GameStop drops by 40% in 25 minutes
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Look, I think this whole GME thing is stupid: but following the price is also stupid. I guess if its your first bubble, this is exciting stuff, but these things come crashing down eventually.
Hertz is a better saga to follow, since that saga is almost done. I don't know if any news on GME has come out recently, but nothing is quite as final as bankruptcy court (in the case of Hertz).
If you look at the timescales at which stocks meme / move, its on the order of years. Decades even, in the case of Enron and literal scams like Madoff. GME isn't even a scam, its just the market doing its thing.
For Hertz, it entered meme status AFTER it started bankruptcy proceedings last year. Those proceedings are still not over yet. It just goes to show how long things take in the world of finance.
The daily ups and downs are largely noise. Try not to be distracted by them.
Short-term scams do exist. Identifying and leveraging a potential squeeze situation is standard market behavior, but taking to twitter to rally the masses into a stock is really just a confidence trick. Pump and dump is a real thing.
Another interesting aspect is various cryptocurrencies (or—as per recent discussion—NFTs).
I guess whatever the establishment is uncomfortable with will be labelled as scam. Perhaps future will look at GameStop as a scam. But from my point of view, trading in stocks is always a scam.
I hate Tesla, but their IPOs and SPOs are a great example of what the stock market offers, and why a dividend (or other reward) is necessary.
Without raising $5 Billion from investors back in 2014, Tesla wouldn't have had the money to build their Nevada Gigafactory.
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Banks offer loans, which depend on interest rates. Shareholders don't want money, they want a share of the future profits. As such, the "promise" you make to a shareholder is more flexible, longer-looking, a better deal for most people involved.
If you can't make money this year, or next year, or 5 years from now... shareholders are forward looking enough to still give you money. As long as that share they received truly benefits 5, 10, 15, or 20 years from now.
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Owning a right to future profits and a vote for the board-of-directors is a powerful thing. Shareholders become one of the owners of the company, with all the rights associated with that.
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So. Lets timetravel back to 2014. Tesla needs money. It wants public money: willing to give you a piece of ownership (aka: future dividends and a vote for the board-of-directors). It promises to use that money to build a Gigafactory in Nevada.
Today: we now have a company, and set of shareholders, who BOTH benefit from the situation. That's the magic of the stockmarket. It turns out that the "promise of future profits + voting rights" is a powerful item to trade.
Example: [Person A] was a single parent living paycheck to paycheck, then they started selling [pyramid product X] and now they’re sending their kids through collage on the profits alone.
Shareholders not making money is akin to saying that pyramid scammers don’t make money, off course they do... Otherwise they wouldn’t be spending their time and energy doing this. Every dollar you earn by doing nothing is a dollar made by someone else they didn’t get.
The expectation of the Stock Market is to do something with the money. For Amazon, the IPO allowed them to buy servers. For Google, same thing: tons of computers cost tons of money. For Tesla, they bought a Nevada Factory.
The money disappeared into a Factory, and then the Factory made money later (which is then used to increase the value of shares and make everyone who participated richer).
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This is allowed in part, because it works. It makes society stronger. It rewards risk-takers who would otherwise do nothing with their money. It provides thinkers with money and capital when they need it most. If the scheme doesn't work out, the investors lose, but they're still happy that they got to partake in the experiment.
Stocks are the original "Kickstarter". And I argue that they're far more fair than kickstarter. Owning a vote for the board-of-directors + a share of the promised dividend is worth a hell of a lot more than stupid keychains.
Agreed, the stock market is not a pyramid scheme. I only used pyramid scheme as an example for a scammer’s rhetoric. However it still looks like a scam to me (albeit not as bad of a scam as the average pyramid scheme is).
Having worked for a company which increased in share prices exponentially while I worked there on minimum wage, I cannot agree with the statement that the shareholder/worker relationship made “everyone who participated richer”. The average worker certainly didn’t. The only people that got richer were the shareholders (and perhaps some contractors). I experienced this exponential growth as a scam. The value of my work was being extracted into rich people’s pockets.
See the stock market might look to an outsider as an arrangement where everyone benefits, but to a worker it always looks like a scam. Especially when you consider an alternate arrangement where the shareholder returns control of the profits of the company back to the workers after they’ve made up the money they gave originally to the business plus some fees and interest. The very fact that the shareholders keep control even after they’ve made their fare share of the profits, multiple times over, is what makes this look like a scam in the eyes of the workers.
Sometimes, shares and options are offered to workers (very common in SV), but honestly I'd probably take the cash most of the time. The promise of future money is best left for rich folk who can afford to lose that pile of money.
