The Irony in the GameStop Story(nasdaq.com)
nasdaq.com
The Irony in the GameStop Story
https://www.nasdaq.com/articles/the-irony-in-the-gamestop-gme-story-2021-01-25
103 comments
I swear, GME is the feel-good story of the year.
I sincerely hope this comment ages well, but I doubt it will. A scenario where a majority of the retail traders in GME right now come out ahead would be surprising.
Agreed. There's a good reason why so many of these hedge funds held short positions -- $GME is a business facing significant headwinds beyond what you'd see from the pandemic and a typical P&L statement:
- Their primary product is used game sales, and the biggest players in that sector are making active moves against such sales (see: the disc-less PS5 and Xbox Series S consoles).
- Digital storefronts make purchasing new games much, much easier (and a borderline impulse purchase).
- Free-to-play multiplayer games cut Gamestop out of the customer acquisition loop. The most $GME gets is a cut of any prepaid cards, but those cards are commonplace nowadays (my local chain drugstore has an end-cap with dozens of prepaid cards of various types).
- Their primary model is to lease space in malls. With the pandemic, malls are either closed or seeing substantially less foot traffic.
- Consoles are typically a big driver of purchases, but their limited availability also limits $GME's potential. That said, that can be counterbalanced by very profitable bundles made more attractive by the limited availability of unbundled consoles.
I don't play the stock market, but even if I did, $GME wouldn't be something I'd look at in a buy-and-hold strategy.
- Their primary product is used game sales, and the biggest players in that sector are making active moves against such sales (see: the disc-less PS5 and Xbox Series S consoles).
- Digital storefronts make purchasing new games much, much easier (and a borderline impulse purchase).
- Free-to-play multiplayer games cut Gamestop out of the customer acquisition loop. The most $GME gets is a cut of any prepaid cards, but those cards are commonplace nowadays (my local chain drugstore has an end-cap with dozens of prepaid cards of various types).
- Their primary model is to lease space in malls. With the pandemic, malls are either closed or seeing substantially less foot traffic.
- Consoles are typically a big driver of purchases, but their limited availability also limits $GME's potential. That said, that can be counterbalanced by very profitable bundles made more attractive by the limited availability of unbundled consoles.
I don't play the stock market, but even if I did, $GME wouldn't be something I'd look at in a buy-and-hold strategy.
The stock will resettle at something far lower than it is now, most people realize this. They are trying to ride this thing until the margin calls come in and a substantial number of short positions are closed. If that happens there will be blood in the water and big money for anyone able to sell during the frenzy. After that, it's everyone for themselves.
their online store is pretty damn good, though. Not sure what % of their total revenue it accounts for, but I'd wager it isn't negligible.
Yeah, all the early holders will be fine and will have the lions share of the gains. Everyone else who has dogpiled in will have more mixed results.
I'd agree, although if https://www.highshortinterest.com/all/ is accurate, there's 69M shares of GME short sold at the moment, which is quite a lot of money potentially to be made by people holding the shares when those short positions are settled.
Unfortunately, the hedge funds will be 100% fine and probably capitalize on this event and somehow still come out ahead. The WSB folks who started this have probably already sold out so they're fine. It's average everyday folks who bought into this robin hood (not the app) story and purchased stock at recent prices who will lose a lot of money
Yeah. Most of the firms involved will be fine. A number of retail investors who got in early on have probably made serious dough. People who bought a share or two for the lulz whatever. Others who saw this as a big opportunity to make money they otherwise had no hope of making? At least some will be bankrupt, lost the money they were saving up for a house downpayment, lost retirement savings, etc.
> The WSB folks who started this have probably already sold out so they're fine
the biggest player in /r/wallstreetbets is /u/DFV, and last I checked he had cashed out a small portion of his position. Still has like 30mill tied up in GME stock though.
Crazy story looking at his posts from 2019-now, though. At one point his GME portfolio was only worth 42k, and now it is over 40mill.
the biggest player in /r/wallstreetbets is /u/DFV, and last I checked he had cashed out a small portion of his position. Still has like 30mill tied up in GME stock though.
Crazy story looking at his posts from 2019-now, though. At one point his GME portfolio was only worth 42k, and now it is over 40mill.
Gotta say I agree, after hearing non crap news for a year. It's nice to see a hedge fund eat their hat.
I think the sentiment will shift when people realize that some of these hedge funds invested people's pension money, or university endowments, or any other number of people's funds. WSB has promoted a cartoonish version of Wall Street where hedge funds only hold rich, evil people's money. That's not really how this works.
A lot of people are also going to be disappointed to learn that some Wall Street firms profited massively from this situation.
And finally, a lot of retail investors who were late to the party are going to lose a lot of money on this. Some of that will flow to early Redditors who got their exit timing right. Some of that will flow to hedge funds who cleverly scooped up the naive money in the chaos.
I'd go so far as to bet that journalists are already working on articles with all of these angles. They'll start to trickle out just as soon as the market euphoria wanes.
A lot of people are also going to be disappointed to learn that some Wall Street firms profited massively from this situation.
And finally, a lot of retail investors who were late to the party are going to lose a lot of money on this. Some of that will flow to early Redditors who got their exit timing right. Some of that will flow to hedge funds who cleverly scooped up the naive money in the chaos.
