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Comment by thrwn_frthr_awy | Hacker News Reader

It turns out an online community can stay irrational longer than a hedge can solvent.

This was one scenario were the shorts really did have it wrong. GameStop's financials were and are pretty solid. There was no reason to short the stock so heavily, which is why they're in the trouble that they're in right now.

You should watch Roaring Kitty's video from June 2019 I believe (maybe its 2020?) on YouTube about this. He goes into great detail, with something like an hour of analysis on why $GME is a reasonable investment.

Remember also, Dr. Michael Burry was buying into $GME (it was 5% of his fund in fact). Other big institutional investors like BlackRock, etc. had major positions as well.

>This was one scenario were the shorts really did have it wrong. GameStop's financials were and are pretty solid.

Honest question: do you really think that rational analysis of the viability of a stock is relevant at this point?

It seems to me that gme just happened to end up being the battlefield in which the wsb people acted

The rational analysis was the basis. What's happening the last weeks is just the noise of WSB once it came through. Now it's a lot of noise and a lot of money that's going to be lost by people wanting to get in on this -- far too late.

A rational forum would be everyone marvelling at what was already pulled off, not this free-for-all where everyone's pretending there's a big battle going on right now and pretending there is anything to gain left.

BlackRock own a large position in basically every US equity. The reason is that their funds generally want to be exposed to the entire market or some large subsets of it. They aren’t stating some opinion about the value of GameStop by owning 10% of it as they own about 10% of the entire stock market.

If you see regularly someone’s name on the front page of the New York Times you might infer something about them. If you see someone’s name in the phonebook that is less interesting as (ok, not actually true but hopefully you get the point) everyone is in the phonebook. BlackRock is the phonebook.

I read this a lot on yahoo finance, reddit and other investing related discussions, that somehow Blackrock or Vanguard having a big position means they know something and is a positive sign for a stock. There are a ton of articles and documentaries about Blackrock being some secretive bank that "secretly" owns a big chunk of worldwide assets, which fuels this belief in my opinion. And while it's true that they own a lot of assets, they don't own it directly and are actually a rather boring business. They are completely passive most of the time.

and Tesla

> You should watch Roaring Kitty's video

It's from 2020. I just want to add that he's humble about his analysis too. He explains his case in a lot of great detail and still writes "bullish on gamestop, perhaps foolishly so".

Someone explained to me (perhaps incorrectly) that GMEs market cap was less than the value of it's real-estate holdings. Now GameStop isn't a great company but it's not bleeding as badly as you would expect and it has a turnaround plan that's it's executing.

It never should've been shorted as much as it was without hedging the other side of the bet. What was Melvin going to do if GameStop found a way to be wildly profitable in e-commerce?

This is fundamentally terrible risk management coming back to bite people in the ass. This time it was a Reddit internet mob but it could've been anything.

Right. GME market cap was $250 million at a time when the company had literally $1 billion in assets.

For people wondering, "Well why didn't some behemoth like Sequoia Capital or BlackRock just swoop in and load up?" When purchasing such large blocks of a company, 5%, 10%, 15%, etc., there's a lot of paperwork involved.

Retail investors don't have to file with the SEC when they YOLO $200,000 on GameStop at $4 a share. They can shrug and say, "We like the stock."

> GameStop's financials were and are pretty solid.

But aren't stock prices almost entirely about future performance? So will GME's business model work tomorrow?

I think the answer is yes. They're the best option for buying used peripherals that I've found. I can get it right away, can exchange easily if a problem and can see the item before I buy (or at least when I pickup).

I've just wasted too much time trying to see through the Amazon reviews gaming, do what feels like national security background checks on eBay sellers or go through the hassle of FB marketplace.

Maybe it's just me, but as a casual gamer and fan of legacy consoles, I like shopping at Gamestop. Whether online with "at the door" pickup or in the store. The locations around me have employees that seem genuinely happy. Maybe they're good at hiding their misery.

