GameStop Saga

[speri]

What are people's thoughts on the ongoing GameStop saga?

Best I can understand what's going on is the hedge funds/ banks were shorting a number of companies with the hopes of them going bankrupt. This would allow them to keep all the profits they made on shorting tax-free.

Sometime last year a plan was put in place to turn GameStop around, including bringing on Ryan Cohen, revamping the board/ executive level staff and making the company more than just a brick and motor store. The exact plan of the turnaround hasn't been make public.

In the meantime there was a squeeze and emergency interference that occurred in January. Since then the Hedge Funds have been naked short selling (creating synthetic/ counterfeit) shares to delay the short squeeze and suppress the stock price. Other things the hedge funds are doing include failure to deliver and hiding share in puts are happening too, but that's beyond my comprehension.

We are now in a stalemate between the Hedge Funds and the long position. The problem being if a short squeeze were to be allowed to occur it would come with a market crash as the short Hedge Funds/ banks would need to sell their long positions to buy the share they need to close them.

What I don't understand is how all this is going to play out. Does the Government step in and halt trading or do they let things play out and blowup the market/ economy? There is no easy answer.

I'm sure I'm oversimplifying it as it is a very complex issue. Anyone else have any thoughts on this?

[jficke13]

The enterprise value of Gamestop should be its liquidation value. That this has occurred is pure irrationality. But, alas, the market can stay irrational longer than you can stay solvent.

Anyone who is up on a Gamestop position, short or long, should take their profits and get out of the way before their faces get ripped off.

The long, trigger the squeeze, thing requires more and more people piling in at stupid prices, and those people who were late to the party are getting hammered.

[WarriorDoc]

It’s my understanding that rules have recently been put into place to allow SHF’s long positions to not be sold on the open market in prevention of a resulting crash when the shorts have to cover. Therefore no sell pressure applied and no market crash as a result of this.

I’ve been following for 6 months. The whole thing is a mess. So many international investors and institutions involved, I’m not sure if the US government can put a stop to the squeeze if they want to maintain trust in the markets.

If you haven’t followed it - hedge funds overshorted Gamestop, retail investors bought and held positions in it to force a “mini-squeeze” in January to nearly $500. Brokers turned off the ability to buy more shares, and the stock dumped for $40. It’s been up and down since then, as far as why - debatable from both sides. CNBC will tell you it’s “Reddit raiders”, Reddit will tell you it’s due to failure to deliver and net capital cycles that the Hedge Funds are stuck in.

Either retail investors lose interest (which at this point, isn’t happening) or Hedge funds end up having to cover when GME finds a way to force them to, or the market does on its own. The game can’t go on forever. I think retail wins in the end, but it’s interesting what happens from here.

[JWags85]

What I don't understand is how all this is going to play out. Does the Government step in and halt trading or do they let things play out and blowup the market/ economy? There is no easy answer.

I'm sure I'm oversimplifying it as it is a very complex issue. Anyone else have any thoughts on this?

The situation is messy and complex to be sure, but this isn't going to blow up the market or the economy.  GME's current market cap, with the insane overvaluation currently going on, is just over $10B.  Thats nowhere near enough to cause any sort of massive issue.  A couple of funds or certainly retail investors could get blown up by a massive short squeeze or crash down back to single digits, but its not going to have substantial ramifications in the overall market, much less the economy.

[WarriorDoc]

The situation is messy and complex to be sure, but this isn't going to blow up the market or the economy.  GME's current market cap, with the insane overvaluation currently going on, is just over $10B.  Thats nowhere near enough to cause any sort of massive issue.  A couple of funds or certainly retail investors could get blown up by a massive short squeeze or crash down back to single digits, but its not going to have substantial ramifications in the overall market, much less the economy.

I’m not certain of that. If retail does own the available float of GameStop AND it’s been shorted well beyond 140% as theorized, theoretically if retail holds the losses are infinite in scope.

I’m gonna need more tinfoil.

[jesmu84]

How about we don't allow hedge fund f*cks to screw our economy?

Maybe have some of these government agencies have balls and punish those involved.

[Galway Eagle]

So in simple terms... buy? Don't buy?

[speri]

I don't think the masses have picked up on how big a story this is. Shorting a stock can result in infinite loses. That's exactly what is going on here.

We have a situation where a stock is shorted over 100% of the float. The long investors know they have the shorts by the balls and are going to squeeze until something happens.

The short are doing everything within their power, both legally and illegally, to suppress the price. Eventually something has to give and no one knows what that is.

[speri]

So in simple terms... buy? Don't buy?

My opinion is the smart play is to buy a few share to hedge against a market crash. Worst case is the stock goes down and you lose a few bucks. Best case is the short squeeze happen and you can name your price and you offset your other loses.

[WarriorDoc]

Whatever you believe, it’s hilarious to watch the financial “news” media do mental gymnastics around GameStop. Just google “Forget GameStop” and look at all of the article headlines.

[Galway Eagle]

My opinion is the smart play is to buy a few share to hedge against a market crash. Worst case is the stock goes down and you lose a few bucks. Best case is the short squeeze happen and you can name your price and you offset your other loses.

