Despite currently being halfway through a 700-page book about the financial crisis, I remain unequipped to explain the economic mechanics of the GameStop fiasco.
Jeez. It’s a short squeeze in a stock that had, at one point at least, a 140% short interest.
If you can’t explain that then what the hell are you doing writing a book concerning finance? If you want the economics then add in some Shiller and Galton’s Ox. This really isn’t difficult…..
Perhaps he’s just reading an A-level textbook and hasn’t got to the relevant bit yet.
Shaun Richards explains it quite nicely
https://notayesmanseconomics.wordpress.com/2021/01/27/time-for-some-gamestop-theory-investing/
How much would one investor have to invest to shift the stock price of a heavily shorted stock in order to precipitate the short squeeze process? GME was less than $1bn market cap last year, so what percentage of that would have been necessary to start the short squeeze spiral?
Seems to me that this is a new opportunity for ‘whale’ investors – pick a heavily shorted stock, start buying and keep buying over an extended period of time and eventually the shorts will have to start buying too to cover their positions. Then let it spiral upwards, and dump all your stock back into the market as they get desperate. Cue huge profits……..
That is what is happening, Jim. People on a reddit bulletin board started buying en masse. Elon Musk has joined in to get revenge on the funds which have been shorting Tesla. The funds have had to buy at the top of the market to cover their short positions and meanwhile they are still selling at the bottom price.
To add to Diogenes’ explanation, GameStop was heading towards bankruptcy, its business model was a busted flush before Covid lockdowns but they were accelerating it. The shorters expected to hasten GameStop’s demise so they could pick up shares at rock bottom.
That’s what I find so amusing.
There’s an interesting new aspect to the short squeeze which is magnifying the effect. The forced participation of the Passive Funds who track indices. Because the company’s value has increased to such an extent, the percentage of certain indices the stock now represents means that passives are having to buy ever greater amounts of the stock, which is also feeding the rises, and this is of such great magnitude because if the surge in low cost passive investing in recent years.
At USD$ 24 Billion Market cap, it now represents around 2% of the S&P Small Cap 600 Index. The Ishare
Core S&P Small cap Fund alone (There are plenty of others) which tracks this index is valued at USD$ 63 Billion. Which means that it’s position in the stock alone is now valued at 1.3 Billion. The same TOTAL value the company had on the 31st December 2020
It’s brilliant tv (Unless you’re a long / short fund sitting on the wrong side). Even after everything that has happened so far, the net short interest is 123%. On that basis, it might be a while till this is over.
The dilema as a short is that you know the company is worth USD 1 billion tops. But that million share short you had on at $ 10 Dollars means you’re presently in the hole for $ 350 Million. And that’s got to be financed, either for as long as you can hold on until the price reverts to fair value, you take your $ 340 Million loss, or your fund goes bust.
There is definitely a certain ‘fuck you’ schadenfreude element to this against the hedgies who have been blowing up small caps for years.
I really hope short squeeze vigilantes are a thing now, because fuck you hedge funds.
Also, I see discord have banned wallstreetbets for “hate speech”, https://arstechnica.com/gaming/2021/01/discord-bans-wallstreetbets-as-subreddit-briefly-goes-private/
They’re not evening hiding the corruption anymore.
“They have also exposed how underequipped traditional media is to describe such incidents. Neil Irwin, a senior economics correspondent for the New York Times, tweeted: “Trying to make sense of the Gamestop thing as a 42-year-old who has covered econ and markets for years, I feel like Don Draper sitting back and trying to listen to the Beatles, then giving up after a short while, confused and discomfited.””
How do you get to be a 42 year old covering economics and markets and not understand this? Some people are shorting and HAVE to buy a load of shares. You figure this out and as long as you can rally enough people to buy and drive the share price up, you make bank.
