The narrative in the article -- that people truly feel sympathetic with the garbage companies being shorted to the point of being angry at shorts -- sounds like some ludicrous nonsense r/hailcorporate would dream up.
Arguably, it started back in 2008 with the global recession, which was, again arguably, totally the result of missteps and corruption in the financial economy. By the end of that, practically no one was held accountable for what happened. and we entered an insane decade+ long bull market inflated by our sovereigns printing money rarely to support Americans, but rather American companies and our financial markets. This bull market coincides with a massive rise in cryptocurrency, which also represents a rebellion against established financial markets and the meddling of both sovereigns and financial corporations in the financial stability of the average citizen.
Then, you reach short-interest, which historically serves some minuscule, though non-zero, amount of utility for the real economy, and has come under legitimate fire as being another tool which puts our economy at risk. I think the problem with short selling is best summed up by the end of the Big Short, as the main characters are sitting on steps of an abandoned bank, having made billions of dollars profiting off of the destruction of the American economy. The strange thing about markets, and economics in general, is that they are self-fulfilling prophesies. If enough people want a stock to drop, if they want a company to suffer by having a financial interest in it suffering; it will. This is different from simply selling a stock, which in-some-way causes the price to drop, because it changes the narrative from "I don't think it will go up" to "I think it will go down". By selling a stock, you're removing your stake; by short-selling, you're increasing your stake in a negative direction (and moreover, short interest is almost always leveraged, which compounds the problem).
In other words, I think the increasing zeitgeist surrounding the perception of our financial markets as being unable to serve the interests of the real economy, and more importantly the average American, is an unusually accurate response to a real problem, and it follows that it would become a social justice issue. The government needs to take this seriously; again, economies are self-fulfilling prophesies. Crisis often start not because there is a crisis, but because people believe there's a crisis.
That frankly is the wrong takeaway, or at least completely missing the original sin IMO.
The original sin is banks that wrote mortgages to people who shouldn't have them, with terms that basically fucks them over. In the absence of the short side, someone might not have profited, some FI may not have keeled over, but the people, who were sold those mortgages, were still fucked just the same.
The short side, calling bullshit on the long side, would not have existed, or at least be very foolish to do so, if the long side weren't doing something so stupid at such a scale that actually threatened the day to day lives of people.
It's another case of the government attempting to help the economy, but only hurting it.
My point being that it's the wrong takeaway to get mad at shorts for calling something bullshit and getting reward for it, and it sound rather irrational to me.
The dog / cat shit pile was junk mortgage bundled into a CDO and getting a AAA rating, in which pension funds buys it thinking it's safe. In the absence of the shorts, those mortgage would have gone into default, the CDOs would have become worthless, or downgraded, forcing pension funds to sell.
It's still the people holding the bag. The shorts weren't the ones initiating the bad behaviour, they made money on someone else's bad behaviour.
And of course, the government bailed the FIs out just the same.
What determines the success of a company like GameStop is whether people go to their stores and spend enough money to cover business expenses. It has nothing to do with the price of the stock.
- yes, shorting involves selling stock which nominally pushes prices lower, etc etc hat tip illegal S&D
If person A has a share, then B borrows it to short and sells it to person C, now both A and C are effectively holding the same share. Put another way, two people have had their demands met by a single share, increasing supply.
For all you know, you could be the "A" in this situation. Many brokers will lend out your shares, but from your perspective you are just long.
They actively ran ads to attract customers away from Toys R Us.
See: https://www.barrons.com/articles/private-equity-firms-provid...
https://www.latimes.com/business/la-fi-toys-r-us-leveraged-b...
https://www.theatlantic.com/magazine/archive/2018/07/toys-r-...
https://www.investopedia.com/terms/l/leveragedbuyout.asp#:~:....
The stock price does matter
Even the lay notion that short sellers hurt companies by taking capital away misses the bigger picture. Virtually all short selling takes place in a long/short portfolio. (Dedicated short sellers make up less than 1% of hedge fund assets.) The proceeds from short sales are reinvested in other companies. Even if you think short selling "destroys jobs" at the shorted companies, then the converse is that it must also create jobs at other, better companies.
[1]https://www.reddit.com/r/slatestarcodex/comments/la88gv/shor...
