The Big Short. Margin Call. Wolf of Wall Street. Boiler Room. Wall Street 1 & 2. Other People’s Money. Inside Job.
We all love movies about greed and corruption run amok in the stock market, and when the next one gets greenlighted, it’ll probably be about what happened this week involving GameStop (GME). They could call it “The Short Squeeze” or “Get Short Cover,” and it will have plenty of “despondent day-trader facepalming” images.
Basically, a group of everymen average Joes beat the elite 1%ers at their own game on this business day(s). The hedge funds and the ultra rich who have enough capital to partake in those types of arrangements took a beat down. The working and middle class people, with a Reddit account and a penchant for posting on the site’s WallStBets forum got the W.
It’s the most interesting thing to happen to the stock market in a very long time and one of the most compelling news stories on the very young year. At market close Wednesday, GameStop was up about 9,000% over the past year. That percentage is not a typo. It’s stock price hit as high as $380 today, after being at $18 just a few weeks ago. “GameStop won’t stop.”
Or “ain’t no party like a GameStop party because a GameStop party don’t stop.” Because “can’t leave rap alone GameStop needs me.”
Sorry about that, the marriage between hip-hop lyrics and tales of Wall Street avarice is long and loving, with GameStop possessing perhaps the best company name ever for these kinds of rhymes. Of course, nothing is ever lost or gained until you book it, so to everyone who hit the jackpot, and to those who lost their shirts, it’s all just numbers on the screen until you close the deal and confirm the purchase/sale/short sell/buyback. Which brings us to what happened here.
Investopedia defines short covering as “buying back borrowed securities in order to close out an open short position at a profit or loss. It requires purchasing the same security that was initially sold short, and handing back the shares initially borrowed for the short sale. This type of transaction is referred to as buy to cover.”
You know the common slang expression “don’t sell yourself short,” as it means to put yourself down. Shorting is betting the stock will fall. The institutional investors, the big boys, the insiders all bet on GameStop to drop, which was totally natural, given that the company is struggling mightily on two fronts, against forces of nature they cannot control.
They’re a chain of brick-and-mortar video game stores, in an era when real life retailing is crumbling. Just visit your local mall for more elaboration on that. Secondly, gamers are downloading their games more and more, instead of buying physical copies. Think of it like the recent history of video rental stores.
Blockbuster, Family Video etc. went near extinct as Netflix and Redbox came along, and then everyone had to adjust to the online streaming evolution.
Some people will still take part in the Console Wars (great three part episode of South Park by the way, from 2013, on this) by buying a physical console and the game discs, but you see where this is going. Despite a solid turnaround plan and the optimism of seeing their fiscal losses reduced over the past few quarters, there is absolutely no reason for this stock to be climbing right now.
Oh those poor hedge fund guys! Their ROI is suffering! Will anyone think of them of their plight? The suffering souls stricken with underwater positions! How will these downtrodden cover their shorts? https://t.co/zRqrgGekmT
— Paul M. Banks (@PaulMBanks) January 27, 2021
“The stock’s performance is so far divorced from the reality of its retail operations it’s practically operating in a parallel universe. In its most recent quarter, GameStop’s total sales were down more than 30% compared to the same time last year.”
The stock market is not the economy, no matter how much right-wingers and Trumpers try to tell you it is, and speculative surges are not indicative of genuine value. This stock is going to Pluto (“Wall Street” reference) because of the big short squeeze going on right now.
Wall Street insiders, 1%ers manipulate the markets:
“Brilliant business men! They’re elite at market forecasting!”
Middle and working class people manipulate the markets in the same way, with exact same methods:
“borderline illegal! Rigging the game! Exploitative!” https://t.co/CX2rczZXsi
— Paul M. Banks (@PaulMBanks) January 27, 2021
Going back to Investopedia, a short squeeze “occurs when a stock or other asset jumps sharply higher, forcing traders who had bet that its price would fall, to buy it in order to forestall even greater losses. Their scramble to buy only adds to the upward pressure on the stock’s price.”
So it’s a snowball effect, or a domino theory, in a way.
While we’re all laughing at the misfortunes of the ultra-rich here (why do you think trader face-palming pics are so popular? I used two in this post), there is so much more going on here than just A+ schadenfreude.
GameStop is a real company, with real life employees, who need to put food on the table for their families. Have a laugh or two, sure, but please respect this truth. Times are tough right now and this is real life for them. This ain’t no video game to those who have skin in the game.
Federal Reserve Chairman Jay Powell spoke today, and when he was asked a GameStop related question, he declined comment. Rightfully so, for a man in his position.
Paul M. Banks runs The Sports Bank, partnered with News Now. Banks, the author of “No, I Can’t Get You Free Tickets: Lessons Learned From a Life in the Sports Media Industry,” has regularly appeared in WGN, Sports Illustrated, Chicago Tribune and SB Nation. Follow him on Twitter and Instagram.
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