Carson Block suspects coordination of short-term hedge funds

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Carson Block, the short-sighted activist famous for targeting Chinese frauds, recognizes familiar behavior in the rally of stocks such as GameStop Corp. To him, the parabolic moves are less like the product of Reddit-focused retail orders than a short squeeze per hedge. funds targeting other hedge funds.

“I asked myself, is there coordination with these hedge funds?” Block said in an interview on Bloomberg Television. “What is coordination? Did they cross the line? It could be interesting.

At the moment, this is an unproven theory. But if Block is right, what seemed like a historic retail uprising last week was just as much a practical smokescreen for the internal hedge fund war.

The casualty list in this fight ranges from the seriously injured, such as Melvin Capital Management and Maplelane Capital, to funds run by companies ranging from those of David Einhorn. Greenlight Capital at Renaissance Technologies. What is not yet clear is who benefited from the other side.

Block said his company, Muddy Waters Capital, was the victim of what he thinks was a brief hedge fund squeeze in GSX Techedu Inc. shares in the weeks leading up Until GameStop frenzy. Due to this 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 flow driven, it’s technical,” he said. “We are going to do what we have to do to survive.”

Read more: Carson Block cuts short bets, duck Online ‘Mob’ hunting bear

Unlike many short sellers, Block is decidedly public with the names of companies he considers scams and bets against. He typically publishes the research behind his short thesis and makes it available on Twitter. Most recently he started posting videos on zer0es.tv.

He said this effort to expose wrongdoing has “social utility” and should distinguish him from short sellers being attacked on Reddit. He scoffs at the suggestion that he’s part of a Wall Street establishment. If he was such an insider, he asked, why would Goldman Sachs Group Inc. and Credit Suisse Group AG have turned down his company?

“When we’re labeled as establishment, you can’t be more inaccurate than that,” he says. “It’s almost funny if it wasn’t for the fact that I now have all these people trying to troll me.

What Block agrees with is the growing sense that financial markets are overvalued and that the majority of small investors will be affected when the bubble finally bursts. He criticizes the Federal Reserve for having injected too much liquidity, allowing too much credit extension and too much leverage.

“We need a combination of monetary and fiscal policy that makes sense, otherwise we’re just stuck in this building, a bigger powder keg to explode again,” he said. “He always transfers the wealth of the many to the few.”