The Setup That Made Volkswagen the Most Valuable Company on Earth
When Shorts Run Out of Shares
Note: When someone shorts a stock, they are betting the price will fall. But if the price goes up, they have to pay whatever it costs to close. That is how bankruptcies happen. The maximum upside on a short is a double. The maximum downside is generational debt.
When people talk about short squeezes, most remember GameStop. Reddit. Memes. Diamond hands. But that was a circus. The real squeeze, the one that actually broke institutions, happened in October 2008.
Volkswagen.
Back then, VW was one of the most shorted stocks in Europe. Hedge funds were piling in. The thesis was that the global economy was collapsing. Car sales were falling off a cliff. So they shorted it. Hard.
What they did not know was that someone had been quietly buying up everything.
On Sunday, October 26, Porsche dropped a bombshell. They announced they held 42.6% of VW ordinary shares outright. But that was not all. They also controlled another 31.5% through cash settled options. That gave Porsche economic control over 74.1% of Volkswagen. Then there was Lower Saxony. The German state held another 20.1% and had made it publicly clear they had no intention of selling. Not a single share.
Do the math. Porsche had 74.1%. Lower Saxony had 20.1%. That is 94.2% locked up. The entire tradeable float for one of the largest car companies in the world was somewhere between 5.8% and 5.9%.
And here is the problem. On October 25, roughly 12.8% of VW total market cap was a massive short position. So you had about 12.8% of shares sold short against a free float of less than 6%. More shares were sold short than actually existed for trading. And then it happened.
On Tuesday, October 28, Volkswagen opened and did not stop going up. The stock had closed around €211 the session before. It hit an intraday high of €1,005. It closed the day around €945. In less than 48 hours, VW became the most valuable company on the planet by market capitalization. Not because the business was worth that much. Because short sellers were scrambling to buy shares that did not exist.
Hedge funds were destroyed. Billions were lost. People lost careers. Some funds shut down entirely. When there are more short positions than available shares, there is no exit. There is only pain. Now here is why I am telling you this story.
I know, I know. Alpha again. This stock keeps me up at night so you are all going down with me. 😄
Volkswagen had about 13% of its shares sold short back in 2008. That was enough to create the most violent squeeze in stock market history. Alpha Metallurgical Resources today sits at 23%!
Are we looking at something even crazier?
