Imagine you are the proud owner of a publicly listed company, now what if because of no fault of your own, but rather some random world-wide pandemic landed up shutting the doors of your retail stores, forcing you to retrench staff and overhaul your entire business model?
To top off all this bad luck and stress, what if giant hedge funds decided that your business was going to fail and instead of giving you a helping hand, they simply laid siege to your stock with massive short positions?
Short positions are basically the act of selling a stock you don’t own and having the option to repurchase it at prevailing market prices at a later stage, the goal of the “investor” (I use that term loosely) is to buy back the stock as cheaply as possible and pocket the difference.
Short interest is the number of shares that have been sold short but have not yet been covered or closed out. Short interest, which can be expressed as a number or percentage, is an indicator of market sentiment.
Extremely high short interest shows investors are very pessimistic, potentially over-pessimistic. - investopedia.com
Now do you think other investors will touch a stock that is heavily laden with short interest? Likely not, which is exactly what has been happening to the GAMESTOP ($GME) share on Wallstreet. Melvin Capital (backed by Citadel) was one of the main culprits behind this move and to make matters worse for GME, they publicly advertised their short position and their reasons for doing so, like a big old self-pat on the back. The act of marketing a company as a losing stock worthy of being shorter is a killshot to say the least and should not be legal to take such a position and then turn it into a self-fulfilling prophecy via your own actions.
So if you have a competitor you want to trash, simply ring up your favourite hedge fund, get them to lay down some hefty short positions on your competitor’s stock, then call up your newsagent buddies and get them to run some press releases on this stock heading downward and why the “smart money” A.K.A your hedgie buddies are betting against it being successful, result = competitor growth neutralised!
The European Union has shown some gumption in this space and in some areas has banned short-selling to curb market bleeding in uncertain times. (Article)
There is still a long way to go, especially on Wallstreet where short-selling is rampant. Something similar happened to bitcoin in the 2017/2018 bubble, there was buying frenzy like no other and the price topped 20K in the euphoria of announcements of bitcoin futures being launched. It wasn’t long after short selling was available in the bitcoin futures market that FUD (Fear. Uncertainty. Death) type of media started surfacing, major countries like India, China etc started to issue statements of their plans to ban bitcoin and causing paper-hands to fold their bitcoin positions and crash the price.
I’ll bet the players speaking out against bitcoin and threatening regulation, were ass-deep in short positions, just waiting to capitalise on the fall of bitcoin and erode value for the retail players.
This time around, in 2021. we see a reversal in ‘pownage’ where hedge funds receive their just desserts. A group of Reddit users in a subreddit called wallstreetbets got together in unison and decided to “stick it to the man” and embarked on an aggressive crowdsourced alternative investing strategy to seek out stocks with high short interest and plow cash at them in a buying frenzy, many gambled their life savings in a YOLO (You Only Live Once) fashion with huge payoffs.
This movement saw the GAMESTOP stock rise several hundred percent from around a $12 price point early January to meteorically rise to approx $400 peak by the end of January. As a result Melvin Capital and Citadel lost billions of dollars in covering their shorts, what’s known as a short squeeze.
The retailers were gaining momentum, for them this was not just about gains, but about making a statement, this was personal, Millennials and Centennials were pouring in to rally together for a cause, for every missed opportunity in life that the generations before had denied them, this was their chance to tip the scales. Many of this younger generation had already been enriched by the recent gains in bitcoin and Ethereum, now had some funds to play with and when banded together they could make the markets move significantly, which is exactly what happened.
The hedge fund cronies didn’t take this lying down however, it is alleged that the concerns at the upstream clearing house of Robinhood, the ironically named neo-brokerage, caused Robinhood to suspend buy trades for the GME, AMC. NOK and a few other stocks that were targeted by the zealous retail hordes. Robinhood was the most popular trading platform for the wallstreetbets community because of its mobile accessibility. The suspension of trade allowed hedge funds to consolidate their positions while the retail traders took some losses on the ensuing price dip.
Again the corporate players have shown they can just change the rules to suit them, but the intrepid wallstreetbets horde, now several million strong in the Reddit group hunkered down and vowed to keep holding the line with what they term Diamond Hands (opposite of Paper Hands), holding stocks creates scarcity and takes shares off the table which are needed to close the hedge funds short positions, leaving them stuck in their shorts as the price rises.
Robinhood to a huge reputational beating, with social media comments ablaze with the hashtag #cancelrobinhood, Melvin capital and Citadel were not unscathed, with their logos and executives faces plastered all over memes of all types.
The GAMESTOP mania has reached such heights that it reached Tesla’s Elon Musk. a kindred rebel at heart. who Tweeted several statements in support of GAMESTONKS (a play on words incorporating a slang word for stocks) and even bitcoin.
