Reporter: ‘[GameStop] is a big story’
Psaki: ‘I know it’s a big story … our focus and our big story is getting the American people back to work’ pic.twitter.com/OrFAVYQqwt— NowThis (@nowthisnews) January 29, 2021
Most of what I know about the stock market is that it involves (a) math and/or (b) deliberately, mutually dishonest interaction with other people (aka, liars’ poker) — two things I prefer to avoid whenever possible. So I can’t comment on the ‘fundamentals’ of the current bubble, but I do have a pretty solid conviction that The Debate at this point is, in fact, a clown car…
Seriously more questions about GameStop than about vaccines. I feel like I’m losing my mind.
— Matthew Yglesias (@mattyglesias) January 29, 2021
Surprises me that so far no pundit seems to have observed that the original Tulipmania also took place largely as a phenomenon among bored gamblers during a bubonic plague outbreak in Haarlem. Go on lads, have this one on me. pic.twitter.com/pjZG5qSGKS
— Dan Davies (@dsquareddigest) January 27, 2021
Because Warren actually took the time to understand, explain & plan for complicated issues….and Bernie just spit out simplistic bumper-sticker statements that showed he hadn’t given (signature) issues a whole lot of thought?
Sounds about right. https://t.co/AHifLrU8LB
— Centrism Fan Acct ?? (@Wilson__Valdez) January 29, 2021
— staying home stan account (@Convolutedname) January 27, 2021
Joe promised to make the news boring again and the Gamestop thing is boring as shit. Promises made promises kept.
— Cathedral ?? Engineer ? (@owenrumney) January 27, 2021
So we’re just doing bitcoin again but with more moral indignation.
— Syndicalist Weedle Collective (@Weedledouble) January 29, 2021
This “scandal” effects very few actual human beings and Joe Biden specifically won because Americans no longer wanted a President who was constantly shitposting about whatever distraction du jour people were using to procrastinate from working. pic.twitter.com/ykAZ5cV1X8
— InmanRoshi (@InmanRoshi) January 28, 2021
Interesting perspective on #StonkGate from an Ask Reddit thread. This has a bunch of financial professionals who are on Reddit, but not active on /wsb, weighing in.https://t.co/467lBEBz3F pic.twitter.com/n6d7yst4bt
— Aaron Huertas (@aaronhuertas) January 29, 2021
every single person I know in government worked until 10 am the next morning the night of the capitol attack, whereas the total span of government reaction to gamestop has been ‘eh, we’re keeping an eye on it’ https://t.co/q5yCDeXC7r
— James Palmer (@BeijingPalmer) January 28, 2021
After being pressed again on GameStop, Psaki said, ‘The U.S. government is starting to work as it should. The SEC is a regulatory agency that oversees and monitors developments along these lines. It is currently in their purview.’ pic.twitter.com/XD0ZXV3Owo
— NowThis (@nowthisnews) January 29, 2021
Zzyzx
The moral I took from this is that if you really want to believe in a narrative, you can be played by people.
Shalimar
I haven’t listened to the clip. I’m hoping no one asked her, “have you consulted with Ted Cruz on Gamestop?”
Ken
It is wrong of me to wish that first quoted exchange had run:
Reporter: ‘[GameStop] is a big story’
Psaki: ‘Please summarize what has happened, and explain why it is important.’
Reporter: ‘…’
waspuppet
[Detective’s boss’s voice] There’s just one thing I still don’t understand … [/detective’s boss’s voice]
Short selling, as I understand it, depends on borrowing shares. But why would the original owner land them? What do they get out of it?
(I’m sure there are lots of other things I don’t understand, but that’s like the one thing I know enough to know I don’t know.)
Chyron HR
Ohhh, do primary results now serve as a reliable indicator of which candidate voters prefer? Good to know.
Damien
That long Reddit screenshot is along the lines of what I’ve been telling my lefty progressive friends who are so excited that a hedge fund got squeezed: this is essentially a pump and dump using the internet instead of dialing for dollars. The retail investors who went in on GME obviously don’t realize what they’re getting themselves into, and we’re about to see a shitload of people lose a LOT of money trying to get out of positions they never should have been in.
I use Robinhood, I like Robinhood, but it’s not a Bloomberg terminal, and no professional investor I know uses it as their primary. But a lot of younger people do, people who don’t necessarily understand what they’re participating in with this scheme.
