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Carson Block, the short selling activist famous for targeting Chinese fraud, acknowledges familiar behavior in the rise of stocks like GameStop Corp. To him, parabolic movements seem less like the product of retail orders driven by Reddit than with a small squeeze by hedge funds that target other hedge funds.
“I asked myself: is there coordination with these hedge funds?” Block said in an interview on Bloomberg Television. “What constitutes coordination? Did they cross the line? This can be interesting. “
At the moment, it is an unproven theory. But if Block is right, what looked like a retail uprising that made history last week was a convenient smokescreen for the destructive war on hedge funds.
The list of victims in that struggle is growing from the seriously injured, like Melvin Capital Management and Maplelane Capital, to include funds managed by companies ranging from David Einhorn. Greenlight Capital for Renaissance Technologies. What is not yet clear is who profited on the other side.
Block said his company, Muddy Waters Capital, was the victim of what he thinks is a small squeeze by hedge funds on shares of GSX Techedu Inc. in the previous weeks up until the GameStop frenzy. As a result of this and similar situations, he had to hire a full-time broker to monitor the stock option markets and adjust positions to manage risk more actively.
“It is a negotiation game, it is flow-oriented, it is technical,” he said. “We will do whatever it takes to survive.”
Read more: Carson Block Cuts Short Bets, Ducking Connected ‘Mob’ hunting bears
Unlike many short sellers, Block is decidedly public with the names of companies that he believes are frauds and that he is betting against. He usually publishes the research that supports his short thesis and makes it available on Twitter. Most recently, he started releasing videos on zer0es.tv.
WATCH: Muddy Waters CEO Block rejects the idea that he is part of the financial “system” and calls for more oversight by the United States Securities and Exchange Commission in the wake of the GameStop Corp frenzy.
In his view, this effort to expose the irregularities has a “social utility” and should separate him from short sellers under attack on Reddit. He scoffs at the suggestion that he is part of a Wall Street establishment. If he were an insider, he asked, why would Goldman Sachs Group Inc. and Credit Suisse Group AG have refused their business?
“When we are marked as an establishment, you cannot be more inaccurate than that,” he said. “It’s almost funny if it weren’t for the fact that I now have all these people trying to deceive me.”
Block agrees with the growing feeling that financial markets are overvalued and, predominantly, small investors will be hurt when the bubble finally pops. He blames the Federal Reserve for injecting too much liquidity, allowing too much credit and too much leverage.
“We need a combination of monetary and fiscal policy that makes sense, or else we will be stuck in building a larger powder keg to explode again,” he said. “It always transfers wealth from many to few.”