37 Replies to “GameStop Rebellion”

  1. When my former broker first told me about hedge funds, I looked at his information and decided that it was too risky for me.

    Soon after that I began doing my homework by looking at company financial statements. I bought and read some books on investing, including Benjamin Graham’s The Intelligent Investor and used the methods outlined in it for analyzing a stock. The analysis uses certain parameters as indicators of the state of the company, such as the ratio of debt to equity, and compares them to what the acceptable limits are expected to be, depending on the type of business.

    It’s not a perfect approach, but it definitely filters out obvious clunkers. After using that approach, I lost less money with my investments and had a better chance of making a profit.

    My investment style can be compared to ranching. If a rancher is considering buying livestock, he or she usually examines the lineage and considers factors such as productivity or breeding potential.

    1. BA, that is rational thinking and in the “long” run, it’s generally true but is has little to do with the “irrational exuberance” and mob sentiment that drives stock prices. Case in point is the Canadian Oil and Gas sector which has way better fundamental metrics than the vast majority of the stock market but remains hated and boycotted for reasons unrelated to economics. Sentiment is what drives the markets over the short term and beyond. Tesla is a classic “cult stock” with valuations inversely related to fundamentals.

      Short selling adds necessary liquidity (buying and selling at prices close to where you want to pull the trigger requires liquidity). There is nothing inherently immoral about it. Hedge fund shorting is simply the other side of the bet of pump and dumps. The Reddit crowd appear to be pumping Silver today and I like it but I don’t consider it a moral crusade.

      1. Tesla is indeed a bit of a cult, but it isn’t a car company, it is a battery company which has much more appeal to me.

  2. Pundits are always wrong on these predictions. This isn’t the end of short selling although no one would miss it.

    1. Don’t know much about short selling.

      But I’ve followed a few controversies involving a few short sellers and I think that folks like Mark Cohodes https://twitter.com/AlderLaneeggs will always be driven to expose corruption and try to make money doing it.

      The big short was a fascinating movie.

    2. Long-Short Macro funds would miss it. Shorting is a key ingredient in hedging capital against massive sudden market crashes. And absent short-selling, watch for crippling hyperinflation as key commodities go through the roof. Basically, short selling allows pretty precise volatility management.

      Short selling is no damn different than going long: In a long bet, you buy low, sell high. In a short bet, you sell high, buy low. Absent shorting, get used to paying a crapton more for cheap garbage, as firms can fudge and rig their ‘operating plans’ and their ‘capital structure’ to be whatever they want it to be, without real consequences. Short bets keep liquidity up, and fudging down. A boatload of folks were only able to get into GME in the first place BECAUSE a bunch of short-sellers had driven the price down to bargain basement prices.

      And if you have only a modest brokerage account, good luck building any kind of wealth without the opportunity to short. Shit will just get so expensive, you might as well piss away your money on lotto 649. Going short with tight, hard stops on highly liquid, big name trades can be a nice occasional good trade for a small account, especially when offset against long positions in a well-diversified portfolio.

      And of course the Venezuelan stock market was up by over 1300% this year …. yeah …. exactly.

      Yeah, no one bitches when NG is held to a realistic price point by active short futures trades. Want to see your pipes freeze? Wait till NG trades north of $60 or $80 (it’s now rangebound somewhat, in a nice single digit range) and see how impossible it’ll become to heat your home.

      1. I agree, BDSM. Stocks are generally overvalued. Dumb friends bragging up their portfolios, Reddit clowns pretending to be revolutionaries and short selling activity declining could all be seen as signs of a coming apocalypse. Not to mention the valuations themselves, which nobody has talked about, as people do the schadenfreude happy dance to celebrate hedge funds getting humiliated.

      3. “ as firms can fudge and rig their ‘operating plans’ and their ‘capital structure’ to be whatever they want it to be, without real consequences.”

        Curiously the SEC was supposed to be taking care of that. I wonder what they have been doing instead?

        1. The SEC is a government body, hence operated by a load of mostly incompetent, fat arsed, slooooow moving whale-people, exactly what you see at government motor vehicle offices, only in suits.

          Very much like those running our government covid response.

          1. Thanks for confirmation of my bias.
            Shorter version.
            The hedge funds are there for the benefit of the swamp.
            The swamp doesn’t work for the taxpayers thus the swamp will do nothing to correct a problem like this, only contrive a new scheme to protect their cut.
            Of course the niggling detail they can’t quite get around right now is that unless the Reddit rebels relent and sell, there is this big whopper of a debt that is coming due and the time to file and publish their year end reports to the SEC are fast approaching.
            The shareholders may work the golden rule to a better outcome than the SEC ever could in its current form.

