In the ‘Reddit vs Wall Street’ battle, Muddy Waters sees a smokescreen of internecine warfare between hedge funds
- To Muddy Waters Capital’s Carson Block, the parabolic moves look less like the product of Reddit-driven retail orders than a short squeeze by hedge funds targeting other hedge funds
- The list of casualties in that fight is growing from the severely wounded, such as Melvin Capital Management and Maplelane Capital, to include funds run by firms ranging from David Einhorn’s Greenlight Capital to Renaissance Technologies
Carson Block, the activist short-seller famous for targeting Chinese frauds, recognises familiar behaviour in the rally of shares such as GameStop. To him, the parabolic moves look less like the product of Reddit-driven retail orders than a short squeeze by hedge funds targeting other hedge funds.
“I’ve wondered, is there coordination with these hedge funds?” Block said in an interview on Bloomberg Television. “What constitutes coordination? Did they cross the line? That could be interesting.”
For the moment, it’s an unproven theory. But if Block is right, what seemed like a history-making retail uprising last week was just as much a convenient smokescreen for internecine hedge-fund warfare.
The list of casualties in that fight is growing from the severely wounded, such as Melvin Capital Management and Maplelane Capital, to include funds run by firms ranging from David Einhorn’s Greenlight Capital to Renaissance Technologies.
What’s not clear yet is who profited on the other side. Block said his firm, Muddy Waters Capital, was the victim of what he thinks was a short squeeze by hedge funds in shares of GSX Techedu in the weeks leading up to the GameStop frenzy.
As a result of that and similar situations, he had to hire a full-time trader to monitor the stock-options markets and adjust positions to more actively manage risk.
