[News] GameStop and the Stock Market

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Discussion of GameStop, stock trading, and this week's market crash(?) / rise(?)

Summary: A group of redditors executed a short squeeze of GameStop stock, forcing an over-leveraged hedge fund into bankruptcy and causing NASDAQ to halt trading repeatedly.

Simplified Explanation: A hedge fund made a bet that GameStop stock was going down, and essentially borrowed a bunch of expensive shares, planning to give them back when they got cheap and pocket the difference (a "short"). A bunch of people on Reddit decided to call their bluff and bought up the stock (and derivatives thereof) in a "short squeeze". A short has infinite risk if you bet wrong, and now the hedge fund has to pay back more GameStop stock than they can buy, because the Redditors aren't selling (because the memes told them not to). The hedge fund lost, to the tune of over $13,000,000,000, and the exchanges don't know how to handle the way the stock is yo-yo-ing.

Now there's a bunch of new paper millionaires, a few bankrupt billionaires, and questions about who is going to be left holding the bag. /r/wallstreetbets (the subreddit in question) is populated by edgelords with the usual racist, ablest mix that you can get over there and they frequently lose their shirts when they bet their life savings on the wrong thing by borrowing money via highly leveraged options. But in this case they've been able to beat the market (for the moment) by being even more irrational than the market.

1/22, Vice: People Are So, So Mad at GameStop Investors and FinTok Influencers

Over the last two weeks, GameStop stock has skyrocketed. The WallStreetBets subreddit is currently getting very rich (for how long, who can say), while short sellers and investment research firms like Citron Research (which is shorting GameStop stock), are calling them all idiots: “Everyone on Twitter never has a losing trade. Everyone on Reddit is a genius,” Andrew Left of Citron said in a much-anticipated video about why GameStop investors are wrong. He suggested the people buying GameStop stock are going up against hedge funds who know much more than them, and that GameStop investors are losers who are trying to hack his Twitter account, are ordering pizzas to his house, and signing him up for Tinder.
Despite the volatile environment, or maybe because of it, people are now chasing the sort of returns regularly enjoyed by those sitting on gluts of capital. Take the Redditors who guessed GameStop stock was being shorted by investors, bought the shares to push up the price, and forced short sellers to buy up the stock to cut their losses—pushing up the stock price even further. Some of these Redditors were able to realize as much of a 900 percent return like this. GameStop stock is up 20 percent today alone.

This is not necessarily a “good” thing—daytrading is a pretty risky enterprise and at times indistinguishable from gambling. But there is no safe, responsible, idealized form of the stock market that this behavior is somehow abrogating. The stock market is best understood as something like the Yeerk pool from Animorphs—a home away from home for parasites to rest on their laurels in between various plots and attacks. The fact that stocks are skyrocketing while millions are out of work and facing eviction, restrictions are still in place around the nation, and thousands of people are dying daily, illustrates that perfectly.

1/25, Bloomberg: How WallStreetBets Pushed GameStop Shares to the Moon

Short sellers have been called a lot of things. Bloodsuckers. Parasites. Other words not fit to print. Now in the vortex engulfing GameStop Corp., they have a new name: the establishment.

It’s a role cast for them with relish by their chat-room usurpers, the tens of thousands of average Joe day-traders whose fervor for a left-for-dead retailer has become a self-fulfilling prophecy in its 245% rally this year. GameStop has become a money geyser for the options-obsessed crowd that gathers in Reddit’s WallStreetBets forum. For those wagering on a decline, it’s been a catastrophe.

“My thesis is not contingent on a turnaround or business expansion, this is solely a deep value play,” wrote delaneydi. “Even if we assume double-digit top line sales declines and gross margin contraction, the companies valuation does not reflect the current earnings power, especially when considering the companies large cash horde.” (WSB posters are not distinguished by their spelling or punctuation.)

The view fell mostly on deaf ears as the shares continued to tank and enrich bears. GameStop fell 15% in April of that year, 12% in May, 28% in June and 27% in July. Yet two things happened around that time to lay the foundation for the events of this month.

One was Michael Burry –- of Big Short fame and the veritable spirit animal for internet stock gurus hoping to hit the big time –- saying he was long the shares through his fund Scion Asset Management.

Second was the surfacing of an idea, first in jest, that eventually evolved into the blueprint for the crowd-sourced short squeeze that has blown up in January. Could GameStop fall so far as to make a takeover possible -- by WallStreetBets itself?

