Neither Moxreports.com nor Richard Pearson is a registered investment, legal or tax advisor or a broker/dealer. This can be caused by anything: positive revenue reports, a new acquisition or a new product line. The short squeeze was so intense that Volkswagen … "Zynga Reports Second Quarter 2012 Financial Results." 14, 2020. This news triggered a two day short squeeze that saw the price climb from about €200 to above €1,000. Readers are encouraged to conduct their own analysis before making any investment based on such reader’s personal circumstances. Volkswagen Infinity Squeeze. My Guess. At the time of Wiedeking’s contract in 1993, Porsche was losing $150 million per year. As a reminder, up until 2008, General Motors had been the largest automaker in the world for more than 70 years and had over 200,000 employees. But one thing that hedge funds didn't hedge against in the GameStop case are thousands of small traders on Reddit who had noticed a number of stocks being shorted by hedge funds that had been essentially preying on troubled companies during a recession. The squeeze itself happened in late 2008. There seemed to be little risk of Porsche having any realistic ability to corner the market on its much larger rival VW. Even before the crisis, heavily indebted VW had already been struggling financially, and in the midst of a crisis, demand for new cars would surely plummet. German carmaker Volkswagen was embroiled in “the mother of all short squeezes” in October 2008 when its share price quintupled in two days, briefly making it the world’s most valuable company. Market Insider is a business news aggregator for traders and investors that proposes to you the latest financial markets news, top stories headlines and trading analysis on stock market, currencies (Forex), cryptocurrency, commodities futures, ETFs … The market places zero value on any post dated “I Told You So”. Looking at the above, it is clear that heading into October of 2008, around 55% of VW shares were already unavailable in the market for any realistic purposes. He was then “pushed out” of Porsche in 2009, but was given an additional bonus of €50 million on his way out. The October 2008 short squeeze on shares of Volkswagen AG has since been referred to as the “Mother of all Squeezes”. TradingView . This morning Volkswagen (VOW) was worth more than Exxon Mobile (XOM) as common shares rocketed up as much as 93% on a short squeeze. This can drive the market price of the stock down, and at that point the hedge funds would buy the stock back for less money, keeping the difference minus any fees paid to those who they've borrowed it from. Comments are always welcome. GameStop, a mall-based video game store suffering from both reduced foot traffic and the growth of online games during the pandemic, was seeing its stock decline due to these natural market conditions. By that time VW became the most valuable automaker on the planet thanks to its stock price having skyrocketed, while the short … Of Porsche’s €5.86 billion in pre-tax profits in 2007, €3.6 billion was from options trading, with only €1.05 billion from selling cars. The rapid share price movement is a result of a ‘short squeeze’, where short sellers are forced to buy the stock in order to cover their short positions, which in turn has forced the stock higher and so on the trend continues. Prior to 2008, Porsche had already been a significant shareholder in VW. ... Volkswagen was going up in a short squeeze. Suddenly the seemingly “low” short interest of 12.8% turned in to a massive supply and demand imbalance. Various funds would end up filing civil suits against Porsche to attempt to recover their losses. Updated: 29 Jan 2021, 04:34 PM IST Mobis Philipose. Next, the government fund of Lower Saxony (the home province of VW in Germany) owned an additional 20% of VW as a strategic stake. Children’s Place could quickly spike back to $160. "Volkswagen AG (VOW.F) Historical Prices." The situation is almost as unprecedented as it is alarming, at least to hedge funds and institutional investors, and it's perhaps the start of something entirely new in the financial world—a situation in which crowdsourcing has mobilized millions of small-time traders to cause billions of dollars worth of damage to hedge funds. Prior to the announcement from Porsche, and as the financial crisis was becoming more apparent, short interest in VW had been steadily rising. Max is an Equity Analyst with ASR Wealth Advisers. The VW short squeeze is quite different to what we're seeing with GME. The author will often continue to trade in these securities for an extended period of time after publication. German carmaker Volkswagen was embroiled in "the mother of all short squeezes" in October 2008 when its share price quintupled in two days, briefly making it the world's most valuable company. Note: Seven years after the VW infinity squeeze, Martin Shkreli would make