🐻The Bear Cave #51 + Marc Cohodes Interview🐔
Wall Street vs. WallStreetBets, Marc Cohodes Interview, New Activist Reports, Tweets of the Week
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Wall Street vs. WallStreetBets
WallStreetBets, a popular stock-focused Reddit community, helped fuel a 1,700% rise in GameStop stock over the last month. The media has described the rise as a community-fueled short squeeze, but the reality is much more nuanced.
The GameStop saga began in September 2019, when individual investor Keith Gill began posting about the company under his pseudonym DeepF*ckingValue. His analysis was quite good. For example, in December 2019, Mr. Gill was analyzing inventory reclassifications and management sentiment from the conference calls.
Another year-old post referenced the outsized bearish sentiment and how new gaming console releases would turn things around in 2020:
“Dude everyone thinks I’m crazy, and I think everyone else is crazy. I’ve dealt in deep value stocks for years but have never endured bearish sentiment this heavy. I expect the narrative to shift in the second half of the year when investors start looking for ways to play the console refresh and they begin to see what I see.”
Mr. Gill also repeatedly warned of a potential short squeeze on Reddit and on his YouTube channel, Roaring Kitty, where he published additional research on the company:
On January 19, right before the major short squeeze, Mr. Gill published another video titled, “GameStop cracks 45. Could news of Ryan Cohen's strategy trigger a GME short squeeze?”
Enter “JeffAmazon.”
Reddit user “JeffAmazon” seems to be the most involved in the GameStop short squeeze. Four months ago, he posted a 2,198-word column titled “The REAL Greatest Short Burn of the Century” and explained how to cause a short squeeze in GameStop. Below are excerpts from his post:
“Well now we finally won’t be at the mercy of the [Market Makers]. Instead, we’re going to temporarily join forces with the Galactic Empire and hijack the death star. Our choice of weapon... $GME.”
“To tell you the truth, I don’t even know how far this is going to blow up, since there is literally no historical precedent for this. I just know things are about to get very very insane.”
“LAST, and timing is crucial here. ONLY WHEN I get the confirmed signal that the squeeze is happening, I will pound weeklies 10-20% above strike price. Again forcing Kenny to hedge with shares, causing shorts to cover and BUY back, increasing the delta of the call, getting retail and institutional attention, buying more calls/shares, delta hedge, shorts cover, ad infinitum.”
It is unclear who would provide the “confirmed signal” about the GameStop squeeze, but “JeffAmazon” posted two more times about it (1, 2) and has an active Twitter account @JeffAmazonX.
Eight days ago “JeffAmazon” edited one of his comments to add that: “Inciting a short squeeze is illegal.”
On January 10, Reddit user “StarSwitch” published a detailed analysis of Melvin Capital’s GameStop puts and short position. In a separate post, “StarSwitch” described himself as “a 20-year-old college student paying for school working two jobs.”
Other WallStreetBets members focused on Melvin Capital as well. One user wrote that Bed Bath & Beyond, another Melvin short, should be the “next GameStop.” That user recently deleted their account. Two months ago, “Stonksflyingup” started publishing videos of fight scenes with Melvin Capital. In one, a Melvin Capital battleship is blown up with a $2 billion loss.
In sum, a group of quirky, smart, and perhaps immature investors found an incredibly undervalued company, published good research, and then publicly orchestrated a massive short squeeze. And it all worked exactly as planned.
Mr. Gill’s roughly $50,000 investment in GameStop stock and options is now worth around $50 million. Melvin Capital lost about $6 billion this month.
(Full disclosure: I have a tiny position in GME stock and puts.)
Marc Cohodes Interview
I interviewed legendary short-seller Marc Cohodes on GameStop, Melvin Capital, Citadel, and the State of Short-Selling. Watch the interview on YouTube with the link below:
Timeline: Intro (0:00) GameStop & Melvin Capital (1:55) Dave Portnoy & Citadel (8:45) What Citadel is Doing Wrong (10:22) Prime Broker Games (13:17) Robinhood Troubles (16:15) Iomega (23:25) Dave Portnoy & Elizabeth Warren (28:11) State of Short-Selling & Andrew Left (31:00) Penumbra (35:12) Overstock & Melvin (38:00) SPAC Mania (43:22) Camping World (45:30) Closing Thoughts (48:15)
Follow Marc on Twitter @AlderLaneeggs
New Activist Reports
New activist short-seller Saique Research published on CytoDyn (OTC: CYDY -- $3.32 billion), a promotional biotech company. Follow Saique Research on Twitter at @SaiqueResearch
Citron Research announced it is no longer publishing short reports after twenty years as the most visible activist short-seller. Going forward Citron will exclusively focus on long ideas.
New Paid Report Coming Thursday
This Thursday, The Bear Cave will publish a special report for paid subscribers on potential ideas related to WallStreetBets. If you are not already a paid subscriber, join 100s of other analysts and sign up today to get deep-dive reports on the first and third Thursday every month.
Learn more about paid subscriptions here.
What to Read
“Statement Regarding Recent Market Volatility” (SEC Commissioners)
"The Commission will closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities."
“An Open Letter to Melvin Capital, CNBC, Boomers, and WSB” (WallStreetBets)
“I was in my early teens during the '08 crisis. I vividly remember the enormous repercussions that the reckless actions by those on Wall Street had in my personal life, and the lives of those close to me… When that crisis hit our family, we were able to keep our little house, but we lived off of pancake mix, and powdered milk, and beans and rice for a year.”
“Dear WallStreetBets: Hedge Funds Are Very, Very Short Bitcoin” (ZeroHedge)
“According to the CFTC's latest Traders in Financial Futures report, the net short position in bitcoin futures is now the biggest it has ever been.”
Tweets of the Week
Until next week,
The Bear Cave