Jim Chanos on the meme stock mania

 There's just a cognitive dissonance in a lot of these situations.  And short sellers get the blame for it.  Short sellers were seen, politically and (socially), as heroes after Enron and the dot com era.  A little less so in '08-'09 … but now, post-meme stock world, short sellers are again the evil conspiracy to derail retail investors from making their profits in stocks like AMC and Bed Bath and Beyond.  [The meme stock rally was] probably the best example in modern financial history [of cognitive dissonance in the markets].  Despite evidence staring you in the face about the declining business prospects of AMC or Bed Bath and Beyond, the cult members want to continue to believe in things like naked short selling or phantom shares and what have you.  I just keep saying 'Guys, if you do spend all this time on this nonsense, instead, learn how to read a balance sheet – you'd be far better off'.

~ Jim Chanos, "'I'm not dead yet': Jim Chanos isn't done short selling despite hedge fund wind down," Pensions & Investments, December 14, 2023

Phil Erlanger on "dumb" short sellers (2021)

For the past five years, "dumb" short sellers (those with a poor track record of making money on their short trades) have been the majority of short sellers.  It is particularly true that the recent jump in short selling was established by dumb short sellers.

~ Phil Erlanger, Phil Erlanger Research, April 8, 2021

(as quoted in Barron's, April 10, 2021)

Kevin Duffy on GameStop narratives

The GameStop frenzy has struck a nerve with so many because it represents a morality play: David vs. Goliath, outsiders vs. insiders, the downtrodden upending the corrupt financial elites. To many long-time critics of bailouts, the Reddit crowd who made out like bandits signifies the beginning of a long-awaited populist revolt. To the young and tech savvy, this is the passing of the old guard which offers a glimpse of the future. 

Lost in all of the hysteria and spin is the real struggle taking place on Wall Street, that between bulls and bears. After 12 years of nonstop Federal Reserve-abetted asset inflation, the bulls have been winning so often, their ranks have swelled while those of the bearish community have dwindled. The short seller, that most extreme expression of skepticism, has nearly gone extinct. It was he who the Reddit crowd targeted and whose grave they’re now dancing on.

~ Kevin Duffy, "Game Over," LewRockwell.com, February 1, 2021

Kevin Duffy on the GameStop frenzy

There is a cyclical aspect of the the GameStop frenzy few are talking about.  Bob Murphy made an interesting point that this is flipping "The Big Short," which was written by Michael Lewis right after the GFC in early 2010, close to the stock market bottom.  Short sellers were held out as heroes.  A decade later, after stocks have quadrupled and short sellers practically wiped out, they're the bad guys.  And the greedy and reckless speculators dancing on their graves are the heroes! 

We've come full circle, i.e. we're probably at peak euphoria for the so-called "everything bubble." 

As for Robinhood temporarily closing the casino doors for a day, this likley had more to do with existing regulations and capital requirements which go up with increased volatility.  Robinhood apparently had to raise another $1 billion so they could fully open the casino for business on Friday (helping push GME stock up 68%). 

Btw, AOC, Ted Cruz and Donald Trump, Jr. all attacked Robinhood for the same reason.  If they're all on the same side of an issue, laissez faire types have to be suspicious.  This will end in tears for the Reddit crowd who, as Bob said, refuse to take their chips and leave the poker table because they're "mad." 

This is amateur hour at the casino, and some angry, young, ideologically-charged traders are about to learn a very expensive lesson.  Who will AOC & Co. then blame?  Will they bail these people out?  The plot sickens...

~ Kevin Duffy, comment about "Ep. 1825: The Reddit/GameStop Phenomenon," The Tom Woods Show, January 30, 2021

Kevin Duffy on GameStop madness

While I'm not shedding any tears for the big hedge funds getting crushed by swarms of Robinhood day traders, this is a warning - exactly the kind of insane behavior you would see at a generational top. I follow the stocks of retailers pretty closely.  On a good day, GameStop (GME) might be worth $2 billion.  It hit a market cap of $30 billion yesterday and is set to open up 70% (after getting being down 44% yesterday). 

We've lost sight of the fact that the financial markets exist to efficiently allocate capital.  Mock and destroy that function and you've done the same to a functioning economy.

As Charles Mackay warned in Extraordinary Popular Delusions and the Madness of Crowds (1841): 

Money, again, has often been a cause of the delusion of the multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper.

~ Kevin Duffy, Facebook post, January 29, 2021

Hedge fund guru David Tepper on tapering Fed's QE and burying short sellers

There better be a true [Fed] taper or else you might be back into the last half of 1999.  So like guys that are short, they better have a shovel to get themselves out of the grave.

If the Fed doesn't taper back, we're going to get into this hyper-drive market.  It's a backwards argument. To keep the markets going up at a steady pace the Fed has to taper back.

~ David Tepper, as appeared on CNBC's Squawk Box, May 14, 2013