From almost bankruptcy to the most valuable company in the world. In a day.
In 2008, Volkswagen (VOW) held on slightly. One of the largest car brands in Germany absolutely indebted. And as the Great Recession ravaged the world, its car sales plummeted. But then something unforeseen happened.
On 26 October 2008, Volkswagen’s shares rose 82%, soon fitting the world’s top valuable company. Later, it collapsed to 95% and never recovered, eliminating the most of investors in the process.
In English, this is what a “short compression” is
Suppose you have a balance of $1,500 in Robinhood or any other broker. And bet against the $1,000 X-shares.
You “sell” the inventory by borrowing a percentage value of $1,000 from your broker. There are now two scenarios: inventory is increasing or inventory decreases.
If inventory falls, the inventory returns to a decrease in value and money in the difference. But if inventory increases, you must buy the inventory and return it to the broker, regardless of the value.
In the last scenario, its drawbacks are unlimited. And the broker should be sure that you have the cash to recover the shares.
So, if you have $1500 in your balance and the value of X reaches, for example, $1500, the broker will ask you to deposit more cash (or charge a margin into your account). If you do not have the cash, the broker will ask you to buy and return the inventory at $1,500.
Problems begin when this happens on a larger scale. You see, when many short traders are forced to leave the store and buy inventory at the same time, inflated calls increase the percentage price.
Higher inventory is worth even more short sellers, which in turn increases the percentage value. This is repeated over and over again, sending the percentage value to banana levels. And this vicious circle is what we call “short pressure.”
Tesla is America’s maximum hated (short-circuit) action
Unsurprisingly, Tesla has attracted a record number of investors who oppose it, making it the best-selling inventory in the United States. But the unexpected thing here is the scale.
The dollar of all Tesla shares sold in short is close to $20 billion. No American action in history has been so short-circuited.
The scale of short promotions has put Tesla in danger of getting caught up in a brief tension of old proportions. And probably one was activated late last year.
Short dealerships buy Tesla stock en masse
On October 23, 2019, Tesla announced a successful quarter, surprising analysts expecting losses. Over the next two days, Tesla’s inventory increased by 31%, leading to a series of brief pressures to date.
Look at the table below (and look carefully, as it may be the maximum table in Tesla at this time). This shows how the amount of Tesla’s short-circuited inventories fell off the cliff as Tesla’s inventory roared up:
While Tesla’s inventory rose 340% last year, its short-term interest fell 3 times. That means short traders have been forced to buy tens of millions of Tesla inventories over the next year, and that played a role in Tesla’s historic rally.
You don’t want to paint on Wall Street to perceive this
The value of the actions depends on the source and demand. If there are more buyers than sellers, the percentage value increases. And vice versa.
So let’s take a look at the numbers. Short traders have been forced to buy about 38 million shares in the following year. This represents 20% of all Tesla shares available to the public.
Which is a lot, but in itself would raise the name to such levels. You want a much bigger demand.
Institutional investors are suspected in Tesla’s inventory offering. These are the market heavyweights: investment banks, pension funds, hedge funds, insurance companies. They manage billions of dollars and own 80% of the entire inventory market.
According to Fidelity data, in the fourth quarter of 2019, they earned 1.8 million net shares from Tesla. Meanwhile, short distributors got approximately 10 million shares, five times more than the largest customer on the market.
In the first quarter of 2020, when Tesla rose 400%, institutional investors were getting rid of Tesla’s stock en masse. They sold 4.4 million shares. Meanwhile, according to the Nasdaq, short traders bought another 10 million shares.
So if it’s not the short traders (by themselves) and the heavyweights that drive Tesla’s action on the moon, who is it?
Short dealers unleashed mania
And this:
In other words, a tsunami wave of individual investors is accumulating, further increasing inventory. The short dealers are left behind with their guard down. The short voltage chain continues to further raise Tesla’s value.
Once again, Tesla is in the headlines, fueling mania. Rinse and repeat.
But now that more and more short traders are being eliminated, Tesla’s tension would possibly come to an end. And without its biggest drive, Tesla’s inventory can also lose speed soon.
However, I would not yet call it the summit. Momentum is a hard force that can last longer than reason. Not to mention that Tesla will soon be added to the S-P 500, a catalyst that can boost inventory even further.
I have worked as an equity analyst and macro in several monetary houses, adding Mauldin Economics, RiskHedge, Hard Assets Alliance and Garret / Galland.
I have worked as an equity analyst and macro in several monetary houses, adding Mauldin Economics, RiskHedge, Hard Assets Alliance and Garret / Galland Research.
I was able to be informed about how to make an investment from some of the world’s most productive investors, including the most productive New York Times seller, John Mauldin and Jared Dillian, former ETF director of Lehman Brothers.
Today, I am a money editor and an active investor looking for investment opportunities that are overlooked. My research is presented at Yahoo Finance, Newsmax, Valuewalk and other leading monetary publications.