Carson Block believes that investment sentiment is reaching ridiculous levels – and it could eventually break a market he considers fragile.
The founder of San Francisco-based Muddy Waters, which made a name for itself in Chinese stocks, said in a Monday afternoon interview with MarketWatch that a group of individual investors using the Reddit chat forums and a bunch of professional investors, a many professional investors highlight problems swirling in a market that is being undermined by easy money policies of the Federal Reserve and the government’s help to stem the economic damage of the COVID-19 pandemic.
Asked if his opinion that markets are ridiculous is aimed at the unrest surrounding retail that is driving the rapid gains in shares of companies like GameStop Corp. GME has promoted it,
AMC Entertainment Holdings AMC,
Koss Corp KOSS,
and BlackBerry Ltd. BB,
Block had a simple answer: “Absolutely.”
“There are no fundamentals that justify … a stock that has risen 15x where it was a few weeks ago,” Block said, referring to individual investors who gather on sites like Reddit message boards and the credit purchases of struggling companies and the process paralyzing short-selling hedge funds that bet against those companies.
Block, a prominent short seller, said last week it was as if some of the so-called meme shares, which are being put forward by groups of individual investors, were taking away liquidity in the broader market.
“We’ve seen the unlocking of hedge funds and if you see that … things can break fast.”
The progress in sharply shortened stocks targeted by the army of individual investors has already been blamed for problems with a number of funds.
Melvin Capital Management, one of the hedge funds seen in the midst of the kerfuffle over GameStop, lost 53% on its investments in January, while Maplelane Capital closed January with a loss of around 45%, writes The Wall Street Journal with reference to people familiar with the matters.
In addition, the renowned short seller Andrew Left, founder of Citron Research, said last Friday that he was changing his strategy, and would no longer publish reports on short sales.
Block said Muddy Waters has focused more on long-term investments over the past few years, but said he still views his short-selling brand and points out misperformance as useful.
‘I believe at the end of the day that the research we deliver is useful. This resulted in eight delistings … and a [Justice Department] case against tariff evasion, ”he said.
Finally, he said that Muddy Waters will continue its work and that the market will determine if it becomes uneconomical.
In addition to investing, Carson launched Zer0es.TV last year with the goal of delivering in-depth discussions on short selling and investing. In a recent video, he said that anxiety generated by Redditors could also reflect pent-up frustration with COVID incarceration and a desire to disrupt settlement structures as the gap between rich and poor widens.
He said the new landscape of social media-driven commerce could lead to faster benefits.
“We may just need to be more creative and smart in the way we trade and manage risk,” he added, suggesting that professional investors may need to structure more complex trades to prevent us from being blown out of some positions.
Block said he does not bet the markets will break down anytime soon, but warns that we are at a point in the cycle where anything can go wrong.
“We are not in a barrier cycle, but there are many things that could go wrong and affect the market and a market that is very much linked to flow,” Block said.
“I do not think it will end any time soon,” he said.
On Monday, the market regained some of the land lost during Friday’s garbage loss, with the Dow Jones Industrial Average DJIA,
the S&P 500 index SPX,
and the Nasdaq Composite Index COMP,
ends solidly higher.
Block gained notoriety in 2011 after engaging in fraudulent practices at Chinese forestry company Sino-Forest Corp. revealed, which eventually filed for bankruptcy the following year.
Block, on his webcast on Zer0es.TV, said he had little doubt about where it would end up for individual investors, describing the popular trading platform Robinhood as selling their clients to market makers, who in turn paid them for client information , known as payment for order. flow.
‘If you look at Robinhood, this is the ultimate manifestation of the Silicon Valley model, right? You know, we’re the products that sell when you use Twitter, Gmail, etc. Use, ‘he said.
“I do not doubt where it ends, right … for retail – I mean in tears.”