I'd go so far as to bet that journalists are already working on articles with all of these angles. They'll start to trickle out just as soon as the market euphoria wanes.
> when people realize that some of these hedge funds invested people's pension money, or university endowments, or any other number of people's funds.
What if, rather than make the sentiment shift in the direction you think it's going, it actually makes people more upset for hedge funds gambling away main street's money irresponsibly? It's almost as if those who treat other people's money as a casino shouldn't get sympathy from those other people.
What if, rather than make the sentiment shift in the direction you think it's going, it actually makes people more upset for hedge funds gambling away main street's money irresponsibly? It's almost as if those who treat other people's money as a casino shouldn't get sympathy from those other people.
I hate this sentiment so much. As if it's a bad thing that Wall Street gangster hedge funds are finally feeling the squeeze that they put on everyday working people, just because some of the money they control is pension money or university endowments. It's literally the same rationale people use to justify staying in abusive relationships. Controlling some crumbs of the great unwashed's money gives these billionaires zero moral authority to do the crap they get away with every single day. Fuck them, then fuck them again. They deserve every ounce of this and then some.
> As if it's a bad thing that Wall Street gangster hedge funds are finally feeling the squeeze
It's categorically false to suggest that Wall Street hedge funds are all suffering from this.
Some of them are making massive amounts of money on this situation. Some of that money comes at the expense of casual investors.
This idea that Redditors are siphoning money out of hedge funds is just not true for the last round of GME investors. In fact, those latest investors will probably end up funneling their losses right into hedge funds who short this on the way back down.
It's categorically false to suggest that Wall Street hedge funds are all suffering from this.
Some of them are making massive amounts of money on this situation. Some of that money comes at the expense of casual investors.
This idea that Redditors are siphoning money out of hedge funds is just not true for the last round of GME investors. In fact, those latest investors will probably end up funneling their losses right into hedge funds who short this on the way back down.
"Pensions and university endowments" are the "women and children" of the financial world. Everyone constantly harps on these classes of people in order to play to your emotions instead of thinking logically. The great thing about America is we allow you to make "stupid" choices. No one should care if you lose all your money by acting stupidly, doesn't matter if you're Harvard or a heroin addict. If you rely on a pension or university endowment for funding you should take up a greater interest in where that money is being invested.
The financial institutions will be fine. Meanwhile some unsophisticated investors who saw this as the financial opportunity of a lifetime will lose their shirts and their homes.
Until it cascades like Lehman and AIG with USA citizens holding the bag. In two days we are 33,333 days since the crash of 1929.
If that is possible here, there needs to be more regulation on hedge funds so they do not operate in a "heads I win, tails the US govt. bails me out" scenario.
The solution is simple, do not bail them out.
That's the most hilarious part of it. It's a given that someone is going bankrupt big time and someone is going to want to be made whole. They will threaten the stock market until the USG bails them out.
Cascading already happened last March and the Fed bailed out the market. That backstopping has clearly helped buoy the market to new highs, while the real economy is contracting.
Something like this could trigger a cascade, but that cascade would rest solely on the people who built this bubble.
Something like this could trigger a cascade, but that cascade would rest solely on the people who built this bubble.
This is nothing like the size of the bubble (US housing market) that precipitated those crashes.
It is actually. The housing market had real collateral even if it was overly appraised.
No, it's not. Not even close.
The current market cap of GME is $25 billion. Meanwhile, the size of the subprime mortgage market in 2008 was in the neighborhood of $50 trillion.
The current market cap of GME is $25 billion. Meanwhile, the size of the subprime mortgage market in 2008 was in the neighborhood of $50 trillion.
Shorting losses can be infinite. Then add in the derivatives at play. Who backs these trades? Who backs them? What gets triggered when any of these default on their contracts?
The bubble may become more visible if a chain reaction is started.
https://twitter.com/PigeonsK/status/1354824493982773249
Argument for cascading.
Argument for cascading.
The assumptions in that 4chan screenshot are putting in a lot of work.
Who backs each party isn't that hard to verify. The only assumption is the copy cat trading of Melvin's strategy which seems fairly safe to make.
Well, one assumption is that the exposure is actually a meaningful number to an investment bank.
The irony of manipulating markets against market manipulators is delicious.
This will also punish over exposed players who are probably reviewing their short positions as this unfolds.
Wall Street moguls will have their revenge. Count on it.
The story isn’t over yet.
Off topic but I noticed a large number of large empty white spaces. Then I realised that my browser is blocking all those ads. Kind of sad how much of that page is ads.
WOW, those are some serious ad spaces...
If anyone wonders, this is what the page looks like on Firefox with uBlock Origin: https://imgur.com/bvrLMTv
If anyone wonders, this is what the page looks like on Firefox with uBlock Origin: https://imgur.com/bvrLMTv
Kinda weird that Nasdaq needs ads to survive, or is it just out of greed?
> Left claims that the “mob” has overstepped the mark and harassed him and even his family in a way that is actually illegal. If that is true, shame on them, and those involved should be prosecuted. This must be condemned without hesitation; nothing excuses that type of behavior. Online harassment of those with different opinions, particularly in pursuit of profit, is disgusting and becoming all too common, and standing up against it is important. (...)
