Tag Archives: Epic short squeezes

“This is for you, Dad”: Interview with an Anonymous GameStop Investor, by Matt Taibbi

Posted on February 7, 2021 | Leave a comment

Never underestimate how deeply the unfairness and corruption on display during the 2008-2009 financial crisis still rankle. From Matt Taibbi at taibbi.substack.com:

Raised in a family devastated by bubble economics, one Reddit investor saw GameStop as a way to send a message to “cancerous rent-seekers”

Thursday, January 21st was a critical day in the story of the video game chain GameStop (ticker name: GME). Retail investors, including many subscribers to a Reddit forum called wallstreetbets, pushed the company’s stock from $6 to $43.03, but experts said playtime was over. It was time for the big shots to clean up.

According to Citron Research, one of many funds that had bet on the brick-and-mortar store to fail, those investing in GME were “the suckers at this poker game,” and would soon be sorry when the stock went “back to $20 fast.”

They were wrong. Instead of amateurs being shoved aside by hedge funds, it was the pros who had their backs broken, as GME soared to $65.05, beginning a steep ascent that would become an international news phenomenon.

It was the “We’re gonna need a bigger boat” moment for Wall Street. The pros had been sloppy. By late 2020, shares in GameStop were well over 100% short. A sudden rise in value would force shorts to pay exorbitant prices just to get out of the trade. By the afternoon of the 21st, all the “suckers” on Reddit had to do to beat them was nothing, and they did just that, behind the rallying cry “diamond hands,” signifying a determination to hold at all costs.

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The Stock Market Is Broken, Now for All to See, by Wolf Richter

Posted on February 5, 2021 | 2 comments

The stock market seems like a great place from which to stay away right now, for a variety of reasons, not the least of which is because it’s a rigged game. From Wolf Richter at wolfstreet.com:

The historic short squeeze, engineered by a bunch of deeply cynical small traders, exposed just how rigged the market has been.

It has finally blown into the open for all to see. The stock market has been broken for a while, for a long time, actually. The idea that the stock market is where price discovery takes place on a rational transparent basis, with ups and downs, and some amount of chaos, but free of rampant manipulations – that idea has now totally imploded.

What has been visible for a long time but now blew into the open is just how manipulated the market is, by all sides, how overleveraged the big players are because the Fed encouraged them to, and how enormous the risks are, and how crazy the trading strategies are.

And the stock market soared to record out-of-whack valuations, in a terrible economy where at least 10 million people have lost their jobs and are still out of work, and where entire industries have gotten crushed. The whole thing is propped up by stimulus and bailout payments to consumers and companies alike.

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The Insiders’ Game, by David Sacks

Posted on February 4, 2021 | Leave a comment

What if nobody on the outside wants to be an insider? Wouldn’t that dramatically reduce the insiders’ power? From David Sacks at persuasion.community:

GameStop was a warning: Elites are weaponizing censorship to keep the outsiders out

As the apex predators of capitalism, hedge funds are accustomed to raking in billions by driving companies into the ground and feasting on the carcasses. So there was widespread satisfaction last week when members of an online discussion group called WallStreetBets started beating the Wall Street bully boys at their own game. Ringleaders of the group noticed that hedge funds had taken a short position in the videogame retailer GameStop that far exceeded the number of shares available to trade. Motivated as much by revenge as by profit, these influencers in the group encouraged the 2.7 million members (since risen to around 8 million) to purchase the stock in order to drive the price higher and create a massive short squeeze. This quickly became a movement with a cause similar to that of Occupy Wall Street, except much more effective because it hit the intended target where they would feel it the most, in the wallet. “The only way to beat a rigged game,” one WallStreetBets leader said, “is to rig it even harder.”