For workers like me (and probably you), the cash deal is better. If you disagree, feel free to work for a myriad of startups who are offering stock instead of cash.
But yeah, its an option. Not an option I'd personally bet on... but if you really wanted to be rewarded in shares instead of money, the opportunity for that is all over the place.
Only if the worker doesn't understand that the initial sale of stock raised the money that let the company buy the tools that the worker uses to make the profits. Getting that money without paying dividends looks like a scam where the stock owners are the suckers.
Still very much looks like a scam.
But by all means, tell us again how it looks like a scam. Maybe we'll start to agree with you if you repeat it a couple more times.
True, the board of directors decide to pay the shareholders dividends. But in a hierarchical company to a worker, this board looks like a part of the scam. The relationship between a well paid board of directors (whom seemingly to a worker contributes nothing of value) and shareholders looks awfully convenient (one might even say conspiratory), and especially so if the board of directors are voted in by the shareholders.
> But by all means, tell us again how it looks like a scam
Sure. This whole thing looks like a stinky scam to me. And now knowing the relationship between the board of directors and shareholders of an average publicly traded company, even more so. Now it looks like a conspiracy as well.
Maybe in the movies. Modern IPOs rarely work that way. Some companies take the money and do things, but the norm is that IPO money goes to existing shareholders (founder et al) and the company continues as before. If the money is enough, the founders disappear into ultra-rich-person nirvana, or go on to found other projects, and the new shareholder-elected board heads the company.
A modern shareholder could not care less about future profits. All they care about is deltas on future stock price, whether the price moves up or down. Their profits come when they hand their shared to someone else. Whether the company turns any profits is beside the point.
GME's board of directors is planning to transform the company from a mall-based retailer into an online distributor of games. This will require money, and... well... a high-stock price will allow GME to make a secondary offering to fund the development of a new webpage, that will become the cornerstone of this new online-distributor business.
This isn't exactly a venture I'd put my money on. But hey, some people clearly are willing to play the game. (Whether they know what's going on is another question)
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Just because there's a bunch of dumbasses throwing money at this doesn't necessarily mean its a scam. Don't get me wrong, I think they're all wasting their money (so I'm going to stay away from it). But you know what? If it works out for them, good for them! I honestly am rooting for them to be successful.
I mean, really, think about the chances here. They look low, but are they as low as say... Star Citizen actually getting released? From a video-game perspective, the long-shot chance of Gamestop becoming an online powerhouse is probably more likely than Star Citizen ever coming out (or insert any other dumb kickstarter idea in here)
Yeah, all bubbles / ponzi schemes run out of money eventually. But 17 years (Madoff) is longer than most people's radar. If you decide to go short, you gotta be right not only in the direction of the stock, but also in the timing of it.
Timing is everything. Unfortunately, timing is also the most random.
If someone seriously thinks that DFV (or the entirety of WSB, for that matter) would even physically be able to notably move a ticker such as GME, then I don't have much to say to them, because this is completely inane. With some penny stocks that have almost no trading volume? Sure, technically possible. But with something like GME, it is quite not that simple.
For a solid frame of reference, the entire holdings of GME that DFV had after the gigantic pump were about $50mil, one of the largest retail traders by far. Institutional traders? They did individual GME trades in volumes of $700mil+ each on a daily basis. Not $700mil+ for all institutional investors combined, but individually. Cannot be bothered to find a citation for it now, but iirc institutional investors also held about 75-80% of all outstanding GME shares throughout the entire pump.
I think that KO stock you have might still be valued, and probably valued well. Just stay away from the stupid memes, and you'll find plenty of value.
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Does the stock O still have a good dividend? Does O still follow the general trends of real-estate as expected? (Ex: O's assets are mostly houses in residential areas. O largely goes up when the housing market is good, and goes down when the housing market is bad).
As such, O provides you with a low-cost way to expose yourself to the real-estate market without having to invest 6-figures to do so. That's plenty of value right there. Short-selling O, or buying call/put options on O can similarly provide more sophisticated financial instruments against the housing market.
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I don't know what your expectations of the stock market are. But... a quarterly dividend from my dividend stocks + exposure to hard to enter markets are the main jobs of it for me. And I think its pretty good at both.
There's more and more people who believe in this kind of nihilism that since there's corruption and bubbles in the real economy that it is entirely fiction.
And that is giving rise to things like this crazy pumping of GME for the lulz.
The trend seems to be that a larger fraction of people have complete disillusionment with all our institutions to the point where nothing matters.
That also seems incredibly dangerous to me. By believing that institutions are meaningless and beyond reform that could lead to a much larger systemic collapse in institutions / values / etc.