I'm a bit lost with this article. What have an "angry mob" been doing to Andrew Left and his family in an "actually illegal way"? Seems to me this article is swaying to some type of narrative someone wants to propagate rather than aiming to be somewhat objective regarding current events.
I'm a bit lost with this article. What have an "angry mob" been doing to Andrew Left and his family in an "actually illegal way"? Seems to me this article is swaying to some type of narrative someone wants to propagate rather than aiming to be somewhat objective regarding current events.
> Seems to me this article is swaying to some type of narrative someone wants to propagate rather than aiming to be somewhat objective regarding current events.
Note the "If". Left had indeed claimed that there were attacks on his personal peers, and I agree that if it were true it is overstepping their right to privacy and probably life if the claimed attacks were death threats.
HOWEVER, if it turns out that Left is lying I will agree that Left have commited defamation against a group of possibly hundreds of thousands of people and I would really suggest to him at that moment (apart from what the law thinks appropriate, which is a somewhat long prison time) to really apologise and permanently stay outside of the stock market.
He is English and I knew from reading their (in a country sense) opinion pieces that they tend to put distance in unsure or unverified information, possibly because of the much stricter libel/defamation laws there (see as an example https://youtu.be/z49LjJj3VTI that discusses why there is avoidance on the phrase "tired and emotional" which acquired a different meaning in UK). I guess that this is just an unintentional carryover especially that American opinion pieces don't really delinate fact from opinion in their writing.
Note the "If". Left had indeed claimed that there were attacks on his personal peers, and I agree that if it were true it is overstepping their right to privacy and probably life if the claimed attacks were death threats.
HOWEVER, if it turns out that Left is lying I will agree that Left have commited defamation against a group of possibly hundreds of thousands of people and I would really suggest to him at that moment (apart from what the law thinks appropriate, which is a somewhat long prison time) to really apologise and permanently stay outside of the stock market.
He is English and I knew from reading their (in a country sense) opinion pieces that they tend to put distance in unsure or unverified information, possibly because of the much stricter libel/defamation laws there (see as an example https://youtu.be/z49LjJj3VTI that discusses why there is avoidance on the phrase "tired and emotional" which acquired a different meaning in UK). I guess that this is just an unintentional carryover especially that American opinion pieces don't really delinate fact from opinion in their writing.
I was shocked when Leon Black was quoted as using 'confirmed bachelor' to describe Epstein in the Financial Times. He clearly doesn't know what that means in the UK either.
They probably don't want to share details for the sake of the family's privacy. I assume it's the typical online harassment stuff: threats to the family's physical safety because of Left's opinions.
It's a smear campaign plain and simple. Louis Rossmann the apple repair guy on youtube has laid it out: https://www.youtube.com/watch?v=k_oNLeMuxvg
He claimed that people shared his home/personal phone and were calling him and his children and threatening them.
I still feel like these stories are missing a core distinction.
If these WSB folks rallied around GME because they were true believers of a beloved brand with faith in a turn around plan, god love em. I think that’s an interesting phenomenon that upgrades retail collective trading in much the same ways mutual funds behave on behalf of loads of retail investors.
But that’s not what happened. The brand is irrelevant. It’s just math and vengeance and in the end...a lot of retail folks are going to be left holding the bag as prices drop down to earth. That cannot be a good outcome for anyone. I don’t think we want a system to function like this.
If these WSB folks rallied around GME because they were true believers of a beloved brand with faith in a turn around plan, god love em. I think that’s an interesting phenomenon that upgrades retail collective trading in much the same ways mutual funds behave on behalf of loads of retail investors.
But that’s not what happened. The brand is irrelevant. It’s just math and vengeance and in the end...a lot of retail folks are going to be left holding the bag as prices drop down to earth. That cannot be a good outcome for anyone. I don’t think we want a system to function like this.
Why is now when we start caring about that, though? I don’t think the current position of GME is a reasonable one, but neither is the situation in which 140% of its shares have been shorted. And it’s not just academic: that makes it difficult for the business to grow. The hedge funds are literally trying to suffocate it into bankruptcy.
And yet no one raised the alarm then. No one worried about retail investors with a long position in GME, or the workers who could be laid off. The truth is that almost no one at all cared about the market being detached from reality or the ordinary people left holding the bag when the hedge funds were set to profit. But now that they’re losing, suddenly everyone is beside themselves with worry.
And yet no one raised the alarm then. No one worried about retail investors with a long position in GME, or the workers who could be laid off. The truth is that almost no one at all cared about the market being detached from reality or the ordinary people left holding the bag when the hedge funds were set to profit. But now that they’re losing, suddenly everyone is beside themselves with worry.
> now that they [=hedge funds]’re losing
Are they, though? Sure, some of them lost. But there are others that will only get stronger if some competitors are eliminated (a point also made by https://news.ycombinator.com/item?id=25957142). And even the ones that lost big so far can get back into the frenzy. Buying on the way up... or shorting near the top.
Here is my take on the "irony" of the situation: Hedge funds can make money off of stocks they believe to be overvalued. So the WSB activists handed them... a stock that everyone knows to be MASSIVELY overvalued. Yeah, that will show them.
Are they, though? Sure, some of them lost. But there are others that will only get stronger if some competitors are eliminated (a point also made by https://news.ycombinator.com/item?id=25957142). And even the ones that lost big so far can get back into the frenzy. Buying on the way up... or shorting near the top.
