We had big plans for this week. We were going to unveil a comprehensive, point-for-point response to the hail of falsehoods recently fired in our direction. 

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Together, We The Investors (WTI) submitted more than 5,300 comment letters highlighting the need for a massive market overhaul and offering realistic reforms supported by academic evidence and real-world studies and pilots.

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In response, defenders of the status quo have released the hounds…and not just on us, mind you. Citadel and Virtu have worked diligently to discredit anybody who threatens their money funnel–SEC Chair Gary Gensler included.

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The other day, Virtu CEO Doug Cifu called us grifters. Congratulations, WTI–you are officially a threat. 

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Gaslighter Says What?

First of all, that’s awesome. It means they’re paying attention. Cifu took a moment from his day to hop on Twitter and tell us how little he thinks of us. In poker, we call this a tell. 

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But here’s the thing. When we sat down to compose a rebuttal to the counterarguments posed against our movement, we were frankly overwhelmed by the sheer depth of falsehood, distortion, and gaslighting. 

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In the absence of any credible retort, market makers have moved into the smear stage of their campaign. Obviously, you can smell what they’re smearing from a mile away.

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We concede, lying and ad hominem attacks are a better strategy than just blurting out how much you like generating billions in profits at the expense of everyday investors….which they have also done.

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(See Citadel CEO Ken Griffin’s 2019 comments to Bloomberg at the Milken Institute Global Conference in Beverly Hills, where he cheerfully explained, “I’ve seen the American Dream work out and I’ve seen the consequences of economic freedom play out for all of my colleagues.”)

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Big headline of the day—the 3rd richest hedge fund manager in the world is pro-capitalism.

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But I digress. If their plan is to throw a bunch of shit up on the wall and see what sticks, it’s our job to hose it down. However, it will take us a minute. This whole thing stinks like a Fyre Fest outhouse. 

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Rest assured we’re working on our response. It’s just more time consuming when you use actual facts grounded in a shared reality. Sit tight while we make something useful out of their compost heap.

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And in the meantime, we’re calling an audible. 

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You’re Not Wrong Walter, You’re Just an Asshole

Even as we blow through one smokescreen, this week’s headlines have been dominated by another. The recent collapse of three midsized banks—Silicon Valley Bank, Signature Bank and First Republic—qualify together as the biggest banking failures in the US since the 2008 financial crisis.

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After several years of microscopic interest rates, the Fed announced a sudden rise in interest rates at the end of 2022. Intended to dampen sharply rising consumer prices, it also sent a shock through the middle tiers of the banking system.

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Institutional investors smelled the blood in the water. They began betting hard against certain regional banks. Those of you who have had front row seats for the ongoing Gamestop saga know exactly what this means. 

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Institutional investors began aggressively short selling stocks for the most fragile banks. Kind of uncool, but totally legal.

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Now don’t get us wrong, We think short selling is an important element of free and fair markets. When a stock is overpriced, it’s healthy to be able to borrow shares from someone else and sell those to another investor. 

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You’re betting the stock will drop in price and you’ll be able to buy the shares back at a lower price, pocketing the difference. The other investor is betting the stock will increase in price. That’s a market.

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This is different from what are often referred to as “short and distort” campaigns. These manipulative campaigns target a company, take out large short positions (potentially in an “unscrupulous” way–we’ll get to that in a minute), then use social media, traditional media and regulatory whistleblower programs to spread false information about a company. 

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Then, when the stock drops as a result of this false information (or in the case of the banks above, the stock drop kicks off deposit flight, which results in further stock price drop, creating a feedback loop that ends up with JP Morgan getting bigger as they acquire the failed bank), you can buy back everything at a massive profit. 

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Ideally, you would succeed in doing this before you are required to return those borrowed securities to the broker-dealer along with interest and commissions. That way, you make a bunch of money, the broker-dealer makes a bunch of money, the company tanks, and everyday investors lose money. 

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Pretty killer racket, right? Well, it can also be a risky strategy. Institutional investors found this out the hard way when the Apes spiked the Gamestop punchbowl on Reddit. 

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For a few days, the pit bosses lost control of the casino. They lost a lot of bets all at once. So what do you do?

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You hire a cooler, of course.

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Short People Got No Reason…

Let’s say you’re used to running the casino, but then a whole bunch of players get together, talk it out, and come up with all kinds of clever ways to beat the house.

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As you will recall, the Gamestop run actually forced them to shut the house down. But we’ve entered a different stage. Now, the house is crawling with plants—coolers wandering around the tables whispering sweet little lies into your ear–“Don’t play those cards. Those cards suck. Cut your losses and fold.”

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In a casino, that would be considered a dick move. 

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In options, derivatives, and short-sales, that would be considered market manipulation.

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Goddamn the Pusherman

Banks like Silicon Valley were already strained. The interest rate hike combined with a slowdown in the tech industry. On March 10th, these events converged with an anxiety-induced bank run. 

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Still, the California Department of Financial Protection and Innovation claims that the institution was financially stable in the moments leading right up to that wave of catastrophic withdrawals. They also note that the bank was increasingly targeted by short-sellers as the new year wore on. The collapse of Signature Bank in New York followed immediately thereafter. Then, in April, First Republic Bank became the third U.S. mid-sized lender to collapse in the space of two months. 

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Analytics firms estimate that short-sellers enjoyed $378.9 million in paper profits by betting against the regional banks.

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So what’s happening? Are these smaller dominos a warning of a coming cascade? Or is somebody out there pulling the strings at our expense? Perhaps a bit of both?

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I’m guessing you know the answer. JPMorgan CEO Jamie Dimon knows the answer. 

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Dimon appeared on Bloomberg on May 11th and argued that regulators should ban short-selling on bank stocks. “My folks tell me,” said Dimon, “...if you actually analyze stocks and short sales it’s not that big a deal. I think they may partially be wrong, because as you know some people are unscrupulous, and they use other means to go short…”

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What does that mean?

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It means the sky isn’t necessarily falling, but it pays good money to pretend it is. 

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It’s entirely possible (read: likely) that short-sellers are dispatching third party groups to spread falsehood, disinformation, and damning internal narratives about targeted stocks through various online channels. It’s possible…just maybe, that social media is being used to proliferate unchecked disinformation.

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Can you imagine?

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Asked whether there were those colluding on social media to drive down stock prices, Dimon noted, “it’s possible that’s taking place.”

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As the old saying goes, a lie travels halfway around the world before the truth can get out the door. That’s plenty of time to turn a profit on a short sale. 

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We See You…

But we could be seeing you a whole lot better.

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Jamie Dimon concedes that it’s difficult to prove these claims. But of course, that is by design. Greater transparency is needed. At the very least, Dimon concludes, we shouldn’t assume it’s not happening. 

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Last week, the American Bankers Association urged federal regulators to investigate the sudden surge of short sales on publicly traded banking equities. The Association described the short sales and the resulting stock price failures as "disconnected from the underlying financial realities.”

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Dimon echoed this call, noting that the SEC should take a look behind the curtain. 

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The big takeaway here—we simply don’t have enough visibility into short selling. We can’t know the possible extent of abusive short-selling practices, especially in light of recent banking failures. 

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For some reason, we’re not willing to trust this one to the honor system. 

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