So yeah, screw those hedge fund guys forever, but they aren’t gonna be the ones who really feel the pain at the end of this.
debbie
Tough to get worked up about a situation where the hedge funds got outplayed.
Baud
Biden is president because he ignored Twitter hot takes. Just sayin’.
ETA: Or what Roshi said.
RSA
@Zzyzx:
Your comment reminded me of this article, A Game Designer’s Analysis Of QAnon. (I don’t know if it’s already made the rounds here.) The author has interesting observations along with some less plausible speculation; there’s mention of narrative.
Baud
@Damien:
Yeah, the whole thing is kind of fun to watch, but at the end of the day, it’s just a stunt.
Baud
@Zzyzx: This is truth.
satby
That the media acted like Gamestop was more important than anything else happening that day just shows how useless they are. “New-shiney” no context, no understanding, pavlovian response to everything just shows how Tr*** was able to play them so effortlessly for years.
Baud
@satby:
But the virus is soooo boooorrrring.
Ken
@waspuppet: Just guessing, but the lender of the shares may receive a payment. And I’m certain the contracts have the legal equivalent of “You will return these shares to me by date X, or I will own your sorry ass.”
It still seems an odd thing to do, because if the borrower is right, the arrangement is basically “Let me borrow your shares, and I’ll return them when they’ve fallen in value.”
Damien
@waspuppet: Shorting on the lender side is basically saying “I believe this stock will go up, but I don’t want to close my position on it to lock in those gains. I will lend you the shares at their current price and then you sell them back at a predetermined date for the difference.”
So if I have a share of GME that I bought at $2 and you think that by February 1 it will be worth $1, you would borrow my share until then. If it goes down to $1, you’ve made a $1 profit and I a $1 loss. For simplicity’s sake I’m ignoring the option premium. The ultimate short outcome is the stock hits zero, but as GME has demonstrated there is nearly unlimited downside to a bad short play.
Some of the real money to be made in finance is playing long and short options against each other, or “hedging.”
satby
Especially a lot of young unsophisticated investors.
Baud
@Damien:
People should create a vehicle, a fund of some type, to take advantage of that.
Benw
After reading my tenth “what ACTUALLY happened with GameStop is the opposite…” story I’m just gonna decide not to understand it.
Baud
@satby:
I’ve seen a couple of comments on reddit where people say, it’s worth the loss to screw the hedge fund guys. But there will be innocent people who aren’t in on the game who get screwed.
Zzyzx
@RSA: ah yes. That’s the basis of conspiracy theory in general. Focus on random noise instead of actual evidence. “Sure we don’t have any reports of chemicals being produced, planes being hired, or anything like that, but these clouds look different than these other clouds so CHEMTRAILS!!!”
Zzyzx
@satby: which is why I got the Robinhood pause. The fact that this immediately stopped when the people investing in the training wheels site weren’t allowed and started right back up when they were again, shows that there isn’t smart money involved.
I mean maybe this is the bubble that actually lasts but every bubble has people saying that so I’m going to go with history here.
M31
this one reddit comment summed it all up for me:
“don’t you dare underestimate my financial recklessness once spite is on the line”
lol, I’m fine that that, but people who jumped in near the end of this are not going to be happy, I just hope they didn’t put $$ in that they were fond of
beef
@waspuppet:
The original owner is paid interest for the loan. For most stocks, not a lot of money, maybe a few percent a year, but for hard to borrow stocks like Gamestop at the moment, the interest rate is 0.8% PER DAY, aka, 200% a year.
When the loan ends, the original owner gets the stock back. So at the end of the loan, the original owner has made/lost whatever the return on the stock was, plus the interest paid for lending it out.
Geminid
@Baud: The fund could be named “HedgeHog.”
Baud
@Geminid: I like it because it’s cutsy sounding.
Zzyzx
@M31:
Hot take: Investing responsibly by researching one’s positions is a dumb idea. My new Slate pitch is ready.
debbie
@M31:
But that’s always the case, isn’t it, spite or not?
randy khan
The GameStop thing clearly is a blip. I have some sympathy for regular retail investors who get caught up in it (particularly because the end game of this sort of thing usually is that the stock ends up trading well below its starting point), no particular sympathy for any of the Reddit clan if they happen to lose money (but also no concern if they happen to make money), and no sympathy at all for the shorts.
