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Short Sellers Are Back – Flurry Of Big Calls From Muddy Waters, Citron And Others Raises Questions: Why Now?
Chris Katje
5 min read
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Investors have been hit with an increased amount of short reports from some of the most well-known names in the space, which could be due to high valuations for stocks or could be coming after the 2024 presidential election results.
What Happened: Over the past three months, big names in the short report space have taken on small and large companies claiming high valuations, accounting irregularities and other reasons that the stocks should trade lower.
Muddy Waters recently issued a short report on e.l.f. Beauty, which was the first report from the short seller in months.
Kerrisdale Capital recently issued a short report on Oklo, its first published report since June.
Hindenburg, who has been issuing short reports on a monthly basis was the talk of the investing world when they took on technology company Super Micro Computer (NASDAQ:SMCI), accusing the company of accounting, governance and compliance problems.
While the call was not popular at the time, given the company's soaring valuation, the stock is now down 28% over the last month after some of the alleged claims from Hindenburg were amplified with the resignation of the company's independent auditor.
Citron Research published an update on their Geo Group bullish case in September, the last post made on the company's website. However, the firm led by Andrew Left has been active on social media, with a post this week announcing the firm had shorted shares of the high-flying software company and Bitcoin (CRYPTO: BTC) holder MicroStrategy Inc (NASDAQ:MSTR).
The announcement of the short report by Left comes as the investor recently pleaded not guilty to fraud charges in July.
Along with the recent growth of short reports from the firms who hadn't published in awhile, there are also regular short reports coming monthly from Grizzly Research and bi-weekly reports from The Bear Cave.
Why It's Important: While short reports have been a regular fixture for investors for years, both from investors who are betting against the stocks themselves with their own short positions, newer reports from the likes of The Bear Cave by Edwin Dorsey come from an investor who claims to never take stakes in the companies he writes about.
Whether short reports are being done to make profit betting against the stock or to provide public information for investors to make their own decisions on investments, the big question is why the increase in reports over the last several months.
There's likely two big reasons why.
The first big reason for the increase could be because of the narrative that short sellers and short reports will be targeted by the new White House administration.
Muddy Waters' CEO Carson Block said Elon Musk and Donald Trump have both publicly criticized short sellers in the past.
"We've already had some rhetoric, we might have some more anti-short seller rhetoric," Block told Bloomberg.
Block said Republican-led administrations are often lighter on enforcement, but he's not sure if Trump will roll back regulations.
"It is a question as to who is going to head the SEC," Block added.
The comment comes as SEC Chairman Gary Gensler recently announced he will step down on Trump's inauguration day, ahead of the assumption that Trump was going to replace him with a new leader.
Trump Media & Technology Group (NASDAQ:DJT), which was co-founded by Trump, has targeted short sellers and alleged that naked short selling is the reason the stock has fallen in price several times.
Musk, who has often publicly criticized short sellers, recently said he wanted to "obliterate" short sellers.
The other reason for the increased short report volume could be due to stock market indexes trading near all-time highs and strong year-to-date gains.
The SPDR S&P 500 ETF Trust (NYSE:SPY), which tracks the S&P 500, is up 26.0% year-to-date. This return is currently the fourth best in the last 10 years and the ETF could still pass the returns of 26.2% (2023), 28.8% (2021) and 31.2% (2019) to move up the list.