The logic seems to go that the Fed should contract out job creation to private companies, which in theory produce economic growth. But this creates a feedback loop, where public revenues generated by said growth goes back to private companies.
The ultimate, hidden truth of the world is that it is something that we make, and could just as easily make differently.” - David Graeber
The Wikipedia page on "bear raid" mentions a single example, from 1609. https://en.wikipedia.org/wiki/Bear_raid
Example: when you write a comment criticizing a company or their policies, you get tons of replies saying "well, if you don't like them, don't use them. Don't go around badmouthing them."
In the eyes of many, you should either help corporations or ignore them. Anything else is considered unethical, unconscionable, "bitching", etc.
It so happened that most of the short sellers are the members of the 'special rules for us' club - the same club that has been ripping off and living off the regular investors for decades. The actual targets of this are the likes of analysts, fund CEOs, etc on CNBC/Fox Business and their lawyers, accountants and politicians.
Not short sellers. The set of people who have been ripping off regular investors happen to encompass the majority of short sellers. Think the organized pump and dump that happen on CNBC every day. Those are the real target of the retail rage. They just can't articulate it well and since short sellers bet against the typical retail bet and since most of short sellers are the members of the 'special rules for us' group, short sellers are the target.
P.S. I'm short GME.
The company is hurt if it wants to do a secondary stock offering, but is helped if it wants to do a stock buyback.
Also, short selling increases the amount of money going into the dividend pool. If some stock has 140% short interest and issues 10 million dollars in dividends, short sellers have to pony up 14 million dollars, and the long position holders share those 24 million dollars.
Disclosure: never sold short, but I am in the financial services industry. I do not speak for my employer.
Read about Clarence Saunders and the Great Piggly-Wiggly Corner of 1923. Similar story, populist Main Street guy going up against the short sellers. Except in the 1920s.
Short sellers want the price of stocks to go down, which makes them bad people, because everyone currently invested in the market wants stock prices to go up.
People who haven't yet invested in the market don't want prices to go up until they do, but nobody asks for their opinion.
Also, due to the poor state of financial education, people think that a low stock price means a company will go out of business.
This means that for the majority of their life, they benefit from lower stock prices. You also get a much better annual return on your investment, through dividends, when you buy under-priced stock.
Shorting deflates bubbles, before they pop. It puts the brakes on irrational markets. Working people suffer quite a bit when bubbles pop, because there are knock-on effects to employment.
Also, for most Americans, their biggest 'investment' is their home [1], with stock ownership being a distant second. That doesn't mean that we should pursue a public policy intended to drive housing costs into the stratosphere [2].
Investing into the stock market through your working life is a bet on capitalism continuing to work. Short sellers aren't going to destroy capitalism.
[1] Actually, their biggest investment is their job, but again, for some reason, policies that advocate for raising the price of labor to the moon aren't very popular.
[2] Yet, here we are, in a world where a toolshed with no running water in a coastal metro area goes for a million dollars...
like all these people who think they're buying GME stock is going to save GameStop, cuz they somehow think that GameStop get some of the money from their stock purchases... So yeah I really don't know what the heck is going on in people's minds right now.
Or is this just people who are at the generation where they don't actually remember GameStop's actual practices and wax nostalgic about it?
If I borrow a game from my friend in order to sell it to GameStop, anticipating the re-sale price will be lower then the trade in price, so I can give the game back to my friend and take a profit -- would be like short selling.
Just for fun we could imagine GameStop seeks to buy back every game it sells, and that games don't intrinsically decay because they're digital and the packaging is worth zero.
Come to think of it, if games are pre-ordered it's even closer to what could reasonably be considered a short.
AMC did so, dumping their at the market offering at the top.
They also love to see Jim Cramer have meltdowns, which is almost every day now.
If you want to hate on /r/wsb that's fine (there are many legitimate reasons to hate that subreddit), but don't pretend to understand something you clearly don't.
Some people are pushing pump and dumps to make money. Some are ignorantly following along. Some genuinely treat it like a gambling addiction and enjoy it.
The GME thing though is unique, and there really is a narrative to hurt hedgies (in addition to all of the above).