Here is my take on the "irony" of the situation: Hedge funds can make money off of stocks they believe to be overvalued. So the WSB activists handed them... a stock that everyone knows to be MASSIVELY overvalued. Yeah, that will show them.
Right, it's pretty easy to make the case that a lot of the winners are already big players on Wall Street. The biggest example seems to be Citadel, which got to play both sides by trading on Robinhood's order flow and also investing in Melvin at a steep discount.
My point remains, though: where was the concern before the r/wallstreetbets saga? GME was at ~$4 last summer and made it up to ~$20 by the end of last year. If the hedge funds were right and it was massively overvalued, where was the concern for retail investors taking out long positions back then? And conversely, if the hedge funds were wrong, where was the concern for the GameStop workers?
We can go back and forth about the winners and losers, but it's pretty clear that no one really cared about the "ordinary people" before some hedge funds got caught with their pants down.
My point remains, though: where was the concern before the r/wallstreetbets saga? GME was at ~$4 last summer and made it up to ~$20 by the end of last year. If the hedge funds were right and it was massively overvalued, where was the concern for retail investors taking out long positions back then? And conversely, if the hedge funds were wrong, where was the concern for the GameStop workers?
We can go back and forth about the winners and losers, but it's pretty clear that no one really cared about the "ordinary people" before some hedge funds got caught with their pants down.
I disagree. The brand isn’t everything but it isn’t nothing. Look at the targets so far. Companies for which there is a nontrivial amount of 90s and 00s nostalgia. If wsb is driven by 20-30 year olds, a narrative involving a fondly remembered company is going to stick better than one that nobody knows. I don’t think people truly believe in GameStop as a long term success, but the story travels faster if people can remember the name.
Look at Tesla. Musk’s cult of personality is clearly a component of the interest in the stock. I don’t think these are just abstract objects made of balance sheets.
Look at Tesla. Musk’s cult of personality is clearly a component of the interest in the stock. I don’t think these are just abstract objects made of balance sheets.
I think you don't understand what wallstreetBETS is all about.
It's not investments. It's playing the casino. They are betting. And proud of it.
And this is one of the first times they have an advantage over the rest of the table. Because a couple of hedge funds overplayed their hand on a stock small enough to be influenced by the people active in that sub.
They are ready to lose it all just for the lulz. It's entertaining. Expensive, but thrilling.
The same counts for BTC "investments". There are no fundamentals. It's all irrational bets. Bad for the solvency of some, but that's what all casino's are.
It's not investments. It's playing the casino. They are betting. And proud of it.
And this is one of the first times they have an advantage over the rest of the table. Because a couple of hedge funds overplayed their hand on a stock small enough to be influenced by the people active in that sub.
They are ready to lose it all just for the lulz. It's entertaining. Expensive, but thrilling.
The same counts for BTC "investments". There are no fundamentals. It's all irrational bets. Bad for the solvency of some, but that's what all casino's are.
This is what so many people who aren't familiar with the WSB culture are missing. They wring their hands and worry that the "retail investors will be caught holding the bag". True, someone will, but even for those too slow to move on the eventual reckoning I think they are already more than okay with any losses. There has been enough publicity now that it's pretty clear that this stock is a battlefield and any casual observers had best stand back until the dust settles. For the most part the only people getting hurt here are combatants who are ready for this sort of thing.
No I do understand that. And I’m suggesting that is a bad thing.
It’s also illegal, which seems to have been left out of all the conversations.
“ The rush by short sellers to cover produces additional upward pressure on the price of the stock, which then can cause an even greater squeeze. Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal.”
https://www.sec.gov/investor/pubs/regsho.htm
It’s also illegal, which seems to have been left out of all the conversations.
“ The rush by short sellers to cover produces additional upward pressure on the price of the stock, which then can cause an even greater squeeze. Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal.”
https://www.sec.gov/investor/pubs/regsho.htm
What's the standard for manipulation?
If retail investors publicly coordinate buys is that manipulation?
What if they pool their assets and appoint a controller? ("make their own managed fund").
If retail investors publicly coordinate buys is that manipulation?
What if they pool their assets and appoint a controller? ("make their own managed fund").
the standard (as a regulated person) is intention - you don't even have to succeed at moving the price in order to be guilty of market abuse/manipulation
What is illegal or not in finance feels more or less arbitrary.
I’m sorry if I’ve just missed that in your linked text but doesn’t sec text concern only short selling and not actual buying?
I'm pretty sure bringing up fundamentals is intentional FUD. Nobody is investing in any of these because of fundamentals. It's the public vs hedge funds and GME et al is the battlefield.
The more people take part and have strong hands, the more the losses will be democratized, on the way to the real desired outcome against naked shorting hedge funds. I don't mind losing a couple hundred bucks investment for this.
The more people take part and have strong hands, the more the losses will be democratized, on the way to the real desired outcome against naked shorting hedge funds. I don't mind losing a couple hundred bucks investment for this.
I get furious whenever I hear the talking heads say “fundamentals”, as if 140% of the stock being held in short positions makes sense.
It’s a credentialist argument. Whatever we say the stock is worth is fundamentally correct, and if you disagree, well, you’re just an unsophisticated investor who shouldn’t be allowed to participate in the market.