Another online watershed occurred when user “Senior_Hedgehog” alerted the YOLOing masses to the “biggest short squeeze of your entire life.” It was April 13, 2020, and, according to the elder Hedgehog, 84% of the retailer’s shares were held short. The final all-caps sentence imploring GameStop owners to call their brokers and tell them to not lend them short opened a new theater to wage war against short-sellers.

1/26, Bloomberg Opinion: GameStop Is Just a Game. Also BlackRock, Melvin Capital and Leon Black.

Of course the chart of GameStop Corp.’s stock price from yesterday is nuts. It closed on Friday at $65.01, opened yesterday at $96.73, got as high as $159.18 and as low as $61.13, and closed at $76.79. Almost 178 million shares traded, worth almost $17 billion. GameStop’s 10-day realized volatility is 308%. I am typing these words before the market opens on Tuesday, but by the time I send them the stock will have been trading for hours, and I am sure that it will have touched $4 and $4,000 and every number in between. It seems meaningless to talk about the price of GameStop stock, as though a single number could represent such an elusive concept. GameStop stock has all the prices at once.

1/26, The Motley Fool: GameStop's Gargantuan Gamma Squeeze

Video game retailer GameStop (NYSE:GME) has been experiencing breathtaking volatility throughout the month, particularly yesterday when the stock was up as much as 145% before dipping into the red by 6% and finishing out the day up 18%. Trading on the stock was halted 9 times throughout the day due to volatility.

Much of the recent activity has been attributed to WallStreetBets, a growing community of retail traders on Reddit. The bullish thesis is that Chewy co-founder Ryan Cohen, who has accumulated a significant stake in GameStop as an activist investor and secured a seat on the board of directors, will be able to help engineer a turnaround and accelerate the company's digital transformation.

Much has also been written about a massive short squeeze, where short sellers scramble to buy shares to close out their positions. That pushes the price higher, which can cause other shorts to bail on their positions, creating a cycle of intense buying pressure. With short interest of around 140% (since shares can be loaned out multiple times), conditions were primed for a historic squeeze. But that isn't the only type of squeeze that's been driving unprecedented volatility.

Speaking Greek
In addition to trading activity for the underlying stock, there has also been a surge in options activity. For example, Bloomberg reports that there were a record 913,000 call options traded on Friday, well above the open interest (the total number of contracts that existed as of the previous day) of approximately 400,000. Here's how options volumes are contributing to the enormous moves.

1/27 Business Insider: How Reddit day traders are using the platform to upend the stock market and make money in the process

Like Bitcoin, Tesla, and the SPAC IPO, the Reddit forum r/wallstreetbets grew exponentially in 2020. In the first weeks of 2021, it discovered just how strong it's become.
The subreddit's subscriber count ballooned by 133% to 1.8 million members last year. Growth accelerated further this month, and the forum's 2.2 million current members now drive one of the platform's most active pages.
Members have spent the past three weeks bidding up the video game retailer GameStop, and the results have been spectacular. Shares have skyrocketed more than 1,200% since Wall Street Bets first piled in January 11. Their overwhelming bullishness has fueled billions of dollars in losses for short-sellers. One bear has even stopped commenting on GameStop stock, citing harassment from some members.

I don't have a penny in this fight, but it is at the very least entertaining, in a viewing-a-forest-fire-from-a-distance kind of way.

It's FASCINATING, we'll likely be talking about this more, and I changed the thread title to be a bit more specific to the topic outlined <3

Sports has given us a lot of metaphors to use in every day life. Fumbling, step up to the plate, slam dunk, etc.,. So does anyone know of a sports metaphor where you want both teams to lose?

Grenn wrote:

Sports has given us a lot of metaphors to use in every day life. Fumbling, step up to the plate, slam dunk, etc.,. So does anyone know of a sports metaphor where you want both teams to lose?

Rooting for the meteor.

Grenn wrote:

Sports has given us a lot of metaphors to use in every day life. Fumbling, step up to the plate, slam dunk, etc.,. So does anyone know of a sports metaphor where you want both teams to lose?

Read on twitter that this is like when fans were given the chance to vote on the Madden cover, they chose Peyton Hillis. If you don't know who that is, exactly.

The other sports analogy is when NHL enforcer John Scott was voted into the All-Star game as a prank.

Both cases revealed how flawed the entire premise was.