I think the feeling that the stock market is crap is completely rational for the working public. And hoping for the destruction of it is normal given that the normal person has experienced nothing good coming from it; in fact the normal person sees the stock market as something that the rich use to get richer.
Believing that the stock market is crap has nothing to do with our institutions beyond wall street† so it doesn’t necessitate towards this dangerous nihilism that you are so afraid of. In the current discord I see two avenues for this despair.
1. Susceptibility towards populism and fascism. This includes trumpism, and is indeed worrying. Minorities are blamed for all the inequalities even though this stems from wall street and the stock market being crap... (don’t ask me, I don’t understand the logic either).
2. Susceptibility towards socialism. The collapse of wall street is viewed as a favorable outcome in the current class war. The suffering of the Bourgeois is victory to be celebrated.
† Well perhaps tangentially the institutions which favors wall street; such as the white house; but that despair translates more to “we should improve our democracy somwhat” rather then “we should abolish democracy”.
The banks were willing to offer Tesla ~$1.3 Billion IIRC, but the cost of the factory would be $5 Billion total. Furthermore, wages would have to be paid during the "rampup" period.
I'd say "having a job at all" is a major advantage to the working public. All TSLA / Elon had to do was issue a secondary offering with a bit of hype to the public investors, and they shoved $Billions into the company, allowing it to expand.
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You need to work on building cars for months, or even years, before a factory churns a profit. Where do you get the money for that? Well, the Stock Market is absolutely full of people who are willing to risk money (for the promises of more money).
If you have a better plan for where a company can raise ~$4 Billion or so, please explain.
Note also that building a big factory to produce electric cars is exactly the kind of thing that the green new deal is advocating for. And this falls neatly into avenue of despair nr. 2: susceptibility towards socialism. As a taxpayer and a worker I would much rather want to see the profits of a big expensive factory—which the company it self cannot afford to build—go back to the state—or even better, to the workers; as opposed to faceless shareholders—or worse, to billionaires like Elon Musk.
The Stock Market has been participating on these expensive projects since the 1500s Dutch Traders swapped stocks so that one shipwreck could be supported by many traders. You needed tons of money to fill a Treasure Ship, that treasure ship left for India with common / cheap European goods, filled up with expensive spices, and came back.
The idea of selling stock to raise money is literally older than our government.
1. Provides initial funding for large, risky projects.
2. These projects (and jobs), such as the sailing jobs associated with those 1500s Treasure ships, would not exist without investment from a large number of investors.
3. The rewards (such as the Treasure Ship successfully returning from India) offers exponential growth. $100 investment becomes $200. Or $200 initial investment becomes $400, due to the difference in prices between Europe and India. As such, all investors of all classes who can afford a share can benefit. (Ex: A millionare may offer $100k, but a billionaire may offer $100 million. Both are awarded by proportion of the initial investment).
4. The value of the shares change based on information. If you hear that the Treasure Ship has sunk, the value is zero. If you hear that the Treasure Ship has made successful stops in Madagascar, India, or is nearly home, the value of those shares increases (less chance of failure, since its almost done with the trip). To fairly trade the shares innately means changing the value of the shares as various information comes in.
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So my point is multi-fold.
1. Exponential growth isn't really from the Stock Market per se, but from the opportunities that arise from pooling money together.
2. The Stock Market makes those trades possible.
3. There are other ways to make such investments (such as US Government). But its not very clear that the government should be the one solely responsible for these sorts of risky behaviors. For better or worse, people understand the risks on the Stock Market (ex: if the Treasure Ship sinks, the value of that stock loses everything). If a Government-sponsored ship sinks, that's a huge loss for the Government. These sorts of risks are almost better handled by private citizens: the risk-takers, the Entrepreneurs, rather than stable governments or workers.
4. It is natural for the value of shares to change.
I never said that, I said it was crap. Things that are crap can still offer things of value, they just do so in a crappy way. Global capitalism is a prime example of that.
I did say—in a different thread—that to a worker, the stock market offers nothing of value. I still stand by that. To a worker the shareholder-board of director relationship is such that it monopolizes job opportunities. The average worker has no choice but to hand over the fruit of their labor to shareholders and hope that their union will successfully negotiate a better wage—or worse hope they are allowed to unionize.
As to your example of the Dutch treasure ships, we don’t live in a Mercantile world any more. We now have insurance companies which offers insurance on ventures like these. And if the risk is to great, the Dutch traders could ask their government to insure them to a point (and in return pay higher parts of their profits in taxes).
