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Is the GameStop Saga Really an Army of Investing “Davids” vs Hedge Fund “Goliaths”?

Is the GameStop Saga Really an Army of Investing “Davids” vs Hedge Fund “Goliaths”?

Clearly, our nation is not going back to the way things were just because the new administration is in place.

https://www.youtube.com/watch?v=8cBwhy_9j4I

In 2007, Glenn Reynolds wrote An Army of Davids: How Markets and Technology Empower Ordinary People to Beat Big Media, Big Government, and Other Goliaths.

Shortly afterward, citizens around the nation used the power of the internet and social media to form “Tea Party” groups. They used the principles discussed in Reynolds’s book to protest the massive power-grabs and wasteful spending the Obama administration thrust upon the country. And while there were successes and failures in those organizations’ efforts, many Americans retained the personal connections and new awareness of media and political manipulations.

President Donald Trump’s presidency could be seen as a high point, as he and his policies are popular among many Americans in “flyover country.” Therefore, it became imperative for Big Tech and Big Media to cut off the resources aiding the political “army of Davids.”

Nearly 12 years after the Tea Party’s start, a Reddit group appears to be leading an investing army into battle against hedge fund groups that take advantage of stock trading rules that are arcane and seem designed to transfer wealth to themselves. The investors have taken the chain from $2.57 a share at one point last year to a high of $483 a share.

They celebrated with billboards across the country, such as this one in New York City’s Time Square:

“$GME GO BRRR,” blared a digital ad on the corner of 54th and Broadway in Manhattan. The ad ran for an hour on Friday and was a creation of digital billboard maker Matei Psatta.

The line refers to a popular internet meme that uses “Brrr” to signify the sound a money-printing machine makes. GME is the stock’s ticker symbol on the NY Stock Exchange.

The ad was reportedly displayed for only an hour but managed to make the rounds on social media. Meanwhile, the Reddit crew arranged for other billboards and banners.

Over on the west coast, a plane was spotted flying a banner over Santa Monica reading, ‘WE ARE ALL GAMESTOP WALLSTREETBETS’.

A similar stunt took place in San Francisco where a plane was seen flying a banner over the city saying ‘SUCK MY N*TS ROBINHOOD’.

Kaspar Povilanskas, the co-founder of Nowadays Media, promoted the display on Twitter informing followers he had hired the plane to circle above Robinhood’s headquarters ‘for a while.’

‘Got take some photos I don’t even live there,’ Povilanskas tweeted along with a map of the flight path.

Meanwhile in Oklahoma, another billboard was erected on a Oklahoma City highway saying: ‘We’re not leaving! $GME’, along with a series of emojis.

That the elites in both media and finance are upset with the dynamics is clear. For example, they describe the self-organized band of investors as a “mob” and smear them like the “astroturf” derision used for Tea Party organizations.

“The internet can democratize access, upsetting power dynamics between the people and traditional institutions,” tweeted Tiffany C. Li, a law professor and tech attorney focusing on privacy and technology platform governance.

With GameStop, she added in an interview Friday, the goal was to upset the interests of a few large hedge funds.

“But in other places the goal can be more nefarious. Online spaces are being used to radicalize people toward extremism, to plan hate crimes and attacks,” she said.

Understandably, many Americans would like to push back against Wall Street and enjoy fiscal karma. I know I am and tempted to purchase one share.

However, there are likely to be real market consequences for participating in this “short squeeze.”

…[T]he GameStop bubble will have the same practical effect as any other pump-and-dump scheme: transferring wealth from those who got into the scheme late to those who got into it early. The fact that there are short-sellers on the other side of some of these trades doesn’t change the analysis.

So if you’re thinking about getting in on the GameStop craze—or buying other stocks promoted by the WallStreetBets crowd—you should be cautious. The biggest winners will be the folks who bought into the scheme days, weeks, or months ago. If you buy in now, there’s a good chance you’ll be one of the suckers who gets left holding the bag after the stock crashes.

