I keep fucking seeing "here's the gamestop stock news for people who don't understand" and then proceed to use words like 'hedge fund' and 'stock'. We don't fucking know what those are. So i read about it and talked to people who spent years studying capitalism and I'm gonna break this down as far as I can bc it's frustrating.
Hedge funds are rich people getting in lil groups to put their money together to hopefully turn it into more money. They do this by investing in large quantities of stock which, at it's most basic, is like a piece of a company. By owning stock you own a lil baby piece of the company metaphorical pie.
The price of stock changes, goes up and down, based on the success of the company. If a company is doing good, it's stock price goes up. If it's doing bad, price goes down.
Now gamestop hasn't been doing well, so if you had $10 worth of gamestop stock, it was on track to be worth $1 in the future.
The hedge funds saw this and did what's called "shorting the stock". In order to "shorten the stock" they go up to the stock counter and say
Hedge Fund: "Hey, can I borrow some stock and i give it back later"
Stock person: "Yeah, but you have to GIVE IT BACK LATER. Promise?"
Hedge fund: "yeah bro, promise" then they do whatever the fuck that chest pounding thing from wolf of wall street was.
So hedge fund takes that stock, which is $10 now, sells it to Grimace that purple chicken nugget for $10.
Now as I said before, gamestop isn't doing good, so once that $10 stock turns into $1 stock, Grimace is like "fuck dude, this was a bad deal, buy it back from me for $1 (which is what it's worth now)"
And the hedge fund buys the stock back for $1 and returns it to the stock person they borrowed it from.
How much money did they make? Answer below:
$9.
And it works! So they get away with doing this.
So what happened in January 2021?
People saw them doing this process called shorting stock and said "that's kinda fucked" and called the hedge funds on their bluff.
They bought up that stock.
Now something absolutely maddening about establishing the stock market as a pillar of your countries economy is it can be wildly volatile. Because it's all speculative. We have formulas for it now, but this is Econ 001 for people who can't stomach it, so we're saying it's all speculative.
People saw that this stock was getting bought up. And economists and capitalists and little people on their robinhood apps only want to buy stock when it looks like it's gonna be really valuable soon. They think they're gonna buy stock for $1 and its gonna turn back into $10.
But buying stock itself also increases the value of stock because it's gonna be more valuable cus people are buying it so it's doing good and people are buying it.
It's a disgusting money ouroboros.
But anyway. These hedge funds have stock out there that they sold to someone and they don't have it back yet. And the price isnt just rising, it's skyrocketing.
So the hedge funds borrowed stock that wasn't theirs, sold it for $10 (thinking they could buy it back for $1), and then the stock is worth $140. BUT THEY STILL NEED TO RETURN THE STOCK THEY BORROWED.
So the hedge funds gotta buy all that stock back at $140.
I've been using small numbers cus I'm sure u read that humans have a hard time conceptualizing big numbers, but what happened in the last 24hrs was really big numbers.
So hedge funds, billionaires, and other wealthy swindlers got screwed on this big time. So screwed that apparently the government gave the hedge funds our tax money to make sure they didn't stop being billionaires.
And that might be what happened i don't really know, reading about this much stock exchange in such a short period of time made me sick and I'm about to black out.
Correct any errors but if you use unapproachable vernacular without clarification I'm gonna ignore u so hard.
I’ll try to keep this as simple as possible, so if anything remains unclear just say the word - And that isn’t all! First to shed some more context on all of this: A while ago when Gamestop was in the dumpster, Randy Cohen bought a whole bunch of shares. To be exact, 12% of the company. This is what is known as a “controlling stake”, because it puts him on the Board of Directors, which are the big suits with fancy cigars and top-hats that call the shots. The relevant information here is, Randy Cohen is the founder of a *very* successful e-commerce website, and brought the people over to Gamestop that helped him make it. Gamestop is also restructuring to have less stores, but offer custom PC building at their locations (Lots of money in that.) All of which is to say - for people in the know, Gamestop suddenly wasn’t as dying as the general public assumes it was. Specific people on wallstreetbets saw this a long time ago, namely /u/DeepFuckingValue (who is now worth 40 million $, after a buy-in of 14 thousand $), and over time started organic growth. This is what caused the slow rise of the share price (one “stock” is called one “share”, I’m going to use that from now on.) to roundabout 40€ over the span of weeks. Now the thing to know is. The Big Guys with many fat sacks of money, have been shorting Gamestop for years. They have been actively driving Gamestop the company towards slow bankruptcy just so that they could keep shorting the stock and get a profit. To a point where Gamestop became the most shorted company in history. To an illegal degree. I’m going to reiterate how shorting a stock works: The Monopoly Man borrows a share from the Bank, sells it to the poor man, buys it back later at a lower cost, gives the borrowed share back. That is how it is supposed to work. What can happen, however, is that The Monopoly Man will sell a share that the Bank hasn’t given him yet - meaning he sold a promise of a share that doesn’t really exist. This is what is known as a “naked short”, because the position isn’t “covered” - like a man without pants is uncovered, see? This is, of course, highly illegal, but in typical rich man tradition this stopped more or less no one. The current situation is that 140% of available shares have been shorted. This means, if the Bank were to call back its shares now, The Monopoly Man has to come up with 40% more shares than currently exist in a form that can be bought. (You can call your Bank and say that you do not want your shares to be borrowed to others, that is roughly how this situation can happen).
