| Author | Source |
|---|---|
| u/Vipper_of_Vip99 |
Queue the Total Recall memes…this is big.
Let’s dig in. So lots of talk in the DD’s recently on how this whole situation may have been a big trap that Black Rock set for the Hedge Funds and Citadel. Simple logic really, story goes like this:
Black Rock is an historically a long-positioned asset manager.
2015-2019 Black Rock sees Hedge Funds short brick and mortar retail to bankruptcy….”hmmm what can we do about this? this is damaging our assets? Is this an opportunity for us?” spoiler alert: yes!
2020 COVID 19 hits, Citadel and HF’s go into a feeding frenzy with shorts.
Black Rock….”let’s try something….loan the hell out of our shares to these bastards”. BR proceeds to suck up millions of shares at a bargain - and keeps loaning them out, like giving line to a fish that you already hooked.
Black Rock: “the HF’s are playing right into our hands! Wouldn’t it be a shame if a millennial became the Chairman and CEO of a company that is historically loved by millennials?” I wouldn’t even be surprised if BR was doing some demographics analysis on US REDDITORS, especially WSB in fall 2020, to see what the mood on RC was back in 2020. They discovered we grew up buying games at GME. They discovered we hate hedge funds just as much as them. They discovered RC would be the perfect thing to turn around their beloved GME asset.
HF Shorts double down, except they add to their firepower not only the lent-out shares from long positions, but also borrowing shares from Brokers will dumb retail on margin (cough cough RH cough cough). Of course, Vlad and RH are Citadel’s puppets. Probably didn’t even realize they were being used by Citadel.
Citadel uses PFOF from select retail investors to simulate/model (on a probability basis) the behavior of ALL retail. Even 10 or 20% of retail PFOF data would be enough for them to simulate and extrapolate this data to ALL retail. They know your hand, they keep pumping it down.
Retail and Reddit smell something is up and jump on the stock (although we didn’t quite understand the full picture yet)
BlackRock: “oh shit…retail turned this play from a savvy asset management move to a powderkeg - retail is vacuuming up all the short sold shares, uh oh we didn’t plan to do this...this could get ugly...we created a monster…”
That brings us to today. Fundamentally, what was Black Rock’s play here? Why would they loan out shares for a small borrow fee, so that the price of their own assets could be driven into the ground? Obviously Black Rock was burned on a couple brick and mortar bankruptcies pre-COVID. Obviously they would be looking for a way to stick it to the shorters, and they found it.
So how do you combat a short seller? I wrote a piece on the fundamental market transactions that you can perform with an asset (like a share) in a market. Read up on it here:
TLDR; I conclude that SHORT SELLING has no known inverse market transaction. BUYING is the natural inverse to SELLING. CALLS are the natural inverse to PUTS (for the derivatives market - see link above). So what is the inverse to SHORT SELLING? Long selling? Short Buying? ….never heard of those terms, I don’t think so.
Then it hit me and I think my brain gained a wrinkle…..
RECALLING LENT-OUT SHARES IS THE INVERSE MARKET TRANSACTION TO SHORT-SELLLING!!!!
This is why I think BlackRock will recall their shares. Additional considerations below but first, let me summarize why a share recall is the market inverse of short selling:
Selling short means you borrow a share from a share owner for a fee (borrow rate). You then sell that share on the market. Thus, the shorter effectively has two IOU’s, 1) to deliver the share back to the lender, and 2) to deliver a share to the person they sold it to.
This creates a synthetic induced supply of shares. The lender thinks they own a share (they do) and the person who bought the share from the short seller thinks they own a share (they do) - BUT THERE IS ONLY ONE SHARE.
Thus, the market responds to the additional share supply pressure by dropping the price. Simple law of supply and demand.
if every market transaction has a yin and yang, what is the ying to short seller’s yang? Well, if short selling creates a synthetic induced supply of the underlying asset, you need a transaction that creates a SYNTHETIC INDUCED DEMAND. What is that transaction? TOTAL RECALL. Let me explain:
When you recall a share, you create synthetic induced demand because it forces the short seller to find a share and cover. If one share one lent and re-lent many many times, recalling that share reverses (literal UNO reverse card) all those short sell transactions that flooded the market with synthetic supply. The recall forces those transactions to be covered. So recalling ONE share forces a synthetic demand to hit the market to close every short position represented by that share. The natural inverse of the short sell. See my post linked above for a more detailed discussion. EDIT this comment may require additional analysis by others to confirm. I’m open to feedback on this piece. Regardless if it collapses a single synthetic supply, or multiple, still needs more analysis, as rightly pointed out by u/Galbert123. Nonetheless I think the following still holds, as a recall could be a possible catalyst for the MOASS. DO NOT SET A DATE.
WHAT THIS MEANS and MY PREDICTIONS (not financial advice)
NOBODY should give BlackRock a hard time for this fundamental market transaction: share recall. This is 100% the short sellers fault. Recalling a lent out share is a fundamental right of a shareholder (Edit - subject to the terms of the contractual agreement between lender and borrower, but c’mon there is always a termination clause).
Black Rock always planned to recall this month. All the cryptic tweets point to this.
Reddit smelled what was going on and jumped on this. HF’s doubled down. Turned this smart investment play by Black Rock into a market-threatening powderkeg.
Upon realizing the powderkeg this play turned into, Black Rock told the DTC to get their ducks in a row and prepare for the nuke to drop. DTC said ok and instituted new rules. Black Rock keeps the borrow rate low and price in check while the ramparts are shored up. (remember, they are long on many other positions and down want this nuke to blow up in their face).
Black Rock increases their cash reserves waiting to pounce on the inevitable market dip while they cannibalize Citadel and the HF’s corpses.
The HF’s are in such a hole that either the share recall will trigger the MOASS, or margin-called hedgies trigger it (when high borrow rates hit). Either way it is a massive chain of collateral dominos that are about to fall and will crush the HF’s and Citadel.
Is Black Rock our friend? Well, they might be right now. But should we be worried when the MOASS turns them into one of the most powerful financial entities on the planet? Ya maybe we should be a bit worried. They are no angel either.
Black Rock wants to trigger it by doing the share recall. Waiting for borrow fees to rise and panic-margin calling to set this thing off is NOT how they want to play it. They want to know when and exactly how this will play out, and they want to be in full control to capitalize on the fallout. There is too much risk in just letting this go on too long.
TLDR;Â share recall is the fundamental inverse market transaction to a short-sell. Black Rock laid a trap and is about to unload on the shortsellers. Get ready for a big correction.
Not financial advice this is all opinion and hypothetical.
*Edit - changed flair to opinion as rightly pointed out by many. This is not intended to set a date. Squeeze could be triggered multiple ways, this is just a narrative that attempts to connect the dots.