use of nearly identical tactics and timing when orchestrating a 10,000% short squeeze on KaloBios (KBIO). On October 26th, 2008, rival automaker Porsche made a surprise announcement that it had increased its stake in VW to over 74%. Beyond Meat (BYND). As a mega cap company, the short sellers who had been involved in the VW trade included some of the best-known names in the hedge fund industry. And over the long term, this outcome was certainly quite predictable. Why Did Car Sales Drop So Dramatically During the Financial Crisis? GameStop's stock price will likely go back down, closer to where it was before. A much smaller company than VW, Porsche had made a lot of money in a short period of time due to hedge funds betting on VW losing money. The premise of shorting by hedge funds essentially involves the funds betting on a stock dropping in price in the long term, and making money by borrowing shares of stock for a fee and then selling these shares to buyers who could pay a lower price. “German automaker Porsche announced that it had raised its stake in Volkswagen to 30.9 percent, triggering a takeover bid under a German law requiring a company to bid for the entirety of any other company after acquiring more than 30 percent of its stock. The October 2008 short squeeze on shares of Volkswagen AG has since been referred to as the “Mother of all Squeezes”. Hedge fund managers were “literally in tears on the phone” as they described “a nuclear bomb going off in our faces.”. But from a financial standpoint, investors who shorted VW shares at what appeared to be the optimal time suffered very steep trading losses. My guess is that Porsche decided to buy massive amounts of Options instead of buying shares which would drive the price up, so short sellers were successful in pushing the price … This included David Einhorn of Greenlight Capital, Andreas Halvorsen of Viking Global, Paul Singer of Elliott Management, Glenn Krevlin of Glenhill Capital, Crispin Odey of Odey Asset Management, among others. Long PLCE. The daily share prices and market capitalization of Volkswagen common stock are listed in euros in Table 1 for the two days of the short squeeze and the day on either side. Moxreports.com focuses on reverse engineering the tactics and strategies used by hedge funds and insiders in the capital markets. But by December 2008, GM was being bailed out by the US government and by 2009 GM had entered bankruptcy. The stock price had gone from about $20 at the start of 2021 to more than $347 before the close of trading on Wednesday. GameStop had been trading at a fairly low price and was expected to drop further. In other words, Volkswagen was viewed as an exceptionally attractive short candidate. Has Porsche Bitten Off More than It Can Chew? The government of Lower Saxony also owned a 20 percent stake in Volkswagen that it would not sell. However, at very depth of the crisis, an orchestrated short squeeze on VW shares caused VW to briefly become the most valuable company in the world, worth more by market cap than Exxon Mobil. The German state of Lower Saxony owns a 20 percent stake in VW, which it said it would not sell. The shorts scrambled to cover, and the price leaped from about €200, or about $265, to above €1,000. Finally, make sure the share price has an upward trend and a bullish catalyst. Volkswagen AG (VOW.DE) Add to watchlist. Perhaps another lesson is that panic runs both ways. XETRA - XETRA Delayed Price. (Of course, when a stock is being shorted or a short squeeze is occurring, the companies themselves, GameStop in particular, have nothing to do with the situation and are basically along for the ride). TIMELINE-Porsche’s pursuit of Volkswagen (Reuters, Jan. 2011). In 2008, amid the financial crisis, Porsche used derivatives to corner the market in Volkswagen (OTCMKTS: VWAGY ). KaloBios (KBIO) Infinity Squeeze. - Richard Pearson. ... Volkswagen. Back in 2008, in the middle of the financial crisis, Volkswagen’s stock was short squeezed. Prior to October 2008, Porsche alone had already controlled 30% of VWs shares. This disparity caused short sellers to rush to buy more stock to cover their positions, driving the stock price further still through the month of October 2008, with VW stock price now hovering just above €900, and at one point exceeding €1,000 in intraday trading. Still, that punishment could come down on small-time traders sitting at home, as hedge funds run to the government screaming for help as AMC theaters and BlackBerry stock are appearing in the sights of the Reddit trader army. Most of what is written on this site will reflect a preexisting bias since the author is often writing about situations where he had already felt strongly enough to commit money to a trade. The VW Infinity Squeeze. Porsche Supervisory Board gives Go-ahead for Majority Stake in VW, Short sellers make VW the world’s priciest firm, Porsche and VW: how Germany got