Article continues below advertisement. They are still holding all their shares. The situation is almost as unprecedented as it is alarming, at least to hedge funds and institutional investors, and it's perhaps the start of something entirely new in the financial world—a situation in which crowdsourcing has mobilized millions of small-time traders to cause billions of dollars worth of damage to hedge funds. Today, I break down the biggest short squeeze ever in history. In 2008 — smack dab in the middle of the Great Recession — one stock reaped the capital of a short squeeze — Volkswagen. Autoweek participates in various affiliate marketing programs, which means we may get paid commissions on editorially chosen products purchased through our links to retailer sites. At Yahoo Finance, you get free stock quotes, up-to-date news, portfolio management resources, international market data, social interaction and mortgage rates that help you manage your financial life. Volkswagen Short-sellers Were Caught In the Mother of All Short Squeezes Earlier This Week Volkswagen (briefly) became the most valuable company in the world on Tuesday, surging ahead of the likes of Exxon Mobil Corp., General Electric, Microsoft and others. In 2008, as a result of the VW infinity squeeze, Porsche earned a bottom line profit of nearly €7 billion. It was also perhaps the earliest use of the term “Infinity Squeeze”. (Of course, when a stock is being shorted or a short squeeze is occurring, the companies themselves, GameStop in particular, have nothing to do with the situation and are basically along for the ride). As unprecedented as the situation seems at the moment—and it is, since such coordination among retail investors has been rare—it's similar to something that happened to Porsche and Volkswagen more than a decade ago, though for different reasons. Over 10 years after the short crush of VW stock, retail merchants collaborate against mutual funds. Merckle, who was the world’s 94th-richest person in 2008 according to Forbes magazine, spent his life building a business conglomerate with about 100,000 employees. Meanwhile, GameStop stock price kept going up because it was attracting attention from other traders, creating a snowball effect, with more traders joining in to make some money on its way up. But one thing that hedge funds didn't hedge against in the GameStop case are thousands of small traders on Reddit who had noticed a number of stocks being shorted by hedge funds that had been essentially preying on troubled companies during a recession. The starting point for the short squeeze at that time was Porsche's desire to accumulate more voting rights in Volkswagen. Citadel, however, benefited bigly from the silver pump and dump. This disparity caused short sellers to rush to buy more stock to cover their positions, driving the stock price further still through the month of October 2008, with VW stock price now hovering just above €900, and at one point exceeding €1,000 in intraday trading. If the short works out as planned, the hedge funds profit, but when it doesn't and the price of the stock goes up for some reason, the damage to the fund can be colossal. The kicker was, Porsche had owned 43% of VW shares and also another 32% in share options. We analyze millions of used cars daily. Is there a moral to this story? The stock began to appear massively overvalued, and hedge funds took notice and began shorting the stock, betting that it would go down eventually. (2008) estimate hedge funds could have lost as much as 30 billion euros when their strategy to short-sell Volkswagen stock backfired. The stock began to appear massively overvalued, and hedge funds took notice and began shorting the stock, betting that it would go down eventually. Porsche had effectively made more money in trading stock than in selling cars—and it's not dissimilar with what has been happening with Tesla stock in the recent months, either, with Tesla becoming the world's most valuable automaker. By that time VW became the most valuable automaker on the planet thanks to its stock price having skyrocketed, while the short position had ballooned to 12% of outstanding shares. Consider One of These, Junkyard Car Patina Backgrounds For Zoom Calls, Here’s What Frozen Oil Looks like in Your Engine, Elon Musk's Boring Co. (Of course, when a stock is being shorted or a short squeeze is occurring, the companies themselves, GameStop in particular, have nothing to do with the situation and are basically along for the ride). Volkswagen … Who’s Going to Recycle Your EV’s Battery? That's a pessimistic view for sure, since very little regulation emerged in the aftermath the 2008 financial crisis. You may be able to find more information about this and similar content at piano.io, VW Seeks Damages from Former CEO in Diesel Matter, Here’s What to Expect from the Audi Q4 e-tron SUV, VW ID.4 SUVs Start Arriving at US Dealers, VW Power Day Spells Out Group’s Battery Strategy. By that time VW became the most valuable automaker on the planet thanks to its stock price having skyrocketed, while the short position had ballooned to 12% of outstanding shares. GameStop had been trading at a fairly low price and was expected to drop further. See Kelley Blue Book pricing to get the best deal. GameStop, a mall-based video game store suffering from both reduced foot traffic and the growth of online games during the pandemic, was seeing its stock decline due to these natural market conditions. January 28, 2021. Save $4,954 on a 2009 Volkswagen Beetle near you. The end result was that hedge funds that had been shorting VW