The Truth About the Bed Bath & Beyond (BBBY) Short Squeeze

Ken Griffin, founder and manager of Citadel Advisors, which made an absolute killing on BBBY's surge today.

Bulls kept on rolling this morning (why wouldn’t they) after Walmart (NYSE: WMT) and Home Depot (NYSE: HD) reported a pair of earnings “beats.” The Dow, S&P, and Nasdaq Composite all climbed slightly higher through noon, extending the dizzying rally of the last few weeks.

And it’s mostly because Walmart exceeded earnings per share (EPS) estimates while leaving its forward guidance unchanged in an earnings call this morning. Many analysts were concerned that the retailer would downgrade its 2022 outlook after issuing profit warnings in the months prior. That didn’t happen, and WMT shares jumped roughly 6% in response.

Home Depot faced similar difficulties as shareholders wondered whether inflation would cut into the store’s bottom line. Home Depot similarly beat EPS estimates while maintaining its existing forward guidance. HD shares rose 5.4%.

Other retailers – Target, Best Buy, Bath & Body Works – joined in on the action and gained strongly as well. Target and Bath & Body Works both report earnings tomorrow.

But the biggest retail gainer on the day was without a doubt Bed Bath & Beyond (NASDAQ: BBBY), which rallied over 50% as of noon. BBBY shares were already up 251% off their late July lows.

Several analysts tagged the stock with “sell” ratings over the last few days as a result.

“BBBY has recently gained the attention of retail traders in the Wall Street Bets Reddit forum again, which gained notoriety during the GameStop saga back in January 2021,” said B. Riley analyst Susan Anderson in a note to clients.

“We believe BBBY is currently trading at unrealistic valuations.”

Speculators took that as a challenge and flipped BBBY’s 4% premarket loss into a massive gain, wiping out scores of shorts in the process. BBBY shares were halted after the stock was (temporarily) up 75% on the day.

“Meme stock” peer GameStop (NYSE: GME) rose 10% as well.

And though the short squeezes of the past were intended to target hedge funds with enormous short positions, this one actually made many Wall Street firms a whole lot richer. In fact, hedge funds were largely responsible for the squeeze.

Citadel Advisors, for example, holds over 2.3 million shares of BBBY. Citadel was one of the hedge funds wounded most by the GME short squeeze last year.

Today alone, though, the fund made over $20 million while retail investors were left with the scraps. Some folks made eye-popping gains to be sure.

But, overall, this was a Wall Street-driven squeeze. No doubt about it.

And the lesson to learn here is that hedge funds aren’t dumb (for the most part). They saw what happened last year as an opportunity, not a setback.

These funds want to make money and their clients don’t care how they achieve that goal. If that means switching sides and joining the “squeezer” speculators, then so be it.

Activist retail traders were quick to celebrate the rally as a win against Wall Street bears. In reality, though, only a few mega-short institutional investors were burned this morning. The hedge funds are set to walk away net positive when this squeeze ends, and with the lion’s share of the gains.

Because in America today, our top industry is no longer manufacturing, technology, or even intellectual property.

It’s fraudulent schemes, cooked up by individuals running America’s elite institutions in the name of exploiting everyone else. Today’s BBBY rally is yet another example of that despite this morning’s headlines, which suggest that small-time traders managed to pull off a 2021-like “giant-killing” of hedge funds, when the truth is the exact opposite.


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