In what feels like forever the dial hardly ever moved in Joey’s Amygdala. In the last while my mind has been seriously blown out… the first was negative interest rates… which, to be completely honest, I still can’t fully wrap my understanding around. Then, oil prices going negative. Which… wow… is something I never could have even begun to imagine happening…
And now Gamespot.
Which might be the most epic trading thing I’ve ever experienced. Its the financial version of the storming the Bastille wrapped in the mantle anarcho-capitalism, crashing down from orbit.
So for those that don’t know…
… once upon a time there was this hotshot hedge fund manager, who started his own Hedge fund called Melvin Capital. Melvin Capital was so successful, that in the age old grand tradition, other Hedge Funds just copied whatever Melvin Capital was doing…. because… well… it was easy and Melvin had a good track record of picking winners.
Enter Gamespot. Melvin Capital looked at the numbers, and for all tense and purposes, Gamespot is in a deep decline (following the Blockbuster trajectory), and so Melvin Capital decided to short the stock. [Shorting is when you bet against a company. The investor borrows an amount of stock and then immediately sells that stock. They then hope to buy the stock back at a much lower price and return it to the lender]
Imagine I ‘borrow’ five Volkswagen beetles from you, saying I’ll give you the same cars in a years time. I immediately take them to a dealer and sell the beetles for $1000 each. I think that the way beetles have been going I will easily be able to pick up a beetles in a years time to return to you for $800. I imagine I will make a cool $200 per beetle. Maybe even more.
Because Melvin was doing this, suddenly a whole bunch of other Hedge funds were shorting Gamespot. Now through the mechanics of trading the short interest on Gamespot was 138%. Which is crazy.
No one is going to give your their beetles for free for a year after all…
Imagine the insane hubris of these Hedge funds congratulating themselves on a sure thing and imagining all the ways they were going to spend their money.
Now a couple of Schmoes… or maybe it was just one Schmo noticed this, and posited his theory that this was probably a good opportunity for a short-squeeze on a trading subreddit.
A short squeeze is… *thinks*… more or less, when a company who has a short position, ie NEEDS the stock to go down, has to buy more of that stock because its going up… it needs to shore up the loss its taking. The stock is going up because the retail guys (from Reddit) and the guys (from the Hedge funds) are driving up the price because of demand.
Suddenly there are a whole bunch of people looking for beetles… because of the laws of supply and demand, beetles start increasing in value. I start to get a little worried… because well… now VW Beetles are suddenly selling for $1100. Damn… okay… what if beetles go up to $1500… so I get into the market and try get some of the $1100 beetles because… taking a $100 per beetle is better than taking a $500 hit. I won’t buy all five beetles… just one or two… if the beetles come back down again… then maybe I can break even or even make a profit again.
Its a vicious cycle.
… what happens if no one wants to sell you any beetles… and the ones that come into the market are selling for $2000… and then $3000 and then $50,000.
In any event, the chart for Gamespot is just phenomenal. (Google it)
At some point Melvin is taking so much pain that two other funds step in to ‘loan’ them 2,75 BILLION USD. For some reason these knuckle heads imagined that the Reddit users have had their fun. And that they would be able to recoup their losses from this point out. (Clearly you guys have NO experience with the viciousness and vindictiveness of a Reddit user, roast me motherfucker)
Of course when the Reddit users found out… they bought Gamespot even harder, and that 2.75 BILLION was wiped out in just one trading day.
So why is this so damn cool? Well… it is… and it isn’t. Those Hedge funds likely lost A LOT of other peoples money… money people gave to the Funds to ‘invest’ on their behalf. Old people with pensions… you know… the usual… sad stories. I mean lots of douchebags also lost… but the thing about collapses like this… its the peeps on the bottom that get smashed the most.
BUT… its also cool. Because, never have the Hedge funds been so utterly and completely blindsided by the ‘common’ man. And good for them. When Hedge funds short squeeze each other, everything is fine… but when a whole bunch of retail investors get together and stick it to them… everyone is up in arms.
Of course now, as this story has developed, Robinhood has banned trading on Gamespot. Which is complete and utter bullshit. In fact… its probably financial suicide for Robinhood who have drawn a line in the sand and sided with all that is dark in the world… and I hope Robinhood users (and people that love freedom) won’t let that slide. Free markets mean FREE!
If your golf club buddies are bent over and taking it up the rectum with the broad end of their sand wedge… before you intervene… maybe ask the question… ‘Do they deserve this?’
I suppose Robinhood decided to be the arbitrator of how much punishment is enough… and that broadly this was… some form of collusion to manipulate a stock price.
I mean sure. But that happens all day every day between the big banks and nobody bats an eyelid. Robinhood is a platform, and like the social media ‘platforms’ it should NOT be their job to decide right from wrong.
In any event. I see this is getting some serious traction now in the media. Even AOC is getting in on the action. Ha ha. Which is interesting.
I’m excited to see how it all plays out. From the safety of my couch. Also this is why I trade Forex.
Stocks are for psychopaths.
PS. I’ve had some time to dwell on this… and maybe Robinhood disallowed trading on its platform because they were worried that… with everyone piling into Gamestop, eventually it would completely implode. Its the guys that get out with their money first that make it… the rest get crushed to death… and I guess, they were kinda looking out for their users… because a lot of them are stupid and have no idea what they are doing… and are mortgaging the house and loaning money from guys in New Jersey to buy Gamespot stocks… does that make it right? I’m leaning towards no… I think the chips need to land like they fall. Of course they never do, reckless banks get bailed out by tax payers… no one ever goes to jail… and the guys that thought this was going to be their ticket into the major leagues get killed. But it is what it is. Everyone should play by the same rules.
PPS. But chances are they just had massive industry pressure to reign in the mob.