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🐻The Bear Cave #53🐻

Could ARK Invest Blow Up?, New Activist Reports, Tweets of the Week

Edwin Dorsey
Feb 16, 2021
11
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🐻The Bear Cave #53🐻
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Welcome to The Bear Cave — your weekly source of short-seller news. If you are new, you canĀ join our email list here.


New Activist Reports

Citron Research tweeted bullishly aboutĀ New Providence Acquisition Corp (NASDAQ: NPA — $577 million), a SPAC in the process of acquiring the space-based broadband company SpaceMobile.

Twitter avatar for @CitronResearchCitron Research @CitronResearch
$NPA tgt $50. Most compelling Space/5G/ESG story in the market. All SPACS are speculative so why not go with one with a $1 trillion TAM that has the potential to change the world with real partnerships. The most important Space story in the market. Report to follow
Image

February 9th 2021

162 Retweets831 Likes

J Cap Research published on Nearmap (ASX: NEA — AUD$1.06 billion), an Australian aerial imagery company. J Cap alleged that Nearmap ā€œis laying off sales staff and offering discounts in a panicked attempt to improve marginsā€ and is aggressively recognizing revenue to offset declining growth.

Ontake Research published on Kerry Group (LSE: KYGA — GBP19.2 billion), a London-based food distributor that has completed dozens of recent acquisitions. Ontake’s report criticized Kerry’s accounting and highlighted potentially inflated acquisitions.

ShadowFall Research also published a critical Twitter thread on Kerry:

Twitter avatar for @ShadowFallCRShadowFall @ShadowFallCR
ShadowFall is short Kerry Group ($KYG). We found @theOntake note compelling, with it echoing several concerns we raised a while back. We view Kerry’s financial statements to be opaque and sometimes unreliable. Having read the latest findings, we’re more convinced of this. 1/6

February 11th 2021

6 Retweets13 Likes

Newly launched Big Wave Research published a long thesis on MKS Instruments (NASDA: MKSI — $9.23 billion). If you are interested in mid-cap tech follow them on Twitter @BigWaveResearch and sign up for their free newsletter here.

Mike DelPrete criticized the unit-economic disclosures by Zillow (NASDAQ: ZG — 46.1 billion) and Opendoor (NASDAQ: OPEN — $19.9 billion) and wrote,

ā€œOpendoor and Zillow are emphasizing unit economics of iBuying that exclude tens of millions of dollars of expenses - ranging from salaries to marketing to technology - that are necessary to operate the business.ā€

Alex PittiĀ publishedĀ a second Seeking Alpha article onĀ ArcimotoĀ (NASDAQ: FUV — $935 million), an electric vehicle company that has sold a total of 31 units. Arcimoto’s CEO responded that he has ā€œPittiā€ for Arcimoto short-sellers:

Twitter avatar for @nardopoloMark Frohnmayer @nardopolo
I Pitti the fool who goes short on a sustainable future.

February 15th 2021

4 Retweets205 Likes

Could ARK Invest Blow Up?

ARK Invest, the hot active management ETF firm founded by Cathie Wood, has seen assets grow from around $10 billion to $60 billion over the last 12 months. ETFs, unlike hedge funds, do not have long-term capital and can rapidly gain or lose assets based on the sentiments of its retail investors. These changing flows can act as a self-fulfilling prophecy for ARK, which invests in relatively illiquid companies.

For example, on January 31, ARK’s Innovation ETF owned 6.04 million shares of Invitae Corp (NYSE: NVTA — $9.63 billion), or about 3% of the company. As of February 12, ARK’s Innovation ETF owned 17.3 million shares of Invitae, or about 9%. By buying such a large stake in a short period of time ARK Invest may be artificially enhancing its returns with its buying pressure. This could also happen in reverse.

If Ark Invest faced outflows it would need to sell some of its holdings, which could cause them to fall. If hedge funds start front-running the forced selling, Ark Invest’s performance could deteriorate further, which would lead to more outflows, then more selling, and then worse performance, and then more outflows, etc… A recent Bloomberg article found that ARK Invest owns at least 15% of 11 companies it is invested in. The Wall Street Journal raised similar concerns and highlighted that 43% of ARK’s assets are in companies where it owns at least 10% of the company. These large stakes are difficult to exit quickly.

