One shouldn’t laugh, I suppose, but you have to admit that what’s been happening to VW’s share price is a hoot. Here’s the FT report:

Volkswagen briefly became the world’s largest company by market capitalisation on Tuesday after an extraordinary surge in its share price driven by a near-panic by hedge funds and other traders to stem losses on positions betting on a fall in the stock.

The extent of the surge, which has led to sharp criticism of German capital markets, triggered intense market speculation that it could force the collapse of hedge funds and heavy losses for investment banks.

VW’s share price rose 82 per cent to €945 following Monday’s 147 per cent jump, leaving it with a market capitalisation of about €287bn ($360bn).

At the stock’s intra-day peak of €1005, its market capitalisation exceeded Exxon before the US oil company started trading yesterday.

It seems that hedge funds, reckoning that VW shares were bound to fall, borrowed them and sold them short. What they apparently didn’t realise is that Porsche and the State of Saxony between them owned or had options on 95% of VW shares. Frantic bidding for the remaining 5% resulted in crazy valuations of a car manufacturer that is — like all its peers — facing a bleak short-term future.

Heh, heh.