There are more questions that arise when you bring this mercantile example to the modern setting: How are the Dutch traders the once that are making the millions off of this scheme? I would want to ask how much are the farmers growing and drying the spice making from this? Perhaps they deserve more. Perhaps the farmers should band together and use a more favorable distributor that offers them a fair share of the profits, rather then relying on these shady colonialists. Maybe the profits being made up in Holland shouldn’t be going there in the first place. Maybe we should standardize shipping such that distributors could rely on a global trade network, say by buying a container at a freight that departs from Bangkok and heads towards Rotterdam every 2 weeks. Then maybe the Dutch treasure ships won’t be needed at all, and their old unfair business model can rot along with their falling stock prices and their aging ships.
The ship-hands of the hypothetical 16th century Treasure Ship, what job would they have if investors didn't give them a ship to work on?
> I would want to ask how much are the farmers growing and drying the spice making from this?
Well, without Europeans to consume those spices, I presume they'd also be out of the job. Because they were growing those spices hoping that someone would come by and trade with them. That's why India was exporting spices: because they had far more / excesses of spices, while Europeans were importing spices (they couldn't grow those spices in Europe).
The trade, and Treasure Ship, in fact benefited everyone.
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> Maybe we should standardize shipping such that distributors could rely on a global trade network, say by buying a container at a freight that departs from Bangkok and heads towards Rotterdam every 2 weeks.
Those ships and trading networks cost money. How will you build those networks?
Answer: raise money, then with that money, buy ships. You can't just magically assume ships appear from nothingness. Someone has to make those, someone has to be the risk-taker to assume the risk when disasters (ex: hurricane sinks treasure ship) happens.
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Lets take another example: Solar Panels. How do you expect for solar panels to be deployed? The Stock Market is really good at that: tons of solar panel companies got literal billions of dollars so that Solar Panels could be bought, and they hope for a slow-and-steady profit over the next 20 years (or whatever the lifespan of solar panels is).
This is true for solar panel manufacturers, utility solar panel deployers, as well as solar-panel installers. All of them got large investments from the modern stock market. Sure, the US Government put down a few incentives, but the stock market created the possibility.
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How about this. Try to build a 20MW Solar Panel array. Maybe not "really build it", but really try to think through the steps of how you'd raise money and actually build the darn thing.
And no magic thinking. You can't just imagine that money / resources pop out of no where. If you get money, tell me where you get the money from, and why they'd give it to you. If you say the government will do it, explain how easy it will be to make a law to increase taxes so that the government has the funds to take on the project. (Maybe you have some special legal scheme that you think everyone would agree too. I dunno, I can't think of anything on that front. I'd probably have the government tap into the Bond market honestly...)
I’m sure that the majority of all businesses are able to fund their own ventures (including solar panel manufacturers), if they don’t have the savings, there are also loans, government (and community) support, etc. I think your overestimate of the value (or rather the necessity) of the stock market stems from big, expensive, and risky ventures. Perhaps you are right and those would suffer if the stock market would suddenly collapse on it self.
However like I said previously, I think you underestimate the resourcefulness of the private enterprise. In a world where there are no stocks, and a company wants to venture in a risky and expensive project, that nobody wants to loan for (not even the government) perhaps they would find a way to scale down the project, start earning profits (or demonstrate how the profits will come as the project is scaled up). Perhaps some loan agency will specialize in large risky loans (at a higher price), and perhaps we will (god forbids) re-invent the stock market.
If I am wrong and I overestimate the resourcefulness of the private enterprise. Then the government can always kick in and fund the deployment of those solar panels. After all we do need them, and there is no risk for the government (well the risk is the other direction of letting those solar panels go undeployed and risk a runaway climate disaster; hence the green new deal).
Lets just look at the top companies in the world by revenue, shall we?
1. Walmart (Public, stock ticker WMT) -- 560 Billion/year revenue
2. Amazon (Public, AMZN) -- 386 Billion
3. Apple (Public, AAPL) -- 274 Billion
4. CVS (Public, CVS) -- 268 Billion
5. ExxonMobil (Public XOM) -- 264 Billion
(Etc. etc. etc.)
By revenue, we have to drop down all the way to #25: Bank of America ($113 Billion/year) before we find public companies close to the size of private ones.
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In fact, most private companies seek to go public. So that those private-shares can be "Cashed out" on the public market. Private companies do not have access to a market: you cannot leave your seat of ownership very easily.
In contrast: public companies trade their ownership ("shares") millions of times a day on the public stock market. Its extremely easy to become an owner... or to leave your seat of power. As such, as large private companies's owners grow old (and eventually die), their successors naturally transition to public ownership models.
As such, figures such as Bill Gates, can easily leave their seat as owner of Microsoft and move on with their life, doing something else. All Bill Gates had to do was sell his shares.