GameStop stock, which closed at $17.69 a share on Jan. 8, shot up to $347.51 by the close last Wednesday. With combined losses of almost $20 billion, hedge funds were on the ropes and close to bleeding out, selling their longs in an increasingly futile effort to cover their shorts. One fund, Melvin Capital, lost over half its value and had to be bailed out by hedge fund sugar daddies Ken Griffin (Citadel) and Steve Cohen (Point 72). Another fund, Citron, was teetering on the brink of collapse. All this outsider army needed to win was the continued ability to communicate with each other online, and their collective ability to keep piling into the “Buy” side of the trade. Within hours, they would be hobbled on the first front and crippled on the second.

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The GameStop Rebels vs. “Too Big to Fail”, by Ryan McMaken

Posted on February 3, 2021 | Leave a comment

Will the nefarious “Too Big to Fail” policy that destroyed public confidence in financial markets during the collapse of 2008-2009 become “Too Big to be Hung Out to Dry by Small Traders Making Political Statements”? Probably. From Ryan McMaken at mises.org:

Last week, a large number of small-time investors drove up the price of GameStop’s (GME) stock a historic 1,784 percent. But this was no mere spike in some obscure stock. The stock’s price spiked in part as a result of efforts by “an army of smaller investors who have been rallying on Reddit and elsewhere online to support GameStop’s stock and beat back the professionals.” These professionals were hedge fund managers who had shorted GameStop’s stock. In other words, hedge funders were betting billions that GameStop’s stock would go down. But the price went up instead, meaning hedge funds like Melvin Capital (and Citron Research) took “a significant loss,” possibly totaling $70 billion.

There surely were plenty of insiders on both sides of this deal. Given the complexity of various schemes employed by seasoned investors, it seems it is very unlikely that this is just a simple matter of little Davids taking on Wall Street Goliaths. But it also looks like that’s not all that was going on. Had this only been just another scheme by some Wall Street insiders against some other Wall Street insiders the story would probably have ended there.

But that’s not what happened. Rather, it appears that, for many of the smaller investors who were involved, much of this “short squeeze” was conducted for the purposes of throwing a monkey wrench in the plans of Wall Street hedge funds which exist within the rarified world of billionaires and their friends.

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Bare-Knuckle Brawl Over GameStop Pits America’s Elites Vs. ‘Deplorables’, by the Issues and Insights Editorial Board

Posted on February 2, 2021 | Leave a comment

Nothing is quite as fun as turning the tables on the establishment. From the I and I editorial board at issuesinsights.com:

Photo: Sagar, on Pixahive. Licensed for free use under Creative Commons.

only someone living under a rock hasn’t heard about the GameStop stock market shorting scandal. While the mechanics of the stock market battle are interesting, they’re nothing new. What’s new is this: The battle this time is being waged by Deplorable America vs. Elite America. And Elite America isn’t at all happy about it.

It’s well known that the stock market isn’t controlled by small investors, but by massive financial institutions. Recent data show that mutual funds, pension funds, hedge funds, Wall Street investment banks, public pensions and the like control more than 80% of all shares traded. They are always the elephant in the room.

The little guys with trading portfolios of less than $100,000 or so, often operating online at lightning speed on no-commission trading sites – such as Robinhood – have a small piece of all the trading. They win only by exploiting cracks in a system dominated by big firms.

Which makes it all the more amazing that they were able to take out a major hedge fund with a short position in GameStop, a troubled chain of computer gaming stores that still has a big following on Reddit.

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Yes Virginia, the system is clearly rigged, by Omid Malekan

Posted on February 2, 2021 | Leave a comment

Powerful and rich people will try to rig government and government regulations to their advantage. The mystery is why so many people continue to clamor for still more government. From Omid Malekan at medium.com:

 
 
 
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Before sharing my opinion on the WallStreetBets events of last week, I want to make one thing clear: I believe strategies like the ones used to drive the price of Gamestop stock higher are reckless and dangerous. I would never participate in them. They are likely to end badly for the majority of those who get involved.