It’s a credentialist argument. Whatever we say the stock is worth is fundamentally correct, and if you disagree, well, you’re just an unsophisticated investor who shouldn’t be allowed to participate in the market.
I don't think it's credentialist. It's not short for no reason. Even a layman can piece together GS business model doesn't have much life left and so the stock ought to have downward pressure. Hedge funds are pursing that strategy. You may disagree but it's a rational argument with a rational arbitrage. They may be wrong, but such as life.
On the other hand, WSB is basically saying, "So what? We don't care about the argument, we don't care about the true value here, we're just exploiting a market dynamic (probably illegally), and collectively interfering with the ability of hte market to price this efficiently, and we just want the number on the price to move so we can cash out."
The history of financial markets is littered with the bodies of unsophisticated investors participating for non-fundamental reasons. Tulips, .com, real estate bubble. Every mania in history follows this pattern of being driven more by the emotion and inertia of the game vs. the underlying fundamentals, this looks no different to me.
On the other hand, WSB is basically saying, "So what? We don't care about the argument, we don't care about the true value here, we're just exploiting a market dynamic (probably illegally), and collectively interfering with the ability of hte market to price this efficiently, and we just want the number on the price to move so we can cash out."
The history of financial markets is littered with the bodies of unsophisticated investors participating for non-fundamental reasons. Tulips, .com, real estate bubble. Every mania in history follows this pattern of being driven more by the emotion and inertia of the game vs. the underlying fundamentals, this looks no different to me.
You don't take a position based on a company's business model, you do it based on whether you think a stock will go up or down. That's it. Business model is one signal, as is the current stock price.
Hedge funds took short positions because in their model, given GameStop's business and whatever other factors, the stock was due to drop. That's valid, but it's no more valid than the WSB model that the price would skyrocket because overexposed hedge funds would be forced to close their short positions. What is the fundamental argument that GME was overpriced at $20?
Also, "unsophisticated investors" are not the only ones participating for non-fundamental reasons. When Citadel pays for order flow from Robinhood and then gets out in front of those trades, they're not trading based on fundamentals, they're trading based on momentum. Is that not also interfering with the ability of the market to price GME efficiently?
Hedge funds took short positions because in their model, given GameStop's business and whatever other factors, the stock was due to drop. That's valid, but it's no more valid than the WSB model that the price would skyrocket because overexposed hedge funds would be forced to close their short positions. What is the fundamental argument that GME was overpriced at $20?
Also, "unsophisticated investors" are not the only ones participating for non-fundamental reasons. When Citadel pays for order flow from Robinhood and then gets out in front of those trades, they're not trading based on fundamentals, they're trading based on momentum. Is that not also interfering with the ability of the market to price GME efficiently?
I mean binary options are called a scam for a reason...
If 140% of the market cap is sold short, it means the longs own 280% of the market cap - that makes no 'sense' either.
I only have a casual knowledge of this so sorry if these are dumb questions — doesn't it mean the longs own 240% (original 100% + 140% short sold)? Also, isn't it the case that the longs will own >100% if there are any short positions?
I'm sure there is some core set of people that want to "stick it to Wall Street" but the vast majority are probably just along for the ride.
The irony is, once this stock finally comes crashing down, it will be the small retail investors losing a lot of money, and a different set of Wall Street investors will be the ones reaping the reward.
The irony is, once this stock finally comes crashing down, it will be the small retail investors losing a lot of money, and a different set of Wall Street investors will be the ones reaping the reward.
Probably. Those small retail investors should be responsible for their actions though right? This is obviously a highly risky trade, and it takes just a couple minutes to see that's the case.
It’s not really public v hedge funds, because the vast majority of both of them will be on the losing side. The reality is that market makers are probably gonna be the only winners here.
If this is successful, hedge funds will suffer, some retail investors will make a huge return, and some other retail investors will suffer losses at the end, much more than otherwise would have. Obviously not ideal, but no situation is perfect. The losses to the retail investors can be minimized if more join in and they take smaller positions on average.
How do market makers get outsized benefits from this? I'm uninformed.
How do market makers get outsized benefits from this? I'm uninformed.
Here’s a good explanation: https://twitter.com/toxic/status/1353890766800621569?s=21
TL;DR Citadel sees Robinhood order flow and can get in front of it, and also bought a chunk of Melvin on the cheap when they got squeezed out of their short position.
TL;DR Citadel sees Robinhood order flow and can get in front of it, and also bought a chunk of Melvin on the cheap when they got squeezed out of their short position.
It is fine to say "this is a bad situation and we need new regulations to prevent it".
What is not OK is bending and breaking the existing regulations to stop a group of individual investors who are individually doing nothing wrong in order to protect a hedge fund that was exploiting the existing (bad) regulations.
Also, it seems insulting to suggest that the only "good" reason for someone to buy a stock is faith in the fundamentals of the company when finance media has been yapping up the joys of derivative trading for decades.
What is not OK is bending and breaking the existing regulations to stop a group of individual investors who are individually doing nothing wrong in order to protect a hedge fund that was exploiting the existing (bad) regulations.
Also, it seems insulting to suggest that the only "good" reason for someone to buy a stock is faith in the fundamentals of the company when finance media has been yapping up the joys of derivative trading for decades.