stock had lost some $30 billion in the process. The kicker was, Porsche had owned 43% of VW shares and also another 32% in share options. What is Market Insider? Perhaps it's that hedge funds are now far more vulnerable to sudden and artificial stock rallies when it comes to stocks that they had been shorting for months or years, betting on troubled companies to lose stock value in difficult financial times. “This leads to a squeeze of the VW ordinary shares, a story we have seen before,” he wrote, an apparent reference to 2008 , when Porsche drove up the price of VW in … In the case of GameStop, the rally was prompted by a large number of small retail traders willing to wager and even lose hundreds of dollars in an effort to create a short squeeze that would hurt big hedge funds, and some of these traders have become millionaires in a matter of days by investing tens of thousands of dollars into the effort, and then bailing out. In 2008, Porsche bought up so much of Volkswagen’s stock it caused VW’s stock prices to soar. The common thread is that those who had been shorting Tesla stock over the past few years have absorbed significant losses in the process, spread out over a longer period of time. The squeeze itself happened in late 2008. A similar price action occurred with Volkswagen shares back in 2008, when they appreciated in the same way as the GameStop stock did in the last few trading days. The stock price had gone from about $20 at the start of 2021 to more than $347 before the close of trading on Wednesday. According to Autoweek: “In 2008, Porsche gobbled up so much Volkswagen’s stock it caused VW’s stock prices to soar, which similarly caused short sellers to lose tens of billions of dollars in a span of a couple days. Wants to Tunnel under Miami, Musk Tweets, and Now Zoom Is Coming to Our Cars, This content is created and maintained by a third party, and imported onto this page to help users provide their email addresses. This squeeze is like nothing before because the Reddit rangers came in on $4 a share, and never sold the peak. Oct. 30, 2008. Lamb et al. In the case of GameStop, the rally was prompted by a large number of small retail traders willing to wager and even lose hundreds of dollars in an effort to create a short squeeze that would hurt big hedge funds, and some of these traders have become millionaires in a matter of days by investing tens of thousands of dollars into the effort, and then bailing out. Short sellers got killed. Ein Beispiel für einen Short Squeeze ist die Kursexplosion der Volkswagen-Stammaktie, die am 27. (At the time, VW traded at 19 times earnings—twice that of its competitors.) The kicker was, Porsche had owned 43% of VW shares and also another 32% in share options. Perhaps another moral of the story, one that could materialize relatively soon in response to this debacle for hedge funds and institutional investors, could be heavier regulation of retail traders—not the big banks or hedge funds. In 2008, they had shorted 13% of Volkswagen (VW) shares… betting the stock would tank because it was too expensive. More than a decade after the short squeeze of VW stock, retail traders team up against hedge funds. Thanks for the explanation. The German government, however, owned another 20.2%. Why NHRA Funny Cars Are Called Funny Cars, Can’t Wait for the Bronco? VW Follows Tesla’s Battery Day with Power Day, Škoda Enyaq Joins VW Group’s EV Offensive, Volkswagen Reveals Plans for a New Flagship EV. In March 2008, he was given the all ... but the Volkswagen short-squeeze shows fear can propel securities upwards as well, and far beyond the 100 per cent downside on “long” investments. VW’s three dominant holders - … What started happening a few days ago is that the effort of Redditors to drive GameStop's stock price up began working, inching the price of the stock upward, and hedge funds got caught on the wrong side of their bet. Oktober 2008 begann. But one thing that hedge funds didn't hedge against in the GameStop case are thousands of small traders on Reddit who had noticed a number of stocks being shorted by hedge funds that had been essentially preying on troubled companies during a recession. And at its core, it's not dissimilar with what Porsche had done a decade prior with Volkswagen stock. Like us on Facebook to see similar stories, Fact check: Story about bull sharks in Arkansas river started as satire, ‘Real Housewives’ Star Jen Shah Ran a Nine-Year Telemarketing Fraud That Bilked the Elderly: Feds. Oktober 2008 hatte das Unternehmen Porsche bekannt gegeben, dass es seinen Anteil an VW von 35 % auf 42,6 % erhöht hätte und mit Optionen auf weitere 31,5 % über einen Gesamtanteil von 74,1 % verfügen würde. The result for Porsche was that it had been able to make billions in just a few weeks at a time when the auto industry was doing exceptionally badly in car sales. The situation is almost as unprecedented as it is alarming, at least to hedge funds and institutional investors, and it's perhaps the start of something entirely new in the financial world—a situation in which crowdsourcing has mobilized millions of small-time traders to cause billions of dollars worth of damage to hedge funds. The end result was that hedge funds that had been shorting VW stock had lost some $30 billion in the process. In the stock market, a short squeeze is a rapid increase in the price of a stock owing primarily to an excess of short selling of a stock rather than underlying fundamentals. In a nutshell, the GameStop short squeeze began when retail traders in a subreddit—not investment bankers but just people bored of