Is the situation with AMC the same?

[speri]

Is the situation with AMC the same?

I don't follow AMC as close, but its my understanding it the same situation just not as extreme.

[WarriorDoc]

Is the situation with AMC the same?

I would say it’s more closely linked to KOSS. Look at Koss’s ticket and you’ll find the exact same movements day to day.

The key characteristics are:

1. low available float (ie shares non-insiders or non-institutions available to buy - aka what can retail buy)

2. Heavily shorted (either 100% or more of the available float) - also known as “naked shorting”

3. High short interest (GameStop’s was 226% stated in a recent lawsuit against Robinhood)

4. Stock may have had buying disabled for a period of time

AMC has a much larger float and is basically owned 80% by retail. The squeeze, if it happens, is unlikely to be severe.

[JWags85]

I’m not certain of that. If retail does own the available float of GameStop AND it’s been shorted well beyond 140% as theorized, theoretically if retail holds the losses are infinite in scope.

I’m gonna need more tinfoil.

But again, its one stock.  Its not an entire sector or derivatives market.  It might maim a few funds, which can mess up the market for a day or two if they have to liquidate, but its not gonna crash the market.  For every HODL Reddit Edgelord who says they aren't selling till 1000, there are 5 people following along who will sell above 300-400 again.

Maybe government/agencies step in to prevent stocks from ever being shorted more than 100% again.  Sure, thats reasonable regulations and legislation, but this isn't going to crash the market.  The scope just isn't big enough. 

As of right now, 8MM shares of GME are reported as being held short.  The float was increased by secondary offerings by GME after the run ups.  So if this rocketed up another $500, thats $4B in losses for short holders.  Again, enough to wreck a few smaller funds or put a dent in the quarter numbers of a big boy, but not going to be catastrophic for the market.

[TSmith34, Inc.]

So in simple terms... buy? Don't buy?

Yes. 

Seriously, if you want to play the volatility, you could put on a strangle option strategy so that no matter which way it moves you make money as long as it moves more than combined net cost of your options. It has been a while since I looked at GameStop options, but back then the premiums were pretty steep so if that is still the case you'll need a significant move to be in the money, however.

[WarriorDoc]

But again, its one stock.  Its not an entire sector or derivatives market.  It might maim a few funds, which can mess up the market for a day or two if they have to liquidate, but its not gonna crash the market.  For every HODL Reddit Edgelord who says they aren't selling till 1000, there are 5 people following along who will sell above 300-400 again.

Maybe government/agencies step in to prevent stocks from ever being shorted more than 100% again.  Sure, thats reasonable regulations and legislation, but this isn't going to crash the market.  The scope just isn't big enough. 

As of right now, 8MM shares of GME are reported as being held short.  The float was increased by secondary offerings by GME after the run ups.  So if this rocketed up another $500, thats $4B in losses for short holders.  Again, enough to wreck a few smaller funds or put a dent in the quarter numbers of a big boy, but not going to be catastrophic for the market.

Everyone knows that short selling is not reported truthfully and there are likely more than 8MM shares are sold short.

But I 100% agree with your sentiment. Look at what happened with Archegos going under and being forced to liquidate their position in Viacom.  If the big guys (Point72 and Citadel) truly are short as much as people believe, then we could see a few securities take a massive dip if they go under, but it’s unlikely to be the whole market.

All that said, if you look at the extreme data being reported around Reverse Repos, inflation, and how heavily leveraged banks and HFs are right now versus the market, it’s pretty clear the market is being propped up by easy money. We’ve had 3 straight high inflation months. 2008 followed the exact same pattern. GameStop might not cause the market crash, but it will certainly squeeze as a result.

[JWags85]

Everyone knows that short selling is not reported truthfully and there are likely more than 8MM shares are sold short.

But I 100% agree with your sentiment. Look at what happened with Archegos going under and being forced to liquidate their position in Viacom.  If the big guys (Point72 and Citadel) truly are short as much as people believe, then we could see a few securities take a massive dip if they go under, but it’s unlikely to be the whole market.

All that said, if you look at the extreme data being reported around Reverse Repos, inflation, and how heavily leveraged banks and HFs are right now versus the market, it’s pretty clear the market is being propped up by easy money. We’ve had 3 straight high inflation months. 2008 followed the exact same pattern. GameStop might not cause the market crash, but it will certainly squeeze as a result.

Right, but my main point is its a far cry from 140% short interest on a single digit stock.  Its a different landscape now.

As for the market as a whole, its insanely overheated from the easy cheap money.  There are some SERIOUS pockets to the downside.  GME isn't going to implode things, but there are far scary issues out there that could.

[WarriorDoc]

Right, but my main point is its a far cry from 140% short interest on a single digit stock.  Its a different landscape now.

As for the market as a whole, its insanely overheated from the easy cheap money.  There are some SERIOUS pockets to the downside.  GME isn't going to implode things, but there are far scary issues out there that could.

Ok, I’ll bite.