The latter opinion is, honestly, the kind of attitude that I think is going to lead directly to fascism.
Lots of people thinking "nothing matters anymore".
There's too much of our lives that's as distanced and separated from fundamentals as GME.
Once it was found out what they were doing, the market acted rationally again, but dumping their value to zero.
Its entertainment to them. Sure, some of us are trying to do work (aka: properly price things, determine which companies deserve our money, etc. etc.), and these events are distracting...
But if its just a bubble, I don't think there's much harm in letting it run its course. Let them gamble, as long as no sharks swim by to illegally try to extract money from their fun.
Of course, if someone in particular you know has a gambling problem (and might lose their life savings), that's a different story.
I will top that by stating: “Nothing that happens in the stock market is stupider then the fact that the stock market exists.”
The bubble is/was at both ends. I honestly have to agree that it was undervalued at the time that the original GME posts were made, but it's also very overvalued right now.
GameStop has limited immunity from the problem other brick-and-mortars are facing: console games purchased through digital content delivery platforms cannot be transferred to friends, where-as games that are purchased at GameStop typically can be. There's also hardware to be purchased and other goodies. GameStop is not intrinsically doomed to failure, if they proactively differentiate from digital content delivery.
That being said, it's highly doubtful that GameStop will outpace digital content delivery platforms (like Steam/PSN/XBox Live/etc.), unless they build their own.
In my opinion, they do potentially have a sustainable 8-9 figure market cap. This bubble is going to pop, just as much as the squeeze had to happen.
If they can make themselves different enough to give people a reason to buy their PS5 at GameStop instead of at Carrefour, remains to be seen.
Portraying gamespot's case as a bubble is either ignorant or disingenuous. It's a game of chickens between hedge funds using glaringly obvious market manipulation to drive their shorts and retail investors who spotted how the hedge fund's overplayed their hand.
> Hertz is a better saga (...)
Hertz has zero to do or in common with gamespot's saga. Hedge funds cornered themselves by shorting over 100% of gamespot's stock, and thus forcing themselves to buy over 100% of gamespot's stock back for whatever the market will be asking to be able to deliver on their contracts. Hertz was a company already in bankruptcy.
> % Held by Institutions 106.22
https://invest.ameritrade.com/grid/p/site#r=jPage/https://re...
Suppose we have a company and an institution has analyzed the books and knows is worth $10/share, shares are currently trading at $5. Suppose this is an unusually small company and there are only 100 shares outstanding total. Institution buys them all up since it's such a good deal.
Along comes Citadel who decides the company is going bankrupt and decides to sell the company short. Borrows 50 shares from the institution's broker and puts them up on the market. Now the institution sees that 50 more shares are available again at $5. Still the institution knows they are worth $10/share.. it's completely rational to purchase those shares and increase the holding to 150 shares even if the official shares outstanding is only 100 shares. Institution can sell all 150 for $10 a share assuming they are eventually right about the validation and Citadel will be the one that needs to make up the difference.
That's gambling, not investing, but people love gambling. As with gambling, the house always wins, but some people come out ahead anyway. Like lottery winners, that makes people dream.
In this case there may even have been some house disadvantage: too much pessimism by investors not only made opportunities for legitimate investing wins, but the quirks of the rules left them open to having to materialize losses. Any such advantage to investors is long since gone, but it amplifies the lotto excitement.
First time might have been retail traders but this is all about big whales. Shorts are pinned - all shorts must cover. Writing this off as a retail pump and dump is ignorance.
Cashed out at $320 and bought back in at the dip. Wheee!
Hedge funds are shorting from dark pools (EDIT - the public data was late, so it now seems unlikely it was a dark pool), and I am fucking excited to see what happens for the rest of the day and especially just before closing (and after hours).
I remember DFV posting about this at low double digits on WSB, but how is the tax liability on your side? This is why I prefer bitcoin, I can choose to stay and benefit from the appreciation without having to sell directly, whereas taxes on stocks was always a horrible proposition. My Charles Schwab brokerage account is more likely to get more activity from them adopting Bitcoin than any stocks, at this point if I'm honest.
It's not that people are crazy (maybe in the US, but thinking of some countries in the EU now), but that the tax advantage of taking out a loan on your Bitcoin leads to you having to pay less taxes than if you just straight out sold them. Hence people walk that route sometimes.
Or are you suggesting that Bitcoin is great because you can hide your capital gains somehow and not pay tax?
https://i.redd.it/tjouf0bctbj61.gif
I genuinely appreciate the advice though. Cheers.