Nobody complains about hedge funds making short-term trades based on technicals. Momentum traders, swing traders, automated high-frequency traders front-running order flow, that's all kosher. But let a bunch of retail traders step outside of long-term fundamentals and beat the funds at their own game, and suddenly that's a problem.
People keep assuming the WSB crowd are idiots. I don't think it's a given that they can't do risk management, and in a short squeeze it's generally the short sellers who end up holding the bag.
Anyone who FOMOs in this week is probably in for a hurtin', but the ones who got in before this was all over the media have a good shot at significant profit.
People keep assuming the WSB crowd are idiots. I don't think it's a given that they can't do risk management, and in a short squeeze it's generally the short sellers who end up holding the bag.
Anyone who FOMOs in this week is probably in for a hurtin', but the ones who got in before this was all over the media have a good shot at significant profit.
This is a distributed movement, some people have been holding the stock for over an year+, others bought into it on the past few weeks.
There are people who bought it as a meme stock, when it was relatively stable, as the devaluation from the market transition towards digital media had already mostly been factored into the price. Steam is not a new thing, after all. The fundamentals at the time supported the price, in hindsight it was about the lowest price the share has ever been at[1].
The CEO change precipitated other people to buy into the fad. This combined with the short overexposure counterbalanced the speculative attack from the hedge funds.
[1] https://www.nasdaq.com/market-activity/stocks/gme/advanced-c... select log scale, period=max
[1] https://www.nasdaq.com/market-activity/stocks/gme/advanced-c... select log scale, period=max
> But that’s not what happened. The brand is irrelevant. It’s just math and vengeance and in the end...a lot of retail folks are going to be left holding the bag as prices drop down to earth. That cannot be a good outcome for anyone. I don’t think we want a system to function like this.
Not sure what you suggest be done about it. Hopefully people learn their lessons but it is not like we can eliminate the possibility of doing dumb things, and doing so would be quite illiberal.
Not sure what you suggest be done about it. Hopefully people learn their lessons but it is not like we can eliminate the possibility of doing dumb things, and doing so would be quite illiberal.
I agree with you, and on the flipside we need hedge funds and other “pro” investors to abide by the same rules. Big banks sure didn’t feel much pain in 2008...
I think there are two internally consistent approaches here.
Either you go full on Eugene Fama and claim that you do not even understand what market manipulation means as long as there is no hidden information, as markets are efficient and it is just market reflecting unidentified changes in the fundamentals or random fluctuation around the correct value or whatnot.
Or, you can say that yes, this is just exhibit N about how prices can be manipulated, which means that prices are not always correct. Which means that we can't trust blindly on markets to allocate resources efficiently, but we need to have careful discussion about in which circumstances it is prudent to restrict the market operations (including price, supply and demand).
What is weird, is how rare it is to find either of these approaches in public discussion. (For the record, I am in the latter camp. And no, I do not propose fullo on communism and regulated markets, but "to have careful discussion about in which circumstances it is prudent to restrict the market operations")
Either you go full on Eugene Fama and claim that you do not even understand what market manipulation means as long as there is no hidden information, as markets are efficient and it is just market reflecting unidentified changes in the fundamentals or random fluctuation around the correct value or whatnot.
Or, you can say that yes, this is just exhibit N about how prices can be manipulated, which means that prices are not always correct. Which means that we can't trust blindly on markets to allocate resources efficiently, but we need to have careful discussion about in which circumstances it is prudent to restrict the market operations (including price, supply and demand).
What is weird, is how rare it is to find either of these approaches in public discussion. (For the record, I am in the latter camp. And no, I do not propose fullo on communism and regulated markets, but "to have careful discussion about in which circumstances it is prudent to restrict the market operations")
I don’t know why people keep saying it won’t be a good outcome for anyone. That’s irrelevant.
This is like going to war, all will give some, but some will give all. At least we’re talking about money and not lives.
This is like going to war, all will give some, but some will give all. At least we’re talking about money and not lives.
> At least we’re talking about money and not lives.
Are we?
https://www.businessinsider.com/robinhood-office-installed-b...
Are we?
https://www.businessinsider.com/robinhood-office-installed-b...
The problem is that not all will give some. The market makers are raking it in hand over fist.
> The brand is irrelevant. It’s just math and vengeance and in the end...a lot of retail folks are going to be left holding the bag as prices drop down to earth.
The hedge funds have retreated, yet WSB is doubling down on the frenzy.
The posts over there are just insane. QAnon levels of delusion against an enemy that has already retreated.
Wall Street is just a straw man now, and WSB is using it to cannibalize WSB.
The hedge funds have retreated, yet WSB is doubling down on the frenzy.
The posts over there are just insane. QAnon levels of delusion against an enemy that has already retreated.
Wall Street is just a straw man now, and WSB is using it to cannibalize WSB.
Have the hedge funds retreated? Last I heard there were still >100% short positions in GME.
If you were a hedge fund on the sideline last week, wouldn’t you be quietly shorting GME @ 300? The outstanding shorts aren’t necessarily held by the same firms.
They could game it all the way up, and collect all the way down. Lots of shorts could make enormous amounts of money right now.