Xavier
“Because Warren actually took the time to understand, explain & plan for complicated issues….and Bernie just spit out simplistic bumper-sticker statements that showed he hadn’t given (signature) issues a whole lot of thought?”
Speaking to different audiences. We need both audiences
burnspbesq
I loved Pskai saying, in effect, that this is a useful reminder that the markets aren’t the economy, and it’s far more important that the Administration focus on getting the economy moving in the right direction.
Also too, this is why we have a fucking SEC. Let them do their fucking job. And as much as I love Sen. Warren, we can do without her grandstanding on this.
Damien
@beef: That’s the kind of explanation of the premium that I was struggling to write down so I left it out.
Clear and cogently explained, you’re clearly not on Reddit.
mrmoshpotato
@Chyron HR:
Baud
@burnspbesq:
She really did have good talking points. Kudos to her and her team.
MagdaInBlack
@RSA: I’ve read it. I found it fascinating and a wee bit frightening.
Damien
@satby: Oh my yes, a lot of 30 somethings are gonna be really scratching their heads about how they got played, when the process is obvious.
Baud
@Damien:
And then they’ll blame Biden!
Jim, Foolish Literalist
@Xavier:
Counterpoint: Dumbing things down to simplistic slogans leads people to thinking things can be fixed with simplistic sloganeering.
MagdaInBlack
@Baud: That’s how I feel about it.
beef
@Zzyzx:
It looks like Robinhood’s pause wasn’t done to protect their users from making bad financial decisions. IIRC, they may actually have some right to do this, thanks to Depression era laws, but it wasn’t what happened this time.
What happened was that RH got margin-called by the clearinghouse. They didn’t have enough capital to guarantee the trades their clients were making.
Think about the process of buying something with a check. You write the check, you take home the thing, it’s basically instant. But that’s not the end of the story though (only the end of the interesting part). What’s happened is that the retailer extended you credit. They won’t actually get the money until the check is cashed and cleared and money debited from your account. This usually takes a few days, as you can tell when you look at your bank records.
Something similar is happening with Robinhood. Their clients make trades, i.e., buy and sell agreements, more or less instantly, and the value they see in their brokerage accounts changes to reflect these purchases more or less instantly. But that’s not the end of the story. The client doesn’t actually own the stock yet. Rather, the broker has extended them credit for their purchase, and there is a settlement process during which the stocks and the money actually changes hands. This process isn’t handled inside the brokerage, and it isn’t instantaneous. The various stock-holding financial institutions match up all the buys and sells through central clearinghouses. This process takes about 2 days and it also involves the extension of credit. Effectively, the rest of the financial world is extending credit to the stock purchaser through their broker.
In normal situations, this is boring by design. There’s usually a lot of cancellation between the brokerage’s users, and the brokerage doesn’t need a tremendous amount of money to cover their credit.
But with memestocks, the purchases are incredibly one-sided, so no cancellation is occurring. Even more fun, they’re frequently made with options, which means leverage, which means more credit is required.
Robinhood didn’t have enough capital to guarantee the purchases made by their users. (Enough capital being defined by whatever legal agreements they have with the counterparties in the clearing process.) They got margin-called, and they’ve been struggling since to find some way of increasing their capital and reducing their credit needs. That’s why they took a $1B capital infusion. That’s why they’re preventing their users from buying more memestonks.
artem1s
@Zzyzx:
I worked in high end jewelry trade back in the Greed is Good era. We had a saying – remember, you are buying rocks and minerals that have a set market value, not a story. In other words if some sales person is trying to upsell you with a story about how this ring once belonged to some celebrity or historic figure or some shit, it’s not only probably a lie, it’s also a cover to keep you from seeing what poor quality the stone or setting is.
I’ve never had a problem seeing the grift in these scams, and have always been amazed at how easy it is to con rich people into buying something for more than it’s worth.
Geminid
@Baud: Cutsy might not suit the purpose. I would ask the artist designing the logo to draw a fierce, dangerous looking hedgehog. “None of that Beatrix Potter crap!”
burnspbesq
The delicious irony here is that the shorts probably have the better of the argument about GameStop’s future prospects.
Baud
I need to figure out how to turn Baud! 20XX! into a meme stock.