A slightly more accurate description might be "GME gains 530% in a month and is still green for both day over day and on the day time scales." And even more accurate description might be "stock goes up and down in the same day."
Here are the options flow stats, crazy amount being spent on options. https://i.gyazo.com/dca500ef0f774a0019f0a42b7ac1e855.png
Source: https://www.tradytics.com
See: https://www.nasdaqtrader.com/content/MarketRegulation/LULD_F...
Total comment volume on /r/wallstreetbets is up 300% over the last 24 hours
When it goes back down I'm going to make a nice profit out of this craziness.
Or you know, lose a lot if it somehow stays insane for an entire year.
I know what my money's on.
Case in point: had friends who bought GME puts 2 days ago. GME stock went significantly up in price since then, and so did my friends' puts.
Why did their puts go up in price if the stock price went up? Because IV increased, which pumped the price of options across the board, both puts and calls. When IV crush occurs, the exact opposite happens.
Note also that option buying is negative expectation on average due to the premium demanded by sellers.
I worry that I can lose money even if my bet is correct, if the volatility goes down and thus the premiums also go down.
In other words, best case scenario is GME drops from 300 dollars to 10 bucks and then you make 100% on your money. That's not really a nice profit for the risk you're taking.
At any rate, my point isn't you can't make money off this, it's that there's no easy arbitrage opportunity happening on GME. It's basically trading like a volatile stock would trade, and it's being priced as such. Whatever free or easy money you think there is to be made on GME is likely just a coin toss.
Like you?
I already liquidated 30% of my position and got my initial investment back. Now I'm playing with house money. I gotta say, it's a lot more fun being on this side (with the memes and the fun mottos), than being on the side you're on!
I think there is a bizarre Dunning-Kruger-like effect here, particularly when it comes to finance, where everyone is convinced they know far more than whoever is buying or selling GME.
Look through old comment threads and you can see everyone making such convincing arguments that the short squeeze was already over and the GME would never be priced above $300 again...
That big dip today puts it on the short sale restriction list so tomorrow will be interesting.
AMC also had a similar big dip at about the same time as GME.
High? It was down from 42.0% (2 weeks ago) to 30.2%. The week before unofficial estimates put the short interest at over 100%.
In "GME round 1", S3 was reaching out to CNBC to correct them, saying most of the shorts are NOT covering. [1]
The 100%+ was based on low float numbers or algorithms developed by companies like S3. Morningstar, as an example, currently reports the float at 27.29M. So their SI is 52% right now.
Nobody really knows what it is at any given time. We have 2 week gaps in data.
So yes, round 2, there appears to be a big drop in shorts, but who knows. There's a battle going on. After round 1, nobody would want a high short volume come reporting time.
So what's the actual short volume. And what are the positions on those? Nobody knows.
S3, from their algorithm estimates 20.52% right now. [2]
That's not to say there isn't money to be made here, clearly there is. But it's not a level playing field: funds can get bailed out to the tune of billions, they can freeze the sale of stocks, so on and so forth. The app everyone is using to buy these stocks is owned by Wall Street, too.
If this ever came to the point that WSB wants (or wanted? the anti-Wall Street rhetoric ebbs and flows) my gut instinct is that Wall Street will just pull some trick people haven't thought of yet that wipes out the retail investor threat and tell everyone to get out of their sandbox.
Hedge funds don't get bailed out by taxpayers. Unlike AIG, or Fannie Mae/Freddie Mac, they aren't critical to the function of the economy. Individual funds lose millions of dollars, and go bust all the time, and the rest of Wall Street laughs and moves on with life. [1][2]
When they do get bailed out, they get bailed out by predatory-rate loans and hostile takeovers, and other funds who want to buy their positions at a discount. Saying that hedge funds get bailed out when they lose big is like saying that a loan shark bailed me out when I lost all my money at the craps table. Technically true, practically, I am now an indebtured servant, with only one working knee.
The funds aren't the ones stopping the sale of stocks - Robinhood being a shitty discount brokerage that didn't bother maintaining sufficient clearinghouse collateral [3] stopped the sale of stocks. Retail investors who were using serious-person brokerages had no problem buying GME.
If you want to make this argument, you should go on - because the points you made are insufficient to support it.
[1] Remember Knight Capital losing 400 million dollars because of a one-line software configuration bug? They, uh, aren't in business anymore. Uncle Sam wasn't very interested in bailing them out, because their insolvency was not a systemic threat to our entire banking system.
[2] If you do think that hedge funds who lose a lot of money in bad options trades get bailed out with public funds, please list examples. If you think that they get bailed out with private funds... Those aren't bailouts.