If Gamestop would expand into more hobby shop items, it could really take off. Board games, miniatures, etc. And why don't they stock energy drinks (my locations don't anyway)? Post-pandemic add small cafes with rentable game systems. I think people will be desperate for actual human interaction once that's possible again.

Finally, with this ongoing retail apocalypse maybe their leases will get cheaper.

> But aren't stock prices almost entirely about future performance? So will GME's business model work tomorrow?

Yes, and that's sort of Roaring Kitty's point in that video. He interpreted the negativity about it as being way too extreme for the financials of the company. It was basically saying the company was going to fail tomorrow, whereas his analysis said to him that it still had several reasonable years ahead of it which the share price didn't reflect.

> But aren't stock prices almost entirely about future performance?

This depends on what kind of investor you are. Do you believe the market is entirely rational and depends on the underlying fundamentals of a company? Or do you believe that the stock market is ultimately irrational and trades solely on hope and fear?

Frankly, I don't see how anyone can disagree that the market is entirely irrational and solely emotionally based, and the reason is because humans are irrational and emotionally based. We rationalize our positions after we've taken them, not before, I'm totally convinced of this, mostly thanks to Sam Harris, and to a lesser degree, Richard Dawkins.

We want to believe that we logically poured over the facts and figures and we arrived at the only inescapable conclusion possible. Were that true, everyone would arrive at similar conclusions. Despite what some people have said the past several years, there are no such thing as "alternative facts". A thing is either true, false, or unknown.

Smarter people than I have made cases on both sides of this argument, but for me, I see it happen every day, all the time, all around me. I watch it happen in finance. I watch it happen in book publishing. I watch it happen in development. I, for one, am a believe in what I call the "emotional market hypothesis". Hell, Tesla is a perfect example. There's absolutely no reason for a stock to be trading at 1660 times its earnings, but Tesla is. That's its Price-To-Earnings ratio right now. The stock is fueled by hope. Elon is the personification of that hope, for better or worse.

Tend to agree with this. People seem to be pushing this as the moment the little people took control.

This is a flash in the pan.

And don't get me wrong, I almost always support the underdog.

These situations tend to blow Up both sides, more or less.

A few lucky Redditors will get out with profits. Most of the late entries are going to take steep losses. Those losing Redditors will be paying the winning Redditors.

The narrative that this is hedge funds losing to Redditors isn’t fully accurate.

Hedge funds are down $70 billion over this, so I'm pretty sure there's some accuracy. And no, its not all GameStop, but $GME is a driver.

https://www.reuters.com/article/us-retail-trading-shortbets-...

This is very much reminding me of 2008. If you keep blowing up financial institutions, eventually you're going to hit a Lehman and the counterparty risk spreads to the rest of the system.

The zeitgeist seems to be “screw ‘em; they’re jackals”.

Yes, I'm aware of that. Do we actually want to rerun 2008 again, though? Are people expecting it to have a different, better outcome and not a different, worse outcome or just the bailout again?

The hedge funds aren't structurally important. Brokerages start to be. Retail banks definitely are.

They probably don’t understand. If they do understand, they don’t seem to care.

There are a lot of people under the age of forty who don’t feel like they are benefiting from our current system. When the Boomers hit age 35, they owned approx. 21 percent of the nation’s wealth. Gen X plummeted down to 9 percent. Millennials are on track to own about 3-4 percent. This is according to the Fed.

They make less, own less, don’t see themselves or their interests represented at the highest levels of our government, and are fed up.

So, yes, the young would suffer more than the wealthy, the elderly, and the connected in an economic collapse, but they don’t seem to care.

Well said. And these people under forty (to reduce everything to simple terms) divide themselves into roughly equal camps. Some see the problems as fatcats/gov not doing enough to help the poor. The other side sees the fatcats/gov not doing enough to help citizens as opposed to certain elites and all here because of illegal entry.

Both are right to a large extent, and both are slandered as evil/racist/etc. by the other side.

> When you got nothing, you got nothing to lose!

If there is a systematic risk.. surely better to catch it earlier than let it keep inflating

Isn't that fairly misleading?