      4. I tend to disagree with your explanation because it only portrays the above board concept of the Short-sell.

        It is actually rarely used in it’s official manner and in most cases is a tool to set up companies to get raped.

        More often what happens is one of these predators will short sell, then begin a whisper campaign to destroy the said company, as it turns into a self fulfilling prophesy.

        Hedge funds will often collude in this practice after a company has been identified, and they act like a school of piranhas slashing and biting chunks and gobbling them down.

        Its interesting in the attached article, that one quoted hedge fund didn’t want to be identified, because they absolutely knew the consequences of sticking their head up.

        You can gandy dance all you want around the ongoing event, but everybody knows that there is a battle going on in the market, and the 4chan/reddit clan are winning and winning big, and they’re using the vague rules that the Hedge Fund greasies have abused for decades.

        The story will conclude when the autistic 4chan/reddit gang start ‘short selling’ the hedge fund corporations themselves, then watch the fire.

        1. They can’t short the hedgies. I guess they can break BH though. And you are dead wrong on shorting. A five minute search on finviz will reveal the precise extent of short float and short interest. Funny that no one complains about public pension funds driving stock prices to nosebleed levels due to zero interest rates. HHhhmmmm.

          Any hedge fund standing in front of a fundamentally incorrect short bet is going to get trundled. When they are writing articles to pump their big position, they are usually at that point already losing, and looking for a modest snap to cushion the damage. As a private, small account trader, I have shorted multiple times – but almost always on temporary over-exuberance that got ahead of itself, and was due for a period of profit-taking. I could see the small accounts waiting on the sidelines to jump back in and ride the wave back up that they missed the first time. A seesaw back and forth. What I call the ticktock trade.

          There have been others, like JCPenney that provided a very decent, 6 month short trade overall. But when the short interest gets too high, I am out. Getting chopped in a short squeeze is an amateur mistake, and the hedgies know it. What happened with GME is THE downside risk hedgies take on. It is not Robinhood’s fault that a hedge fund did not practice sound risk management, and limit its potential short squeeze losses to 2-3% of committed capital. But that is what you get if you drop a few bil into your fave hedge fund equivalenet of a lotto ticket. A really expensive lotto ticket.

          I am usually long and short in equal amounts on a risk-adjusted basis (market-neutral) since I find it too hard to tine the tops and bottoms.

      5. Short selling properly done is indeed a useful part of the market. That isn’t what has been going on though, the hedges have been creating self fulfilling prophecies by colluding to artificially depress companies for their profit. Kind of dump and disparage. If they want to use illegal means to end up with a company 140% short, they had what they got coming.

  3. Stocks today are historically really expensive and over indebted, so it’s a sign of irrational exuberance that shorts are having a tough time. Celebrating the supposed demise of short selling makes no more sense than celebrating the demise of investigative journalism, whose disappearance has made life easier for our useless politicians. Companies hate short sellers, but they provide investors a useful investigative service, as a check on corporate and broker over-promotion.

    A quick web search shows that Gamestop (GME) has negative earnings, negative operating cash flow and about $1.2 billion in debt. We can’t use most normal valuation metrics on it because it has no earnings or cash flow, but it’s trading at 64x book value. Revenue has declined 20% in the last three years. Analyst targets for it average $13 per share. It closed Friday at $325. At that price, GME seems the very definition of a short candidate.

    I am not short the stock, but if one had to say something positive, I guess GME could issue 4 million shares at today’s prices and wipe out that debt, with only a 6% dilution of their 65 million shares outstanding. But the business is still bleeding cash. And who’s buying a stock that’s trading at 25x analyst estimates of fair value? Maybe these Reddit Gumbies are that dumb?

    1. Fred, it has always bothered me that people would willingly buy any stock that is trading far beyond it’s estimated fair value. I have always been of the opinion that Wall Street is more like Vegas than Vegas.

      1. This GME thing is a combination of greed, envy, stupidity (both the shorts and longs) and a narrative about sticking it to the Man, symbolized by hedge funds. The media reinforces the dopey but appealing Fight the Rich narrative, which makes this a crusade for some envious idiots. Reading that WallStreetBets subReddit last night was not encouraging. As Kate says, “The Children Are Our Future”. Yikes.

        My nephew, a business student, has allegedly made some money buying GME, but like everyone in his age group, is in it for the momentum and probably has no idea what the stock is worth.

        I hope he got out.

  4. I’m wondering if the Chinese business partners of the son of certain American politician shorted Gamestop and have lost a ton of money?

    Wouldn’t it be nice if Trudeau’s trust fund shorted GameStop and lost heavily?

    Unfortunately, I smell a taxpayer bailout coming.

    A major problem with speculators loosing massive amounts of money is when the taxpayer has to bail them out.

