Bobby Axelrod Would Be Proud
If you’ve been following the popular Showtime series Billions you might think that hedge fund superstar Bobby Axelrod is behind the epic short squeeze taking place in Tesla’s stock this year. Bobby Axelrod is a fictional character but you might not be too far off.
At the beginning of this year, a few clients asked us what we thought about Tesla’s rapid move beyond $300 per share. Our hypothesis then, which seems to be manifesting now, was that a large hedge fund or two had carefully calculated how many shares of Tesla they would need to buy to squeeze the other major hedge funds that had borrowed shares to short Tesla stock. Major Tesla short-sellers include Jim Chanos and David Einhorn.
When you’ve traded markets as a career you develop a feel for their behaviors. You can literally sense when things are amiss. That feeling had been developing for us with Tesla. We are a macro focused firm so we tend to stay away from hedge fund battles in individual equities but watching them is well worth the entertainment.
Tesla has long been surrounded by controversy. Elon Musk’s believers think he’s the second coming of Christ and his critics think he’s a snake-oil salesman. We certainly support moving the world to more sustainable energy sources, however, after reviewing much of the excellent research that has been done by the short-selling community and the long-to-mars community we would have to side with the short sellers that Elon’s hype doesn’t line up.
Tesla’s market cap was approximately $32 billion during its 2019 market low. It is now at the time of this writing crossing $165 billion. Whoever is getting squeezed is in a world of pain right now. It’s entirely possible we’ll see some hedge fund blow-ups from this and possibly even some heavy losses by those same funds’ prime brokers.
Tesla is not the only car company to be involved in a short squeeze. Volkswagen had a massive squeeze in 2008 in the middle of the financial crisis. That squeeze was soon followed by an equally large crash.
But who’s doing the squeezing? Back to Bobby Axelrod. Ask anyone on Wall Street who Bobby Axelrod’s character is modeled off of and the first name they will give you is Steve Cohen. In 2013 his firm SAC Capital paid the SEC a $1.8 billion fine based on insider trading charges. The trading was said to have been done by a rogue employee and thus Steve avoided criminal charges but nonetheless he had to pay the fine and stop managing outside money. Steve is extraordinarily brilliant with or without insider trading and is widely recognized as a master trader with instincts like a great white shark.
Well, it looks like this great white shark is swimming in Tesla’s waters. Based on public filings from his new firm Point 72 Asset Management we can see that between June and September last year he went from zero holdings in Tesla to over 250,000 shares. And Steve is in good company with fellow trading legend James Simmons of Renaissance Technologies who coincidentally during the same period went from a holding of approx 100,000 shares to now over 670,000 shares.
Now we’re not saying they’re coordinating this squeeze together it could merely be a timing coincidence. What matters is that the hedge fund world’s most talented players have large money at stake on both sides of the trade. This will be an event to keep an eye on. If you’ve had a long position in Tesla for awhile it might be worth taking your profits and getting out of the water. If you’re holding a short position you’re in over your head so get out of the water too. Bobby’s dorsal fin is out and he’s not done eating.