One way to counteract illiquid stakes could be to have extra funds invested in liquid placeholder stocks. For example, ARK’s Genomic Revolution ETF, which focuses on companies ā€œenhancing the quality of humanĀ life,ā€ recently invested $185 million in Google.

That might not be enough. In 2019, the Woodford Equity Fund in the U.K, collapsed after persistent outflows left the fund with only illiquid holdings. What makes ARK Invest especially problematic is its daily transparency about its trading as well as the potential to front-run forced selling. For example, one hedge fund manager wrote,

Twitter avatar for @ebitdaddy90buyhighsellhigher @ebitdaddy90
WSJ article says Arkk has almost 50% of the fund in stocks where they own 10% or more of the company. @CathieDWood I look forward to feasting on your carcass when flows turn negative. Gonna be easy to get some predatory shorts going in all your small caps.

February 7th 2021

74 Retweets1,016 Likes

If enough people have the same philosophy, ARK may sink.


What to Read

ā€œWall Street Short Sellers: Hated For Centuriesā€ (NPR)

ā€œDorsey says the haters tend to miss an important role that short sellers can play as watchdogs, researching and exposing overvalued or even fraudulent companies…"

ā€œRobinhood Faces Wrongful-Death Lawsuit Over Young Trader’s Suicideā€ (WSJ)

ā€œThe family of a 20-year-old student who took his own life after believing he racked up big trading losses on Robinhood Markets Inc. filed a lawsuit against the company, saying its ā€˜reckless conduct directly and proximately caused the death of one of its victims.ā€™ā€

ā€œAxon CEO Talks Insane Short-Seller Attackā€ (Benzinga)

ā€œUltimately, my personal secretary was a mole who was sending information to short sellers who were then using it to manipulate the stockā€¦ā€Ā 


Tweets of the Week

Twitter avatar for @StockJabberEdwin Dorsey @StockJabber
After one year of a free newsletter, and now four months into paid, this thing is for real: šŸ™ ~500 paid subscribers šŸŽ‰ ~10,000 free subscribers 🤯 ~$160k ARR (before fees) For anyone thinking about launching a newsletter, some early learnings in the thread below šŸ‘‡
Image

February 15th 2021

127 Retweets984 Likes
Twitter avatar for @HaydenCapitalFred Liu @HaydenCapital
Hayden's recent Q4 2020 letter, where I touch upon: - Our journey in building Hayden Capital over the past 5 years - Why I think the investing is an artistic pursuit - Some updates on $SE Brazil and our investment in a SPAC

February 15th 2021

52 Retweets434 Likes
Twitter avatar for @arampellAlex Rampell @arampell
1/ Why are there so many SPACs? Answer 1: Great economics for sponsor (average of 20% of money raised upon deSPAC / merging with a target, Eg $400M SPAC = $80M). It’s like a separate carried interest pool for each company and liquid since already public!

February 14th 2021

29 Retweets334 Likes
Twitter avatar for @ClarityToastNate Anderson @ClarityToast
So far in 2021, there have been ~5 SPAC IPOs per day, putting us on pace for 1,250 SPAC IPOs this year. Avg. SPAC size has been ~$300m, on pace for $375 billion this year. Frauds, fads & promotes taken public in 2020-2021 will be a key source of short ideas for the next decade.

February 9th 2021

45 Retweets256 Likes
Twitter avatar for @MylesUdlandMyles Udland @MylesUdland
BofA 2015: The only reason to be bullish is that there are no reasons to be bullish. BofA 2021: The only reason to be bearish is that there are no reasons to be bearish.

February 16th 2021

1 Retweet14 Likes
Twitter avatar for @ImTaylorCoxTaylor Cox @ImTaylorCox
IRS: you owe us money :( Me: how much? IRS: guess :) Me: this much? IRS: No :( Jail ;)

February 8th 2021

101,705 Retweets889,480 Likes

Until next week,

The Bear Cave

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