Uh oh. Short selling of renewable energy stocks has hit the highest level in a year.
Hedge funds increased short selling in U.S. renewable energy stocks to the highest level in a year, boosting bets against First Solar Inc. and Tesla Motors Inc. as government support for low-polluting technologies faltered.
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Short selling, as you may know, is a way for investors to profit when a certain stock falls in value. It works like this: An investor borrows Tesla stock and promises to give it back. Then it sells that stock for its current price—say, $10 a share. If the bet pays off, by the time the investor has to give the stock back to the lender, the price has fallen well below that $10 mark, and the investor can buy it for considerably less than the sum he got when he sold it.
Republican gains in the midterm elections have put the future of clean energy subsidies (and carbon regulations) in peril and that has made these businesses look shakier. And because they look shakier, investors are shorting them, and thereby making them shakier.
I, for one, would feel pretty weird if my paycheck depended on the failure of some promising solar technology innovator. But that's why I didn't go to Goldman Sachs like a huge percentage of my Harvard classmates. I would have made a terrible investment banker.
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