> Ortex said the figures are based on the change in trading prices between the start of January to Wednesday’s close, and the number of short positions.

The shorts might be down 70 billions, but won't most hedge funds hedge their position with something more complex than just a short?

If you only add up the estimated short positions, and you assume they didn't hold any winning long positions, and you assume short positions are only held by hedge funds, and you assume the hedge funds didn't hedge with other contracts, that estimate might come close.

That's a lot of assumptions, though.

Some hedge funds are going to make bank on this.

The motive I've seen most prominently displayed is “buy to hurt hedges, expect 100% loss”. Of course, many individuals will be upset at the results, but this wasn't touted as anything other than a risky bubble, even by those who believe in gme.

As some one else said the WSB concert party has all the signs of a boiler room scam.

I bet there are some much more experienced reditors behind this and a lot of the useful idiots will lose $$

It's far simpler than that. There was no scam, just a long steady accretion around those that pointed out the fundamental mispricing of gme, and the explosive nature of any expected correction given it's extremely high short ratio. The rest is just piling on, and even less understandable than most reddit piling-on given the volume and technical nature of the issue.

You're assuming that people on r/wallstreetbets are exactly the same as people on wall street who literally only care about money. The redditors buying don't want to make money, they just want to kill the hedge fund. By wasting a few hundred dollars they are making a larger dent in wall street than congress has made for the last few decades.

There might even be some overlap, wall street using wallstreetbets to manipulate.

That's the future defense against this kind of short squeeze. Funds will engage these subs (or hire people) and deflect interest from the stocks they're shorting and maybe steer it towards competitor's.

I doubt any defense will be needed. Capital for this kind of risk will never be available again.

I'm sure there are some hedge funds that are killing it right now.

Good one. They also call themselves Autists and Retards.

I read a suggestion that it’s not the price of the stock that scared the hedge fund. But the borrowing costs, where the interest rates might have gone as high as 80%!

That’s quite an expensive credit card there to be shorting stocks with.

This is why r/wallstreetbets uses "hold" as a rallying cry. The interest continues to accrue with each day they hold out.

An obviously that's only to a point. If you get into this late you are definitely more likely to get burned. But it's clear some of these people genuinely seem to care about "wrecking hedge funds" as much as anything else.

Its important to note for the sake of comparison, that average borrowing costs in a stock , to understand how out of whack 80% really is.

I believe in normal circunstances it tends to be less than 1%

I've received upwards of 30 for short periods in hard to borrow issues (we're talking american certificates of canadian mining stocks, etc). I've never heard of 80.

So currently some hedge Fonds are bleeding money, true? So who is the counter party who currently gets this money (can't be the community since they hold)

They’re bleeding because others are holding, no? There are premiums at play.

That would be virtual bleeding (which could be the case though), but if you bleed real money then somebody else has to receive it. If you hold a stock money doesn't come to you (except as annual profit distribution but that is a different issue). I read the fees for borrowing a stock for shorting are coupled to the market price (not sure). So if you fund lost a few billion real money (so they have to sell other assets to pay that) then somebody else has to get these billions now.

The stocks they are borrowing for their shorts have really high interest now. They are bleeding money just paying interest. And now that goes for a couple of hundred percent of the stock float.

Who specifically get this interest now? Maybe it is not know, but maybe somebody knows here?

Depends on the broker. They publish their fees and the amount of those fees they share with the stock owner. Not all have loan fee share programs mind you.

Correct. Unsung winners are counterparties to hedgefunds in trouble

The troubled melvins and maples are exiting succesful positions to be liquid and cover for the black hole that is GME.

So that's basically wall street winning again (different house number though..)

margin calls

Whoever has been selling into the funds which needed to cover shorts has been doing very well. As have those who were lending out the shares for the shorting.

Probably some of the early WSB pumpers have quietly sold while yelling at the community to hold, too.

However, we should always be careful with unrealized gains and losses. Those aren't confirmed until people exit their positions.

Does that make them rational again?

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