the coronavirus lockdowns—got fed up with a hedge fund that was shorting GameStop stock. Volkswagen In 2008 Volkswagen, like GameStop was a favorite of short sellers, but saw a massive rise in price over a short period in October 2008 when the … We analyze millions of used cars daily. The German government, however, owned another 20.2%. The common thread is that those who had been shorting Tesla stock over the past few years have absorbed significant losses in the process, spread out over a longer period of time. Which makes it impossible to charge them with securities fraud. And at its core, it's not dissimilar with what Porsche had done a decade prior with Volkswagen stock. This disparity caused short sellers to rush to buy more stock to cover their positions, driving the stock price further still through the month of October 2008, with VW stock price now hovering just above €900, and at one point exceeding €1,000 in intraday trading. In 2008 Volkwagen got squeezed, but that was a raid. Volkswagen briefly became the world's biggest company by market value on Tuesday, as short sellers caught betting on a price drop with … Show full articles without "Continue Reading" button for {0} hours. See good deals, great deals and more on Used Volkswagen Jetta in Salt Lake City, UT. Shop, watch video walkarounds and compare prices on Volkswagen Beetle listings in Salt Lake City, UT. The squeeze itself happened in late 2008. Meanwhile, GameStop stock price kept going up because it was attracting attention from other traders, creating a snowball effect, with more traders joining in to make some money on its way up. This can drive the market price of the stock down, and at that point the hedge funds would buy the stock back for less money, keeping the difference minus any fees paid to those who they've borrowed it from. Well first it was an event driven squeeze. VW stock shot up as investors who had bet on a fall in its share price scrambled to cover losses on their short positions, says John Authers ... October 28, 2008 It turned out to be … The squeeze itself happened in late 2008. The squeeze in Volkswagen was so dramatic that it even led to some rumors, which turned out to be unfounded, that investment banks Goldman … Perhaps it's that hedge funds are now far more vulnerable to sudden and artificial stock rallies when it comes to stocks that they had been shorting for months or years, betting on troubled companies to lose stock value in difficult financial times. The premise of shorting by hedge funds essentially involves the funds betting on a stock dropping in price in the long term, and making money by borrowing shares of stock for a fee and then selling these shares to buyers who could pay a lower price. By that time VW became the most valuable automaker on the planet thanks to its stock price having skyrocketed, while … A much smaller company than VW, Porsche had made a lot of money in a short period of time due to hedge funds betting on VW losing money. Search over 2,500 listings to find the best Salt Lake City, UT deals. The squeeze itself happened in late 2008. One of the most important features of the Ford Focus RS is its Drift Mode, which Ford engineers apparently created by accident. These bushings, and an alignment are on my 2008 to-do list. A short squeeze occurs when there is a lack of supply and an excess of demand for the stock due to short sellers having to buy stocks to cover their short positions. The stock move is reminiscent of a short squeeze that briefly made VW the world’s most valuable company in 2008. Search from 202 Used Volkswagen Jetta cars for sale, including a 2008 Volkswagen Jetta SE, a 2010 Volkswagen Jetta S, and a 2017 Volkswagen Jetta S ranging in price from $2,989 to $55,995. GameStop, a mall-based video game store suffering from both reduced foot traffic and the growth of online games during the pandemic, was seeing its stock decline due to these natural market conditions. The term “infinity squeeze” was invented to describe what happened with one of the biggest short squeezes of all time, which happened with Volkswagen in 2008. The Volkswagen squeeze has a huge economic significance. A much smaller company than VW, Porsche had made a lot of money in a short period of time due to hedge funds betting on VW losing money. Our car experts choose every product we feature. In turn, this caused short sellers to … The squeeze itself happened in late 2008. This left very little that could be purchased by anybody else. _____ '87 Westy Weekender - daily driver on salt-free roads ... when you tighten the bolt and "squeeze" the two bushings together, you are forcing the bushings to align. The result for Porsche was that it had been able to make billions in just a few weeks at a time when the auto industry was doing exceptionally badly in car sales. It did so by buying up VW shares in an effort to gain a greater foothold in the company, which at the time was a frequent but unrelated business partner. This can drive the market price of the stock down, and at that point the hedge funds would buy the stock back for less money, keeping the difference minus any fees paid to those who they've borrowed it from. Instead, shares soared 379%… in just two days. Even if you don't follow stock market news, you've probably been inundated with news with what's happening to GameStop stock on social media. In a nutshell, the GameStop short squeeze began when retail traders in a subreddit—not investment bankers but just people bored of the coronavirus lockdowns—got fed up with a hedge fund that was shorting GameStop stock. What started happening