revenge on hedge fund ‘locusts’, VW goes from the Beetle to the world’s most valuable company, Panicked Traders Take VW Shares on a Wild Ride, Steve Cohen Tells Paul Tudor Jones About Two Worst Days of His Life, Hedge Funds Seek $2.4Bn Damages from Porsche’s Owning Family, Hedge funds’ $1.4 billion Porsche lawsuit faces dismissal: judge, Porsche Holding Wins Hedge Fund Lawsuit at Germany’s Top Court, Porsche makes more money from options trading than from cars, Porsche: The Hedge Fund that Also Made Cars, Short Squeeze Makes VW World’s Most Valuable Company–Temporarily, https://en.wikipedia.org/wiki/Stone_Cattle_Road, 1% of the company’s annual pre-tax profits, Porsche chief executive pushed out with €50m payoff. KBIO had been perceived by short sellers as a “no brainer near term zero”. Meanwhile, GameStop stock price kept going up because it was attracting attention from other traders, creating a snowball effect, with more traders joining in to make some money on its way up. Show full articles without "Continue Reading" button for {0} hours. It didn't last long. This disparity caused short sellers to rush to buy more stock to cover their positions, driving the stock price further still through October 2008, with VW stock price now hovering just above €900, and at one point exceeding €1,000 in intraday trading. It's what happened after the famous short squeeze of Volkswagen in 2008. Combined, these factors made VW a seemingly very attractive short candidate as the financial crisis unfolded in 2008. Just to ensure that short sellers fully understood the urgency of their calamity, Porsche made sure to include in its announcement a few words to address the short position. This is a MAX Chart going back to the mid 90s. What started happening a few days ago is that the effort of Redditors to drive GameStop's stock price up began working, inching the price of the stock upward, and hedge funds got caught on the wrong side of their bet. The announcement triggered a mass panic for the exits by anyone who was short shares of VW. As Porsche started buying up VW shares, seeiking more voting rights and control of the board, VW stock price continued to inch up through 2006 and 2007, going from about €30 in 2005 to over €150 by 2007, seemingly absent any outside reason. It was money that was badly needed by Porsche. The TLDR is that when a company is failing and the price is expected to fall people … Are your put options fueling the Beyond Meat mega squeeze ? Watch for the (as usual) violent rebound. However, by the end of 2009, Wiedeking had made the cover of Fortune magazine, being named “European Businessman of the Year”, sharing the cover with a mention of Steve Jobs. It was also perhaps the earliest use of the term “Infinity Squeeze”. GameStop's stock price will likely go back down, closer to where it was before. The end result was that hedge funds that had been shorting VW stock had lost some $30 billion in the process. He has studied a Bachelor of Business and a Bachelor of Laws at the University of Technology, Sydney. As unprecedented as the situation seems at the moment—and it is, since such coordination among retail investors has been rare—it's similar to something that happened to Porsche and Volkswagen more than a decade ago, though for different reasons. However, statements from Porsche at the time had led most investors to believe that Porsche would not be attempting a full-blown takeover. I am taking a break from publishing on this site. Technical Events. ... (2008) applauded a report by Sanford Bernstein's analyst Max Warburton that explained the extraordinary rise in the Volkswagen stock price. In 2008, amid the financial crisis, Porsche used derivatives to corner the market in Volkswagen (OTCMKTS: VWAGY). As a result of its skillful financial engineering, Porsche netted itself more than $10 billion in profits in a matter of just a few short weeks. Accessed Mar. The result: instant short-squeeze. VW’s share price briefly exceeded €1,000 intraday with a market cap of over €300 billion. At €999, Volkswagen briefly became the largest company by market capitalisation in the world, with a value of $420bn, eclipsing Exxon Mobil, Petro China and Microsoft. Know yourself, know your opponent. A brief history of short squeezes before GameStop. The kicker was, Porsche had owned 43% of VW shares and also another 32% in share options. Catalyst for the Volkswagen squeeze. But what the market failed to appreciate was that the true availability of tradeable shares to cover those short positions was actually far lower than what many understood. In retrospect, Porsche’s activities were somewhat predictable based on the incentives that had been given to its CEO. Conclusion. Despite the fact that VW is over 10 times larger than Porsche (by sales), the smaller company was able to engineer the squeeze, and acquire a majority voting interest in VW equity. Despite its troubled