It is FASCINATING to watch, and I would love to get Katerin and rabbit's take on this. On the other hand, there is the real world cost to people's savings and waste of time and energy that could be more productive.

I recently posted on twitter and the video game company financials thread:

The stock market is a useless and arbitrary system for moving fake wealth tokens around. The fact that it can be gamed like this fairly often (reddit, Musk, congressf*ckers, etc.) just shows how dumb it is.

Change my view.

Vector wrote:
Grenn wrote:

Sports has given us a lot of metaphors to use in every day life. Fumbling, step up to the plate, slam dunk, etc.,. So does anyone know of a sports metaphor where you want both teams to lose?

Read on twitter that this is like when fans were given the chance to vote on the Madden cover, they chose Peyton Hillis. If you don't know who that is, exactly.

The other sports analogy is when NHL enforcer John Scott was voted into the All-Star game as a prank.

Both cases revealed how flawed the entire premise was.

Sure, but Boaty McBoatface is a great name, so #notallinternetpolls

Mixolyde wrote:

It is FASCINATING to watch, and I would love to get Katerin and rabbit's take on this. On the other hand, there is the real world cost to people's savings and waste of time and energy that could be more productive.

I recently posted on twitter and the video game company financials thread:

The stock market is a useless and arbitrary system for moving fake wealth tokens around. The fact that it can be gamed like this fairly often (reddit, Musk, congressf*ckers, etc.) just shows how dumb it is.

Change my view.

Kind of a blanket statement?

Of course there's nonsense in the market. This example is pretty hilarious to be watching on the sidelines. But there's also slow steady companies that just pay a nice divided.

New favorite tweet:

@brandyljensen

oh no the wrong people are manipulating the stock market
jowner wrote:

But there's also slow steady companies that just pay a nice divided.

One of the first software companies I worked had previously been delisted and their executive team banned from holding the equivalent positions in any publicly-held company because they "sold" software to their distributor network to juice their quarterly revenue numbers and then quietly issued refunds once those numbers were reported. I only learned about that because I visited IT one day, saw they had room after room of backup storage tapes, and was told they had to have them because the SEC required an image of all emails every few days to make sure the current management team wasn't doing the same thing.

That management team wasn't, but they'd move heaven and earth to make sure they hit the consensus number Wall Street analysts had set for them every quarter. It didn't matter if that number made sense or not or if the company really needed to invest the money elsewhere. They *had* to meet that profit per share number.

Most companies would be much better off if they were truly run to meet the long term needs of their customers instead of how they really are today: to meet the short-term profitability expectations of an impatient investor class who always wants more.

OG_slinger wrote:
jowner wrote:

But there's also slow steady companies that just pay a nice divided.

One of the first software companies I worked had previously been delisted and their executive team banned from holding the equivalent positions in any publicly-held company because they "sold" software to their distributor network to juice their quarterly revenue numbers and then quietly issued refunds once those numbers were reported. I only learned about that because I visited IT one day, saw they had room after room of backup storage tapes, and was told they had to have them because the SEC required an image of all emails every few days to make sure the current management team wasn't doing the same thing.

That management team wasn't, but they'd move heaven and earth to make sure they hit the consensus number Wall Street analysts had set for them every quarter. It didn't matter if that number made sense or not or if the company really needed to invest the money elsewhere. They *had* to meet that profit per share number.

Most companies would be much better off if they were truly run to meet the long term needs of their customers instead of how they really are today: to meet the short-term profitability expectations of an impatient investor class who always wants more.

I'm not sure what this has to do with dividends though.

Yes obviously if there is an opportunity to commit fraud for gain and the risk is not very high of being caught or the penalty is weak people will start doing shenanigans.

As for companies gaming their financials vs having a longer term view. There's obviously a mix also. I would recommend anyone who is investing long term to make sure the ownership/CEO also has that mindset and pretty much ignores what the quarterly expectations are.

Mixolyde wrote:
The stock market is a useless and arbitrary system for moving fake wealth tokens around. The fact that it can be gamed like this fairly often (reddit, Musk, congressf*ckers, etc.) just shows how dumb it is.

Change my view.

How could it be useless, you said yourself the use was to move tokens!

jowner wrote:

I would recommend anyone who is investing long term to make sure the ownership/CEO also has that mindset and pretty much ignores what the quarterly expectations are.

That's the point, though. Any company that's delivering a steady, nice dividend is completely manipulating their financials to deliver that nice, steady dividend. Real businesses have ups and downs, good quarters and bad, and have to invest money now to develop products and services they can sell or deliver in the future.