The thing with places like Reddit is that they’re full of pirate energy. The NYT is the establishment, stuffed with the sort of people who would just believe the politicians when they told you the housing market was stable in 2008. People on Reddit aren’t all “all the politicians/papers/whatever say this”. Pirates are more about telling you why a thing works.
He’s reading the book not writing it if I read the link correctly. And the book he’s reading isn’t one of the better ones on the crisis. It idiotically blames the Republican Party and Merkel. (The republicans share the blame, but the Dems – in the form of Pelosi – were the idiots who forced us to the edge of the abyss. Merkel did some bad stuff, but no different from every other world leader protecting their home institutions. And anyone who thinks that Brown did a good job is an idiot.)
“The market can stay irrational longer than you can stay solvent” J M Keynes
They’re not evening hiding the corruption anymore.
Nope.
Nasdaq CEO Friedman says the exchange will halt trading in a stock if they link unusual activity to social media chatter
https://markets.businessinsider.com/news/stocks/nasdaq-monitors-social-media-halts-unusual-trading-friedman-market-manipulation-2021-1-1030011156
Close last nigh USD$ 345
Indicated open today USD$ 500
That Ishare small cap fund should be going in and buying another $ 520 Million of the stock today, based upon the stocks weighting in the index they are tracking
“That is what is happening, Jim. People on a reddit bulletin board started buying en masse. Elon Musk has joined in to get revenge on the funds which have been shorting Tesla. The funds have had to buy at the top of the market to cover their short positions and meanwhile they are still selling at the bottom price.”
My feeling is that while the Reddit investors started the process, and provided the ‘Us vs Them’ narrative, some savvy (and very wealthy) folk cottoned on to what was happening and piled in behind them. It’ll be some serious money that shifted the stock upwards, not a few thousand Redditors buying a a couple of Ks worth of stock each. When its all done and dusted I’ll bet as many hedge funds will have made money as have lost it. Or at least the winnings and losses will be the same, just maybe the losses are concentrated in a few funds.
@Worzel: thats another interesting anti-Wall Street angle for the Redittors to consider – they are now forcing passive funds to buy a stock that is guaranteed to give them (and their investors) losses in the long term.
The whole thing is massively amusing – the insiders have been running the game for so long now, with their quants and black box trading algorithms and ultra fast trading strategies, its car crash tv to see them get their arses handed to them, and nothing they can do about it.
We can stay retarded longer than you can stay solvent”
WSB Tweet
Also, I see discord have banned wallstreetbets for “hate speech”
Well they didn’t like seeing people rejoicing at bankrupting some smug Jewish billionaires.
We’ll soon see just how blatant they are prepared to be to protect the favoured.
Making money off the financial establishment is the new “far-right”.
I just want to be in a parallel universe right now. Pretty much any one will do at this point.
Popcorn time…
Hold on, fleecing rich capitalists is bad now?
“Hold on, fleecing rich capitalists is bad now?”
Just goes to show who is the real power behind the Biden throne, the ones who are pulling the strings in the US today. Its not proto-Marxists, or Antifa, its Wall Street.
Well, that didn’t last long. In your face corruption seems to be the new America.
I can see Robinhood losing its customers and enjoying class action lawsuits. Either way, it deserves to die horribly.
Well, that didn’t take long.
https://www.thedailybeast.com/robinhood-hit-with-class-action-after-trying-to-shut-down-wallstreetbets-gamestop-uprising
” Morally neutral, this philosophy can be directed towards good (destroying hedge funds) or evil (propagating a shockingly successful conspiracy theory that threatens the democratic stability of the nation with the world’s largest military, eventually leading to the storming of the American Capitol) ”
I presume he means the conspiracy theory that said that Trump was put in the White House by Putin, that Trump planned to send Jews, homosexuals, Mexicans and leftists to concentration camps and that Trump and his supporters are nazis, thus leading to the beating, stabbing, shooting and murder of Trump supporters by Democrats? That conspiracy theory; the one that’s been pushed by Democrats and their media lapdogs for the last four-and-a-half years? C**t.
