There is endless yacking on the topic of certain heavily shorted stocks being “targeted” by what is easy to call the “yahoos” of online day trading websites. What if anything does it “mean”? Our 7 takes:

1. A short squeeze defines the word “transitory.” It has been reasonably documented for hundreds of years and more recently well documented in things like John Brooks’ 1969 book, Business Adventures (chapter: The Last Great Corner) or Reminiscences of a Stock Operator by Edwin Lefebvre. Or the Porsche/Volkswagen debacle. That it is being orchestrated by randomly distributed people on social media day-trading stocks with stimulus money on a cell phone app is a new twist, versus a concerted “professional” attempt. ANY remotely cursory analysis is simple: it will end as badly for buyers as it has been for short sellers. There is nothing new here. And a wildly speculated guess: this blows up after the next options expiration as the world “trues up” positions.
2. I am not an SEC lawyer, but WHERE is the SEC on the topic? Too busy worrying about global warming and social justice rather than their core role: being a regulatory watchdog to ensure reasonably “fair” public markets? Between lax monitoring of naked short selling and wave-through of SPAC claims and GAAP reporting, or inconsistent application of existing rules on new market structures and trading halts and restarts, once again “issues” tend to be concentrated in the smaller corners of the investment world rather than how the S+P 100 pronounces support for Davos goals. I am not frankly sure the right “stick” here, but I think it’s fair to say that recent movements in stocks do not contribute to any perception that investing in public securities is not a rigged game. That it isn’t good. And in reading some Reddit posts and then comparing and contrasting with the nonsense we go through with our Mutual Fund compliance as to the speculative meaning of “is” is hard to believe.
3. Decades of history likely starting with Alan Greenspan and certainly to be followed through strongly by the current administration is the “PUT” that enables almost any idiocy to be bailed out by some form of government intervention. As Herbert Spencer predicted, “The ultimate result of shielding men from the effects of folly is to fill the world with fools.” Maybe that is what the SEC is thinking. Not.
4. Fixed income pricing has long been rigged by the Feds here and abroad in interest rate suppression and bond-buying. The equity market markets are increasingly losing the ability to signal anything as far as what relative valuation means and how capital should therefore be allocated. There are simply crazy pockets of ZERO ANALYSIS sectors and the number was been widening. Again, our sense is this is a transitory world, but one does recall the adage of people being irrational longer than you can stay solvent. Historically, it pays to be rational in the face of idiocy. It just isn’t any fun.
5. Which brings us to the inherent advantage of unlevered, long only investing. Your temperament and time horizon are crucial variables in dealing with short term issues. Problems get “smaller” being long a problem asset. With short selling and leverage, there are non-zero probabilities involving an erasure of perfectly thought out and conceived investments on simply technical terms. We look to increase our risk exposure after a blow-up in volatility and uncertainty, versus having to talk to our Risk Manager about reducing our 3 to 1 leverage ratio through forced and likely uneconomic activity.
6. Which brings us to the role of capital markets in actually raising capital and allocating it. If you are a heavily shorted company in a secularly challenged industry with a lousy balance sheet and little going for you except a stock that just went up 800% in a week, then for God’s sake SELL EQUITY to these Nuts.
7. In the short-run, the market is a voting machine and the public is entitled to vote as they want or as often as they want. In the long-run, you had better be good at weighing.