00:00In the early days of Tesla, in the first four days after IPO to gain 50%, and I remember there
00:05was this conversation of why would you short this thing? Because it is having this spectacular rise
00:10and maybe it could be really painful. Just how much has that conversation flipped now?
00:14Well, zero is the biggest number in business, right? So if you're not losing money,
00:19short sellers will leave the scene. But the dream of SpaceX is really an American dream.
00:25It really is. I mean, you think about it like zero gravity FDA tests, no energy data centers.
00:33I mean, it's an amazing thing. If you think about the budget of SpaceX, what government agency
00:39actually has more money to spend? Like the Pentagon? This is a massive thing. It actually
00:46is government work that has been privatized. So the bet is, once again, just like Tesla,
00:51they will run out of money before all these dreams come true. That's what's happening.
00:57But is it a quarter by quarter thing? I mean, we don't know what they're going to announce. We
01:02don't know what they're going to say. We just know that they've given us the idea that profitability
01:06is way out there. So how do you put a timeframe on that?
01:11You don't. I don't think this is a quarter by quarter story. It's a multi-year, maybe even
01:15multi-decade story that has a hundred billion dollars to spend. That's a lot of money.
01:21Now, short sellers have piled into this trade because it is the frothiest trade that there's
01:27been. There's never been a trade like this where you have no earnings. You have the ability
01:36to actually execute on SpaceX and Starlink and all these different things. But they don't
01:43have any competition either. Like, what is Amazon doing in this space? Not a lot, right?
01:46So the short sellers are just saying, this is just overdone. We're going to make a big
01:52bet. And it's worked because they're up about $8 billion.
01:55Bob, we have a viewer writing in who wants to know just how much is hedged with those early
02:00investors locking up, considering we're getting more supply coming to this market this week.
02:03Well, the question is how much of that early supply gets unlocked. And that's unclear, right?
02:08So like Ron Behrens on record is saying, I'm not going to sell. And a lot of other people
02:12doing the same thing. So I think measuring that overhang is very tricky, right? But like
02:18some of the other tech names, there is hedging against the debt that they issued. And that's
02:23part of it. But overwhelmingly, this is a directional bet.
02:27What is it going to take to move the stock at this point?
02:30So we think that the average stock price that short sellers actually initiated the position
02:34is $150. I think this morning was at $118, I think the last time I looked. So you'd have
02:40to have something pretty big to move that security 20% to go break even. So the number one rule
02:47is,
02:48if short sellers are making money, they're not going to cave in their positions. They're going
02:51to hang in there because it's working.
02:53What about like a Tesla merger?
02:56That would do it.
02:58You know, that would do it.
02:59The drop off in Tesla shorts, do you think some of it might be because of this expected
03:04merger? Have people backed off of their bearish positioning?
03:06It's a great point because one of the things that we mentioned in our report is that the amount
03:12of shorting in just as a percentage of float, also in nominal terms, is larger than Tesla. It's
03:19actually, as a percentage of float, the largest in the Mag 7. Not as large in nominal terms as
03:26NVIDIA. But yeah, it's a massive position. It's only what, you know, 60 days old, not even.
03:32So over a very, very short period of time, you've seen this massive buildup in the position.
03:37And that's, I think, people understand the transference of wealth that happened between
03:42retail and the institutional investor, and they're shorting into that.
03:46Speaking of the institutional investor, the thing that seemed to be dominating the market
03:50narrative last week, and maybe for longer than we realized, was situational awareness.
03:54The hedge fund run by the 24-year-old that had to unwind, got margin called. Griffin comes to
03:58save the day. I know that you've been looking through some of the positioning, and I wonder
04:02with hindsight, if there was an element of people looking at this fund, saying something is going
04:07on here, and starting to short the stocks that he owned, and if that exacerbated some of the market
04:12sell-off we saw in the recent month.
04:14Yeah, he wrote a letter saying, basically, I don't know exactly how he phrased it, because there's
04:18predatory trading, or there's aggressive trading. He didn't come out and say short selling,
04:22but that's what he meant. Let's be clear. You have super concentrated positions and super crowded
04:29positions that are super levered, that are super volatile. Wow, nothing can go wrong there.
04:37You know, I mean, it was like a poster child for just Froth, and he got caught up in the
04:43middle of
04:44it. And you can see that, actually, a lot of the names that he was long have convertible bonds
04:50associated with it. So, 30 to 40 percent of the shorting in those names were actually hedging
04:56on converts. They were actually playing volatility. They weren't actually saying, we hate this
04:59company. They were just playing the volatility in the stock, and obviously, a lot of those
05:02stocks were very volatile, so it was a profitable trade. In the neocloud space, that is where
05:07things turn bearish. So, IREN, CoreWeave, et cetera, those holdings, actually, you saw those
05:16convert positions, cover their short, and actually go directionally short against the companies.
05:21Now, on Thursday, we get the end of the lockup, and there are predictions that a lot of people
05:27are going to want to try to make some money, but the stock's way down. What are you expecting
05:31on that? And there is also a theory that the shorts are going to have to buy the stocks back
05:37at some point. So, that's going to raise the price for a lot of these people.
05:41The question is, at what price? And so, sure, that's the great thing about shorting, is that
05:47there is a buyback mechanism embedded into the product, into the strategy. But when that'll
05:55happen, that is so idiosyncratic and dependent upon each portfolio, it's almost impossible to
06:02predict.
06:02So, for now, as we await what SpaceX brings us and what the reaction will be, we're starting
06:07to see this rebound overall in markets. And I wonder if there is something of a positioning
06:11watchout, post-situational awareness, post some of the leveraged ETFs, and what you're
06:16seeing, whether it does suggest maybe we've kind of backed off the most extreme position
06:19that we were on before.
06:20So, we've been watching the hedge fund long positions and also active long positions in
06:25a different market because we think there's a parallel to what we're going through right
06:28now, which is the KOSPI versus Hong Kong, the Hang Seng Index. And so, before, about a
06:34month ago, you saw longs in the KOSPI in South Korea, which is basically dominated by two
06:39stocks, Samsung and Hinex, obviously, memory chip dominated. You just saw longs accelerating
06:46at a massively faster rate than short positions. And you saw the exact opposite happening in
06:51Hong Kong. You saw short positions accelerating massively faster than long. Now, you've had
06:56them cross. You see that the long positions in Hong Kong are actually accelerating way faster
07:02than short positions and the vice versa in South Korea. So, it's actually, these spreads have
07:07actually crossed one another. You could see the similar type of thing. So, in other words,
07:11a big rotation from where we are today to something else.
07:15Well, to go back to Danny's question, are we losing the froth now and not any, to mix metaphors,
07:23muscle?
07:23Well, if the S&P makes $400 and you put a 20 multiple to that, that's $8,000. Does that
07:30sound
07:30crazy to anybody? I don't think so.
07:34I think that some of the more bullish estimates on this S&P are way above that anyway.
07:39Exactly. So, I just think 20 times, $400, companies are making money, let it ride.
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