With that out of the way, let’s review something important that happened last year, when big cap tech stocks like Tesla and Apple started exhibiting unusual volatility to the upside. It turned out that Softbank, one of the largest institutional investors in the world, had been executing a dangerous strategy of buying record amounts of out of the money call options on those stocks. Their actions forced some of the options trading establishment into something called a gamma squeeze, a positive feedback loop that can be thought of as the options markets’ equivalent of a short squeeze. Here’s the FT:

The surge in purchases of call options — derivatives that give the user the right to buy a stock at a pre-agreed price — has been the talk of Wall Street, as the sheer size of the trades appears to have exacerbated a “melt-up” in many big technology stocks over the past few months. In August alone, Tesla’s share price shot up 74 per cent, while Apple gained 21 per cent, Google’s parent Alphabet rose 10 per cent and Amazon 9 per cent.

One person familiar with SoftBank’s trades said it was “gobbling up” options on a scale that was even making some people within the organization nervous. “People are caught with their pants down, massively short. This can continue. The whale is still hungry.”

As the article also points out, it was generally understood that what Softbank was doing (with billions of dollars, no less) was dangerous. Not only could it end badly for them, but it had painted other players into a corner, creating a dangerous dynamic that could reverse abruptly.

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Goldman Warns If The Short Squeeze Continues, The Entire Market Could Crash, by Tyler Durden

Posted on January 31, 2021 | Leave a comment

Goldman Sachs doesn’t like rigged markets if their not the ones doing the rigging. From Tyler Durden at zerohedge.com:

Last Friday (Jan 22) we advised readers who thought they had missed the move in Gamestop (they hadn’t), to position appropriately in the most shorted Russell 3000 names which included such tickers as FIZZ, DDS, BBBY, AMCX, GOGO and a handful of other names, as it was likely that the short-squeeze was only just starting.

We were right and all of the stocks listed above – and others – exploded higher the coming Monday, and all other days of the week, with results – encapsulated by the WallStreetTips vs Wall Street feud – that have become the only topic of conversation across America (remember the Trump impeachment?), while on WSB the only topic has been the phenomenal gains generated by going long said most shorted stocks. To wit, the basket of top shorts we compiled on Jan 22 has tripled in the past week.

And while some are quick to blame last week’s fireworks on the “dopamine rush” of traders at r/wallstreetbets who seek an outlet to being “copped up with little else to do during the pandemic” (as Bloomberg has done, while also blaming widespread lockdowns and forgetting that it has been Bloomberg that was among the most vocal defenders of the very lockdowns that have given us the short squeeze of the century), the reality is that at the end of the day the strategy unleashed by the subreddit is merely an extension of the bubble dynamics that were made possible by the Federal Reserve (of which Bloomberg is also a very staunch fan) pumping trillions and trillions of shotgunned liquidity into a financial system where there are now bubble visible anywhere one looks. In short, main street finally learned that it too can profit from the lunacy of the money printers at the Marriner Eccles building, and some are very unhappy about that (yes, it will end in tears, but – newsflash – $300 trillion in debt and $120BN in liquidity injections monthly will also end in tears).

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Market Weekly: Game Stop Revolution or the Matrix Reloaded? by Tom Luongo

Posted on January 30, 2021 | 1 comment

There’s no question that the Gamestop saga is a populist revolt, and there’s no question the establishment doesn’t like it one bit. The question is what will the establishment do about it. From Tom Luongo at tomluongo.me:

I have to say as revolutions go, this one is hilarious.

Game Stop opened this morning above $330 per share, a sentence I never thought in a million years I’d ever write.

This open nearly ensures that all the attempts yesterday to push the price back down to bail out the hedge funds desperately short have failed spectacularly.

There’s options expiration today which will fundamentally change the way we look at markets if Game Stop closes in this range.

Because it shows that when people act in the aggregate they can overwhelm the attempts by a few central planners to control you.

Your best proof that this is at least a part of what’s going on is the way Wall St. and the regulators in D.C. are reacting. Because they are screaming that this is outrageous, that we need stronger enforcement tools to ‘ensure the integrity of our markets.’

