Carson Block believes that investment sentiment is reaching ridiculous levels – and this could eventually fracture a market it considers fragile.
San Francisco-based founder Muddy Waters, who made his name by shortening Chinese shares, told MarketWatch in a Monday-afternoon interview that the dust between a select group of individual investors using Reddit chat forums and a lot of professional investors highlight issues revolving around a market that has been supported by light money policies from the Federal Reserve and government assistance to help stop the economic damage caused by the COVID-19 pandemic.
Asked if his view that markets are ridiculous focuses on the agitation surrounding retail, which has favored precipitous earnings in shares of companies such as GameStop Corp. GME,
AMC Entertainment Holdings AMC,
Koss Corp. KOSS,
and BlackBerry Ltd. BB,
Block had a simple answer: “Absolutely.”
“There are no fundamentals to justify … a 15-fold increase where it was a few weeks ago,” Block said, referring to individual investors gathering on sites such as Reddit message boards and were credited with rising share prices of distressed companies and in processing short-selling hedge funds that bet against these companies.
Block, a prominent short seller, said last week that some of the so-called meme stocks, backed by groups of individual investors, had taken liquidity out of the wider market.
“We’ve seen that degradation of hedge funds, and if you keep seeing that … things can break down quickly.”
The advance in sharply shortened shares targeted by the military by individual investors has already been blamed for problems with a number of funds.
Melvin Capital Management, one of the hedge funds seen at the heart of the GameStop issue, lost 53 percent of its investments in January, while Maplelane Capital ended January with a loss of about 45 percent, writes The Wall Street Journal, citing people familiar with problems.
In addition, renowned short seller Andrew Left, the founder of Citron Research, said on Friday that he was changing his strategy and would no longer publish missing sales reports.
Block said Muddy Waters has pivoted more toward long-term investments in recent years, but said he still sees his brand as missing and points to the abuses as useful.
“I think at the end of the day that the research we produce is useful. It led to eight erasures … and a [Justice Department] case against tariff evasion, “he said.
Finally, he said that Muddy Waters will continue its activity and that the market will determine if it becomes uneconomic.
Beyond investment, Carson launched Zer0es.TV last year, with the intention of offering in-depth discussions about short selling and investment. In a recent video, he said that the anxiety from Redditors may also reflect the renewed frustration with the closure of COVID and the desire to disrupt the structures of the establishment, as the gap between rich and poor widens.
He said that the new landscape of trading based on social networks can result in professionals being more agile.
“We may just need to be more creative and smart in the way we structure transactions and manage risk,” he added, suggesting that professional investors may need to structure more complex transactions to avoid being kicked out of certain positions. .
Block said he does not bet that markets will fail soon, but warned that we are at a time in the cycle when anything can go wrong.
“We’re not in a tightening cycle, but there are a lot of things that can go wrong and have a knock-on effect on the market and a market that is closely tied to flows,” Block said.
“I don’t think it’s about to end anytime soon,” he said.
On Monday, the market regained some of its ground lost in Friday’s crash with the Dow Jones Industrial Average DJIA,
the S&P 500 SPX index,
and Nasdaq Composite Index COMP,
ending solid above.
Block became famous in 2011 after exposing fraudulent practices to Chinese forestry company Sino-Forest Corp., which went bankrupt the following year.
Block, in its broadcast Zer0es.TV, said it had no doubt about the end of this situation for individual investors and described the popular trading platform Robinhood as selling its customers to market makers, which in turn they pay them for customer information, known as payment for flow order.
“When you look at Robinhood, it’s the ultimate manifestation of the Silicon Valley model, isn’t it? You know, we are the products that are sold when you use Twitter, Gmail, etc. “, he said.
“I have no doubt where this ends, right … for retail – that is, in tears.”