Tech stocks plummet, "Godfather" emerges

One of the scariest things in the world is when someone else makes money away, leaving you with the expectation that you'll still make money.

In late spring, Wall Street staged a big shift in wealth. In April, the tech giants Microsoft, Apple, Alphabet, Meta and Amazon reported first-quarter earnings, with revenues in the tens of billions of dollars at every turn. In May, U.S. technology stocks "led the decline", with more than half of the newly listed technology stocks falling by more than 50%; more than 90% of the companies listed last year had their share prices below the issue price or first-day trading price. The Big Five evaporated nearly 3 trillion US dollars, which can be regarded as "eat me and spit it out".

The Nasdaq is down more than 20% so far in 2022.

So far, who has made the fortune? Short-selling investor.

According to technology and data analytics firm S3 Partners, $1 out of every $5 in stocks shorted in the U.S. last quarter was in information technology stocks. Short positions in the IT sector have generated 34% of profits since the beginning of the year.

Short Apple and Tesla

On June 7, Apple released the iPhone 13 and M2 chips, and the public opinion circles seemed lively and disappointed, and Apple's stock did not fluctuate much. On the same day, affected by the drop in U.S. bond yields, the three major U.S. stock indexes rose across the board, and the tech-heavy Nasdaq rose nearly 1%-to a certain extent, eroding the profit margins of shorts.

Two months ago, before Apple's first-quarter earnings report was announced, well-known investor Michael Burry (Michael Burry), the protagonist of the movie "The Big Short", and his Scion Asset Management Company, had bought 206,000 shares of Apple stock. put option. If the company exercises the put option, the estimated value is $36 million.

This means that Bury is betting that Apple's stock price will fall.

Apple shares are down about 20% since the start of the year. Apple's fortunes represent the fortunes of the entire tech stock market, with other tech stocks like Facebook, Amazon, Netflix, Google, Microsoft and Tesla all down sharply. However, Bury also bought Meta and Alphabet. His criteria for judging technology stocks, at least not putting all eggs in the same basket.

Bury is known for betting on the U.S. housing market in the mid-2000s. As stated in the movie "The Big Short", the US real estate at that time was supported by inferior mortgage loans, among which financial instruments such as MBS (Mortgage Backed Securities, Mortgage Loan Securitization) and CDS (Credit Default Swap, Credit Default Swap) greatly promoted the Increased the risk of financial institutions, leading to the 2008 financial crisis.

And Bury, relying on the evidence of the first-line investigation, discovered the fragility at the bottom of the domino-many people are unable to repay the loan, and the financial instruments are useless no matter how beautifully packaged they are. "A massive short sale" made him and some other Wall Street elites big winners in the rubble.

In addition to shorting Apple, Bury also took a shot at Tesla. In February, Bury predicted that Tesla's stock would plummet 90% this year. Before that, Bury had publicly called Tesla's stock price "ridiculous," as it had risen more than 1,000% in five years. He also compared it to a housing bubble, urging people on Twitter to "sell #TeslaSouffle".

In late March, SEC filings confirmed that Scion held put options on 800,100 Tesla shares worth about $534 million.

At the end of May, according to the latest data from data provider Ortex, Tesla shorts have made $8.2 billion; Amazon shorts have made $3.8 billion; Facebook shorts have made $3.7 billion; Apple shorts have made $3.5 billion .

Bury loves Twitter. Although his account is @michaeljburry, the username is "Cassandra" - the Trojan priestess in Greek mythology who was enchanted by Apollo: Although the future can be seen, no one believes her prophecy.

"Capitol Hill Stock God" Going Long

On June 6, local time, the U.S. House of Representatives website disclosed that Paul Pelosi, the husband of U.S. House Speaker Nancy Pelosi, purchased apples worth $750,000 to $1.5 million between May 13 and 23. stock options and purchased Microsoft stock options worth $300,000 to $600,000 on May 24.

Earlier, Paul Pelosi invested $2.9 million in American Express, Apple, PayPal and Walt Disney stocks in January. In March, he bought $2.2 million worth of Tesla stock.