RobertB
@Damien: Back in the Stone Age, options were considered useful for literally ‘hedging’ your position. If my share of X goes up to $100 I buy puts (right to sell a share) at $100. Even if a meteor hits the widget factory I’m still getting $100/share. That costs me money, so it’s more for short-term speculation rather than long-term investment. But you can also just treat them like the Pass/Don’t Pass line at the craps table and just bet on price movements.
Baud
@Jim, Foolish Literalist:
I think simplistic slogans are useful when it’s backed up by something substantial. When the slogan is the main course, that’s where the trouble begins.
JanieM
@artem1s:
Wait, it ended? I must have missed that.
Barbara
@waspuppet:
Sorry if this has been answered, but you borrow the shares and sell them at a price that you think is way too high, and then, when the price goes down, you buy shares on the open market at a lower price to “repay” the person who loaned the shares to you. You get the difference between the higher price at which you sold the borrowed share and the lower price you obtained to buy them back. You obviously paid that person for the privilege of borrowing them, but you didn’t buy them in the first instance so you don’t have to shell out a lot of money to make the investment. A short squeeze is when you need to close out your position when shares are escalating in value, and you might not even be able to find enough to buy. Most people should NOT do this because if you are WRONG there is virtually no limit to your potential losses.
There are elements of Wall Street trading that are truly unfair and feel rigged, but IMHO it will always be the case that someone who spends their whole life working in finance and trading is going to have greater insight into purely market based trends irrespective of an investment’s “true” potential, and thus do better at this kind of gambling in stocks than even a well-educated non-professional investor. It’s like if you enter a cake baking contest and half the participants own bakeries. Yeah, they are more likely to win.
Jim, Foolish Literalist
@JanieM: the Greedy are now Job Creators
MomSense
All hail Jen Psaki.
Baud
@RSA: Thanks for that.
Peter
@beef: While it’s almost certainly true that protecting users from themselves is almost certainly not the motivation behind the pause, the effect of the pause is to protect them from themselves.
And I would be extremely surprised if that lawsuit goes anywhere.
Brachiator
@burnspbesq:
Exactly.
One of the many stupidities of Trump is that he simplistically focused on the Dow index just because it was a big number.
satby
@beef: That’s a great explanation of trade clearing, which most people don’t understand happens whenever they trade.
Baud
@beef: Agree with @satby.
Kent
@beef: Yes. And, of course, small investors can go to a dozen other online brokerages and open accounts and buy gamestock to their heart’s content. From TD Ameritrade to Schwab. That one platform chocking on the volume didn’t actually constrain anyone. That’s like saying we have a hunger crisis because Sonic is short on burger patties today.
beef
@burnspbesq:
That’s the most powerful dramatic irony, yeah. Gamestop really isn’t a $25 billion company. But this whole story is loaded with irony. My personal favorites:
* WallStreetBets as a champion of progressive politics. That forum used to be moderated by Martin Shkreli, before he went to jail for refusing to share the Wu Tang album. As the tweet above says, it’s full of finance bros cosplaying.
* Retail traders screaming at Robinhood for betraying them. I think Robinhood has been wildly irresponsible in the way they’ve encouraged speculative trading by the masses. But they’re really trying to encourage it, and they’re risking their business to allow their users to put on these stupid trades.
zhena gogolia
Is it really pedantry to make an effort to spell people’s names correctly when we’re discussing them? Psaki
mrmoshpotato
@MomSense: Have you listened to this week’s ProLeft podcast yet? Jen Psaki is mentioned in a hilarious way.
satby
And it’s been metastasized beyond complexities like the financial markets into public health (covid) and safety (gun control). With the predictable outcome.
sab
@Barbara: Lucid and succinct. Thank you.
Kent
Not really. They actually have the worse moral argument. They are trying to destroy a company that occupies nondescript suburban strip malls and shopping centers around the country and leave a smoking gutted hole in its place simply so they can make a quick buck. Nothing moral about. Hundreds of good solid companies have been driven into the ground and destroyed by this attitude when they might well have been saved with some positive energy and hard work.