@jgh:
“Hold on, fleecing rich capitalists is bad now?”
Not only that; it’s anti-semitic.
@ Jim:
” Its not proto-Marxists, or Antifa, its Wall Street.”
AntiFa and BLM are supported by Wall Street and the rest of the Establishment. They advance their interests.
“AntiFa and BLM are supported by Wall Street and the rest of the Establishment. They advance their interests.”
Precisely. It’ll be interesting to see what happens when BLM/Antifa realise they’ve been duped. They thought they were getting a revolution, when they realise they’ve been Wall Street’s puppets instead the proverbial is going to hit the fan. I’m sure the Establishment think they can put the genie back in the bottle when they need to, they may find it harder than they think.
“AntiFa and BLM are supported by Wall Street and the rest of the Establishment. They advance their interests.”
When the bankers saw those Occupy people making a fuss in their neighbourhood they needed a distraction.
Hence the massive injection of identity politics in the media etc. Look it up. Various people have done Lexis Nexis searches and the use of terms like “White Supremacy” started skyrocketing in the media in 2012, just after the 2011 occupy riots.
Why do you think the corporations all give lip service to BLM, LGBTQ?
Because they focus on bullying ordinary white people, not the corporations, especially the Banks.
Its a club, and you aint in it.
Hmmm… question for the peeps who play around with this kind of stuff:
Assuming a fair fraction of the Reddit buyers do not intend to profit, but intend to take their “loss” and just sit on the actual shares until they crash again, just to watch the world burn…
What’s the percentage of shares they need (out of the 70 million-ish) to create a serious problem by limiting the amount of shares for sale?
There’s already more shares being gambled with than there actually are ( you hear 125% to 140% ), and eventually those shares will have to be bought back at any price.
Limiting the amount of shares for trade should in some way raise the price. The question is: how much, and how many do you need to have a measureable effect?
Afaik there’s an awful lot of stuff due at trade’s end today ( friday), so we’ll hear the howling ( or the intervention…) anyway, but I wonder if the share price can be “inflated” enough to hurt the smart-asses with longer positions as well.
Disclosure: I’m the guy who rolls ones when sixes are needed, and/or manages to get the worst possible hand 6 times in a row, and/or manages to get not a single number right for a year in a lottery..
So I am very much one to not do stocks, or any form of betting.. One Learns..
But I’m curious how other people seem to pullit off.
@ Jim:
” It’ll be interesting to see what happens when BLM/Antifa realise they’ve been duped. ”
It’s already happening:
” Given all we’ve heard about the threat of insurgency, a healthy media would inform the national populace of coordinated riots that occurred across major American cities, particularly when it resulted in the destruction of the state headquarters of a governing political party..”
https://twitter.com/MrAndyNgo/status/1352263621280202753
Incidentally, Andy is a great source for coverage of BLM/ AntiFa violence that the MSM doesn’t generally care to report on.
https://twitter.com/MrAndyNgo
@Grikath
It’s the folk who are counter-parties to the shorts that really control things, as they collectively control >100% of the company — they are long by the amount that the shorters are short. While keen to make out like bandits, they won’t want to actually bankrupt the shorters because then they won’t get anything back at all. Unless they are required to hold the stock (e.g. they’re passive trackers), they’ll probably come to an agreement whereby they do Very Nicely Thank You but fall short of the actual market price at the expiry of the short contract. Unless the WSB crew are buying out the rights of the counter-parties to the shorts AND the contracts are share-settled then no amount of holding share certificates is going to cause things to explode.
It seems that wallstreetbets are now targeting silver. This could get very weird very fast. I seem to recall that they tried to do something with oil a year or 2 ago and got badly burned, if you can excuse the pun
afaik, the current stock market price is the latest deal struck, and may be for very small volumes indeed.
Do we know anything about trading volumes?
GameStop was, on one day last week, the single most traded stock by value in the US.