Yesterday Kerrisdale Capital released a funny video to build up buzz for a multi-billion dollar short that it is going to present next Monday, presenting ‘a new generation of belligerent short sellers’ as heroes ready to save lazy investors from themselves. Of course we’re planning to cover the thesis when it gets presented next week, but investors are trying to figure out who is going to get shorted since the company’s stock will inevitably fall, at least in the short-term.
Globalstar rumored to be the target of Kerrisdale short
Jason Bernstein at Odeon Capital Group LLC sent an email to clients that he’d a heard the presentation will be about Globalstar, Inc. (NYSEMKT:GSAT), recommending that they buy while the price is depressed, report Joshua Fineman and Scott Moritz for Bloomberg.The stock seems to have stabilized for now, but it’s still down from $3.80 a few days ago to close today at $3.02.
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Globalstar, Inc. (NYSEMKT:GSAT) is still up more than 150% for the last year, mostly because of a Federal Communications Commission (FCC) decision to let Globalstar use the airwaves it had licensed, which were reserved for satellite, to offer mobile broadband instead. Since this is the driving force behind Globalstar’s price appreciation a short thesis might argue that the spectrum isn’t worth very much, but speculating on a rumor isn’t something to spend much time on.
Short sellers influence frustrates many people in the market
The drop in Globalstar Inc’s (NYSE:GSAT) stock price is a good example of why investors get frustrated with short sellers’ tactics. Aside from the overall long bias that most people have, short campaigns can have a major impact on stock prices simply because investors who don’t want to stick around and figure out if the short has merit will simply sell and move on to one of their other ideas, causing at least a temporary drop.
This first-mover advantage gives short sellers a great deal of influence over the market: in this case, even an unsubstantiated rumor is moving the market; if Kerrisdale names a company other than Globalstar, Inc. (NYSEMKT:GSAT) on Monday you can expect to see big swings in at least two stocks). Sometimes the thesis is a slam dunk (see Gowex), but that’s the exception. The counter is that no one else is digging as hard to root out fraud and other problems, but for an individual investor who gets caught in the middle it can still be a painful experience.
Correction: The email from Odeon Capital Group was sent out after GlobalStar Inc’s (NYSE:GSAT) stock price started falling and was responding to speculation that was already circulating.