Gamestop

[parafly]

This is all extremely fascinating. We are watching a market trading war develop before our very eyes.

The WSB retail traders own a healthy percentage of outstanding shares. They are determined to hold until the share price is in the thousands. All attempts to artificially drive down the share price to shake people out appear to have failed thus far. Strong hands are still holding, and once trading platforms allow them to buy again, the price will likely rise to new highs again. There is still a large amount of short interest in the stock. The short squeeze has only just begun.

Whatever happens, I think it's going to happen quickly. If people hold their shares in the short term, this has the potential to skyrocket. It will likely drop very quickly from there as people cash in their chips, and unfortunately, some people will be left holding the bag.

It's really unprecedented. Social coordination to manipulate a market by retail investors. Trading platforms freezing the ability to buy shares and allowing selling only. High profile investors and politicians are speaking out in favor of the retail traders. The market makers have been manipulating markets for a long time, and they are not happy that tactics are now being used against them. They are throwing everything they have at the movement to prevent it from happening. This is history in the making.

[Singuy]

Looks like this is really heating up. And I believe the hedge funds are losing on liquidity as these reddit guys are holding until GME becomes 5-10k. My thoughts is that it seems people forgot about the most common ammo to create liquidity, which is to offer more shares on the market while diluting the company in the progress (kind of the reason why public companies are traded). There were two gamma squeeze for Tesla and both times the party was over the minute Tesla announced on the market offerings which got them a cool 10 billion dollars at the expense of 3% dilution.

Gamestop which has real cash on hand problems can really use the money. They can offer 50 or 150 million shares, diluting the company by 20-40% cause whatever..and funnel all that money into the company while giving hedge funds the liquid shares they need and will definitely crash the stock in the progress since a company can issue unlimited amount of shares.

So for those who want to invest thinking hedge funds are trapped..think again. There are so many ways to transfer wealth on wallstreet. And this fiasco is coming to a close very soon is my guess as any more will start destabilizing the market.

[disneysteve]

So did anyone here get involved with this whole fiasco?

A woman I work with told us yesterday that her brother made $3,000 on GME this week. He's in his 20s so that's a big score for him. Fortunately he wasn't greedy and got in and out and took his gains.

I am concerned about how this will affect market confidence going forward, especially for younger people. If a bunch of bozos on a Reddit forum can so quickly and easily manipulate the stock market, where does that leave the average investor who is trying to do it right? There's a whole generation that has largely avoided the market because they came of age around the 2008 crash. Here we are 13 years later and we may lose another generation who will now view the market as unsafe because a simple post online can wreak so much havoc.

[ua_guy]

Isn't it a correct assumption that even in this war of Redditors v Hedgies, it's still the common man who loses? Hedge funds are pensions, retirement money, yes? So yeah, I saw a number of about $70 Billion in hedge funds losses just from this GME fiasco, but that's other people's money. Right?

[disneysteve]

Hedge funds are pensions, retirement money, yes?

So if hedge funds are managing pensions and retirement accounts, what benefit is there to the Reddit folks to bankrupt them? How does that help anyone?

[ua_guy]

So if hedge funds are managing pensions and retirement accounts, what benefit is there to the Reddit folks to bankrupt them? How does that help anyone?

It doesn't. A lot of the rhetoric I've seen is about the triumph of revenge against these billionaire hedge-fund investors. Yes, the firm or the investor do take a hit, but the lion's share of the loss is the fund itself, which is other people's money - many who are working-class people.

I have to assume then that the social-justice rhetoric emanates from those who either don't understand how this game works, Or, it emanates from people who cannot even participate in these types of funds even through investing in a retirement account through an employer. But in the end I believe this is about the common man robbing another common man.

I'm trying to get a sense if I'm understanding the true outcome of this correctly.

[disneysteve]

It doesn't. A lot of the rhetoric I've seen is about the triumph of revenge against these billionaire hedge-fund investors.

Yeah, I just don't get the whole anti-billionaire mindset. Those billionaires have created many thousands of jobs and created products and services that most of us use every day. And they got rich doing so. Good for them. That's how it's supposed to work. Those billionaires also give tens of millions of dollars to charity each year.

"Screw the successful guy" just isn't a great strategy in life.

[kork13]

I have some of my folks who are all excited about it.... They're bragging that they've made a few hundred dollars on it... I keep trying to talk sense with them, but they're enthralled by the idea that they're big winners on this one bet... I'm afraid that it'll cause young folks who participated to think they can always win on day trading like this, and the sad truth is that they most often won't. I also challenge them with "have you sold yet? No? Then you haven't made any money at all." One guy insists he's gonna stick with them long term, which means he's going to lose his shirt when the valuation goes back down to normal (well under his purchase price). Fortunately, he's only sunk ~$100 into this madness.

[JBinKC]

A) Michael Burry of the Big Short fame had 1 .7 million GME shares at a $3 average price in his latest filing so its another potential big score for him.

B) With respect to GME shorting more than its float is counterfeiting shares and those parties involved in the short sale are committing fraud so I share absolutely no sympathy for them.

[Like2Plan]

This really has caused a lot of buzz. It will be interesting to see what happened with this. One thing is Robinhood itself has had to raise lots of money cover the trading activity on their platform.
Quote from the WSJ: "Broker raises $1billion to weather tumult as individual investors battle short sellers "
"A decision was made to restrict trading in about a dozen hot stocks and shore up the company’s finances. Robinhood also borrowed roughly $500 million from its banks this week, the people said."

https://www.wsj.com/public/resources/documents/DKFTs6F0uyKXXGk7jT7i-WSJNewsPaper-1-30-2021.pdf

I think there may be folks who get caught up in this thinking they can make a quick profit and lose big when it goes down. I think it is trouble when I hear from folks who don't normally have any interest in investing asking what do I think about "investing" in GME.

