Friday Night Links

• We show that short interest is arguably the strongest known predictor of aggregate stock returns. It outperforms a host of popular return predictors both in and out of sample, with annual r-squared statistics of 12.89% and 13.24%, respectively. In addition, short interest can generate utility gains of over 300 basis points per annum for a mean-variance investor. A vector autoregression decomposition shows that the economic source of short interest’s predictive power stems predominantly from a cash flow channel. Overall, our evidence indicates that short sellers are informed traders who are able to anticipate future aggregate cash flows and associated market returns. [SSRN]
  
• What kind of project would require that these people specifically, get together, and lie about why they’re doing it? What binds all of these people together is the destruction and plunder of the Soviet Union. What would be the next step after that? [M Mabeuf]
• Since bidders can observe each other’s bids, bidders can coordinate on a collusive agreement, and then enforce the agreement by punishing deviations. Until recently, bidders were able to broadcast their strategies with their bidding. For example, bidders could engage in “code bidding”—attaching market numbers in the trailing digits of their bids to tell another bidder where it would be punished if it continued its bidding on a certain license, or what license to back off of if it wanted to avoid further punishment.2 Also, bidders could use an unlimited number of withdrawals to emphasize punishment bids. To do this, a bidder would bump a rival from a license, and then immediately withdraw the bid to indicate that it was not bidding on this market because it wanted to win the market, but to warn the rival that it could raise the price on this market as a punishment for the rival bidding elsewhere. Withdrawals may also be used to coordinate a cooperative split of the licenses. A bidder moves off or withdraws from the markets it least wants or anticipates the rival most wants as a quid pro quo for the rival to do likewise. This “lateral handoff” lets the bidders sort out who gets what without resorting to prices. [pdf]
• Evan Oosterink, a 19-year-old college student in the Netherlands, knew almost nothing about GameStop when in December he chose the company for one of his first big stock-market bets, calling it some kind of “American games shop where you can get all your games,” he said. But his favorite Reddit forum, WallStreetBets, was increasingly obsessed with it, casting it as a way to crush billionaires, move the market and profit heavily in the process. Energized by its rising price, Oosterink said he invested another 8,000 euros last month — nearly $10,000, mostly from years of savings from his parents and some government college loans — leaving only about 30 euros in his personal account. Had he sold last week, he could have pocketed a typical American’s annual salary. But as the stock has crumbled, he has turned to the forum for reassurance, posting a screenshot from his online-banking app showing the day’s losses, totaling about $9,000. He said he was “deep in losses but holding will prevail,” and included the emoji for a rocket and “diamond hands,” the forum’s lingo for not selling when a stock nose-dives. “Being a part of WallStreetBets, it’s like a religion you’re devoted to,” he said on a Tuesday phone call from his parents’ home, where, in his bedroom, he has hung up a printed-out meme image featuring Jesus Christ, the Virgin Mary and Tesla chief executive Elon Musk, with GameStop’s logo shining above them. [WaPo]
• Oregon’s governor and legislature don’t need any Republican votes to rule Oregon. None of the Democrats in the legislature represent a rural area. This is why Oregon passes laws that kill industries in eastern, central, and southern Oregon. They don’t protect us from rioters, forest arsonists, or school curricula that teach kids to hate Americans and Americanism. And they pass laws that violate our sacred conscience. We can’t let our money support their system anymore. We are outnumbered, we don’t have leverage, and things will continue to get worse. You love your community.  You’ve invested time in family, friends, and workplace there. Our strategy is a long shot, but together we may be able to save our communities by making them a part of Idaho. State lines have been moved many times before. Idaho respects traditional morality and justice, and it doesn’t get in the way of rural livelihoods. It has lower tax rate and a lower cost of living. Our main document explains the details of our proposal. In our FAQ we explain why ideas like trying “harder” to win elections or trying to convince the legislature to give us our own state are less likely to happen. We need a to unite our neighbors around the idea of moving the border so that we can convince state legislators to stop holding our counties captive in a blue state. Voters in two counties voted in favor of this idea in November. We expect several to vote in favor in May 2021. [Greater Idaho]
  
• Today I had an epiphany that the markets — as they glory in their wanton, unchecked fraud — are now exhibiting the same dynamics as a crowd looking to riot. As the Scholars Stage blog explained, riots are inherently a coordination problem. The same can be said for pump & dump schemes. If you consider investors as a motley crew of animal spirits, it would certainly stand to reason that at any point in time there exists a non-trivial number of investors that would gladly engage in blatant pump & dump stock manipulation. Their problem, of course, is how to coordinate. Like soccer hooligans looking for a riot, they need “an incident.” [CBS]
• What the institutionalists can never understand about the meme stock bros is their loyalty. When they say Hold The Line, they’re acting on spontaneous, organic fealty not just to their own individual bottom line financial interests but to the spirit of solidarity w/ their bros. No nation to believe in, no church, no community, (in many cases) no family...people are finding something bigger than themselves to belong to, and they are putting the collective energy of that tribe into action against who they identify as robbing them of the above. [CBS]