[3] These collateral requirements are computed by pre-determined formulas. Maintaining collateral costs money, and it was money that RobinHood wasn't interested in spending.
Do you have a source for that?
First, the research over the last decade into social media persona swarms, where a single operator can program and control a large group of fake social media accounts whose details are created through methods such as Generative Adaptive Networks (GANs), a Machine Learning technique that can learn to produce something new that imitates an original. [1][2][3]
Next, automated algorithmic trading [4], where algorithms determine what and when to buy (increasingly using Machine Learning), which is believed to account for 70-80% of U.S. stock trading.
Last, the melding of the two, where automated traders use automated social media accounts to influence at opportune moments and then take advantage of the temporary dips or surges caused by that influence, possibly causing ripple effect dips or surges that the automated traders can use.
As far as I know, right now this is just an interesting idea for a science fiction story (am planning to write that in the near term now, too). However, the technology to do this exists right now - the problem is one of integration rather than innovation.
[1] https://www.dailykos.com/stories/2011/2/16/945768/-
[2] https://www.techdirt.com/articles/20110318/02153313534/us-mi...
[3] https://www.networkworld.com/article/2201350/lots-of--people...
[4] https://www.fool.com/knowledge-center/what-is-algorithmic-tr....
[5] https://therobusttrader.com/what-percentage-of-trading-is-al...
I am squarely of the belief that all of this fun and games will probably end shortly after people start going out and doing things again.
Disclaimer: I have previously bought/sold GME purely out of personal interest for the phenomenon (and have no position in it now, nor do I have a plan to buy any more), but this is not financial advice.
It doesn't have a lot to do with financial future of GameStop. It's overvalued as a company almost surely. But it's not a scam company, it's not going bankrupt, but the draw is a certain class of investor bet way too heavily against it that it created an opportunity to take advantage of, GameStop just happens to be the field the game is being played on.
The problem is that Reddit is full of morons, who don't understand a single thing about short sales.
When a stock is 150% shorted, there exist 250% shares of stock. That's because for every short sale, a new long position is created.
It is impossible for there to be more short positions, than there are long positions. [1]
Now, if[2], say 150% of the shares are held by buy-and-forget investors, who won't sell, regardless of where the price goes, a short squeeze is possible (Because there are fewer shares being actively traded, than there are short positions open.)
The thing is, when GME goes to some ridiculous valuation like $300, some of those buy-and-forget investors may be inclined to take their money, and sell. Any half-actively managed fund would be crazy not to.
Are short sellers getting margin-called applying upwards price pressure? Yes. Is that the only source of upwards price pressure? No, there's also a mountain of people with either FOMO, or the hope to unload the stock to a bigger fool. This is rational, in the same sense that investing early into a bubble, or a pyramid scheme is rational.
[1] Unless you do a naked short sell[3]. Reddit screams about illegal naked short selling, without offering a shred of proof, because it doesn't understand the concept mentioned in the paragraph above.
[2] Reddit also has no proof that this is the case, it's just a tribe of apes screaming 'hodl' at eachother.
[3] The only people who naked short sell are market makers, who are incredibly risk averse, and balance their positions out on a regular basis. Hedge funds aren't market makers, and aren't allowed to naked short sell.
That's precisely the whole premise of gamestop's rally. It's weird why you accuse those who state the same as you as being "morons" just for pointing precisely the same fact that you've just pointed out.
> The thing is, when GME goes to some ridiculous valuation like $300, some of those buy-and-forget investors may be inclined to take their money, and sell.
Think for a second: Don't you think that it might just be because of that why "hold" and "diamond hands" is repeated ad-nauseum by those who rally behind the short squeeze?
Perhaps those "morons" might have a point, right?
And whether you collude or defect, you'd still tell others to keep holding, we're all taking down the hedgies together, whatever.
Not really. For your belief to have any basis, you'd need to believe that the whole world was comprised of either WSB-blend of redditors or hedge fund shorters, which is a highly silly assumption.
> But it just takes some defectors to sell
You're somehow assuming that a hand-full of single- or double-digit stock portfolio retail investors are able to manipulate the stock price by selling their residual position.
You're talking about "fantasy" about wins regarding a community renowned for posting screenshots of stock market losses under the premise of "loss porn". You're also talking about the possibility of losing money while talking about a phenomenon with a highly emotional and defiant tone, with multiple and reiterating and recurrent threads about how they don't care if they lose money or withstand massive losses if that means they have a shot at screwing hedge funds and their blatantly manipulative tactics. You're talking about the risk of losses on investments from a community where "exit strategy" is a kin to an inside joke.