Given the complexities of the stock market, is there more to the short squeeze tactic than turnabout-is-fair-play? Perhaps.

But as Professor Jacobson notes, the destruction of jobs and the imposing of unpopular and unfair social policies are likely to result in the “Davids” organizing any way they can to bring down the “Goliaths.”

No matter how the GameStop “short squeeze” saga ends, one thing is exact: Our nation is not going back to the way things were just because the next administration is in place.

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Comments

So, is now the time to short $GME? Or is it too late to get in on that?

    thad_the_man in reply to Ira. | February 1, 2021 at 8:18 pm

    Too soon.

    Understand why GME is so high.

    The short sellers HAVE to buy back GME. They have to do it in a certain period of time. Once the short sellers have covered their position the demand for GME will drop. The time to sell short is just before the short sellers cover and demand is high.

    I hope that when GME falls, it doesn’t fall too far.

      henrybowman in reply to thad_the_man. | February 1, 2021 at 8:27 pm

      Presumably, it will fall back to its “objective” valuation, which should be more or less as far as it has risen above it since this manipulation started..

        thad_the_man in reply to henrybowman. | February 1, 2021 at 9:14 pm

        Downward momentum will pull the stock below objective value.
        like throwing something buoyant in the water. It keeps bobbing up and down till it levels out at the objective value. I’m just hoping that GME doesn’t scrape the bottom of the lake.

      It’s going to be tough to buy enough shares to cover baked shorts for 140% of GameStop.

      One thing that won’t ever happen again is that no hedge fund will ever short for much more than 80% of a company’s stock, let alone 140%.

        thad_the_man in reply to Neo. | February 2, 2021 at 12:20 am

        True that it will be tough. But they have to or “face the consequences”. There is a time limit in all those short sells.
        Just like “borrow your car for a week”. After that time passes
        you either return the car or some guy named Guido comes and breaks your legs. Either way after that you no longer need to get the car back.

        When the time runs out to cover a short, the short basically goes away and the float decreases a little bit. Eventually the float will fall to normal levels and the stock demand will go down and the price with it.

“ Given the complexities of the stock market, is there more to the short squeeze tactic than turnabout-is-fair-play?”

Just because the market is complex doesn’t mean ordinary investors figure out when they’re being swindled. This episode was less about “shorting” per se, and all about naked shorting (something retail investors are legally prohibited from doing) and shorting more than 100% of a share’s float. The harmed party is actually the shareholders who had the shares they purchased and owned loaned out without their knowledge to be used to depress the price of those same shares.

Did anybody stop to think about how they might feel about that, or maybe, ask their permission?

    I understand that if you request the actual stock certificate and you hold it in your possession, that share cannot be shorted.

    When I worked for a chip manufacturer, the employee stock plan actually gave you that cert for the shares. If you lost it, you were screwed. Nobody does it anymore so far as I know.

    LeftWingLock in reply to Coolpapa. | February 2, 2021 at 8:13 am

    Coolpapa — I believe that if you put in a “good until cancelled” sell order on a stock at a very high price — say $1000 for a $10 stock — the brokerage firm holding the shares for you cannot loan them out to a third party. At least that’s the way it is supposed to work. I have no idea if the brokerage firms actually abide by these rules.

      SeiteiSouther in reply to LeftWingLock. | February 2, 2021 at 9:55 am

      Tried that with my holdings. RH cancelled the orders.

      Already started the process of transferring my holdings to another broker that doesn’t pull this crap.

      Their IPO, if they ever have one after this, is going to tank hard.

I have a background in this, having worked as a securities analyst on both sides of Wall Street (“sell side” is the broker-dealers, “buy side” are the pension and mutual funds.)

P.T. Barnum ought to be laughing his ass off at this spin on a classic penny stock manipulation scheme. That’s really all it is, and the promoters have done a clever job of gulling a pack of idiots.