I’m not a fan of Gamestop one way or the other since I don’t do video games. But I dislike it when the gods of high finance swoop in to destroy a struggling company and strip it for parts just because they can, leaving wreckage in thousands of lives in their wake. Whether it is Gamestop, Sears, JC Penny, Toys R Us or any similar company that was destroyed and stripped for parts by Wall Street billionaires. How many people does Gamestop employ nationwide? How much rent and local taxes does it pay across the country? We are trying to blow all of that up just because we can? And those folks are supposed to do what? Learn to code?
Brachiator
@Barbara:
Great analogy!
And accurate.
Eunicecycle
@burnspbesq: That’s why the whole thing seems “wrong” to me, because by shorting stock you are betting the business is going down. If the point is just to make money for the trader, I see that. But what effect does it have on the business itself? Does it make it more likely the business will fail? With the current situation the stock is going sky high due to manipulation. Does this actually help Gamestop the business in any way?
satby
@zhena gogolia: I understand why it bugs you, but I have a simple first name that is often spelled wrong. As long as people know who it’s supposed to be I just ignore it. They’re going to misspell it again anyway even after I correct them.
Though it does make me question the basic literacy of the average American.
Jim, Foolish Literalist
OT:
I still don’t think Romney has the stuff to do what would actually change things– i.e. make it politically painful for McConnell et al to keep protecting trump (and Cruz, and Hawley)– but I’ll give him credit for speaking up
Barbara
@Kent:
Yep. This was my first thought. They could use any trading platform to buy shares until the exchange itself froze trading in the stock, which does sometimes happen. It might even be a lesson for them to have at least two separate accounts if they have decided to jump into a high level of trading. I don’t buy and sell individual stocks, but I know that Schwab and eTrade make it really easy to start accounts.
What makes this whole episode fishy to me is that someone had to have known that the Hedge Fund was establishing a large short position in the stock. Someone had to have inside knowledge — it might not have been illegally obtained, but someone who is really savvy and has access to a lot of information and knew what it meant. So my guess is that person or persons quietly bought a lot of shares — maybe they even bought the shares that were being shorted — and then they began drumming up interest to send the price up because they knew that the fund would be required to start covering and making a lot of purchases to try to close or at least lessen their exposure. They quickly let go of their shares once the price started escalating.
It’s a game of musical chairs. Someone got stuck with what are likely extremely overvalued shares.
StringOnAStick
@Barbara: Well said. Non professionals also tend to have a built in psychological stance that shorting is morally bad for all kinds of reasons, failing to see that unless stocks go both up and down then it isn’t a market, it’s just printing money without any control.
Market professionals who are good at their jobs do not trade based on emotions; every amateur trader I’ve ever known who trades based on emotions goes broke. The amateurs who make a real effort to trade without emotion have their $ last longer but thinking you can compete in a fair and level playing field with the big boys is delusional.
I’ve seen stories that Robinhood offers no fee trades to amateurs and then sells that order flow information to the pros, which is how they can offer the small fish trades for free. From a long view that ‘looks’ unfair but that kind of information has been available to the pros for a long time, Robinhood just decided to monitize their small slice of the data pool. The twist on this story is the addition of the social media element.* The early days of online trading saw lots of pump and dump in penny stocks through rudimentary message boards; Reddit just made it a lot easier for them to chat and grow a large enough community to cause both a short squeeze and a gamma squeeze, and the hedge funds got sloppy about protecting their positions so that hit dog is hollering.
* The epitaph of this whole era, politics, finance, etc.
yellowdog
@Kent: It takes time to transfer money to a new account. These guys are basically day-traders so they don’t have the time for that.
Immanentize
The Immp’s friend who is going to Harvey Mudd is in the game. He pulled out 20K leaving the whole of his initial investment in.
This is how arbitraging started. I know because one of my high school buddies was an original arbitrage programmer. Now, he pretends he is a rock star in So. Cal.
Baud
@Kent:
How does shorting hurt the company?
Brachiator
@Kent:
Business is amoral. Even if you want to be a good socialist, business and economics are still largely amoral.
These companies failed largely because times changed and consumers moved on. Avaricious business goons may have contributed to these companies problems, but were not the main cause of their failures.
Immanentize
@beef: Robinhood risked it’s entire business by restricting trading. That move made Gamestop plunge. That right there is market manipulation.
PS. Robinhood investors are largely the hedge fund guys who were shorting GameStop and who took a huge hit. Robinhood has free trading because the traders are the product. Hedge funds hoovered up their data.
burnspbesq
@Kent:
“Morality,” however defined, has no place in this conversation. I’m sure you know that, so you can stop the bullshit virtue-signaling.
