Goldman Warns If The Short Squeeze Continues, The Entire Market Could Crash

The New York Stock Exchange building.

Last Friday (Jan, 22) we advised readers who thought they had missed the move in GameStop GME (they hadn't), to position appropriately in the most shorted Russell 3000 names which included such tickers as FIZZ, DDS, BBBY, AMCX, GOGO and a handful of other names, as it was likely that the short-squeeze was only just starting.

We were right and all of the stocks listed above - and others - exploded higher the coming Monday, and all other days of the week, with results - encapsulated by the WallStreetTips vs Wall Street feud - that has become the top conversation piece across America, while on WSB the only topic is the phenomenal gains generated by going long said most shorted stocks. To wit, the basket of top shorts we compiled on Jan 22 has tripled in the past week.

And while some are quick to blame last week's fireworks on the "dopamine rush" of traders at r/wallstreetbets who seek an outlet to being "copped up with little else to do during the pandemic" (as Bloomberg has done), the reality is that at the end of the day the strategy unleashed by the subreddit is merely an extension of the bubble dynamics that were made possible by the Federal Reserve (of which Bloomberg is also a very staunch fan) pumping trillions and trillions of shot-gunned liquidity into a financial system where there are now bubble visible anywhere one looks. In short, main street finally learned that it too can profit from the lunacy of the money printers at the Eccles building, and some are very unhappy about that (yes, it will end in tears, but - newsflash - $300 trillion in debt and $120BN in liquidity injections monthly will also end in tears).

That aside, one week later, Goldman has finally caught up with what Zero Hedge readers knew one week ago, and all the way down to a chart showing a basket of the most-shorted Russell 3000 stocks...

Goldman's David Kostin has published a post-mortem of what happened last week, writing that "the most heavily-shorted stocks have risen by 98% in the past three months, outstripping major short squeezes in 2000 and 2009."

He then points out something we discussed in "Hedge Funds Are Puking Longs To Cover Short-Squeeze Losses", noting that while aggregate short interest levels are remarkably low (imagine what would have happened has shorting been far more aggressive marketwide) "the -4% weekly return of our Hedge Fund VIP list of the most popular hedge fund long positions (GSTHHVIP) showed how excess in one small part of the market can create contagion."

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Bill Johnson 4 weeks ago Member's comment

Shorting stocks should be illegal.

Peter Craig 4 weeks ago Member's comment

I read an article a few years ago about the concept that a “perfect” economy would constantly experience deflation. The idea was that technology would continually make goods and services cheaper to provide. It touches on Moore’s law, regarding computers, but how a similar (but not so dramatic) law really applies to everything.

Randall Macfarland 4 weeks ago Member's comment

"While short term it is amusing...long term it will crash the markets."

Ok with me! I am shorting all of Wall Street. I got all out several months ago because I could see that a major correction was coming and with Biden in office its coming fast.

When the market crashes, and it will, I will move all back in. I rode out the last 3 crashes with well over a 100K losses.

Not this time, not when the future is so easy to see.

William K. 4 weeks ago Member's comment

Based on all of the additional comments, it is indeed reasonable that additional regulations should be put in place, AND probably better enforcement of those regulations already in place. Crime should not be allowed to pay.

Duke Peters 4 weeks ago Member's comment

The fact that GS is sweating bullets tells me they’ve been doing their usual lying, cheating and stealing from the common man again. These hedge funds have been allowed to manipulate the markets and damage our investments and retirement funds. Our wonderful progressive former *resident didn’t do a damn thing to these guys after 2008.

Too big to fail = too big to exist!

They can “learn to code” or “build solar panels” along the with pipeline folks who are losing their jobs. Oh the horrors!

Stock Tigress 4 weeks ago Member's comment

"excess in one small part of the market has the potential to tip a row of dominoes..."

Aren't these people supposed to be the responsible "experts" that know how to hedge risk?

Flat Broke 4 weeks ago Member's comment

It's a peasant revolt!

Texan Hunter 4 weeks ago Member's comment

Damn elites were overly short and a peasant revolt caught them. Instead of just taking the L and moving on, they empower their paid for politicians and silicon valley to strike back. Fixing this country won’t be easy.

Anthony Varrell 4 weeks ago Member's comment

I heard an interesting argument about price inflation. It goes like this: When the price of silver went over $40 an ounce back in the 2008 timeframe, the reason was that with all the money the fed was pumping into the economy, price inflation was expected. But it all went into the stock market and there was no price inflation to speak of. Silver crashed.

But this time they are giving it directly to the “little people”. some making more on unemployment than they made at their jobs. They spend the money. That may be one reason lumber is so high right now. It also may explain the bump in silver and gold.

And add the destruction of the world’s economy via the lockdowns. It does look like we’re living in interesting times.

BTW, Try to buy silver right now. Good luck...

BreakingBad News 4 weeks ago Member's comment

Which shows that Wall-Street has been cooking the books for far too long. If a person used the same money to back multiple investments it would be considered fraud, when Wall Street does it is is called creative accounting.