One fun twist makes it look like “Beavis & Butthead”: the hedge fund. Nothing wrong with shorting, but the magnitude of the bet was reckless on its face, and I have less than zero sympathy on that front.

Nope, this time, everyone involved is a fool. Same goes for those on the periphery who are buying into a laughable meme of this being “little guys vs. big guys.” And just when you think it couldn’t possibly get any more ridiculous, they bring Trump v Biden into it.

I can hardly wait for the anguished cries to come from the “innocent” fools who are going to get wiped out.

    Whitewall in reply to RandomCrank. | February 1, 2021 at 9:47 pm

    Is there still such a thing as “the pink sheets” for thinly traded stocks? If so a few of them will be in every home office.

    I’m surprised at the raw belligerence of the shorters to begin with. Really- they were doing this with no calls to protect themselves???

    I think the “little guys” in this case are operating on the bigger fool theory – but with knowledge they may be the biggest fool and not care.

    So far as the little guy not being able to win, that’s bullshit. Even the big money get’s irrational and you can make a king’s ransom when they do. There was a Monday back in March when EVERYTHING was on sale for cheap and had been running down hill fast to get there. I bit my lip and pealed 60k out of long positions and bought call options up and down the chain as hard as I could… DIA for 260 out to Jan 2022, SPY at 180 for Jan 2022. Stuff like that… I made more on that single day of transactions than any year at an honest job. The only reason I made 6 figures instead of 7 off that was because I thought it might go down more.

    Matt_SE in reply to RandomCrank. | February 2, 2021 at 1:54 am

    If this is a scam, why did they report that Wall Street lost $70 billion over it? That seems like a pretty big lie to cover for.

    Vancomycin in reply to RandomCrank. | February 2, 2021 at 7:55 am

    It’s a bit cute that you think that most of the WSB guys don’t realize they’ll probably end up losing money.

    They kicked in money they could, for the most part, stand to lose. They do not care. Sure, they’d be happy to make money, but on this one, they’re just enjoying sticking it to Melvin, Citadel and Citron.

    If each of these people loses $1000, it’ll probably have been worth it to them.

Well as far as wallstreetbets goes you won’t hear anguished cries. They do um, kaka shall we say, stuff like this on the regular. They encourage folks not to be more than they are willing to lose and when they do lose they … um, post ‘adult’ meme’s to express their feelings and then move on to whatever new thing they are investing in.

One of the leaders of the movement is Dave Portnoy. He runs barstool sports and can talk about various sports in intricate detail. Sabermetrics, the differences between various zone coverages, how to run an rpo, … . If he can do that he can figure out the stock market.

Understand, guys like Zuckerburg and Bill Gates aren’t software geniuses. They wrote 10,000 lines of code that filled a niche where something that small could be useful. They could then afford to hire the experts who replaced the 10,000 lines with millions of lines. In that same vein, the hedge fund managers can’t tell Black-Scholes from the hole in their … . They hire “Quants” to do that.

Guess what, Dave Portnoy is smarter then they are. Now Wall Street is scared that guys are going to stop arguing the Deshawn Watson trade and enter wall street and just upturn things.

A lot of the “little guys” on Reddit are licensed day traders with access to a few hundred thousand in liquidity without cashing out their 401k. If someone has access to Morningstar for up-to-the-second stock updates, they are not a “little guy”. Not a hedge fund manager, but not a next door Joe looking to make a quick buck. They know what they are doing, and they (not you) will make money when they cash out. They will leave the suckers they tricked to add more money to the stocks in the dust. And at the end of the day, hopefully, the SEC will see that they were giving professional advice in bad faith, and track down who they are.

I remember reading something warren buffet said long ago.
He doesn’t invest in something he doesn’t understand.
Sage advice from the hypocrite who wants to be taxed more but fights the IRS over his tax bill.
But it’s pretty true. If you don’t understand puts, shorts, and the nonsense that makes up wall street, stick to things (markets such as food, auto etc) you do understand. Or better yet, put the money in an index fund as the market is rising and take it out and put it in a money fund when the market if falling.

    thad_the_man in reply to 4fun. | February 1, 2021 at 9:55 pm

    A small change to that advice, don’t invest in something you don’t understand unless you are willing to lose that money.