Immanentize
@zhena gogolia: my hometown was filled with eastern europeans like my family. These names are easy for me. But, I grew up with a friend “Pisaki” so I have to pause just a second to take out the “Ellis Island ‘I'”
StringOnAStick
@Immanentize: Robinhood also decided to greatly expand the idea of who is a “sophisticated” investor, which used to be how amateurs were not allowed to do potentially high loss trades like shorting stocks or selling naked options. They definitely blew themselves up by being too cute about the risk they were allowing people to take through their platform, and that risk ricocheted back on them.
Jim, Foolish Literalist
@Kent: like you I’m not a gamer, but I think GS business model was killed by changing technology, like Blockbuster couldn’t survive streaming. People don’t buy physical games anymore.
As to the others, I think Amazon hurt them more than what we typically think of as “Wall St”. (and Sears and Toys’R’Us made some old-fashioned bad business decisions, IIRC. I think Sears bought Kmart thinking they could compete with WalMart? And TRU just over-expanded in the early Aughts?)
burnspbesq
@Eunicecycle:
Others may disagree, but I would say it’s completely irrelevant. GameStop has a big, fundamental problem: it’s in a declining business and stuck with huge lease obligations. Can it manage its way out of that (or, alternatively, liquidate in an orderly manner that maximizes the return to its shareholders)? Only time will tell.
SiubhanDuinne
@mrmoshpotato:
Jen Psaki was the guest on today’s Wait, Wait, Don’t Tell Me in the “Not My Job” segment.
beef
@Kent:
All of the stock trading has very little effect on Gamestop’s financial prospects. The coupling is very loose, because this whole stupid game is being played with shares of Gamestop that Gamestop already sold. Gamestop has the money. Someone else has the shares. If the price of the stock goes up, the company doesn’t get more money (although maybe the C-suite does). If it goes down, Gamestop doesn’t lose money. Their balance sheets are unaffected.
There are some indirect connections, but like I said, they’re indirect.
In particular, most of the short sellers aren’t actively trying to ruin Gamestop. They just think the stock price should be lower because they don’t expect much future cashflow from owning the stock. Some of them probably think it will go up, but want to bet that Nintendo will go up faster.
debbie
@SiubhanDuinne:
And she was very good!
Ken
“But, in truth, it had not exactly been gold, or even the promise of gold, but more like the fantasy of gold, the fairy dream that the gold is there, at the end of the rainbow, and will continue to be there forever – provided, naturally, that you don’t go and look. This is known as finance.” – Terry Pratchett
Xavier
@Baud: Shorting in itself is morally neutral, I think. However if it’s part of a strategy of (maybe I’ll call it) reverse pumping and dumping, which it probably often is, there is a market integrity problem.
Immanentize
@StringOnAStick: here is the thing — Beef’s description of the margin call was accurate — but obviously in the passive voice. Who put out the margin call? Who is Robinhood borrowing from? Not some cloud God, but the very people who were losing their shirts on shorting. That is what I suspect Congress will investigate.
Just as Barbara said above, closed time shorts are super risky for any person/investor, but open time shorts are massively damaging to the concept of market efficiency. They are betting on the ponies, basically. Some info.-based decisions, but still gambling.
Kent
@Baud:
Gamestock, like most other companies, also holds it own stock and is able to use its equity value a collateral and leverage to obtain financing, partners, and such. Short sellers aren’t just making a bet that the company’s value will fall. They are actively trying to make it happen through every lever that they have available because every downward tick in the stock value brings them more profit. But every downward tick in stock value also makes it more difficult for the managers to turn the company around. So they will be badmouthing the stock in all their internal newsletters, CNBC, Morningstar, and Bloomberg, and everywhere large investors get their news.
