Random Thoughts – Short-Sellers, Fraud, Fakery and Other Stuff
Plus for premium subs, an updated copy of my Red Flag Alerts list. Let's just say: While stocks seem unhinged, some things have gotten worse.
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Just a bunch of thoughts…
1. Making Fraud and Fakery Great Again…
A grift here, a grift there, seems to suddenly be a grift everywhere: Given the latest events, meme coins included, I’m just waiting for the ETF with the symbol: GRFT.
But careful, as Peter Atwater notes in his latest Financial Insyghts newsletter – especially when suddenly it seems as though fraud and fakery are great again…
When that happens, I would brace yourself for a capitalism backlash. After the dot.com bubble burst and the housing bubble burst, the third time will be anything but the charm.
With this latest rollout of the government’s new Stargate AI program, front-and-center is Softbank CEO Masayoshi Son. Riddle me this: How is it that his company is always right there with kajillions of dollars to commit, as if he has access to more money than God? (Asking for a friend…)
2. Gulp…
Seems noteworthy, no?: A story on CNBC.com notes that the share of active credit card holders just making baseline payments has jumped to a 12-year high.
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3. Long and Short of It…
Lotsa talk that short-selling is dead: I dunno, I still talk with plenty, but I’ve also heard from friends who actively operate in that world that hedge funds are pulling back on the amount of shorting they do. You can see it in the below chart, which ran with a story on short-selling in Yahoo Finance…
And I have friends in Europe who have shifted from shorting U.S. stocks to mostly non-U.S. because the U.S., they say, is simply “too hard.”
They cite the usual cast of characters, including passive investing, algo-driven trades (and so-called “pod shops”) and last but not least, the rising influence of the Robinhood/Reddit crowd.
The “short-selling is dead” speculation is hardly new; in fact, I wrote an entire essay about it last February.
What Has Changed…
Used to be that whenever the “short-selling is dead” headline has been floated – or a big short-seller like Hindenburg threw in the towel – it was a sign of some kind of inflection point.
After all, I spent a few minutes tipping my toe into activist short-selling and closed my shop before I formally put up my website… and moved to a long-only newsletter. I joked at the time that was the sign of a tip… and it was, but even that correction was short-lived.
The duration of this next one, as I wrote the other day, will be anybody’s guess.
And speaking of that piece, if you missed it - there’s a chart in there that should scare the living daylights out of any investor. Or at least get their attention. Of course, I say that think that the world of investing today is the same as the world of investing yesterday. And while this time is NOT different in the sense that things still go to unsustainable excesses – the markets certainly aren’t what they used to be.
Enter Red Flags…
That’s why I write my Red Flag Alerts. It’s not about shorting – it’s about stocks to avoid. I feel like I’m screaming into an empty alley when I say: Even if they catch an updraft, some companies are fundamentally flawed, and unless the company can figure out a way to get from here to there, those flaws will eventually come back to haunt them. That concept hasn’t and won’t change.
Just because short-selling maybe ain’t what it used to be, doesn’t mean the risk inherent in some of these should be ignored.
Just look at Enphase ENPH 0.00%↑: down roughly 50% since I first started red-flagging it in August of 2023. The target of my buddy Russell Young of Decameron Capital was $50. That looked outrageously aggressive when he first floating it. That’s how it is sometimes with these types of stocks: it’s not overnight. (It actually dipped into the 50s today for a few mins.)
As for others on the list: Sure, a few of shot skyward, but I can point to a few of those that in all likelihood still have a date with destiny.
4. Red Flag Alert List
Meanwhile, There’s no shortage of new ideas, just time. The big question is always whether they deserve to be on the actual list, or just flagged.
In the meantime, for current premium subscribers, here’s an updated version of my Red Flag Alerts/Stocks to Avoid List, with prices as of the time I wrote this earlier today…