The GameStop Fiasco

First, a brief summary for those who haven't kept up with recent news ----------------

Disclaimer: I am not a financial expert and this is my understanding of the situation as an untrained layman.

Short-selling is an investment technique. If an investor believes that a financial product, such as a stock, will decrease in value, they can borrow and sell it, with the intention of buying it back at a lower price at a later date to repay the debt. An investor that does so, and thus has an obligation to pay back some financial product that they no longer have, is considered to have a short position on the product.

A bunch of Redditors noted that some hedge funds had enormous short positions on the stock of GameStop, a flailing video game retailer. Knowing that these funds were thus obligated to buy large amounts of GameStop stock at a later date to close their positions, and that this will create an upwards pressure on the price of GameStop stock, these people flocked to buy, and the price rose.

This has since attracted a large number of small investors ("retail" investors), some of whom are trying to profiteer from the situation, some of whom are just trying to drive up the price to hurt hedge funds and don't care if they lose their shirts in the process, and some of whom are just in it for the memes. All this had led to a massive price spike in the price of GameStop stock - more than tenfold in a week.

Since firms with short positions on GameStop have to pay whatever the stock is worth to close their short positions, this has driven a few of them into panic and the people who manage hedge funds have done everything from misinformation campaigns to temporary restrictions on trade in order to drive retail investors into panic and drive down the price. So far it seems to be working, with the price starting to collapse. But who knows.

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I usually just post on already-extant threads on this forum, but I'm making this thread for two reasons - first, I'm surprised nobody covered this story yet, given how many people on this forum make money off the stock market on the side. There's only one thread by Sean a while back, and that was discussing a tangential issue. Second - and more importantly - based on what I've read in other political discussion boards this seems to be one issue where everyone is in agreement.

It doesn't matter, at least on the sites that I discuss politics on, whether they're self-described socialists, or liberals, or classical conservatives, or diehard Trump supporters. This situation has brought together people from all different political ideologies together in almost unanimous denunciation of the tricks played by the media and stock trading platforms to artificially engineer a panic. Basically everyone is aghast at the hypocrisy of financial officials and mass media calling the actions of Reddit retail investors - who gave publicly-available investment advice based on publicly-available information - "market manipulation" while having stayed quiet about the past antics of the finance industry and are still staying quiet about the heavy-handed response by that finance industry to this latest situation.

The government should stay out of the business of retail investors and go after the people who are actually engaging in blatant market manipulation. So I think, anyways.

Discuss.

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rev. 18:07 28-01-21: there are now unconfirmed reports that some brokerages are forcing their clients to sell their stock in GameStop

Disclaimer: I am a financial expert and you should follow my advice or stay poor

There isn't consensus and I completely disagree. The tutes just have more money available which means that they have more influence, there's nothing manipulative about that. They took short positions on Gamestop because the company is in terminal decline and they employ methods that put the stock on a downtrend. That's what everyone does, except not everyone has millions at their disposal and is capable of adding specifically in order to influence the market. There is a difference between influence and manipulation. Most of the time we are dealing with the negative affect of their influence on morons and their subsequent claims of manipulation

Furthermore, it is a good thing that brokers are helping their biggest investors because then they would have a solvency crisis. Movements like this are not good for brokerage firms. And the last to get out would be the most moronic among retail investors. It is for their own good

The government should stay out and let the market (private entities included) figure out how to handle these stocks. It is easy for everyone to make money if they just follow what's happening. You should have shorted when the firms started closing long positions and you would have +50% gains today

Geschreven door Tribune Aquila, 28.01.2021 at 11:33

They took short positions on Gamestop because the company is in terminal decline and they employ methods that put the stock on a downtrend. That's what everyone does, except not everyone has millions at their disposal and is capable of adding specifically in order to influence the market.

Nobody thinks that GameStop as a company is actually worth $400 a share, and very few people who bought into this trend did so with a view at the long-term profit potential of the company. They bought in - that is to say, those people who are actually looking to profit bought in - with an eye at being able to price-gouge people with short positions. Short-term speculation.

Geschreven door Tribune Aquila, 28.01.2021 at 11:33

Furthermore, it is a good thing that brokers are helping their biggest investors because then they would have a solvency crisis.

Better for the brokerage, maybe.

Geschreven door Tribune Aquila, 28.01.2021 at 11:33

And the last to get out would be the most moronic among retail investors. It is for their own good

People know perfectly well that if they're holding onto stock when the inevitable crash comes, they're going to lose their investment. Are you saying that the brokerages know the interests of these people better than they do themselves? If we accept the premise that experts know what's good for ordinary people better than ordinary people know themselves, then what's the point of having a market economy? We might as well bring back Soviet-style industrial planning where experts arrange for what's best for everyone and be done with it.

The premise of a market economy is that the individual knows best what he or she most desires. And sometimes that's setting fire to $300 for a meme.

Geschreven door Tribune Aquila, 28.01.2021 at 11:33

You should have shorted when the firms started closing long positions and you would have +50% gains today

I don't have skin in this game, and I won't put my skin in this game, on either short or long positions. I subscribe to a variant of the efficient market hypothesis, which states that if there is some easy money to be made, then by the time I hear about it someone way smarter than me would already have made off with it. I suppose you could call me risk-averse, and a stock market event like this has risk written all over it. I like nice and stable index funds, thank you very much.

I'm merely interested in this issue because discussion about it has blown up on other forums I visit over the past couple of days.

TAKE EM DOWN GOOOOOOOOOOOOOOOOOOOO WSB GOOOOOOOOOOOOOOOOOOOO

There are people who produce & trade and then there are people who gamble with that product & trade. When they lose, its 'economic crisis', 'market meltdown'. Give me a break.

Stockmarkets and usury is greater enemy than nazis.