Prominent members of the bitcoin and crypto community have come out in support of the Wallstreetbets (WSB) initiative, seeing crypto community aide flood into the battlefield. The Bittrex crypto exchange capitalised on this movement and issued tokenized stocks of these hot shares, which can be traded 24/7 without waiting for the markets to open.
This is just the beginning, WSB is hunkering down on GME and AMC, with new members joining the ranks everyday, even MGM studios is reported to be eyeing out a Hollywood movie featuring GAMESTOP. There are calls to decentralise traditional stock trading through the creation of decentralised exchanges to replace traditional “old money” controlled exchanges.
2021 could not have started off more exciting, for the first time Netflix didn’t capture my interest, as I followed the crazy events that ensued. I even ordered a “GAMESTOCK - Power to the People” t-shirt from Redbubble and opened an account with a brokerage to get in on the action.
On independence day 2020, I co-founded the social media blockchain called Blurt, with the vision to empower authors to freely share their content without prejudice and to earn crypto for their content contributions, the GAMESTOP story weighs close to my heart because Blurt suffered many launch trials that hindered its growth to date, from spammers bloating our blockchain with repetitive dick-picks, to social engineered attacks on founders’ reputations and finally an exploit of a fee free transaction to further spam and bloat the chain while we were in the mids of rolling out a decentralised mesh of Raspberry pi nodes to reduce dependency on mainstream datacenters.
WSB gives me hope that one day things will turn around for Blurt, I personally don’t want to shill Blurt to WSB because it will divide their focus from their current mission, I do however encourage the Blurt community to support WSB and openly discuss and bring about awareness to their movement, I will mobilise the @blurtmob curation account to vote for good content and thereby rewarding users that make use of the #wallstreetbets tag.
Let’s not look for handouts, but rather play a supporting role in this epic once in a lifetime movement! GO GO GO BLURT!
Interesting article that summarizes the novel that Wall Street is living, as well as gives us a good reminder of the events we have been living since December. At this time I think it is timely to keep pushing the technology towards the blurt content creators, the housewives, the enthusiasts. That thought can be the determining factor for our platform to make a difference with respect to existing platforms. Blurt must bet on free technologies that reduce costs and above all that help to approach people who do not have large capitals as well
I agree, Blurt can overcome if we remain strong and steady and seize the opportunities that are presented to us.
I've written much on this the last several days. One of the links I shared is a 30+ page analyses on how they used this same system (counterfeiting shares for shorting) to cause the housing collapse of 08 here in the US.
There is something evil about giving large money the ability to extract value from those who create the value, enough so they can collapse the business if desired. It is speculated on WSB that they were going to push GameStop into bankruptcy.
Many years ago, Kmart was pushed through similar hoops. They were downgraded on their credit due to manipulations that had nothing to do with their business model. Their daily receipts (cash flow) hadn't dropped. Due to the downgrade (which happens when the stock is forced down) will impact a businesses ability to borrow, further being exacerbated by current creditors demanding money back that is no longer collateralized by the stock.
We saw this same scenario play out with the Federal Reserves manipulations of the money supply in the 70's and early 80's. They were creating rampant inflation during the 70's to keep OPEC under their heels, resulting in many farms borrowing lots of money based on their inflated real estate values. President Carter appointed Paul Volcker to chair the Fed and he began drastically destroying the money supply, resulting in strong deflation. The banks wanted the difference on those loans, resulting in the bankruptcy of a large segment of American farmers. Furthering the gains of the large corporate farms who push the GMO crap on much of the food supply.
It is all planned to extract wealth from the common folks. Evil schemes allowing parasites to bleed whatever they want of all value. Betting on the failure of people should not be legal. Going further and taking steps to ensure they fail is a crime against humanity.
I agree this is pure evil, I think ordinary people have had enough now, there is power in unity and the internet allows us to band together like never before, this was epic to watch and I hope it brings about reform.
Honorable Mega Drive Sir you have written a blog on a very urgent and vital subject. There is no denying of the present harsh reality and the helplessness of the common man. Taking full advantage of this situation are some masked businessmen who are very good in the media but in reality very disgusting. In my opinion, the process of getting out of this situation is very easy, but everyone has to do the work and if everyone does not do it, then no result will come. For example, in the hope of some small discounts and cheap labor, we exclude the goods of our own country and accept the goods of foreign or any domestic giant stockists, which is very harmful for the general public in our domestic industry. This behavior leads to silent misery for us. We only continue to receive domestic products privately InshaAllah we will soon see something good.
Thanks.
Futures Markets are no better, offering shares that don't even exist
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