In essence, you're trying to find an explanation to a social and political event through the optics of basic conservative textbook investment principles, and your conclusion is that nothing fits your personal explanation.
Diamond hands might force short sellers to pay high prices to cover. But they pay those high prices to the people who sell, not to the people holding. Those sellers are the real winners -- well, them and anybody who shorts it again at the peak. Are they other hedge funds? Retail investors with "paper hands"? Who knows. All that's obvious to me is that if you're the last to sell, the only person you succeeded in screwing over is yourself.
You're free to ignore or downplay whatever facts you'd like, but it takes a lot of will power to turn a blind eye to the political and protest aspect of gamestop's stock purchases.
You're talking about a bunch of small WSB-like retail investors who purchase half a dozen stocks with their disposable cash because they feel that contributes to evil hedge funds of the likes of Melvin Capital to lose half their cash on their manipulative shorts. You're talking about people who look at gamestop's stock as a high-risk investment where the payoff is not cash but screwing big financial companies out of their cash.
It's like you're watching a parade or a protest march and you're there wondering why all those idiots are just standing there instead of running to win the race. The point of a protest march is not to ensure that your everyday flow stays neatly predictable, is it?
To be clear, the make-a-buck version of events DOES make sense to me. I'm not standing here going "why are these people all doing this irrational thing?". It makes perfectly rational sense if they really do plan to exit, regardless of what they joke about in memes. It's not a game everybody can win, but there are some big winners paid for by the long tail of losers holding the bag at the end, and everybody can try to time the bubbles to make themselves one of those winners.
On the other hand, the "I'm fine with taking a loss because at least I stuck it to the man" version makes no sense to me.
If you buy and hold, and your diamond hands cause you to miss the window of profitability, you are helping somebody else who does sell get a better price for their shares. All you know about that person is that they DON'T have diamond hands. They might just be another hedge fund. Helping an unknown fund that's long make money off some other unknown fund that's short is... something... but I don't see how it's an effective protest.
I guess it makes some amount of sense if your definition of "evil" is just short-selling, so somehow long funds are "good" and short funds are "bad". I admit I have seen that sentiment floating around. It doesn't make any sense, but it is out there, so I'll grant that at least a few shares have been bought on that belief. Again, I think the most charitable interpretation is that most price movement is not driven by people with such a naive idea about shorts and longs, but I could be wrong.
The thing is, I don't think the winners are mostly getting rich off the backs of short sellers. They are getting rich off the backs of other retail investors, most of whom are losing money, because they buy in at $220, hold through $300, and then diamond hands the drop to $50.
I understand why people with an exit plan are screaming at everyone else to hold. They need everyone else to hold, so that their exit pays off. This is why I assume they are spreading FUD, and misinformation about how short sales work.
I don't think your definition of winners applies here, because for some this isn't really about making a quick buck. There's a whole class of WSB-based stock purchasers who buy/bought stock in protest, and don't care at all if they lose 200$-2000$ in this as long as they see hedge funds hemorrhaging cash.
For them, winning is seeing the likes of Melvin Capital wasting half of their cash on a failed short.
https://edition.cnn.com/2021/01/31/investing/melvin-capital-...
And that's something they don't mind paying 2000$ to see.
That class of WSB should open their eyes and realize that hedge funds on the long side of the trades aren't hemmorhaging cash. Those funds are happily taking WSB cash, and laughing all the way to the bank.
As a form of social protest, giving your money to a hedge fund seems to be an odd one.
For some mysterious reason, though, the WSB narrative is that all the hedge funds are on the short side of these trades. Again, no proof is given for this statement, it's just a magical incantation that the tribe keeps repeating.
... Or, it's something that people hoping to get rich from a pump and dump keep repeating, so that bigger fools drive the stock price up for them, and they can cash out. If I were one of those people, that's what I'd be doing.
These people have essentially borrowed shares and sold them on the market (short sale), and are waiting at some time in the future to buy them back. The idea is they will buy the stock back at a much lower price than they originally sold them for.
The people holding the IOUs for gamestop stock are paid regular interest payments. These payments are relative to the price of gamestop. The higher the stock price goes, the higher the interest payments are.
When the stock skyrockets like this, a positive feedback loop is generated (called a short-squeeze), people want to buy back shares to stop their interest payments on the IOUs. And if there aren't enough shares available, the price spikes. Eventually, the market cools off and the price plummets back to earth.
WSB is almost qanon at this point. everything is a coordinated attack to them.
They were really quick to get that up when it happened but not so quick to alter the headline they want.
Isn't it more newsworthy that it bounced back so quickly? It's up over $100/share since Monday. Currently up $20/share on the day and will be on the short sale restriction list tomorrow.