I wonder if there may be other factors involved than just the "individual investors". Everyone loves the story about the little guy taking on the establishment, but there may be more to this story. The "individual investors" could provide a cover story and sensational headlines, but there could be other players who are exploiting the situation in the background.

There are two things that I think about here. Don't invest in anything you don't understand (I'm not sure I fully grasp what is going on in the background) and more importantly, the house always wins in the long run.

[disneysteve]

I think it is trouble when I hear from folks who don't normally have any interest in investing asking what do I think about "investing" in GME.

Yep. That's always a sure sign of trouble or a bubble or whatever. Just like in 2007 when suddenly a bunch of people I knew who had zero real estate experience started flipping houses.

Everyone loves the story about the little guy taking on the establishment, but there may be more to this story.

It's definitely not that simple. There are all kinds of forces and issues involved here. Bringing down the "evil hedge fund" sounds like a good thing to some, but this whole episode will have far-reaching effects on the market going forward.

[Singuy]

So here is the thing about Gamestop.

I listened to Webull's CEO talk about the reason for restricting trades. The clearing houses are restricting trade because the hedge funds that has position in shorting GME can't seem to afford to pay it back. Imagine if you are a hedge fund with a 1% short position on GME prior to the squeeze. Now it's 100x more expensive to buy back the borrowed shares. This means your 1% position is at a 100% loss for the ENTIRE FIRM. So to combat this situation, clearing houses raised the collateral on specific companies to 100% from 2-3%. This means hundred of billions need to sit in the clearing house for GME since there's just a huge imbalance on the book since hedge funds are so SOL. If this hundred of billions are not there, then clearing house will have trouble releasing funds if you sell OTHER STOCKs. This will cause a market melt down.

One of the main reasons I believe shorts are not covering is because THEY CAN"T AFFORD TO. They are so underwater that clearing houses are tapping into credit lines from all the banks just to support the market. I see short interest spiked for other stocks despite great earnings this week(like every tech stock) most likely because they see market crash imminent.

How come Webull and RH were affected the most? Because most wall street betters use this apps to trade, and their clearing houses are the ones most under water, especially robinhood's. Big boy brokerages doesn't have this problem yet, however they will eventually if GME keeps spiking.

So basically this movement is about to crash the entire financial system. But there are a few ways to alleviate the problem.

1. Like what RH did last week, all brokerages may have collateral from their clearing house raised to 100%, therefore limiting of buying of GME.
2. SEC can expediate Gamestop to massively dilute their company with share offerings.

Both can happen at the same time. If nothing is done and GME continues to go up higher, then it's like a financial crisis of 2008 again due to insolvency.

I believe if both techniques are used next week, GME will crash and will be seen as the greatest market manipulation/bail out in the history of the U.S. It's true that hedge funds shouldn't be allowed to short over 140% of the float cause that's asking for trouble when it's exploited. But that's what they said about banks and their loose lending practices before the financial crisis. Those who used margins for this GME movement will sour and refuse to pay back what is owed. But I believe something is going to happen next week since it's not hard to alleviate this problem. It just has terrible optics.

[disneysteve]

So basically this movement is about to crash the entire financial system. But there are a few ways to alleviate the problem.

But I believe something is going to happen next week since it's not hard to alleviate this problem. It just has terrible optics.

I agree completely. Something will happen to put a stop to all of this nonsense and put guardrails in place to keep it from happening again. They have to or else the system will collapse. It will be an interesting week, though. We all just need to hang on.

[Like2Plan]

So here is the thing about Gamestop.

2. SEC can expediate Gamestop to massively dilute their company with share offerings.

singuy,
Could you explain how this would impact folks holding the shares? Is this like the Fed printing more money? Does it allow the company to cash in on this run up?

[Singuy]

singuy,
Could you explain how this would impact folks holding the shares? Is this like the Fed printing more money? Does it allow the company to cash in on this run up?

No it has nothing to do with feds printing money.

So basically any public traded company is publicly traded for the benefit of issuing shares on the market to raise capital with zero interest. This is essentially splitting the company into even more tiny segments(diluting the company's by increasing total shares) to raise money. So basically gamestop, having a heavy debt load and terrible cash on hand which is looking to go bankrupt, can issue millions of shares and sell them on the market to whoever wants to buy. This will of course tank the stock because currently the problem is no one wants to sell and people want to hodl until 5k or whatever. So if gamestop dilutes their company massively by selling shares, whoever buys from gamestop goes to their balance sheet as cash on hand. Essentially this is just free money they didn't have access before for gamestop. This move actually strengths gamestop immensely but at the expense of hedge funds and share holders. Good news is the stock probably wouldn't tank back down to 3 dollars, but will most likely go down to 20-30s and may even receive price target upgrades because they solved their balance sheet issue overnight.

So they may create a situation where buying is limited, and gamestop having a gigantic sell order..this will tank the shares in a matter of hours. And this is where hedge funds make their exit by covering (aka buying shares issued by gamestop since wsber doesn't want to sell). They will still take a loss but better than whatever it is now. This is also where people who bought at 300-400 will lose most of their money.

To solve this problem is just a form to the sec and getting a bank like Goldman to help sell the shares at the market. It can be done in one day like what they did with Tesla.

But just looking at what happened on Thursday, the fact that clearing houses increasing the collateral of two firms caused shares to fall so fast that there was like 30-40 dollar gaps in between where there were no buyers. So my hope is gamestop issue some shares and get some of this money..but if the buy limit hits from all brokers than the stock could tank down to nothing.