    A lot of the momentum in this movement is due to the fact that many of the initial investors did not spend more then they were willing to lose, and they were willing to lode it so they “could stick it to the man”.

Puts on GME are so overpriced GME has to drop more than $180/share before you make a dime. The implied volatility is astronomical. While I’m sure that will eventually happen, the market makers want to be sure they take most of your profits when it does.

I’m also hearing allegations that there must be a bunch of counterfeit GME shares in circulation and that’s why everybody is panicking.

With a few exceptions, no one in America understands what the stock market is. Most people think that when they buy stock in a company, they are simply making an investment which will rise or fall based largely upon the street valuation of the business itself. What they are actually doing is putting their money down in the biggest gambling casino in the world. One, which is largely unregulated.

What we saw with the GameStop affair is how easy it is to manipulate stock prices, if you have sufficient money. And, the lack of rules, under which the market operates only makes this worse.

In a straight investment market, a person would purchase a commodity at a specific price and then sell at a higher price for a profit. The value of the commodity is usually based upon the market for the commodity. When the commodity is a business, the value is usually based upon the business’ future prospects. So, in the case of a stock, in a company, the value of the stock should be based strictly upon the performance of the business. This is how the stock market is supposed to work.

However, as the price of a stock is actually influenced, heavily, by perceived desire for the stock, among investors, the value can be manipulated by buying or selling enough of the stock in question. There are rules against this, of course. And, even though the enforcement of such rules is rather lax, most large investors do not get greedy and only move a stock or a group of stocks a few points before selling at a profit and starting the cycle over again. The stock market is constantly being manipulated for the benefit of a class of elite investors. This tends to insulate the investor class from actual economic market trends. But it has gotten worse.

Now we have seen the rise of a parallel gambling scheme, or schemes, which is almost totally unregulated. An entire culture has built up which relies upon betting on whether a stock will go up or down in value. In the traditional market, if one purchases a stock at $X and sells it for $X+10%, a profit is made. If he sells it for $X-10%, he loses money. However, through the use of various dubious financial methods, a person may actually bet that a stock will go down in value and thereby profit from that loss in value. This provides a significant incentive for to manipulate the value of a stock downward. While this provides a profit for those betting on the loss, it harms the average investor as well as the company in question. And, to make it even worse, stock shares, held in trust by a brokerage for a client,can be rented or loaned to another party who can then use them to leverage the market even more.

Instead of the stock market being a place where common people can invest in a company and either grow or shrink based upon the business practices of that company, they are putting their money down on a giant roulette wheel which has multiple magnets controlled by multiple people, many of whom are unknown to the average investor. It has become a giant scam. While it was strictly controlled by the elite investor class, the small investor had some protection, as this class only took small bites at a one time and made their money over time. But, the cowboys are not interested in long term income. They seek to maximize short term income and do not care if they crash the system or not. While the damage done by the cowboys is usually limited in scope, it can have a profound effect on individual small investors and individual companies.

Lucifer Morningstar | February 2, 2021 at 12:45 pm

Whatever. Doesn’t really mean a thing. Was just a classic “pump and dump” stock manipulation that made considerable money for the few that dumped their stock at the right time and lost a very foolish hedge fund investors their heads.(As well as all those small investors that bought in when they should have stayed well away from it all that lost big time.) But don’t think this will be allowed to happen every again. The PTB on Wall Street and in the hedge fund companies will make doubly damned sure that it will never happen again. Guarnateed.

“But in other places the goal can be more nefarious. Online spaces are being used to radicalize people toward extremism, to plan hate crimes and attacks,” she said.”

Where’s she been the last 5 odd years? That horse left the barn long ago

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