    1. Joe, I wqs wondering if Trump kick stated this bullshit, as it “outs’ the swamp crooks, and the lame stream media will report on it, and they won’t report on anything Trump says or does, unless it’s negative. Shorting can be described as honest theft:-))))

  6. Anyone catch this bit and wonder why the bureaucracies assigned the task of rooting out fraud isn’t the go to and why hedge funds are using the front of this excuse to make a profit?
    Think about it, if a hedge fund or anyone discovered what they believe is fraud, why aren’t they reporting their suspicions to the authorities instead of looking for a cut?

    And all the current noise about the end of hedge funds is bs.
    They just won’t be making their info public, now they become “unnamed source”.
    They didn’t see the light, they just decided on a new business model.

  8. hedge funds and shorting are like government, they can be useful in the hands of HONEST PEOPLE. those preaching in favour of hedge funds and shorting are NOT being honest because their rice bowel is being kicked over.

    and THUD exactly, I have a freind who makes a fortune on stocks, with no hedge funding and/or shorting . So there is an honest way to make money on the market!

    1. Anyone going diversified and long is making money right now. Hope for your friend’s sake, that continues.

      Remember, Mr Buffet is shifting into cash. He says almost everything is too expensive for the value investor.

      When 90%+ of market PnL is “growth” stocks like SHOP and TSLA, and almost nothing in value stocks (using DCF), you KNOW stuff is breaking.

      As I said, you made a “killing” if you were long the Venezuela equity index this year. Unless all your living expenses are in real currency, of course … or they aren’t, but you have <10% inflation…

      The panic that is going to ensue if an entire generation of badly undercapitalised retail traders start to try to lock in gains across the board in their entire portfolios, and start cashing out, is going to be epic.

  9. This was started by people that were bullish about GSE. GSE is restructuring to go into the digital instead of brick-and-mortar business model. These folk saw what the hedge funds were trying to do (feed on a company in a vulnerable position), and stopped them. Short selling will still exist, but the hedgies will have to be more cautious in future, much less naked shorting, much less exposure to the gamma squeeze. It is the self-regulating hand of the market fixing artificial volatility that previously only worked in favor of the hedgies; Now, if the hedgies get too greedy, they can lose their bets, something that they don’t like. This is a good thing.

    1. the shorters were betting that GME would option a chapter 11 bankruptcy in order to clean up during the switch from brick & mortar to digital, which so far hasn’t happened. GME is also suffering from a technology change where the console manufacturers are moving away from physical media, to downloadable games, which cuts out both the middleman, and the secondary market, where gamestop previously made money by recycling unwanted games.

      1. Odd how the same technology that allowed for the Gamestonk debacle to happen in the first place is the same technology that gives GSE a chance at survival. The hedgies, as establishment players, are unprepared for the disruption that tech can and will bring. They are the modern-day equivalent of galvanic buggy-whip speculators.

        1. It was probably a bad call by those hedge funds to short GME to 140% of its float, but it’s also not great to buy a stock that’s probably worth $13 (analyst consensus) and has declining revenues, no earnings, negative operating cash flow and $460 million of debt. GME is trading at 64x book value and over 20x analyst targets. Remember, analysts are usually criticized for being too optimistic, so maybe $13 is too high.

          The people worst burned here will not be the hedgies, but the Reddit rebels. The short squeeze can’t last forever and the stock is now, having been way over-promoted by “Roaring Kitten/DFV” of Reddit and his disciples, a classic short candidate. They were too successful in pumping it up and have now created an over- valuation crisis for themselves.

          1. Well, I guess that depends on why you want to buy. Revenge is just as pure a motive as profit.

      2. Yes, JD. This is exactly what I read. The Mullet cult leader promoting GME talks about all these initiatives GME is undertaking, but puts no specific value on any of it. Meanwhile, the operations bleed cash. Maybe they could issue shares to the Reddit Gumbies at these nosebleed levels and pay off the debt, but that still doesn’t fix the operations.

        1. Hedgies everywhere. The new fact of life is that the little man can play, for better or for worse.

        2. If they issue shares, it will be the shorts and the call writers buying to cover. This is not unwound yet, not by a long shot.

  11. Bloomberg’s idolizing of Short-sellers as the remora of the Stock Market … cleaning up fraudulent companies … is like idolizing recessions because they clear-out all the marginal businesses.

    1. Recessions are a vital piece ofbthe economic puzzle. Remember, the Soviet Union never had any “recessions”. Recessions (legit recessions, not health-authority-imposed economic interference) are caused by the fact the companies can only expand their balance sheets so far, before they run into the “we now have our entire market serviced, and must now become a margin business, since volume has peaked.”

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