That’s just code for ‘only we’re allowed to game the markets not the little people.’

And with options expiring on Game Stop nearly every week in February and March this game isn’t over by any stretch of the imagination.

Populist is a Four-Letter Work

In fact, It’s the beginning of a new form of populist revolt.

We’ve seen what they think of populist revolts. They have utter disdain for them. They squash them and hope to ignore the consequences.

Vote for Trump? Can’t have that happen again.

Speak out against any facet of the Great Reset? Get censored.

Try to build a new platform not controlled by them? Get deplatformed.

Show up at the Capitol to peacefully assemble? Get caught up in a false flag to justify arresting you and shaming you into submission.

Today’s price action in Game Stop and other stocks heavily-shorted by hedge funds is simply the next iteration of the people finding ways to make their voices heard.

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GameStop, by The Zman

Posted on January 29, 2021 | 1 comment

Gamestop and other epic short squeezes are the kind of nonkinetic guerrilla warfare against the establishment that should be encouraged. From The Zman at theburningplatform.com:

Until a few days ago, most people had no reason to think about GameStop, a retail chain that sells video games and accessories. If you have kids, you probably know the place, because your kids like to go there. Otherwise, the only reason to think about the place was to wonder how they managed to survive as a brick-and-mortar operation in a world dominated by on-line retailers. They exist as a reminder that humans still prefer in-person shopping, even if it comes at a premium.

That is the funny thing about the GameStop story. While other traditional retailers struggled to maintain margins, they are an exception. This is a company with ridiculously high margins. Even with a drop in sales due to the great reset launched by the managerial class this year, they maintained their margins. Whatever they are doing in their shops, people think it is worth a premium. Despite this, their stock was a dog, falling below $4 until the recent explosion.

It is the explosion in their share price that has them in the news. The share price as of the close of business yesterday was $347.51. The pre-market ask is $489.00 as these words are being typed. That number keeps going up, so it is not unreasonable to think that shares will be trading at or above $500 today. Everyone now wants a piece of the winningest stock since the dot-com bubble. If you had this company in your portfolio six months ago, you are a very happy investor.

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Suck It, Wall Street, by Matt Taibbi

Posted on January 29, 2021 | Leave a comment

The epic short squeeze in Gamestop and a few other ugly ducklings has been a joy to watch. From Matt Taibbi at taibbi.substack.com:

In a blowout comedy for the ages, finance pirates take it up the clacker

In the fall of 2008, America’s wealthiest companies were in a pickle. Short-selling hedge funds, smelling blood as the global economy cratered, loaded up with bets against finance stocks, pouring downward pressure on teetering, hyper-leveraged firms like Morgan Stanley and Citigroup. The free-market purists at the banks begged the government to stop the music, and when the S.E.C. complied with a ban on financial short sales, conventional wisdom let out a cheer.

“This will absolutely make a difference,” economist Peter Cardillo told CNN. “Now, if there is any good news, shorts will have to cover.”

At the time, poor beleaguered banks were victims, while hedge funds betting them down as the economy circled the drain were seen as antisocial monsters. “They are like looters after a hurricane,” seethed Andrew Cuomo, then-Attorney General of New York State, who “promised to intensify investigations into short selling abuses.” Senator John McCain, in the home stretch of his eventual landslide loss to Barack Obama, added that S.E.C. chairman Christopher Cox had “betrayed the public’s trust” by allowing “speculators and hedge funds” to “turn our markets into a casino.”

Fast forward thirteen years. The day-trading followers of a two-million-subscriber Reddit forum called “wallstreetbets” somewhat randomly decide to keep short-sellers from laying waste to a brick-and-mortar retail video game company called GameStop, betting it up in defiance of the Street. Worth just $6 four months ago, the stock went from $18.36 on the afternoon of the Capitol riot, to $43.03 on the 21st two weeks later, to $147.98 this past Tuesday the 26th, to an incredible $347.51 at the close of the next day, January 27th.

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