Typically a short has no set expiry date, there’s just sort of a loose promise to give it back at some point, but common dates are End of Week, End of Month, End of Year. What we saw last friday was that the shorts of Melvin Capital expired, meaning the Bank said “Right, that’s enough, give us our shares back, NOW.” and because Banks matter, unlike the common people, Malvin Capital had to buy back every single share he borrowed from the bank at once - he waited till the last possible moment since there was the hope that the stock would still go down, and he could reduce his losses, maybe even turn a profit. Having to buy all those borrowed shares at the same instant is when a “short squeeze” happens, which is when the price gets momentarily squeezed up and spikes. This is what happened on friday, when the price per share went from 40€ to 60€, all thanks to that short squeeze. Doesn’t sound like a lot, right? Only 20€ after all. Melvin Capital lost 2.something billion dollars. But that is not where it ends!. Citadel, a different Big Money Bag, bailed Melvin out. Melvin used those funds to short Gamestop again. Citadel themselves also have shorts on Gamestop. And for the week the price actually held, so nothing really bad happened - no profit but no loss either. Till Elon Musk, who personally hates shorters, as shorters have betted on Tesla going under for a long time, gave a shoutout to Gamestop. Suddenly the price per share is at 200€. Now is when things get hectic. Remember Citadel from a few sentences up? Those are the Big Money Bags behind RobinHood, which is the trading app that most americans use to trade stocks. About 50% of RobinHood users have shares of Gamestop. Remember, Citadel has shorts on Gamestop themselves, and they bailed out Melvin Capital, who also has more shorts on Gamestop. In the singularly most illegal move you will possibly see in your lifetime, RobinHood prevented people from trading. You could only sell your shares, no longer buy. This resulted in a dip in the share price, though it has mostly recovered, so their ploy failed. Not satisfied with that, RobinHood has now started selling shares for their users - you can not cancel those orders, and yes that is incredible amounts of illegal - but we’re talking about so much money here, if Citadel manges to survive the week, they can deal with any lawsuits after. So people panic-sell their shares, RobinHood forces people to sell shares, all so that the shorters can “cover” their positions by buying a share now to give back to the Bank when due day comes. I’m personally hoping that this won’t be enough, because as long as people continue to hold, really they have all the power. Now. WHY is everyone holding, why didn’t we sell when it was at 400€ earlier? Remember the short squeezs from earlier. Melvin Capital and Citadel aren’t the only ones with skin in the game. Remember, 140% of shares have been shorted. What the people over on wallstreetbets, and me, are hoping for, is that an “infinity squeeze” will happen - for this there is actually a pretty nice visualization.
Let’s do some basic logic here. You have hedgefunds desperate to buy 20 shares. 30 Shares are in a position where they can be sold. What happens? Hedgefunds keep raising the price they are offering to buy at, till people start cracking and sell their shares. The longer people wait, the higher the price goes, but there is still more supply than demand. But we are in a position where, if all shorts expire at once, hedgefunds HAVE TO buy 20 shares.... but there are only 14 on the market. And people aren’t selling. This causes the theoretical price to go up to infinity- the longer you hold, the more your share will be worth. 5000$ per share honestly isn’t out of the question anymore. As long as people hold, the price will go up. Naturally people will cash out at SOME point - how is this going to work given that there are quite literally less shares available than the shorters need? Honestly, I don’t know! But this is all only going to happen if people hold. If the bubble collapses, prices go down, and the shorters can cover their positions at no significant cost - the dream dies, no tendies are made, Wallstreet wins. If the people hold? Every single one of us goes home rich. The Hedgefunds lose untold billions, many will go out of business. And that’s where we are right now! If the infinity squeeze will happen or not, who knows, if I knew I’d not be posting on tumblr, I’d be crashing Yachts into each other for fun. This still left out a lot of detail, but I hope I simplified it enough to be understandable. If any questions remain, feel free to hit me up either in the notes or directly.
