then go bankrupt (or get bought out). (GitHub anyone?.)
Looking more closely at the chart shows a different story. Tesla takes several quarters to tool up, then releases a model and goes profitable for a while. They've done this twice now and are on the verge of a 3rd round. Once the Model 3 production is fully ramped up they will be positioned to *own* the car manufacturing industry in the US.
Tesla is a great opportunity to "go against the groupthink with reason", and Bruce has it exactly correct: Tesla stock will be closely held, making it ever more expensive to cover the short positions. Expect a temporary meteoric rise in value as the short holders fight each other trying to get out of their short positions.
Oh, and Tesla isn't one of the most shorted stocks in the US. It's the *most* shorted stock *ever*.
When you short a stock, you have to post the money into a margin account to buy it back (slightly more as you will have to have enough to cover any expected movement in the short term before your position can be closed)
As the price rises, you have to add more and more money to your margin account. Eventually you run out of money and if you cannot post the new margin for the next day, your broker will use the money in your margin account to close your short position.
If the shares move too rapidly and unexpectedly, your broker might not be able to close out your position using the margin account and you're fucked. If it's a big enough movement, your broker is fucked too as they're on the hook if you go bankrupt.
God said, "div D = rho, div B = 0, curl E = -@B/@t, curl H = J + @D/@t," and there was light.
They really should outlaw short positions
No they shouldn't. Shorties provide a valuable check on inflated prices and help to root out corruption and fraud. Muddy Waters is a well known shorty. They investigate public companies, looking for inflated stock prices based on accounting fraud or other corrupt practices. If they uncover malfeasance, they take a short position, and then publicize their findings, driving down the price and reaping a profit. This prevents a much bigger crash that would occur if the fraud was able to continue.
Muddy Waters has been especially successful shorting Chinese companies listed in America on the NYSE and NASDAQ.
Go see the movie "The Big Short". Front Point Partners and others made a lot of money shorting the housing market, but the bubble, and ensuing crash, would have been much smaller if more people shorted it, and did so earlier.
The market can stay irrational longer than you can stay liquid.
John McAfee 'It was like that time I hired that Bangkok prostitute; to do my taxes, while I fucked my accountant'
Short sellers have always had a relationship with financial news media that worked well for both sides, but not so much for people who actually counted on those media for objective information. Short sellers plant a story about how Company X is experiencing some kind of problem. The media dutifully reproduce it with a minimum of fact checking...basically just ensuring that they aren't publishing outright lies. Company X's stock declines in value. Short sellers are happy. The financial news media write stories about how the "troubled company" is now struggling to survive, so they're happy because they get two stories for the price of one. The cycle is complete when those same short sellers vaccuum up the company's stock at a much-reduced price and suddenly it's once again a great place to invest.
Everybody wins...well, everybody except honest investors.
But this long-time tactic starts to fail when average investors become aware that they're being manipulated, and begin to question the timing of those planted stories. And maybe they start to doubt whether Company X's troubles are really bad enough to justify a stampede to sell. Add in an insanely rich company owner who delights in shoving a barbecue brush up the bum of short sellers and their news media enablers, and we have this situation. Finally, those of us who have watched helplessly as time after time Wall Street insiders profited by manipulating the system in a manner that is dishonest, if not illegal, can sit back and enjoy a good laugh.
Yeah, if one or two of these guys decided to take the fastest route to street level, I'd be more than willing to award a score for the quality of their last, long dive.
I've calculated my velocity with such exquisite precision that I have no idea where I am.