Imagine you are the owner of say…a struggling pizza joint and some lords of high finance think you are doing a shitty job of maximizing the value of your location. So they place huge bets on your failure that will pay off even more for them if they drive you all the way into bankruptcy. And then they flood the local media with bad reviews and articles and such that are intended to cement their view into the minds of your customers who will then stop coming to your “failing” restaurant, making it harder for you to get financing, maintain credit with your suppliers, and so forth. It becomes a self-fulfilling prophecy. Maybe your restaurant was doomed to fail on it’s own. Maybe you could have turned it around with some cash infusion or a partnership or redesign. Now you don’t have a chance. There is just a smoking black hole where it use to be, all your employees are out of work, all your investors are broke, and the Hedge Fund guys are off looking for their next victim.
burnspbesq
@beef:
GameStop looks to me like a candidate for a prepackaged Chapter 11 in which its landlords (mostly big boys like Westfield, Simon, and Vornado) end up owning the company.
beef
@Immanentize:
The margin call isn’t discretionary. It’s mechanistic. The clearinghouse and the brokerages already have legal agreements in place that governs how much margin is required.
Immanentize
RobertB
@Eunicecycle: You need an accountant to get the right answer, but I’m not going to let my lack of knowledge stop me from taking a swing.
The swing of the stock prices can help or hurt Gamestop. You can see that due to the stock price increase, AMC went from having to turn off the lights in a month to good for the rest of 2021 by people turning convertible bonds (exchange the bond for stock) into AMC shares. AMC is also raising new capital by issuing more shares.
Stock prices falling would do the opposite – people aren’t going to turn bonds to stock, stock offerings would make far less money, and people who are paid in stock (been a while, but a couple of companies I worked for gave us stock and/or options as a bonus) are now taking pay cuts.
Kent
Look, I’m not some MBA wiz kid who follows this stuff religiously. But the narrative is there that a lot of these companies were picked up by private equity and Hedge Funds and such, and literally gutted through debt-based restructuring such that the new owners walked away with billions and left a smoking ruin in their wake. At least that is the story that I’ve read multiple times. The Gamestop thing is different from private equity, but it’s not that different. Every dollar they make by destroying the company is a dollar someone else loses who was trying to save the company and turn it around. I’d rather see a capitalism that profits from building things rather than gutting them.
Immanentize
@beef: We shall find out how that happened when it happened, I suspect.
Immanentize
@Kent: This is exactly how Bain Capital made their billions. Go into a cash-rich company, leverage the hell out of it with consulting fees and loans, then tank it into bankruptcy.
Jim, Foolish Literalist
@Immanentize: or as Tony Soprano called it, a bust-out
Ivan X
@Jim, Foolish Literalist: Counter-counter point: a lot of people are stupid and will only digest stupid slogans.
Repeating stupid slogans has been one of the R’s most effective tactics for decades.
ETA: never liked Bernie, and would have voted for Warren if she was still in it when my primary rolled around, so I’m not defending this particular sloganeer.
burnspbesq
College lacrosse season starts today. That’s much more interesting to me than the vicissitudes of GameStop.
Ruckus
@Jim, Foolish Literalist:
Complications just complicate things and life is too hard so stop complicating things!
I believe this is the basis of BS, both the bovine substance and the politician.
Obdurodon
Of the ten largest holders of GameStop stock, eight are financial institutions and two are already-rich individuals, together accounting for 75% of the total shares.
https://news.gamestop.com/stock-information/institutional-ownership
Furthermore, the *billions* that companies like Fidelity and Vanguard made have yet to be reflected in prices for shares in the funds that supposedly hold GameStop. So far, at least, they’re keeping those profits for themselves. Nobody’s 401(k) has benefited.
Victory for the little guy? Beating Wall Street at their own game? Hardly. Wall Street is *loving* this. They’ll love it even more when it results in more limits on retail investing so they get more of Other People’s Money to play with themselves.
Ruckus
@artem1s:
Rich people and especially really rich people have… the margin to play the game, absorb the loss, all the while they have enough to enjoy the life. Now every once in a while they get out over their wings and lose it all, but that’s harder for them to do because they have that margin.
This is akin to what happened in 29, except the margins were much smaller, the costs higher and the rot far more wide spread, and the laws stopping the damage far earlier didn’t exist.
karen marie
@Jim, Foolish Literalist: I won’t. Until Romney takes action, he’s nothing but a concern troll.
karen marie
@Jim, Foolish Literalist: Blockbuster couldn’t survive streaming because of shortsightedness.
Kent
Exactly. Maybe this Gamestop thing is entirely different. But it somehow feels similar in that high finance billionaires are making huge profits off the destruction of an ordinary company that pays ordinary taxes and employees ordinary Americans. I don’t see how that is a morally neutral thing much less a good thing.