And there is no CEO that can ignore quarterly Street expectations. If they miss what the Street expects then their ownership--mostly institutional investors--are going to sell millions of shares because they can't count on a predictable return and the company's per share value is going to tank.

Of course, none of that has anything to do with the stated purpose of the stock market, which is that it's supposed to make sure companies have money which they can then use to build a better/more efficient mousetrap.

The reality is that companies exist to feed investors a predictable--and ever increasing--profit and those investors are entirely OK with those companies cannibalizing their business or f*cking over their customers just as long as they deliver those ever increasing profits this quarter. If A Company can't deliver those EPS numbers then those investors will sell their shares and buy B Company shares who will do whatever it takes to make those numbers and when B Company can't deliver they'll move on to C Company.

My quick take is that everyone that bought is now in a giant prisoner's dilemma. At some point, people will start to sell, and you don't want to be last.

Just seen this the last few days on Twitter.

Yes the stock market is just another form of gambling.

Gamestop sucks, but this is interesting.

The stock market is useful, it's the metagame that f*cks everything up.

It has been fascinating to follow. I even laughed at it. Until today, where the Gamestop squeeze seemingly managed to crash other, unrelated parts of the stock market, with hedge funds desperately trying to cover their losses by selling everything. That was a lot less fun. I didn't expect you to eat my face too!
Hard not to be impressed with the people who set this in motion though.

Mixolyde wrote:

New favorite tweet:
@brandyljensen

oh no the wrong people are manipulating the stock market

Indeed.

Boss bought 4 shares and is having fun watching this play out, YOLO!

IMAGE(https://i.imgur.com/PUkGitM.jpg)

On one hand, the hedge funds that are pretty predatory and live off of destroying companies are getting hosed.

On the other hand, there are many people who have their retirement funds invested in these companies, and those people are seeing their life savings getting flushed down the toilet because reddit users, who normally hate GameStop with the passion of a thousand suns, decided "this is the hill upon which we will die!!"

"We were okay with social media sites turning a blind eye to racism and misogyny, but this is going too far!"

If my 401k had any investment in GameStop I'd have been pretty pissed well before this shiny turd moment. As the article I linked to in other thread mentioned, GameStop is the most shorted stock in the market. No one should have any money at all except the metagamers.

At one point GME was shorted 139% of existing shares.

mudbunny wrote:

On the other hand, there are many people who have their retirement funds invested in these companies, and those people are seeing their life savings getting flushed down the toilet because reddit users, who normally hate GameStop with the passion of a thousand suns, decided "this is the hill upon which we will die!!"

I don't have a lot of sympathy for people who have investments in hedge funds. Time and time again we've shown experimentally that throwing darts at a dart-board and having children pick out numbers of pieces of paper floating in the air have a better ROI than investment "experts". It's entirely reasonable to invest in index funds given historical precedents and anticipated future growth, and it's reasonable to invest in a particular company if you like their fundamentals or support their vision (Tesla worked out well for me in the particular regard), but hedge funds are just playing with fire hoping to make a quick buck. It's the very antithesis of the long-term investment strategy you'd want for retirement planning. If anyone had major investments in a single company to the point that it would derail their retirement, then more fool them.

Hell, Even if the end result is a couple of dozen new asshole millionaires and a few less asshole billionaires, I think that would good trade.

Rat Boy wrote:

"We were okay with social media sites turning a blind eye to racism and misogyny, but this is going too far!"

I was kind of close, actually.

Rat Boy wrote:
Rat Boy wrote:

"We were okay with social media sites turning a blind eye to racism and misogyny, but this is going too far!"

I was kind of close, actually.

Yeah, nothing suspicious about when they finally decided to ban that for hate speech.

It's probably just that a lot of new people were reading WSB, discovered what a sh*thole it was, and raised hell.

Coldstream wrote:

Time and time again we've shown experimentally that throwing darts at a dart-board and having children pick out numbers of pieces of paper floating in the air have a better ROI than investment "experts".

Yes, please sign me up for your newsletter and information about your next masterclass!

I think this is all fascinating, but am secretly terrified that this will somehow cause a massive stock market crash and second depression. Not sure how exactly, but if tulip sales could crash the Dutch empire I wouldn’t put anything past GameStop.

Conference Call regular Lara Crigger wrote about it:

https://www.etfaction.com/featured/r...

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