a few days ago is that the effort of Redditors to drive GameStop's stock price up began working, inching the price of the stock upward, and hedge funds got caught on the wrong side of their bet. Gallery: The winners and losers - so far - in Reddit traders' war on Wall Street that sent GameStop shares skyrocketing (Business Insider). The starting point for the short squeeze at that time was Porsche's desire to accumulate more voting rights in Volkswagen. Oct 28: Volkswagen short squeeze. A gathering of irate Redditors have made billions of dollars of harm multifaceted investments shorting GameStop stocks. Dougherty (2009) names a couple of hedge funds with large exposures and describes how the world's 94th richest man at that time, German billionaire Adolf Merckle, ended his own life … That's a pessimistic view for sure, since very little regulation emerged in the aftermath the 2008 financial crisis. Is there a moral to this story? Within two days, price of VW quadrupled. Melvin Capital Management, the hedge fund in this case, had to start buying the same stock at a higher price because it had to cover its short. Even if you don't follow stock market news, you've probably been inundated with news with what's happening to GameStop stock on social media. Still, that punishment could come down on small-time traders sitting at home, as hedge funds run to the government screaming for help as AMC theaters and BlackBerry stock are appearing in the sights of the Reddit trader army. This left very little that could be purchased by anybody else. By that time VW became the most valuable automaker on the planet thanks to its stock price having skyrocketed, while the short position had ballooned to 12% of outstanding shares. Perhaps another moral of the story, one that could materialize relatively soon in response to this debacle for hedge funds and institutional investors, could be heavier regulation of retail traders—not the big banks or hedge funds. By that time VW became the most valuable automaker on the planet thanks to its stock price having skyrocketed, while … GameStop had been trading at a fairly low price and was expected to drop further. It did so by buying up VW shares in an effort to gain a greater foothold in the company, which at the time was a frequent but unrelated business partner. NEW YORK — On Wall Street, a corner is not just an intersection of two streets. The October 2008 short squeeze on shares of Volkswagen AG has since been referred to as the “Mother of all Squeezes”. Porsche had effectively made more money in trading stock than in selling cars—and it's not dissimilar with what has been happening with Tesla stock in the recent months, either, with Tesla becoming the world's most valuable automaker. 5 Minute Takeaway. Back in 2008, German automaker Volkswagen A G (OTC:VWAGY) briefly became the most valuable company in the world when its market cap peaked at $370 billion thanks to a … We may earn money from the links on this page. We’re going to revisit that event in the blog. In 2008 Volkswagen announced that Porsche increased their stake in the company. Save $4,184 on a 2008 Volkswagen Jetta near you. Search over 34,100 listings to find the best Salt Lake City, UT deals. Still, that punishment could come down on small-time traders sitting at home, as hedge funds run to the government screaming for help as AMC theaters and BlackBerry stock are appearing in the sights of the Reddit trader army. The origins of where this term came from the Volkswagen, VW Infinity Squeeze in 2008. Here’s how the GameStop short squeeze resembles the VW squeeze of 2008. Melvin Capital Management, the hedge fund in this case, had to start buying the same stock at a higher price because it had to cover its short. Market Insider is a business news aggregator for traders and investors that proposes to you the latest financial markets news, top stories headlines and trading analysis on stock market, currencies (Forex), cryptocurrency, commodities futures, ETFs & funds, bonds & rates and much more. Am 26. Microsoft and partners may be compensated if you purchase something through recommended links in this article. The premise of shorting by hedge funds essentially involves the funds betting on a stock dropping in price in the long term, and making money by borrowing shares of stock for a fee and then selling these shares to buyers who could pay a lower price. The stock price had gone from about $20 at the start of 2021 to more than $347 before the close of trading on Wednesday. For 2008 alone, CEO Wiedeking received a bonus of €80 million. Volkswagen Infinity Squeeze. He was then “pushed out” of Porsche in 2009, but was given an additional bonus of €50 million on his way out. As Porsche started buying up VW shares, seeiking more voting rights and control of the board, VW stock price continued to inch up through 2006 and 2007, going from about €30 in 2005 to over €150 by 2007, seemingly absent any outside reason. As Porsche started buying up VW shares, seeiking more voting rights and control of the board, VW stock price continued to inch up through 2006 and 2007, going from about €30 in 2005 to over €150 by 2007, seemingly absent any outside reason. If the short works out as planned, the hedge funds profit, but when it doesn't and the price of the stock goes up for some reason, the damage to the fund can be colossal. As unprecedented as the situation seems at the moment—and it is, since such coordination among retail investors has been rare—it's similar to something that happened to Porsche and Volkswagen more than a decade ago, though for different reasons.