Thursday, January 28, 2021

Blame Trump and the Federal Reserve for the Current Mad Price Activity in GameStop-Related Stocks



Over the last few days, a number of stocks with large short-positions have exploded to the upside.

Shares of  GameStop Corp., BlackBerry Ltd. and AMC have posted triple-digit gains.

Last week, for example, GameStock shares were trading around $19 a share. They closed on Wednesday at $347.51 per share.

Shares of AMC Entertainment jumped more than 300% at the opening bell on Wednesday.

BB Liquidating Inc., the only part remaining of the bankrupt video-rental company Blockbuster, surged as much as 302% Wednesday, adding to Tuesday’s 774% climb.

What we are seeing in these stocks is a massive short squeeze apparently started on the Reddit board wallstreetbets. 

Needless to say, this is not about fundamentals.

The firepower to launch these squeezes exists becasue money is flowing everywhere thanks to massive Federal Reserve money printing.

The Fed printed roughly $4 trillion dollars out of thin air last year and they still aren't stopping.


This is why housing prices are up, why the general stock market is up and why, now, Wall Street short-selling pros are getting destroyed because of guys (mostly guys) sitting in their basements running up overvalued (on fundamentals) stocks with newly Fed printed money. We haven't had these kinds of short squeezes since the days of Jesse Livermore.

Livermore (under the pen name of Edwin Lefeve) wrote in Reminiscences of a Stock Operator:

A wise old broker told me that all the big operators of the [18]60s and [18]70s had one ambition, and that was to work a corne [that is to corner a market and squeeze shorts]. In many cases, this was the offspring of vanity; in others, of the desire for revenge. […] It was more than the prospective money profit that prompted the engineers of corners to do their damnedest. It was the vanity complex asserting itself among cold-bloodiest operators.

We are seeing many call this the "little guy" getting back at Wall Street pros.

NBC reports:

Mike Novogratz, an investor and former hedge fund manager, said the internet activity is the result of frustration that everyday investors are often locked out of lucrative opportunities, such as initial public stock offerings.

"What it really feels like is the game is stacked against the little guy," he said...

Elon Musk, the world's wealthiest person, who has also publicly battled short sellers, tweeted out Tuesday, "Gamestonk!" with a link to WSB. Gamestonk is a reference to GameStop and to "stonk," internet slang for stock...

Or, as Reddit co-founder Alexis Ohanian put it on Twitter, the GameStop squeeze is "the public doing what they feel has been done to them by institutions."

"And it's a perfect storm at a time when lots of people are hurting, interest rates are so low, inescapable student loan debts loom, and every major institution has caught [losses] during a /global pandemic/ over the last year. This is something to believe in," he said.

So there is your revenge factor checking in right on time. 

But this is a VERY dangerous game, not "something to believe in."

This is kind-of the Trump stock market (He was all for Fed money printing, he encouraged it!) version of the storming of the Capitol. It is not going to end well for most.

I wrote in today's EPJ Daily Alert:

This kind of activity can only take place during a period of mad money printing.

This is a major indicator that money is everywhere and is a signal that overall

price inflation can not be far behind.

Playing this game is extremely risky, It is a game of musical chairs where ALL

the chairs are taken away when the music stops. Anyone who plays it better be

prepared to lose all their money. The only chance you have to move the odds a

bit in your favor is to get in on a run very early and get out before the run is

over. But I emphasize this is total speculation with high risk.

High-risk trading is a very difficult game, even for pros like Jesse Livermore who understood the game. 

In 1940, Livermore fatally shot himself in the cloakroom of The Sherry-Netherland hotel in Manhattan, where he usually had cocktails. Police found a suicide note of 8 small handwritten pages in Livermore's personal, leather-bound notebook. The note was addressed to Livermore's wife, Harriet (whom Livermore nicknamed "Nina"), and it read, "My dear Nina: Can't help it. Things have been bad with me. I am tired of fighting. Can't carry on any longer. This is the only way out. I am unworthy of your love. I am a failure. I am truly sorry, but this is the only way out for me. Love Laurie".

You really have to pick your spots carefully when this madness is on. In the ALERT, I also wrote yesterday:

So basically, what I am doing is sitting here with my gun loaded just watching

right now and knowing under what conditions a short will make big sense. I will

let you know.

But it is not time yet. Wallstreetbets just got banned from Reddit but they are apparently going to try and continue the squeeze and the revenge:


-RW

4 comments:

  1. I’m a member of the r/wsb forum, which is up with some new limitations, and the energy is not investors flush with mad money cash, but revenge seekers who would throw their lunch money on the fire in hopes that the cronies and insiders are burnt a little more. This isn’t so much about making money as it is about bloodlust. They’re suspicious of the entire wall street establishment including the enablers like cnbc, and the protectors in government.

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  2. So many thoughts here...

    These poor souls. I've read the whole story and a lot of the wsb comments. These "kids" (I know most of them are adults) have no idea how anything works or what will happen next.

    They seem to be fixated on how government allows big hedge funds to take large short positions, and that because it's not a regulated activity (which is false) that's the problem.

    There's nothing inherently wrong with taking a large short position. In fact, it's a good thing. It gives us information. In this case, the signal was that GME is overpriced by one serious opinion. Perhaps money should flow elsewhere to stocks or assets that aren't as dear. If you get rid of short selling, or try to place arbitrary restrictions on how large a short position someone can take, you are distorting the price system even further. There's less information available to us who want to judge the quality of an investment.

    But in the end, there are regulations against executing a pump-and-dump, against stock manipulation. And that's what these kids are going to get hammered with. They are going to get government regulation right up their grill. Just like the hivemind kids that participated in DDoS attacks in 2010-2011. Those kids got more government right in their living room when the FBI showed up to confiscate their laptops.

    Now, as to strategy and what to do. Well, don't short sell the stock. And don't go long either. That's lunacy. RW is right. It's at $485 pre market right now. There was a sell off from a big player after market yesterday that dropped it to about $230. There is a heck of a lot of money changing hands quickly right now. And these dumb wsb kids have no idea who they are getting rich. I can't wait to find out that some of the top holders of GME stock (who are now billionaires) support Trump or have a metoo past lol.

    There is a saying in the wsb thread, "We can stay retarded longer than you can stay solvent." Like most populous rallying cries it assumes the "we" is a static entity and the "you" is as well. Melvin Capital closed out their large short position Tuesday. They've already been squeezed.

    What next? That's a question no one pumping this stock can answer.

    Jail, probably, for a lot of the big players in this stock manipulation, like I said above.

    As for me, I took some January 2023 put positions on Tuesday and some more yesterday. The premiums on Jan 23 puts are actually rising this week, as more people like me get in to this long play. I may sell today and consolidate at a higher strike price.

    The truth is, if most of the kids pumping are as ignorant of economics as they seem, many will need to sell on the 1st to pay the rent. They aren't holding these positions for very long. They are playing this YOLO game precisely because they don't understand time preference.

    And we all know what happens next.

    Can they stay retarded until Jan 2023? Lol I don't think so. Thanks for the easy money, dipshits.

    David B.

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  3. SLV short squeeze is in the news too.

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  4. This feels crowd-sourced ... I can't imagine the people bidding up this stock are at all close to the fed money firehose.

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