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Carson Block, the activist short-seller famous for targeting Chinese fraudsters, recognizes familiar behavior in the roster of stocks like GameStop Corp. To him, the parabolic moves are less like the product of Reddit-driven retail orders than a short-squeeze through hedge. funds that focus on other hedge funds.
“I’ve been wondering, is there coordination with these hedge funds?” Block said in an interview on Bloomberg Television. “What is coordination? Did they cross the border? That can be interesting. “
At the moment it is an unproven theory. But if Block is right, what appeared to be a history-making shopping riot last week was just as useful a smokescreen for internal hedge fund war.
The list of victims in that battle grows from the seriously injured, such as Melvin Capital Management and Maplelane Capital, to funds run by companies ranging from David Einhorn’s Greenlight Capital to Renaissance Technologies. What’s not clear yet is who benefited on the other side.
Block said his firm, Muddy Waters Capital, was using the victim of what he thinks was a short squeeze by hedge funds in shares of GSX Techedu Inc. in the weeks prior to until the GameStop frenzy. As a result of that and similar situations, he had to hire a full-time trader to monitor the stock option markets and adjust positions to more actively manage risk.
“It’s a trading game, it’s power-driven, it’s technical,” he said. “We’re going to do what we have to do to survive.”
Read more: Carson Block Cuts Short Bets, Ducking Online ‘Mob’ Hunting Bears
Unlike many short sellers, Block is definitely public with the names of companies he believes are scams and which he is betting against. He usually publishes the research underlying his short dissertation and makes it available on Twitter. More recently, he started releasing videos on zer0es.tv.
WATCH: Muddy Waters CEO Block rejects the idea of being part of the financial “establishment” and calls for more enforcement from the US Securities and Exchange Commission in the wake of the GameStop Corp. frenzy.
As he sees it, this attempt to expose wrongdoing has a “social utility” and should set him apart from the short-sellers attacked on Reddit. He scoffs at the suggestion that he is part of a Wall Street branch. If he were such an insider, he asked why would Goldman Sachs Group Inc. and Credit Suisse Group AG have rejected his company?
“If we’re labeled as an establishment, you couldn’t be more inaccurate than that,” he said. “It’s almost funny if it wasn’t for all these people trying to troll me right now.”
What Block agrees with is the growing feeling that financial markets are overvalued and that retail investors in particular will be hurt when the bubble finally bursts. He blames the Federal Reserve for pumping in too much liquidity, allowing for too much credit extension and too much leverage.
“We need a logical combination of monetary and fiscal policy or else we’ll be stuck in this building where a bigger powder keg will explode again,” he said. “It always transfers wealth from the many to the few.”