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Looking at how the Fed could respond to the new reality of 'instant inflation' from the tariffs, they obviously don't want to be forced to raise % rates. Instead, since the economy and stock market have been relatively strong, the Fed could benefit from a lower stock market, to reduce the 'wealth effect' and cool off the economy and inflation.
Anyway, that could be the 'least bad' strategy for the Fed. The inflationary effect of these tariffs should show up almost immediately, but raising % rates for any length of time will worsen the debt problem. So they let the stock market drop instead, and achieve a similar result as higher % rates would produce, but without worsening the already rapid accumulation of debt.
With this strategy, while they want a lower stock market, they need to avoid a mega crash that would require a return to ZIRP, etc. The Fed must avoid that, so if the stock market decline gets out of hand, they periodically step in with the PPT. So this is one approach the fed could take. The stock market will be dropping anyway due to the tariff bombshell, so just engineer the drop over an extended period of time, and use the PPT as needed to prevent a panic / crash. The goal would be to get into a market correction (10% drop), but probably not as far as a bear market (20% drop).
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>>> Pension disaster: Hedge funds bet on US stock market crash amid 'Trump uncertainty' in blow to savings
GB News (UK)
by Patrick O'Donnell
2-1-25
https://www.msn.com/en-us/money/markets/pension-disaster-hedge-funds-bet-on-us-stock-market-crash-amid-trump-uncertainty-in-blow-to-savings/ar-AA1yetde?cvid=a2c41f4c814a47679c8c0ee60ea74c98&ei=70
Hedge funds are making unprecedented multi-billion-dollar bets against the US stock market, signalling expectations of a devastating crash that could wreak havoc on retirement savings across America.
The dramatic shift marks a stark reversal from just two months ago, when Wall Street billionaires were enthusiastically backing so-called "Trump trades" following the President's election victory.
Data from Goldman Sachs has sent shockwaves through financial circles, revealing hedge funds are now positioning themselves for what they believe could be a precipitous market decline.
Analysts are sounding the alarm that this move threatens to impact millions of workers who rely on 401(k)s and pension funds to secure their futures. Throughout January, investors placed ten times more bets on American stocks falling than rising, according to Goldman Sachs data.
The timing coincides with a massive £600 billion wipeout in major US tech stocks earlier this week. The pessimistic outlook represents a significant shift in market sentiment, with hedge funds now actively betting against the very economy they once championed.
Elliott Management, one of the world's most influential hedge funds managing over £70billion in assets, has warned that Trump's policies are fuelling speculative bubbles.
The fund's executives believe these bubbles could "wreak havoc" if markets crash, according to the Financial Times. The massive sell-off has particularly impacted the "Magnificent Seven" tech giants - Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla - which have all suffered substantial losses.
The market turmoil was triggered by rising fears over Chinese AI rival DeepSeek, which has disrupted the once-unshakeable dominance of America's technology sector.
Chipmaker Nvidia has been hit especially hard, with its shares plunging more than 18 per cent in the past five days. The company lost a staggering £589billion in value on Monday alone, highlighting the scale of investor concerns over increased competition from Chinese AI firms.
The dramatic reversal comes after hedge funds had previously positioned themselves to capitalise on what they predicted would be a golden era for corporate America under Trump.
Following his election victory, optimism around Trump's aggressive tax cuts, tariffs and deregulation policies drove unprecedented investment into hedge funds. The sector's assets reached a record £4.5trillion as fund managers expressed confidence that Trump's return to power would usher in a stock market boom.
Wall Street billionaires had been among Trump's strongest backers, viewing his presidency as key to unlocking corporate America's full potential. The recent shift in sentiment now threatens to undermine that previously bullish outlook.
Financial experts have raised serious concerns about the market outlook amid the dramatic shift in hedge fund positioning.
"The increase in short bets against U.S. stocks likely reflects concerns about macroeconomic uncertainty," warned Bruno Schneller, managing partner at Erlen Capital Management, speaking to the Daily Telegraph.
UBS analysts have echoed these worries, with Karim Cherif, head of alternative investments, stating: "As the new year unfolds, uncertainties persist regarding Trump's policies, the global economic trajectory, and central bank actions."