Nice post, with clear language and a very good explanation of what is happening :-)
This article claims the catalyst for GME’s meteoric rise was a change to their board altering the company’s narrative. Josh Gross claims it’s because u/DFV liked their 10-Qs. So which is it? One? Both? Neither?
https://twitter.com/endtwist/status/1354547622133051393?s=20
https://twitter.com/endtwist/status/1354547622133051393?s=20
I've seen way too much rationalization of this from mainstream financial media "pundits". Lol'd when I heard Andrew Ross Sorkin's take on it.
I do know that the DFV post was the match, but I think stimulus + people generally wanting to take revenge + the WSB post that revealed that Melvin was shorting GME, so let's fuck it up + Robinhood's post-pandemic popularity were the reasons for this to go out of control unlike other previous movements.
One thing it has shown is how much vulnerable the US financial system is. Although this time it was retail investors left holding the bag, this situation could be destructive very easily.
Imagine now, if Russia wanted to take down the US economy. They could create a buffer hedge fund, maybe 3-5B, which would be obliterating itself anyways. Then get some bots to bump up activity around a particular stock, maybe generate fake short interest against GS (smallest big 6 bank, so I chose it). Then create a CtA on WSB, calling for a mass short to dethrone GS based on fake information, and pump it up with bots. Retail starts shorting, Algobots might pick up on the momentum and join the trend, followed by traditional HFs joining the crowd. In the end, you'll have GS being shorted for no particular reason, but enough to cause some serious damage momentarily. Price goes down, they get deemed overlevered, and they're forced to take a bailout (highly damaging to the politicians in Congress who support it) or led to fail (which would cause shockwaves across the street). It's likely the politicians will sacrifice themselves for a cushy job post politics, but the current ruling party would lose all legitimacy in front of its voters.
I imagine such a scenario would be easily plausible in Europe, where the banks are much weaker financially (save for the Swiss ones).
I do know that the DFV post was the match, but I think stimulus + people generally wanting to take revenge + the WSB post that revealed that Melvin was shorting GME, so let's fuck it up + Robinhood's post-pandemic popularity were the reasons for this to go out of control unlike other previous movements.
One thing it has shown is how much vulnerable the US financial system is. Although this time it was retail investors left holding the bag, this situation could be destructive very easily.
Imagine now, if Russia wanted to take down the US economy. They could create a buffer hedge fund, maybe 3-5B, which would be obliterating itself anyways. Then get some bots to bump up activity around a particular stock, maybe generate fake short interest against GS (smallest big 6 bank, so I chose it). Then create a CtA on WSB, calling for a mass short to dethrone GS based on fake information, and pump it up with bots. Retail starts shorting, Algobots might pick up on the momentum and join the trend, followed by traditional HFs joining the crowd. In the end, you'll have GS being shorted for no particular reason, but enough to cause some serious damage momentarily. Price goes down, they get deemed overlevered, and they're forced to take a bailout (highly damaging to the politicians in Congress who support it) or led to fail (which would cause shockwaves across the street). It's likely the politicians will sacrifice themselves for a cushy job post politics, but the current ruling party would lose all legitimacy in front of its voters.
I imagine such a scenario would be easily plausible in Europe, where the banks are much weaker financially (save for the Swiss ones).
Wow, I didn’t know u/DFV saw this before Burry, I thought he was tipped to it by movement from Burry!
I am very suspicious of WSB generally, but just like with Anonymous, there apparently are some skilled folks in the horde...
I am very suspicious of WSB generally, but just like with Anonymous, there apparently are some skilled folks in the horde...
Josh Gross pretty much nailed the summary of what has happened.
I would guess its probably all of the above.
I agree that Citron and especially Left is indeed ironic in this situation (and the refreshing reminder that a: American English is derived from English English and b: the internet is not just Americans). The small-scale market (as a group) is doing the exact things as him in other instances, but the call for restrictions is, to say the least, confusing.
Andrew Left of Citron Research today announced that Citron will no longer research and invest in shorts. They will now cover long positions. He's trying to reverse his image with WallStreetBets. I hope it is in good faith, he likely just sees an opportunity.
A child could see through that.
Double irony. The story is not over.
When the GameStop valuation jumped to ridiculous levels, it was obviously noticed by others who started shorting.
The end result of this is that some in the WallStreet are making even more profits than Citron Research. This time it's on the backside of those retail investors who think "holding the stock" is protecting it's price.
Citron Research was caught on surprise by WSB, these new speculators have the benefit of weighting and analyzing WSB group action. They can take account possible short squeeze risk and duration and take a long view.
https://isthesqueezesquoze.com/
>GME shorts have not begun to close their positions in substantial numbers.
>the situation (1/28 5 PM ET):
>- short interest: 100% of float by Ortex, 123.25% of float by S3 Shortsight
>- change in short share availability: +9,000
Matt Levine covers all scenarios nicely, must read as always: https://www.bloomberg.com/opinion/articles/2021-01-28/knowin...
When the GameStop valuation jumped to ridiculous levels, it was obviously noticed by others who started shorting.
The end result of this is that some in the WallStreet are making even more profits than Citron Research. This time it's on the backside of those retail investors who think "holding the stock" is protecting it's price.
Citron Research was caught on surprise by WSB, these new speculators have the benefit of weighting and analyzing WSB group action. They can take account possible short squeeze risk and duration and take a long view.
https://isthesqueezesquoze.com/
>GME shorts have not begun to close their positions in substantial numbers.
