Tuesday, February 25, 2014
A Message To Shorts ?!?!?
When a penny stock doubles or triples, it is tempting to imagine nefarious operators pumping and dumping, in process, lightening the investment accounts of unsuspecting victims. And one would, most often, not be mistaken in such an assertion. Moving the prices of such (often fictitious, or nearly fictitious shells) is, after all, both easy and cheap. And in the off-chance the company itself proves uncooperative, well, one might surmise bad things might follow to key people. As one crawls up the cap scree, however, it gets more expensive for operators to move the price. Not only is there is a greater diversity of shareholders, who, in response to to a pump, might themselves very well dump before the operators themselves, but companies themselves might use the pop to issue stock, or make takeover plays with newly inflated scrip. Of further interest to the curious, in the grey areas, exist some bold traders who, with capital and a long leash, have learned the dark art of reflexively employing similar techniques (both long and short) to push entities into, and out of indices, dragging the not inconsiderable community of indexers (and their investors) haplessly along with them. Such operations are not without considerable risk, but thoughtfully researched and executed, more than compensate the brave with commensurate rewards. Get it right, and you can shift your considerable position to index funds who are reasonably obliged to purchase the stock, or buy back your short from their sale of shares in the eliminated company who market cap no longer qualifies them for inclusion (as the very result of the perps considerable short sales).
Sometimes operators - either alone in collusive groups - do manage to operate upon much larger companies. Sometimes this is because the operator themselves is a leviathan, and is willing to take their collective investment to well into the high teens precent of shares out. Sometimes, because the proverbial moons align, where price momentum, a narrow float, and other useful considerations allow something that, to traders or tape-readers, comes close to a classic "corner", of the likes perpetrated by The Hunt Brothers in silver, or Volkswagen shares by their friendly cousins at Porsche AG. The former was well-chronicled in Timothy Green's book "Beyond Greed", whilst the latter remains the subject of lawsuits by embittered hedge fund managers, suckered and snookered at their own game - lawsuits as hypocritical as David Einhorn's attempted pursuit of the "Micron Leaker", given that Mr Einhorn himself saw nothing amiss with dumping his entire 14% Punch stake the moment he discovered materially non-public info regarding the companies likely share sale.
One might ask whether these two subjects - the notion of "Collective Punishment" and "The Corner" - intersect at a now $2bn dollar market cap Japanese electronics manufacturer called "Micronics" (Code# 6871). One could talk about absolute and relative valuation, growth prospects, market share, competitive analysis etc., all of which are at odds with a 60-fold increase in its share price since the start of 2013. As the chart up and left reveals, this is NOT a typo. SIXTY FOLD. And as with the focus of previous post about Altisource (AAMC), Micronics is not a penny-stock - depressed as its 2013 market cap was. They have no cure for cancer; they do not possess 3-D printing patents; they have nothing directly to do with the internet be it - gaming, e-payments, nor are they involved in biotech or nuclear cleanups or the newly-awarded Olympic games.
But whatever such incidentals as thematics fundamentals or valuation may reveal, they are more than likely wholly irrelevant to what very-well might be the world's single greatest non-micro-cap ramp-of-a-move. Yes, Mirconics is witnessing a recovery in their business and associated profit - an event that could (being generous) support a YEN2000 share price assuming one attaches a >20+ multiple to peak earnings, as it saw it do during the last recovery and accumulation in 2006. THAT move would have been nearly a 10-bagger from the depths it plunged - impressive by any means.
Apologists for such a move might suggest it is merely old-school retail speculation - the kind that vaulted Godo Shusei (2533), Nippon Carbon (5302), Matsuzakaya (8235) and Shinegawa Refractories (5351) to previously unimagined heights in back in1991, though these were likely the result of index art manipulation games employed on the least liquid names in order to game the absurdity of the Nikkei 255's price-weighting calculation method.
No. Something else is at work here. It is no ordinary speculative move or typical squeeze. It is a corner by ballsy operators. If the measure of success is the heights achieved by the share price, then they have been successful. They were in fact successful by any yardstick at the end of the calendar year 2013, an endpoint that raises suspicions as to whether the ultimate purchaser(s), whether individually or in concert, (who BTW have not filed requisite change of ownership details with the MoF), collected performance fees with respect to their achievements. And though shorts were granted a brief respite, the doubling again from YEN 5,000 to YEN 10,000 this month is curious. What is the endgame? Perhaps it is to squeeze the shorts completely in order to defray the eventual costs of exiting, which will come inevitably, and will be painful for longs on board for the ride. This is possible, but it ignores the breathtaking increase of risk. Perhaps, this unthinkable move is intended as a demonstrative form of collective punishment to shorts, who in the ordinary course of business, make operations more expensive, and less profitable, for speculative groups operating pump and dumps, and attempted corners on the long side. Killing innocents for the actions of the few has long proved to be an effective deterrent for future insurrections. Killing the shorts in a demonstrative show of force in Micronics, just might have the same effect upon pesky traders with a penchant for shorting the absurd.
Finally, one might wonder, for the sake of market integrity, just where is the MoF and exchange surveillance stand - whatever their residual loathing of (mostly foreign) short sellers might be….