Eunicecycle
@RobertB: OK that makes sense. Thanks! So it’s working out for AMC that is probably in trouble because of the pandemic, but not for GameStop, whose business model is not competitive.
Ruckus
@Baud:
A problem exists when the subject is complex and few understand the complexity or have the basis to get to understanding. Then the simplistic answer can easily make it seem like the problem is simple, when it’s anything but.
In this case the simple answer is OK if it is right and well thought out because most people aren’t involved and there are controls to keep it from getting out of hand. Take a new deadly virus. The simple answer is correct, mask up and don’t mingle. The explanation is correct, the reaction to that shows though that it is not enough for way too many people who make a massive mistake to think they won’t get caught out. Which is exactly the same as this story. How many people here know how this works – and that’s either story, virus or stock trading? A lot. How many have zero clue? Same answer, a lot.
Ruckus
@Kent:
Is that the American way, to profit off your own work, or to profit off the backs of others? Look at who has the money and how most of them got there before you answer.
Another part of this is that if we taxed the wealthy reasonably then those profits would benefit more people and could make up for the losses of the many for the wealth of the few. That’s not taxation as explained by scholars and on the west wing but it is a reasonable answer to wholesale destruction of an economy by a small percentage of the population.
beef
@Obdurodon:
Those large financial institutions that make up the Gamestop ownership table are primarily mutual fund and pension fund operators Vanguard, Fidelity, State St, Dimension Fund and the like aren’t investing their own money. They’re representing the collective investments of people who’ve put their retirements savings into the stock market. The ultimate beneficiaries aren’t Wall St types. It’s just people with retirement savings.
Wall St gets headlines, but stock market is dominated by aggregates of little guys.
You could claim, I suppose, that the Gamestop thing is really a transfer from boomers to zoomers. Not as exciting, but maybe more necessary for societal stability.
Uncle Cosmo
@RobertB: In the late 70s one of my coworkers convinced two of us to go in with him on an options play. Nothing drastic – we each put up $100 for him to play with. IIRC he bought call options on DrEC or Data Degenerate or some other minicomputer (remember them? ;^D) corp. We watched with satisfaction as our investments rose to $145 – then crashed to near-zero. With some finagling George managed to claw back $40 for each of us. And I am forever grateful we didn’t cash out at the top – because the lesson that was waiting for us would have been multiply more costly and painful if we’d lucked out once or twice or thrice before the hammer came down.
Uncle Cosmo
FTFY! ;^D
brantl
@waspuppet: they aren’t really “lent” (at least they didn’t used to be, they were bought on margin) using margin allows you to sell some of them for at least their current market value, retaining the high dollar, sell some of them for MUCH less, buy the amount you need to return them at much less, and pocket the difference. It puts money in your pocket while wrecking the stock price. Why the person entering into this arrangement with the purchaser does it, I have no idea.
Kent
But capitalism isn’t JUST about the capital. Gamestop also employees thousands of ordinary Americans around the country and pays ordinary taxes that support roads and schools and other ordinary things around the country. Are we so wedded to post-Modern capitalism that all we see in the economy is the owners of capital and not the rest? The company is more than just the sum of it’s stockholders, despite what folks like Mitt Romney would like you to believe. I thought we had this discussion already.
Obdurodon
@beef: That’s why I mentioned the part where the profits are not showing up in anyone’s 401(k). For example, FDMLX owns 10% of GME, and it’s only a $13.5B fund, but its price has barely even blipped. Go ahead, check for yourself.
I know perfectly well how funds are supposed to work. I have quite a lot of money in other Fidelity and Vanguard funds, and have for decades. What’s supposed to be happening isn’t. AFAICT it’s the institutions themselves making money here.
SFBayAreaGal
@RSA: Thank you for this. Very interesting.
Obdurodon
@Kent: But are the GameStop employees going to be better off? I strongly suspect that after the bubble pops they’re going to be exactly where they were before. None of this has actually affected the company’s ability to keep stores open and sell video games or hardware.
beef
@Obdurodon:
As of 1/29/21, Gamestop isn’t listed in the top 10 holdings of FDLMX. The link you put up above lists them as a large shareholder as of 10/31/20. I think it’s more likely that they closed the position at the end of 2020 than that they’ve stolen $2B from their shareholders.