The potential fallout from hedge funds' massive short positions could devastate everyday Americans' retirement savings.
Millions of workers relying on 401(k)s and pension funds may find themselves vulnerable if a market collapse materialises. The situation has raised alarm bells on Capitol Hill, with growing concerns about the impact on household savings across America.
Trump's response to Wall Street's apparent disloyalty could prove significant, as his allies have already warned of a potential crackdown on financial sector excesses.
The 47th President has historically shown little tolerance for perceived disloyalty, and the latest short-selling frenzy may push him to take action against financial elites who appear to be betting against America's economic success.
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>>> Short-selling firm Hindenburg Research is closing up shop
Yahoo Finance
by Myles Udland
January 15, 2025
https://finance.yahoo.com/news/short-selling-firm-hindenburg-research-is-closing-up-shop-221608915.html
Short-selling firm Hindenburg Research, which rose to national prominence uncovering fraud at EV startup Nikola (NKLA), said Wednesday it would wind down its operations.
"As I’ve shared with family, friends and our team since late last year, I have made the decision to disband Hindenburg Research," founder Nate Anderson wrote in a post on Wednesday. "The plan has been to wind up after we finished the pipeline of ideas we were working on. And as of the last Ponzi cases we just completed and are sharing with regulators, that day is today."
In 2024, Hindenburg uncovered what it said were accounting irregularities at data center company Super Micro Computer (SMCI), which was subsequently forced to delay the filing of some financial statements.
NEW YORK, NY - JANUARY 6: Nate Anderson on January 6, 2023 in New York, New York. Anderson exposes corporate fraud and ponzi schemes through his company Hindenburg Research.
Hindenburg's 2023 reports on Indian conglomerate Adani and Icahn Enterprises both saw the company take on two of the world's most powerful investors.
Hindenburg's biggest report broke in 2020, when the firm revealed failings at EV truck startup Nikola, including uncovering that the company infamously rolled a prototype of its electric semi-truck downhill.
Nikola founder and CEO Trevor Milton was later sentenced to four years in prison after being found guilty of misleading investors.
In 2019, Hindenburg said that online orthodontics startup SmileDirectClub was "carelessly cutting corners in a field of specialized medicine, putting customer safety at risk." The company went out of business in late 2023.
Hindenburg's first report was published in 2017. In his note on Wednesday, Anderson said he plans to release "materials and videos to open-source every aspect of our model and how we conduct our investigations."
"My hope is that after we fully share our process, in a couple years I will get an unsolicited message from someone who reads this (maybe you), who embraces the same passion, learns the craft, and finds the confidence to shed some light on a subject that needs it, despite the obstacles in your way," Anderson wrote.
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Re-post - >>> A long explanation of how shorting really works....
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=173922473
>>> A long explanation of how shorting really works....
https://www.securitieslawyer101.com/2023/what-short-selling-is-and-isnt/
>>> Short Selling: What It Is, and What It Isn’t
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Short Selling
Short selling, the practice of betting a stock will go down, not up, has been controversial since it was invented more than 400 years ago in the Netherlands. In the early 1600s, there was only one stock in Holland, or anywhere else. It was the Dutch East India Company, or VOC (Verenigde Oostindische Compagnie). Formed on March 20, 1602, it enjoyed a 21-year monopoly on trading in Asia granted by the Dutch government. Shares in the company could be purchased by any resident of the Netherlands, and then bought and sold in outdoor secondary markets. The company was extremely powerful, possessing quasi-governmental powers, but successful trading depended on many things: well-built ships, competent captains and efficient crews, good weather, peaceful trading partners, and so on. Insurance existed at the time and offered protection, but a few real disasters could cause the VOC’s stock price to plummet.
Short selling was invented by Isaac le Maire. He’d been one of the founders of the VOC in 1602 and served as a director for three years. In 1605, he was sacked amid accusations of fraud and embezzlement. He wasn’t imprisoned but was forced to sign a non-compete agreement, pledging not to become involved with companies of any nationality that traded beyond the Cape of Good Hope or the Strait of Magellan. He was cut off from involvement in the Asia trade, the business he loved and knew best.
