At a good 5 percent, Tesla shares posted losses on Friday that were higher than they have been for a long time. This should not have been due to the business figures for 2020 published on Wednesday, because the profit in the last quarter was well below expectations, but analysts mostly saw this as a short slip in a long positive development at Tesla and then even increased their price targets in some cases . So it looks more like Tesla has been affected by general upheavals in the market – to which CEO Elon Musk himself contributed.
Tesla boss pours oil into the Short fire
Not just Tesla, but the entire US stock market came under pressure on Friday – the S&P 500 index lost around 2 percent. As with stock market fluctuations downwards, as usual, various factors contributed to this, but one of them was new: “People are a little afraid to trade,” said an ETF analyst with the news agency Reuters. Because small investors organized on the Internet had caused extreme increases in the shares of the gaming chain Gamestop over the week. As a result (as requested by them) there were difficulties with short-seller hedge funds and (probably unintentionally) with their own brokers.
Tesla boss Musk was not uninvolved when he poured more oil into the already blazing Short fire with a short Twitter message (“Gamestonk”) on Tuesday. The next day, the Gamestop share doubled again – and Internet investors celebrated their victory over short sellers, who were not only unpopular with Musk because of their negative speculation on falling prices. At times, however, the increase became so extreme that the retail investor brokers forbade purchases of Gamestop (and some other volatile stocks). This has been seen by many as an attempt by the financial establishment to suppress the emerging Internet power in the stock market and protect the short sellers from their just punishment.
On Thursday evening, the Tesla CEO joined the call on Twitter to ban short sales, which he had already raised himself. “No respect for shorty defenders,” he also wrote, “Get Shorty.” And Musk changed his Twitter short description, as he occasionally does: only “#bitcoin” has been there since then, and cryptocurrency, which some hope will be an alternative to the global currency system, has made a leap up. At around the same time, a documentary about the large-scale fraud case Wirecard was shown on German television – which was uncovered by short sellers despite all efforts to the contrary by the German financial regulator Bafin.
Funds forced to buy – and to sell
That alone shows that the financial world is more complex than internet enthusiasts and apparently even the super-entrepreneur Musk believe. And the price loss at Tesla and in the overall market provides further illustrative material, as the former professional investor and now analyst @ garyblack00, who is active on Twitter today, explained. Due to the high losses in their short sales in Gamestop, the hedge funds concerned were forced to end not only this business, but also similar ones, he said. But their short positions are usually offset by normal purchases in other stocks, because that mathematically reduces the overall risk. If short sales are then closed, the same must therefore also happen with the compensating “long” positions.
Overall, this effect is about possible sales with a volume of 1 trillion dollars, warned @garyblack, especially with tech stocks such as Apple, Amazon, Microsoft, Google, Facebook or Tesla. The sharp Tesla price loss on Friday could actually be related to this effect in the absence of other explanations. And according to a study by JP Morgan, discontinued by the Twitter analyst, who has long viewed Tesla very positively, the reduction of positions by professional funds has so far not been extreme and could therefore continue for a while. Musk was still the richest person in the world even after Friday’s slump, according to Bloomberg, and his accomplishments are undisputed. But the Tesla boss doesn’t seem to be helping to protect small shareholders, even if he probably sees it differently.