According to the statistics of OpenSecrets, a US political donation database, the Pelosi family's return on investment in 2021 will reach 56.15%, outperforming the Standard & Poor's index (with a growth rate of about 13%), and more than most of the top US hedge fund managers. "Performance" Better than Buffett.

Some media have specially sorted out several operations of Paul Pelosi last year, and the "card position" is quite accurate. For example, on the eve of the Biden administration’s announcement of electric vehicle subsidies, buying more than $1 million in Tesla shares; buying 25,000 shares before Microsoft won a $22 billion AR combat helmet order from the U.S. Department of Defense; In the antitrust investigation, Google was long, and in the end Google was unscathed.

There are "video bloggers" on Youtube and TikTok who specialize in "Capitol Hill stock gods" -- the Pelosi family's stock trading. In January 2022, Google searches for "Pelosi stock trading" hit an all-time high.

According to the US "Business Insider" website, some members of the US Congress made "war money". Dozens of lawmakers and their spouses traded stocks, buying heavily in arms dealers such as Thor and Lockheed Martin, ahead of the news that the U.S. provided 40 billion yuan in "aid" to Ukraine during the Russian-Ukrainian war.

The "investment" of politicians and their families is very sensitive. The operation of the economy depends to a large extent on "information". It's like the line in the movie "Wall Street": "The most important commodity I have is information." And the insider knowledge of senior officials gives them a great advantage.

After months of popular boycotts, Nancy Pelosi in February approved a plan to ban members of Congress from trading stocks. House committees are drafting rules, and the legislation will be put to a vote this year.

The long-empty war is here again

Game Stop and AMC Cinemas, two of the "favorite" stocks of American retail investors, have been shorted again a few days ago.

According to the latest data from S3 Partners, Game Station and AMC's net short positions accounted for 24% and 22% of the stock float, respectively, close to the highest level in a year.

Game Station and AMC fell by more than 47% and 64% in the current bear market. The target price for AMC by short sellers is only $4 per share, which is a potential decline of 66.5% compared to the current share price of $11.95.

Hedge funds are aggressively shorting. On the one hand, there is a large-scale sell-off in US stocks, and shorting can be more aggressive; on the other hand, it is also judged that the new crown epidemic has changed the way of life, and the physical operation of Game Station and AMC will inevitably fail - the former is selling video game cassettes Retailers, the latter being movie theaters.

U.S. retail investors rushed forward this time, buying $2.8 billion of both stocks in the week ended June 1. On June 7, local time, as of the close of the day, the two stocks rose as high as 14.4% and 9.4% respectively.

In the short squeeze event that happened in January last year, the protagonist is the game station, which is known as the "epic short squeeze".

At the time, some hedge funds shorted GameStop, betting that the stock price would continue to fall, shorting 140% of GameStop’s total share capital. However, due to the high stock price of Game Station (also fueled by Elon Musk), the holders were reluctant to sell, and the short side could not obtain enough shares to fulfill the option contract, and had to make up for the position quickly, but instead pushed the stock price to continue to rise, resulting in a short squeeze; some Institutions were forced to liquidate their positions due to their inability to perform options contracts, resulting in huge losses.

According to data from S3 Partners, in the first five months of 2021, investors who shorted Game Station and AMC lost more than $10 billion in cumulative losses. Among them, the well-known short-sellers Citron Research and hedge fund Melvin Capital Management LP all surrendered in disgrace.

The war between long and short can be regarded as the resistance of retail investors to the elites. When the First World War "outbreak" was in the first year of the new crown epidemic, most consumers in the United States stayed at home, with plenty of time, historically low interest rates, and the government "distributed sugar". There is a memory of youth, and people generally resent the "Wolf of Wall Street" of the 2008 financial crisis, and the anger finally gathered on several BBS.

The long-short war has returned this year, and short-sellers may be making judgments based on the pessimism of retail investors as the entire stock market is bearish.

But for retail investors, the meaning is different: it's not just about money.

Thomas Piketty's Capital in the Twenty-First Century describes the gap between the rich and the poor as an investment gap. That's right, the advantage of the rich is not only access to the stock market, but also access to the most complex and "secret" information and opportunities, as well as being able to withstand the losses caused by risk-taking. The advantage of the poor is that "the barefoot is not afraid of wearing shoes".