What if the scenario is this: Short smaller HFs end up failing a margin call. They are forcibly liquidated and their GME short positions covered/closed, causing GME price to rise. This causes a domino effect - now larger players are in a constraint where they’re already operating on thin margins. What if they get margin called and have to sell positions off, in order to buy back GME shares they shorted? And what if no one is selling those shares, causing the price to go sky-high?

[TSmith34, Inc.]

Right, but my main point is its a far cry from 140% short interest on a single digit stock.  Its a different landscape now.

As for the market as a whole, its insanely overheated from the easy cheap money.  There are some SERIOUS pockets to the downside.  GME isn't going to implode things, but there are far scary issues out there that could.

I've moved from net buyer a month or two ago to hold/trim a couple of positions and let cash accumulate.

[jesmu84]

Focus on labor being more important than capital and everything else fixes itself

[JWags85]

Ok, I’ll bite.

What if the scenario is this: Short smaller HFs end up failing a margin call. They are forcibly liquidated and their GME short positions covered/closed, causing GME price to rise. This causes a domino effect - now larger players are in a constraint where they’re already operating on thin margins. What if they get margin called and have to sell positions off, in order to buy back GME shares they shorted? And what if no one is selling those shares, causing the price to go sky-high?

Because for a variety of reasons, the volatility is not as high as it was back in Q1.  Even if you think short numbers are fudged, they are reported at 18-20%, so the likelihood that they are over 40%, much less 50%, is significantly less.  So that takes away some jet fuel.

Then, the breathless reddit/IG/TikTok "TO THE MOON" hysteria behind GME is far less, so there is more liklihood that people are taking profits on the way up than just expecting 1000.  Again, in the midst of all the insanity and overleveraging, GME only got above 400 once, and not past 350 on spikes again.  So to me, it just seems HIGHLY unlikely that this think is gonna shoot 500 points up now.  Its still a sh**show I would avoid, but I don't see it as the powderkeg you're describing. 

I described a scenario where, lets change, and say there are actually 15MM shares short.  And it rises $500, thats $7.5B in short seller paper losses.  Its just not enough to blow things up.  Archegos losses were estimated anywhere from $8-15B.  And that screwed things up for a few days but didn't have substantial mid term effects, and that was far bigger than any fund that would implode from GME and across many names.

Focus on labor being more important than capital and everything else fixes itself

What does this even mean?  A general "pay people more" and the economy is fixed?

[🏀]

I know everyone is invested in the stock game, but what about the actual company?

How do they operate through the turbidity of their stock price?

[jesmu84]

What does this even mean?  A general "pay people more" and the economy is fixed?

IMO, if we focused on policy that promoted labor over capital and cracked down on risky capital moves, we'd be better off.

[WarriorDoc]

I know everyone is invested in the stock game, but what about the actual company?

How do they operate through the turbidity of their stock price?

Before I start - I am biased, I do own a decent chunk of Gamestop stock.  Obviously, none of this is financial advice.

Jefferies has raised their GME target to $175 with an upside of $220.  That means an analyst actually believes the stock has higher to go than it's current closing price.  They are certainly an outlier, but they're still a massive investment bank.  Numerous others (including Bank of America) have taken their ball and gone home, meaning their analyst has thrown a fit that they can't properly value the stock based on "fundamentals".

Regardless, to answer your question:

1. The CEO, CFO, and new board members are compensated mainly via stock.  Actually the board is 100% stock.  It was based on the share price over a 1 month period - I believe there were a number of hires and additions over a period, but most of their cost basis is somewhere between  $140-180.  CEO  Matt Furlong's cost basis is over $200.  The chairman (Ryan Cohen) did not convince a bunch of ex-Amazon execs to quit on Bezos for a failing video game retailer.  Not to mention, he executed a subtle takeover of the board, ousted current CEO and CFO, and wholesale replaced his board seats with ex-Chewy and other impressive members.

2. Gamestop's current price has allowed them to raise ~1.7 billion in capital via stock issuance and pay off all debt, which frankly, was part of the bear thesis.  They aren't going bankrupt and they aren't failing anytime soon.

3. Many believe they are going to blow their targets out of the water in September for ahead of earnings.  Frankly, they have a rabid investor base who go out of their way to shop at Gamestop.  We're also on the upswing of a new console cycle, where Gamestop always gets a lift from.

4. They've expanded into adjacent markets, grown e-commerce revenue significantly, and opened two massive distribution facilities on the east and west coast.

5. There are confirmed crypto/NFT developers working for Gamestop.  Many hypothesize it's either to develop an NFT to resell "used" digital games (digital games being a consumer taste preference has also long been part of the bear thesis).  Others believe it is an NFT dividend, which would effectively prove the stock has 'synthetic' shares that a market maker, Citadel, used their MM privileges' to create.  Distribution of this would immediately require the short HFs to cover and cause a squeeze.

I could go on, but I think the company is doing well and the price is being suppressed by multiple entities.    I'm an investor, but am not a "Reddit Edgelord" as stated above.

[jesmu84]

Related: they give horrible value on used games.