>the situation (1/28 5 PM ET):
>- short interest: 100% of float by Ortex, 123.25% of float by S3 Shortsight
>- change in short share availability: +9,000
Matt Levine covers all scenarios nicely, must read as always: https://www.bloomberg.com/opinion/articles/2021-01-28/knowin...
I'm English, and I don't know what point he's trying to make about being English
Ahh I love financial reporters. Just because Left has never lost a court case doesn’t mean he isn’t doing anything illegal. There are two tiers of justice in this country, and the rich can by their way out of crime.
How are people missing that the original bet on this was founded around the newest generation of consoles shipping with Optical Drives? That was the entire basis on which Gamestop reapproaching retail with a new mindset and new investment led to wsb getting behind it in the first place.
Source, u/DeepFuckingValues earliest comments on reddit on GME around Mark Cubans involvement
Source, u/DeepFuckingValues earliest comments on reddit on GME around Mark Cubans involvement
I keep seeing folks saying that retail will be left holding the bag. Retail folks are buying GME and holding. Worst case they're out their initial investment. GME shorts like Melvin Capital are out many multiples of their initial investment, their losses are unbounded. Retail (r/wsb) understands this, and is willing to lose their $600 or whatever to screw over the institutions.
The institutions can game all the way up though. The mistake the retail guys made in this instance was not accounting for the other institutional vultures Who had no prior interest in it, but would opportunistically pile in.
It’s becoming clear that a better designed attack was necessary. Unless government steps in, this attack will enrich market makers and a lot of hedge funds, while cleaning out retails who may not have fully understood the dynamics of this attack.
In my view though, that’s the market. It’s a learning process. Retailers will gain more understanding and the next attack will be better designed.
It’s becoming clear that a better designed attack was necessary. Unless government steps in, this attack will enrich market makers and a lot of hedge funds, while cleaning out retails who may not have fully understood the dynamics of this attack.
In my view though, that’s the market. It’s a learning process. Retailers will gain more understanding and the next attack will be better designed.
This feels like "damning with faint praise": "Yeah, yeah, sometimes they break the rules but they say there's no significant court case they lost."
>They are very open about the fact that they or their clients may already have short positions in the stocks concerned and as I said, most of what they say is publicly available information. Clearly, they are not doing anything illegal, or even underhand. They have been sanctioned a few times by regulatory authorities and lost legal battles overseas but, as founder and Executive Editor Andrew Left has frequently pointed out, they have never lost a significant court case in America.
>They are very open about the fact that they or their clients may already have short positions in the stocks concerned and as I said, most of what they say is publicly available information. Clearly, they are not doing anything illegal, or even underhand. They have been sanctioned a few times by regulatory authorities and lost legal battles overseas but, as founder and Executive Editor Andrew Left has frequently pointed out, they have never lost a significant court case in America.
This story is constantly being framed as "the angry mob" vs "Wall Street hedge funds". But surely other professional investors ((hedge) funds, high frequency traders, algorithmic traders) are also jumping on the bandwagon, to (1) eliminate a competitor and (2) make a profit themselves on the way. I read yesterday that (at least one platform for) algorithmic traders have been monitoring subreddits like /r/WallStreetBets since the start of 2020, to immediately buy what is mentioned favorably there before retailers bring the price up.
The way I see it, is that among the professional investors, one will lose hard (Citron), while most others will profit. When the sell-off starts, they'll be able to sell first, thanks to their sub-ms connections to exchanges, algorithms that monitor media in real time (including reddit!), and employees that are constantly monitoring this whenever the markets are open (as opposed to retailers doing this in their free time).
Among the retailers, a few will win big (/u/DFV), while most will lose. They'll either stubbornly "HODL" if they're in it to "get a message across", or if they're in it for profit, they'll notice the sell-off too late and act too late, probably exacerbated by RobinHood suffering outages at that point.
So my prediction is that in the end one hedge fund will go down while others will profit from it... Most retailers will lose. Then what was the point?
The way I see it, is that among the professional investors, one will lose hard (Citron), while most others will profit. When the sell-off starts, they'll be able to sell first, thanks to their sub-ms connections to exchanges, algorithms that monitor media in real time (including reddit!), and employees that are constantly monitoring this whenever the markets are open (as opposed to retailers doing this in their free time).
Among the retailers, a few will win big (/u/DFV), while most will lose. They'll either stubbornly "HODL" if they're in it to "get a message across", or if they're in it for profit, they'll notice the sell-off too late and act too late, probably exacerbated by RobinHood suffering outages at that point.
So my prediction is that in the end one hedge fund will go down while others will profit from it... Most retailers will lose. Then what was the point?
> Then what was the point?
I mostly agree with your analysis, and I don’t have any money invested in GME (I usually do private investments). But at the same time, I think there is incredible value in exposing how much of a lie “the free market” is...
I mostly agree with your analysis, and I don’t have any money invested in GME (I usually do private investments). But at the same time, I think there is incredible value in exposing how much of a lie “the free market” is...
So much this. I've been rolling my eyes at the "fight the power" narrative, since I assume there are other hedge funds or shadowy figures taking the other side of the bet, and stoking the short squeeze.