He tried to start a rival company in France but without success. He then took a different approach. Like a modern activist investor, he wrote a long letter to the chairman of the VOC’s board of directors, pointing out what he saw as problems that were hurting the company’s profitability. One of his biggest concerns was a lack of transparency on the part of the board. Shareholders were given only scant information about the VOC’s performance. Board members were enriching themselves at the shareholders’ expense. The directors were unmoved by Le Maire’s letter, which demanded an audit and a new charter, and formally rejected it a month later. He needed a better plan.
And he found one: in 1609, he and some associates created the Groote Compagnie (Great Company) with the intention of bringing down the VOC. Le Maire used Groote Companie, financed by himself and his partners, to commence speculation by short-selling through forward contracts. (A forward contract is a customized contract to buy or sell an asset at a specified price at a future date. It can be used for hedging or speculation.) He and his men also spread false rumors of disaster on the high seas, and, with a government bookkeeper as their collaborator, they committed fraud by altering the shareholder register.
The first bear raids were effective but did not achieve the desired results. A dividend was distributed to shareholders, but they were still unhappy because it drove the stock price down. Dutch officials banned what is today called “naked” shorting—selling stock without first obtaining a borrow—but short selling itself remained legal. Le Maire and his friends had, alas, been shorting naked, and the ban on the practice ruined them. Le Maire himself left Amsterdam and died in poverty. Activist shareholders who didn’t stoop to fraud continued to protest the VOC’s high-handed treatment of them, and in 1623, succeeded in forcing the board to consent to a new company charter.
What’s Changed in Short Selling?
A little more than 400 years have passed since Le Maire’s pioneering bear raid. During that time, short selling has almost always been legal in the major financial markets. Retail investors have sometimes objected, fearing that it harms their prospects for long-term gain, but it’s generally agreed that shorting stocks is healthy for the public markets. In a bull market, it helps burst potentially dangerous speculative bubbles; in a bear market, shorts buying to cover can stop or at least slow a strong downtrend.
In 2008, when the U.S. markets cratered frighteningly, regulators banned the short selling of financial stocks following the collapse of Lehman Brothers. Most observers thought the ban, which was always intended to be temporary, was a good idea. But by Christmas Eve 2008, Christopher Cox, then SEC Chair, had doubts. “While the actual effects of this temporary action will not be fully understood for many more months, if not years, knowing what we know now, I believe on balance the commission would not do it again,” he told a Reuters reporter. His chief concern was the damage that had been done to liquidity. It was not Cox’s fault; he’d been subjected to a great deal of pressure from the Federal Reserve and the Treasury Department.
Once the crisis was over, the Federal Reserve Bank of New York commissioned a study called “Market Declines: What Is Accomplished by Banning Short-Selling?” Its authors noted in conclusion that “A statistical exercise conducted to determine the relationship between short-selling and stock returns finds that the two variables are minimally correlated.” In 2011, when some European markets temporarily banned shorting, the Brookings Institute weighed in on the subject:
Trying to prevent stock prices from falling, the U.S. banned short selling of financial stocks in September 2008. However, the prices of these stocks continued to fall, and the ban was lifted before it was due to end.
During its short life, the ban precluded institutional investors from engaging in legitimate hedging activities in financial stocks. For example, a long-time holder of a high-dividend stock could not short it to protect against price declines while continuing to receive its dividends.
Despite these and other accounts of lessons learned, many retail investors dislike the idea of shorting. Some even say they feel it’s “un-American,” which makes no sense. But regardless of their sentiments, shorting is here to stay. Given that, it’s best to be informed.
How Does Naked Shorting Work?
Obviously, the point of a short trade is the same as the point of any trade: to make money. Naked shorting, engaged in by Isaac de Maire so long ago, is, for the most part, forbidden by the SEC here in the United States. There is one major exception. Market makers are allowed to short naked in their role as middlemen to provide liquidity.