financials and business prospects, VW had reported several quarters of slightly better than expected earnings, leaving its share price surprisingly elevated at over €300. Readers are encouraged to take independent financial advice from a professional in connection with, or independently research and verify, any information found on this website. The squeeze itself happened in late 2008. Automaker Chrysler would file for bankruptcy at roughly the same time in 2009. What is Market Insider? This left very little that could be purchased by anybody else. In other words, stocks which appear to be the “best short ideas” are also the ones which often end up being most likely to see the most violent short squeezes. Confusion over “short vs. float”. Accessed Mar. Market conditions and issuer specific facts may change and may result in the author closing positions or, in some circumstances, changing direction of the trade vs. the position originally reported. 14, 2020. That's a pessimistic view for sure, since very little regulation emerged in the aftermath the 2008 financial crisis. Melvin Capital Management, the hedge fund in this case, had to start buying the same stock at a higher price because it had to cover its short. In the stock market, a short squeeze occurs when there is a lack of supply and an excess of demand for shares of a stock. Microsoft and partners may be compensated if you purchase something through recommended links in this article. Likewise, when Porsche set out to eviscerate the short sellers, Porsche made it a point (prior to the final announcement) to clearly downplay in public that it had any such intention of actually taking over VW. Here's Volkswagen. ... A short squeeze … The German government, however, owned another 20.2%. However, occasionally unintended errors, inaccuracies and misprints may occur. Chart showing the price movement and volume during the 2008 short squeeze of Volkswagen shares. These index funds were required to hold VW in proportion to its weight in the DAX, such that they would not be able to sell simply due to changes in the price of VW. Volkswagen Infinity Squeeze. The stock began to appear massively overvalued, and hedge funds took notice and began shorting the stock, betting that it would go down eventually. Big. The VW infinity squeeze seemed entirely counter intuitive at the time. On the other side of the trade, the hedge funds who had sold VW short quickly saw their collective losses exceed $30 billion. The VW infinity squeeze seemed entirely counter intuitive at the time. But ultimately there would be no significant consequences to Porsche. For 2008 alone, CEO Wiedeking received a bonus of €80 million. 8 min read . KBIO’s only real drug had just failed and the company had insufficient cash to pay over … In the case of GameStop, the rally was prompted by a large number of small retail traders willing to wager and even lose hundreds of dollars in an effort to create a short squeeze that would hurt big hedge funds, and some of these traders have become millionaires in a matter of days by investing tens of thousands of dollars into the effort, and then bailing out. The absence of news suggests a short squeeze may be behind the price movement. That left precious few shares available for anyone else. ... Then some guy who builds rockets tweeted about it, and it moved madly more north than … In fact, as the financial crisis unfolded in 2008, the entire auto sector was considered to be a highly attractive short trade. The author makes no guarantees regarding the accuracy or timeliness of any information published on this site or with respect to any third-party information sources. ... Volkswagen’s short … Porsche, in an attempt to take over the carmaker has engineered a shortage of common shares by gobbling up as much as 75% of the company via options. Volkswagen alone made up 17% of the DAX index at the time. The Dreaded Short Squeeze. Analyst Stephen Cheetham of Sanford Bernstein said of Porsche, “It does look like a hedge fund.”  Another analyst said, “It is a hedge fund investing in just one stock.”. Perhaps another moral of the story, one that could materialize relatively soon in response to this debacle for hedge funds and institutional investors, could be heavier regulation of retail traders—not the big banks or hedge funds. “decided to make this announcement after it became clear that there are by far more short positions in the market than expected.”, “the disclosure should give so called short sellers – meaning financial institutions which have betted or are still betting on a falling share price in Volkswagen – the opportunity to settle their relevant positions without rush and without facing major risks.”. Hedge funds believed they were on safe ground by short selling VW shares, which they saw as overvalued when all car manufacturers are feeling the squeeze.

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