The Response to the GameStop Short Squeeze Is Hypocritical, Telling, and Downright Hilarious.
The harsh reaction from analysts and securities politicians proves they still don’t understand just how much Redditors understand.
Full disclosure: I own 10 shares of GameStop. This is solely my opinion and does not represent financial advice. Blah blah blah, don’t hold me liable.
If you have a pulse, or even half a pulse, on the stock market, you’ve heard about GameStop. You’ve likely heard that Redditors have rallied around the stock and are forcing hedgefunds to cover their positions (read: lose a bunch of money). You’ve also likely heard that this mission by the forum-goers is misguided at best and nefarious at worst. But here’s the thing: that’s total bullshit.
Wall Street Bets, or “WSB”, the subreddit being thoroughly picked apart by investors and reporters alike, has been semi-famous for awhile, mostly for laughs. The redditors on the forum are by and large day traders who seem to have a penchant for taking risky positions (see: “bets”) and like to have a lot of fun while doing it. They’ve been good for a giggle every now and then, as they have an interesting bravado that often seems unfounded, but up until now, no one in the professional investing world has cared too much about them.
Then GameStop happened. Several large hedge funds, Melvin Capital and Citron being the most talked about in the moment, though they are certainly not the only players, shorted the company heavily based on the company’s trajectory and stock price history. In an effort to push back against the ridiculous amounts of money being thrown into the short positions, WSB did what has never been done before: they banded together to create what is called a “short squeeze”, which forces (or squeezes) the short sellers’ hand, by buying large amounts of the stock, driving the price up, resulting in the short sellers buying up the very stock they shorted to try and cover their losses.
But here’s the thing. Despite what every news article wants you to believe, this has been done before. There’s a reason the industry already has a term for short squeezes. It’s not new. In fact, while a squeeze of this severity is indeed rare, there are several well known instances of short squeezes. The most notable being the Volkswagen short squeeze in 2008, which led to VW temporarily topping the charts as the most valuable company in existence. The difference here is that retail investors (aka day traders aka not hedge fund managers or billionaires) are the ones forcing the squeeze, not a single large company (in the VW example, it was Porsche) or professional investors. And the Wall Street elite are downright pissed. So pissed, that after a couple of days pretending to ignore the entire situation and hoping it would go away on its own, they’ve gone on the offensive, pushing out PR moves and opinion pieces galore to try and discredit the entire situation altogether.
The litany of articles trashing the drivers of the short squeeze has me wondering just how much these investment firms are hurting. It’s hard to believe that a practice that is well known in the investing world, a practice which all the big name finance sites have articles advising you how to find and execute, has suddenly had its legitimacy turned on a dime. But given the vitriol being spewed at the WSB group, surely something is amiss.
Take the video game analyst Michael Pachter calling the squeeze a “Pyramid scheme” because his feelings are hurt that no one cares about his $16 price target. He says, “It’s just a feeding frenzy… There’s nobody in this stock based on fundamentals.” An interesting comment considering the fundamentals of squeezing a short are, merely in principal, more sound than the fundamentals of shorting a stock at such high volume, as Melvin Capital and others have done.
When you short a stock, your potential losses are infinite, because there is no limit to how high the stock price can go. This is why shorting a stock is risky, and why, as one Twitter user pointed out, the irony is thick in the fact that hedge funds, so named for their protective and balanced investments to reduce overall risk (aka hedge) for their investors, are so deeply invested in a single short that they could go bankrupt. So who, exactly, isn’t based on fundamentals here? Because it doesn’t seem to be the Redditors who are throwing some cash at a gamble, but instead, the hedge funds who have, as they say, gotten too big for their britches.
Pachter goes on to say “The guys buying it at $300 think some greater fool will buy at $400, and so far the greater fools keep showing up.” Again, it’s hard for me to believe that he doesn’t understand this is the entire goal of the squeeze.
The Wall Street Bets crew isn’t in this squeeze to hit their FIRE number and retire early. (Well, not the majority of them.) Judging from the forum, most of the people involved have thrown relatively small amounts of money at the play. $1,000 thrown into a squeeze can only lose you $1,000 if the stock crashes. The same can’t be said for a short position, which is why, in the end, the investment firms who have run out of capital and solvency, will need to cover their own positions at ridiculously high prices, likely with assistance from other securities firms who will loan them the cash to do so. They are the ultimate fool of the equation, the ones whose arrival WSB is waiting for. Once they cover, the stock price will be driven up even further, and the selling will begin.
It’s simple once you understand the fundamentals, but of course the investment elites think it’s impossible for anyone not in finance to be intelligent enough to understand. It’s well known that Wall Street uses fancy terms and confusing vernacular to convince the plebes that we are, indeed, very stupid, and instead of taking our money into our own hands, we should just pay them a fat fee to do it, instead. It’s in our best interest, of course.
Take the writer of this opinion piece on MarketWatch, who claims to be concerned for a theoretical “teenager misplaying GameStop options on his dad’s account and costing them the house, or a first-time investor putting their savings into GameStop just before it all fell apart.”
The sudden concern for the average American seems oddly suspicious to me. The stock market hasn’t changed. As far as I know, the entire premise of the market is speculation. So what makes today any different than 2 months ago? There is always a risk of unwise investing. If a teenager can misplay options on their dad’s investing account, there’s a bigger problem at play than a short squeeze of a gaming company stock, no?
Will some people get left in the dust? Sure. Will GameStop eventually plummet back down to its previous price? Yes. But that’s not the point. No one is so deluded to believe that the price will maintain this level forever. The entire goal is to force the investment firms to cover their own position, thereby running them totally into the ground. And so far, it’s working.
In total, GameStop short sellers have lost more than $5 billion combined, and the losses are still on the rise. GameStop hit $500 in pre-market trading this (Thursday) morning, showing the enthusiasm isn’t over yet, despite many concerted efforts to convince the public otherwise.
With securities advisors calling for a halt on trading of the stock, the Biden administration commenting that they are keeping an eye on the situation, and dramatic opinion pieces painting WSB short squeezers as clueless children (see the photo chosen for the article) and simultaneously ill-intentioned scammers, one has to wonder what is really happening here.
Have these money hungry analysts and investors, who have historically had run of the show manipulating the market on their own, suddenly grown a conscience? Or is something else afoot?
I’m reminded of the scene in A Christmas Story, where the neighborhood bully finally gets a dose of his own medicine. After taunting and teasing Ralphie for god knows how long, Ralphie snaps. He’s tired of being treated like crap. He’s tired of feeling powerless. And he’s tired of seeing this jerk of a kid win every time. So he retaliates. And in that moment, everyone is shocked. Ralphie, himself, seems almost numbed out as he punches the ever living shit out of the bully. The bully is so taken aback he can’t even process what is happening. And all the bystanders have their mouths agape, simply watching in awe.
After decades of playing with market conditions, manipulating, speculating, and running up their own bank accounts at the cost of companies and individuals, Wall Street is now upset that someone else is doing the same. Ignoring the initial squeeze didn’t work, so now the scare tactics and invalidation campaigns have begun. They’re trying to push retail investors back “where they belong”, into making mostly small trades with low impact that don’t really affect big investors. The truth is, they’re scared. Retail investors have discovered that they, too, can play with the “big boys” and the big boys are pissed.
If nothing else, the GameStop saga is a fascinating peek into the Wall Street arrogance that has driven market conditions thus far.
As a cheesy 6th grade classroom poster once said, ‘Shoot for the moon. Even if you miss, you’ll land among the stars.’
For me, the stars is watching Wall Street scramble in total panic. Even if I lose the $400 I invested, it will be worth every fucking penny.