Sebastian Mallaby, the Paul A. Volcker senior fellow for international economics at the Council on Foreign Relations and a contributing columnist for The WashingtonPost, does a pretty decent job in The Post explaining why the crowd at WallStreetBets has no idea what they are talking about:
The particular targets of the GameStop crowd are hedge funds and short sellers. Here, a couple of definitions may be useful. Generally speaking, a hedge fund is a small-to-medium-size company that makes money by choosing smart investments. There is nothing nefarious about this. To the contrary, if you don’t like too-big-to-fail banks that get backstopped by taxpayers, small-enough-to-fail hedge funds ought to be celebrated. If you worry about complex financial conglomerates with corrupting conflicts of interest, single-purpose investment boutiques are simpler and healthier. On the online forums where the GameStoppers congregate, you read complaints about hedge funds being bailed out during the crisis of 2008. Actually, banks, brokers, insurers, mortgage providers, money market funds and even car companies got rescues. Hedge funds got nothing.
What about short sellers? These are specialists who research stocks that might go down, sometimes because bosses are illegally covering up bad news about their companies. When short sellers identify a case of fraud or similar, they borrow and sell the stock, hoping to buy it back at a lower price later. Again, there is nothing evil about this. To the contrary, it’s a way of keeping prices honest.
Further, the idea that the WallStreetBets crowd is going to make money via their "revolution" is absurd. The picture above is the masthead of the WallStreetBets forum. Is the WallStreetBets short squeeze going to result in a surge in demand for yachts? LOL.
The problem with the type of squeeze WSB ran is that once the shorts are covered, there will be no one around to buy the stock. Based on fundamentals the stock is probably worth around $5.00, or less, per share.
Even now, when the revolutionaries are still in the hills and in their basements plotting, they are taking on huge losses.
It is still early in the game but at this point anyone who bought stock at any price above the black line in the chart below is losing money "as part of the revolution" and the downside is just getting started.
This "revolution" was on a bad target. It implemented a strategy that will result in losses that will take the "revolutionaries" out of the game because of the heavy losses. They won't even have enough money left to buy a good Cuban cigar, never mind launch any future squeezes.
-RW
still, more than 100% existing stock shorted sounds not right
ReplyDeleteThe brokers don't seem to update that short interest % with frequency. I saw a report the other day showing it had plummeted dramatically.
DeleteDavid B.
Institutional fraud is ... Institutional.
DeleteYou cannot fight the institution and expect to win by playing the institutional game where they can and will change and/or suspend the rules so they win and you lose.
The only way to win is to not put your money into the instituitional game.
Exactly. Join a credit union today.
DeleteDown to 148 pre market. Guess they couldn't stay retarded as long as they thought...
ReplyDeleteDavid B.
Maybe the Wall Streeters will stop placing bets with "naked shorts" and "unhypothecated" commodities???
ReplyDeleteFor a lot of these WallStreetBets people, it was NEVER about making money. They hate hedge fund people as a class and are only interested in causing them problems. They don't care about losing so long as a hedge fund short also loses.
ReplyDeleteThe higher the price goes, the more people will short the stock.
ReplyDeleteThrow money away so some invisible guys far away lose money too. I don't know how they get a thrill out of that. It's embarrassing to see so much ignorance and anti-capitalist mentality everywhere.
ReplyDeleteYou and other neoliberal cheerleaders want to prop up Wall Street's rigged casino because you have so much invested in it.
ReplyDelete