The GameStop Bubble is absolutely astounding me. They went from about 2.50 usd to 450 usd in a very short time. And this morning the stock fell almost 50 percent.
The masters behind the great GameStop bubble of 2021 are probably
going to make a lot of money if they get out on time.They’ve done the world a service by reminding us of the uselessness of the stock market, an institution that serves no purpose
besides making a small number of undeserving people rich. Or maybe not ?
Who knew GameStop would itself become such a game?
Last summer,the video game retailer was seen as a loosing brick-and-mortar operation. It was
losing money, sales had been shrinking for years.and the future looked bleak.So why is it going up ?
To answer that requires explaining the concept of short selling, which most people find nearly
incomprehensible to understand. A short sale is a bet that a stock (or any other speculative asset, like bonds or
gold) is going to decline in price. But to make that bet, you have to sell something you don’t
already own, which is not normal behavior. To accomplish this, you have to borrow the stock
from somebody who does own it. As with any loan, you have to pay interest on the
asset you borrowed. And you also have to keep some collateral on deposit with your broker as an assurance that you’re good for the money. The hope is that the price will fall, and you can buy the shares—
cover the short, in the jargon—at a lower price. Your profit would be the diffrence between
the original sale price and the closing purchase price, minus any interest paid on the borrowed asset.
But what if mess it up, and the price rises? Then you’re in trouble. A lot of trouble. When you buy a stock,
your risk is that you could lose the entire purchase price—but no more. With short selling, if
you’re wrong,there’s no predetermined limit to how much you can lose if the price keeps going up.
And if the price keeps rising, your broker will demand more collateral in the form of real har cash.
You have a choice between giving up—covering the short and taking the loss—or keep
pouring more collateral into a losing position in the hope that things will finally turn your way.
Last August the investor Ryan Cohen started buying GameStop shares. He told
the company that it needed to get with the digital age, close a lot of stores, and move online.
Investors, expecting a better future for the failing retailer, snapped up shares,tripling their
price in a few short months. That was unjustified optimism, perhaps, but not a crazy idea.
But some hedge funds like Melvin Capital Management, began shorting GameStop, believing
the tales of recovery were delusional.
Cue the habitués ofthe subreddit Wall Street Bets, with a user known as DeepFxxkingValue
among the ringleaders, who began talking up the stock and buying shares. They were motivated
not merely by the prospect of making money, but also for the hope of bankrupting some hedgies.
They began buying the stock in size, as they say on Wall Street. The ensuing price rise forced the
shorts like Melvin to cover. Their demand for the stock, plus the Redditors’, launched the shareprice on a moon shot.
GameStop has turned into one ofthe great bubbles of our time. On Tuesday,January 26, more
stock in GameStop was traded than in Apple,the biggest stock of all, with a total market value
108 times the retailer’s. As James Mackintosh ofthe Wall Street Journal put it,the price action
and trading volume together suggest “widespread disturbance to people’s judgment.”
Bubbles like this always end in a crash, and those Redditors who haven’t sold their shares will be
left holding a very depleted bag. (Surprisingly, news that Melvin closed out its short position
late on Tuesday seems not to have dampened the party. A bubble usually goes on far longer than one can predict.)
In the meanwhile, it’s funny to see some Wall Streeters complain
that there’s something unfair about this action, since these are the sorts of games they play with
each other and the general public all the time. They talk up stocks or talk them down, depending
on their interests, and plot against what they see as weak or vulnerable players all the time. It’s just that the speculators with names like DeepFxxkingValue who are savaging them for now are the wrong kind of people. They don’t live in huge Penthouses and drive expensive cars.
WallStreetBets on reddit got 4 million followers. Thats a lot of people that can cause a major upheal when they get together against the institutions with old money.
Someone will loose out in the long run. Lets hope its not gonna be the poor, but a big fat bank full of money maybe ? The whole stockmarket seems pretty out of sync with reality at the moment, so me personally are moving some funds into cash and cash equivalent to protect my assets. But maybe Il should buy some Gamestop shares on the dip instead ?
Hope you day will be profitable !
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