Heh Merkel: Bite me!
Before you start lecturing people over on this side of the pond regarding transparency and open markets, you might want to take a look in your own back yard.
See, it appears that Volkswagen had a little short squeeze.
Well, maybe not so little.
See, Porsche has held a stake in the company for quite some time to protect a supply of parts that it gets from VW. All fine and good.
But apparently unlike in the United States, there is no requirement that they be transparent with their intentions or timing.
Or, for that matter, to be able to finance what they claim to intend to do.
So when Porsche announced its intention to raise its stake to 75% from 42.6% it set off an insane short squeeze, as the announced intended stake exceeded the firm's float.
This caused VW's stock to rise by eight hundred percent in the space of two days.
Volkswagen has been a favorite short of hedge funds. And why not? Automakers into an economic downturn? An obvious short, right? Car deliveries slowing, automaker profits under pressure. Looks obvious to me, and did to them too.
The body count of hedgies being carried out on their shields should be most impressive over the next few days.
Two problems are immediately apparent with Porsche's announcement and give rise to questions about whether this was an intentionally-engineered event and not a legitimate business transaction:
**Their "stake" Porsche claims to intend to accumulate appears to exceed both their market cap and any ability to finance the transaction, especially in today's environment.
**There are cash-settled option positions outstanding which are not required to be disclosed under German law.
Transparent markets eh? Hmmmm....
Looks to me like someone decided to manufacture a short squeeze, which by the way, is illegal in the United States. Of course without full transparency its rather difficult to know exactly what was really going on, isn't it?
I have no idea if this was an intentionally engineered squeeze or whether such things are illegal in Germany or not, but this little episode does demonstrate that market manipulation, legal or not, is alive and well in Germany, and that before Merkel and others start throwing stones at the United States in regards to this little banking crisis and transparent markets, not to mention regulation and inappropriate (if not felonious) game-playing they may want to look around and insure they're not living in a glass house.
Perhaps we could start that inquiry with a discussion of Deutche Bank's leverage ratios and the transparency of their balance sheet.....
I remember it well. It was at a time when nothing in the markets seemed real. There was a lot of talk (in certain groups) about the PPT "fixing" markets. I remember posting about how people making correct bets get hurt when the PPT makes a 27 offsuit the winning hand. It even seemed to be happening over in Europe. I mean, try to comprehend this: In the middle of a recession, with auto sales plummeting and General Motors just weeks away from bankruptcy, Volkswagen briefly became the worlds MOST VALUABLE COMPANY! Even exceeding Exxon Mobil in total market value. Something is just not right about that.
Two weeks later on Nov. 12th, the PPT was caught in Poland "in what newspapers dubbed a "miracle" fixing session". See my post on Goldforum titled PPT EXPOSED!.
The market manipulators may think they are doing everyone a favor by propping up a failing system. But they are clearly not doing EVERYONE a favor...
Yesterday, the 94th richest man in the world, a multi-billionaire in Germany committed suicide by train. See the story here and here.
The tracks where Adolf Merckle died yesterday
Evidently he lost a good portion of his net worth, perhaps a loss of $2 billion, on that Volkswagen surge. He had been shorting Volkswagen. In fact, he was the biggest short seller of Volkswagen stock.
His fortunes worsened dramatically last year after he was caught on the wrong side of trades in Volkswagen shares, whose price spiked when Porsche revealed it controlled more of VW than had been thought. Merckle had borrowed VW shares to sell them short in expectation of their price falling, while other trades also went against him.
Could that Volkswagen short squeeze have been aimed intentionally at this man? Look back at the news stories on October 30th. Porsche denied insider trading or manipulation, and instead, blamed the pop on the short sellers. I ask now... who profited? This question raises all kinds of thoughts in my mind regarding market manipulators the likes of JPMorgan, Goldman Sachs, Hank Paulson and Ben Bernanke. All I can say is, keep an eye out for these kinds of stories.
Postscript: I do understand that short covering often causes a spike in price. I am simply connecting a few dots and noticing that a billionaire was taken out (literally) by a suspicious market move. Perhaps he just wasn't part of the "in crowd" of billionaires.
Jan. 7, 2009 - Wife of China's wealthiest billionaire who disappeared in November is now under police guard to prevent her from leaving the country.
Jan. 7, 2009 - CEO in India admits to fraud which created "50.4 billion rupees ($1 billion) worth of "fictitious” cash on the company’s balance sheet at the end of September... Mr Raju insisted that he did not take "even one rupee/dollar from [Satyam] ... on account of the inflated results. However, analysts quickly dubbed the fraud he created "India's Enron" and suggested the fallout out would take months to settle."
Jan. 7, 2009 - Real Estate mogul "found dead of an apparently self-inflicted gunshot wound Monday in his Jaguar in a forest preserve outside Chicago".
Jan. 7, 2009 - The woman once known here as "Austria’s woman on Wall Street" has disappeared. Kohn collected more than $2 billion from rich investors in Russia and across Europe for Bernard Madoff through her firm, Bank Medici. Touting her connections, she promised investors entrée to bigger fish in the finance world, including Madoff. Some say it’s not out of the question that she’s hiding from Russian clients (do we dare say, perhaps, the Russian mob?)
The Shrinking Bezzle - Eric Janszen