As an example, if Party A wants to buy 1,000 shares of Stock ABCD, he will submit an order to his broker. The broker will fill the order immediately. If he doesn’t have the stock in inventory—and most market makers don’t keep much inventory on hand—he’ll short naked to fill the order. So he’ll be short 1,000 shares of ABCD. Normally, that’s all in a day’s work; usually, within seconds or minutes, another client will appear, wanting to sell some ABCD. The market maker will buy his stock and will no longer be short. He’ll execute similar transactions throughout the day. While most of them will settle quickly, some may not. Under current market regulations, settlement is fixed at “T(rade)+2 (days). Trades that still haven’t settled by then will be considered “failures to deliver” or “fails.” Market makers and brokers have differing deadlines for delivery depending on the circumstances of the failure. Most do not normally encounter delivery problems, even if they’ve shorted naked a great many times during the trading session.
How Does Shorting Stock for Retail Players Work?
How, then, does shorting work for retail players? Let’s say Party A is feeling more adventurous and decides to short XYZZ, a stock he believes will take a beating when its annual report appears in a few days. He submits an order to sell 1,000 shares short. His broker fills it, obtaining a borrow from the account of a client of the brokerage who is long XYZZ. (The stock of any client who has a margin account can be borrowed. The broker does not have to ask permission. Clients who don’t want that to happen should have cash accounts, from which no stock can be borrowed.) Party A must have adequate collateral in his account to allow for the possibility that the stock may go up. The SEC’s Regulation T requires the client to have at least 150 percent of the value of the position at the time the short is created in his account. If the stock rises enough to exceed that amount, and the client doesn’t have that much in his account, he’ll have to add cash, sell other positions, or buy to cover his short. If that does not happen, Party A is free to keep his position for as long as he likes, but he’ll find himself paying a daily stock borrow fee for the privilege. He will, of course, have sold his position as soon as it was delivered to him, but will not have use of the funds realized from the sale until the position is closed.
Shorting is extremely risky, and not as profitable as hitting that elusive 10-bagger with a long position. The greatest profit a short can enjoy from a single position is 100 percent, minus fees. But should the stock he’s chosen skyrocket rather than tank, he’ll have to absorb the entire cost. He would then be caught in a classic short squeeze, praying to find a way out before he’s driven to bankruptcy. Theoretically, at least. In real life, his broker or clearing firm will probably buy him in before that happens.
Shorts, like longs, have price targets. When XYZZ has dropped enough to reach Party A’s target, he’ll order his broker to buy to cover. That accomplished, he can use his profit as he sees fit. Retail shareholders cannot short naked because no one will allow them to do so. Occasionally, a case of genuine intentional naked shorting appears among the SEC’s enforcement actions. A recent one that’s received a good deal of attention involves Hal D. Mintz and his firm, Sabby Management LLC, which managed two private funds. Sabby mismarked tickets for short sales, saying they were long sales. By selling without borrowing stock, the firm was unable to make delivery. In addition:
The SEC’s complaint further alleges that Sabby Management and Mintz tried to conceal their fraudulent trading, including by using securities acquired after the trades to make it appear to brokers executing the trades that they had complied with the requirement to have borrowed or located the shares prior to their trades. As the complaint alleges, when questioned by at least one broker regarding their trading, Sabby Management and Mintz repeatedly lied about the trading.
In the end, Hal D. Mintz profited to the tune of about $2 million, but he’ll be giving up more than that in penalties and disgorgement.
Brokerages keep an “easy to borrow” list and a “hard to borrow” list. Both are updated daily. Not much explanation is necessary, though we’ll add that hard-to-borrow stocks are likely also to be more expensive to borrow. The most important thing anyone thinking of shorting stocks, or even anyone watching what he believes are shorts dragging down the price of “his” stock, must bear in mind is that in the markets, no one accepts risk for anyone else. You’re on your own. No one will cut you a break on your daily fees, or hold back on a buy-in just because you’re a nice person. Contrary to the beliefs of some, trading is not a team sport.
The Department of Justice Investigates Short Selling
A couple of years ago, rumors began circulating about an investigation of professional short sellers. The backstory is unusual. It seems to have begun with a young lawyer with a Ph.D. in finance called Joshua Mitts, who teaches at Columbia University. Reuters explained a bit mysteriously that “[t]he 36-year-old securities law specialist has become an increasingly influential figure in the hot debate over activist short selling since publishing a 2018 analysis of trading data that suggested some players