Hedge funds lost billions to the original WSB actors who wanted to profit from a short squeeze. The activist investors of GME were just handing the hedge funds more money.
Jim Cramer is entirely a performer now. It's his job to put on a show and have meltdowns.
'The hedge funds are smarter' is as stupid as 'the VCs know better.' It's a narrative they have to push to stay relevant. Otherwise they'd just point towards their balance sheets to shut people up.
It's theoretically impossible for hedge funds, in aggregate, to outperform the market.
> We've closed our positions. Now please sell GME
Nobody would expect anyone to behave that way. Hedge funds have clients and need to reassure them that they aren't going to lose all their money. Any rational investor knew that Melvin could have opened up new short positions after GME had skyrocketed.
Hedge funds may not be smart enough be beat the market, but they're certainly smarter than a group of people who learned what a "short" is, after the squeeze.
> Nobody would expect anyone to behave that way. Hedge funds have clients and need to reassure them that they aren't going to lose all their money. Any rational investor knows that Melvin could be opening up new short positions after GME had skyrocketed.
I don't care what people expected. I'm telling you what happened. And Melvin lost money. Obviously some hedge funds made money too, but you are specifically defending Melvin's position wrt GME.
> Hedge funds may not be smart enough be beat the market, but they're certainly smarter than a group of people who learned what a "short" is, after the squeeze.
This is why hedge funds lost money in the first place. Your denial is the fuel that continues to make /r/wsb successful, so honestly I find it refreshing. You want to believe you/they are smarter. That's it. You have no data to back up your claim. If you were right, GME would never have popped a second time and it would be trading for less than 1/10 its current price. You can call it irrational all you want, this opportunity is making people money that reject your thesis.
I'll continue to bet my money on my thesis and so far I have been ridiculously successful (far more than I was making at FAANG). I've already pocketed enough to retire so I'm not concerned about volatility. I encourage you to invest your money however you see fit. I'll do the same. So far it's working great for me.
You need some reading comprehension lessons. That's not what I'm saying at all. The people who made money off the GME squeeze aren't the same people on a moral crusade against hedge funds. DeepFuckingValue bought GME because he performed thoughtful analysis and determined it to be undervalued. Sticking it to hedge funds was just a nice bonus. A schmuck who bought GME at $420.69 did so because someone on the internet told them it would be the best way to get revenge on the hedgies.
> I've already pocketed enough to retire so I'm not concerned about volatility.
Do what you want. I'm not worried about you. I'm worried about the average joe who loses $1000 on GME, declares the market is rigged, and never invests their money again. If there's anything that will kill hedge funds, it would be increasing financial literacy, not short squeeze memes.
Isn't your entire argument that hedge funds are smarter investors, and therefore you cannot compete with them? And since hedge funds aren't accessible to people that aren't rich, doesn't that mean the market is rigged?
It sounds to me like you're upset that people are educating themselves about the market and drawing different conclusions than you want them to. It's their money and they can do what they want with it.
I don't think that hedge funds are particularly smart, outside of convincing their clients of their value. I'm saying that hedge funds are smarter than "investors" that think that buying GME at $300 going to meaningfully hurt hedge funds in any way. I'm not upset at the people losing money. I'm upset at the people peddling these imagined narratives as facts, which ends up causing people to lose money.
I'm not really a fan of misinformation either, but I will defend people's right to share their opinions freely (except in extreme situations where it advocates violence).
This is hardly unique to /r/wsb though. I mean yeah, I wish most people there were better informed as well. But I'm not sure how to solve that problem.
In my opinion /r/wsb is a net positive, although it obviously has its problems. The signal to noise ratio is awful, and the amount of shilling going on is ridiculous.
I have a high school friend who posted that they didn't care if they lost their entire investment, this was about sending a message. I'm not sure what that message was.
Near the peak I don't think there were shares available to short though, at least not publicly offered who knows what was available through Bloomberg chat.
They want to see hedge funds lose money, and some have lost billions while others made billions, so what exactly was acomplished?
more accurately, they wanted to see one hedge fund lose money, others, and plenty of private equity firms like Silver Lake have made a killing because of the spectacle. And I'm sure Jim Cramer loves the attention too even if he has to play the enraged TV personality for a while.