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Carson Block, the short-selling activist known for targeting Chinese fraud, acknowledges familiar behavior in rallying actions such as GameStop Corp. To him, parabolic movements are less like the product of Reddit-led retail orders than a short-term hedge fund targeting other hedge funds.
“I wondered, is there coordination with these hedge funds?” Block said in an interview with Bloomberg Television. “What is coordination? Did they cross the line? It could be interesting. ”
For now, it’s an unproven theory. But if Block is right, what appeared to be a retail riot that made history last week was just as much a convenient smokescreen for the civil war of hedge funds.
The list of casualties in this fight is growing from seriously injured, such as Melvin Capital Management and Maplelane Capital, to include company-led funds, from David Einhorn Greenlight Capital to Renaissance Technologies. What is not yet clear is who took advantage of the other side.
Block said his company, Muddy Waters Capital, is the one victim of what he believes was a brief squeeze of GSX Techedu Inc.’s hedge funds. in the weeks before up to frenzy GameStop. As a result of these and similar situations, he had to hire a full-time trader to monitor the stock options markets and adjust positions to more actively manage risk.
“It’s a trading game, it’s flow-based, it’s technical,” he said. “We will do what we have to do to survive.”
Read more: Carson Block reduces short bets, ducking Online “Mob” bear hunting
Unlike many short sellers, Block is definitely public with the names of the companies he thinks are scams and against which he bets. He usually publishes the research underlying his short thesis and makes it available on Twitter. More recently, he started releasing videos on zer0es.tv.
WATCH: Muddy Waters CEO Block rejects the idea that he is part of the financial “institution” and calls for greater enforcement of the US Securities and Exchange Commission following the GameStop Corp. frenzy.
As he sees it, this effort to expose wrongdoing has a “social utility” and should set it apart from short sellers who are attacked on Reddit. He mocks the suggestion that he is part of a Wall Street unit. If he was such a privileged person, he asked, why Goldman Sachs Group Inc. and Credit Suisse Group AG would have refused their business?
“When we are labeled as an institution, you can’t be more inaccurate than that,” he said. “It’s almost funny if it weren’t for the fact that I now have all these people trying to troll me.”
The bloc agrees with the growing sentiment that financial markets are overvalued, and mostly small investors will be affected when the bubble finally explodes. He is failing the Federal Reserve because he has pumped too much liquidity, allowing too much credit extension and too much leverage.
“We need a combination of monetary and fiscal policy that makes sense, or else we’re just stuck in this building with a bigger powder keg to explode again,” he said. “Always transfer wealth from many to few.”