Who Killed The Shorts?

Submitted by Marie on Sun, 01/31/2021 - 5:09pm

Wall St seems a bit too comfortable with “the Redditors did it” narrative. Somewhat, but on a much smaller scale, like the '08-'09 narrative that ordinary scofflaws took out mortgages they couldn't possibly afford and that tanked the housing market and by extension banks and Wall St. It wasn't that their was no truth in over-extended housing buyers, but they were the bit players and had been played as suckers.

The GameStop financial market mess didn't begin with Redditors moving in mass to take down the shorts. They were late entrants (aka the “dumb money”), except in this instance, the “big boys” (ie Blackstone) were already engaged in squeezing the shorts; GameStop stock sellers were fewer than buyers. As the aggregate available supply, in the short run, couldn't increase, price was the sole variable. Redditors increased the buyers.

Here's the market price of GameStop at various points in the past year:

1/31/20 - $3.84
4/29/20 - $5.83 (day after the release of the 1/31/20 FYE financial statements)
6/10/20 - $5.07 (day after the release of 1st quarter (4/30) F/S
8/27/20 - $5.25 (day after 2nd quarter (7/31) F/S)
11/25/20 -$14.75 (day after 3rd quarter (1031) F/S)

In the 2017, 2018, and 2019 calendar years, GameStop revenues, etc began to decline. Prior to that they were more stable but not growing consistently. The stock price during the period ranged in the mid twenties, sliding to $16.55 as of 2/1/18 and $11.24 as of 2/1/19.

By January 2020, investors weren't keen on GameStop. For good reasons, primarily more competition for internet download video games and net losses. So, why the uptick in share price in the spring of 2020? Also good reasons as GameStop had done a significant amount of restructuring during 2018 and 2019. Its balance sheet was cleaner than it had ever been, but there was also an acknowledgment that the best case, near term scenario would be flat. Worst case more like Blockbuster video in its rather rapid decline.

What the financials don't reveal is the loyalty of its customer base. (Were there any loyal Blockbuster customers?) 1st, 2nd, and 3rd quarter results (respectively here, here, and and here) weren't stellar, but better than many “brick and mortar” retailers in the Covid-19 era.

Worth $14.75/share? Probably not. Is that what attracted the shorts or were they in there before then? Intermittently from February on and throughout 2020, the volume of trading activity increased, the price increased, and both subsequently declined for a few days. Volume peaked in mid-April, early June, early August, and mid-August at over 10 million, up from normal volume of two to four million. Late August it peaked much further at 38 million and after that generally remained well in excess of five million until October 8 and 9 when it hit 76 million and 77 million. (The outstanding shares of GameStop are only 69.25 million.) Suggests to me that the shorts and longs were engaged in battles scooping up pennies, nickles, and dimes months before the Redditors entered the fray, but in total the longs were winning and won bigger in January 2021.

It's going to take some time and collecting a huge volume of data to sort out the relative blame or credit, depending on your perspective, for who killed the shorts. Still, the principal blame rests with the shorts (like most gamblers they didn't know when to fold) and secondarily the brokers that allowed naked short selling (neither of whom deserve any empathy and should face legal repercussions). The Redditors were more like the proverbial straw that broke the camel's back, but that straw will singe most of them based on how late they were to the party. (There are reasons to be concerned that the Redditors could be too analogous to the MAGA Capitol rioters. Reveling in breaking through the house doors until they discover the cost to them for doing so.)

OTOH, wouldn't discount this possibility (arby #70):

Was talking to my son about this and I have to give his thinking a plus. He thinks that a couple of big funds that have been accumulating gamestock planned to get these redditers/robnhooders on side and bull raid the stock.

It's one way to reduce the competition and earn a profit in the process. (Was already mulling over this possibility before checking out the MOA thread.) And we know who holds large stakes in GameStop.

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Submitted by Pricknick on Sun, 01/31/2021 - 5:54pm
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gamestop was just a precursory testing of the weakness of market transactions. Fighting the algorithms.
All stock exchanges are nothing but a play on play doe money. Push the right handle and something squeezes out.
Now the squeeze is on silver. A limited supply exists. If you have some, save it.
The market is being tested by many who think exposing corruption is more important than making money.
The Moneychangers comes to mind. https://en.wikipedia.org/wiki/The_Moneychangers
Even better yet, as how much I hate religious text:

And making a whip of cords, he drove them all out of the temple, with the sheep and oxen. And he poured out the coins of the money-changers and overturned their tables. And he told those who sold the pigeons, "Take these things away; do not make my Father's house a house of trade".
— John 2:13–16

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Submitted by Marie on Sun, 01/31/2021 - 6:33pm

@Pricknick (and we have no idea how many that includes) will lose a lot the longer they hold it. If they can afford the loss, then sticking it to Wall St is probably worth it. (I don't happen to know such people.)

We have a decent idea of the range the stock will fall to once the shorts clear up their mess, but it's less clear how long that will take.

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Submitted by Pricknick on Sun, 01/31/2021 - 8:20pm
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@Marie

We have a decent idea of the range the stock will fall to once the shorts clear up their mess, but it's less clear how long that will take.

No "we" don't.
You're loss is their gain. It's our mess.
The markets of "free" capitalism have driven the ordinary human to believe that markets are driven by supply and demand. It could not be further from the truth.
The cost of gasoline is a prime example. Demand is low, yet prices are rising. Food is not considered an inflationary index, yet it is rising but not considered an issue.
Have your taxes gone down? Nope. Houses have appreciated in value while less own homes.
Please don't tell me you have any idea of what will happen in any market when the market is unexplainable.
Onward we go. May peace find you and all.

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Submitted by snoopydawg on Sun, 01/31/2021 - 10:39pm
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@Pricknick

were above $3 and especially when they went over $5 in California.

Demand is low, yet prices are rising.

I noticed gas prices last week when I went to Nevada and they were around $2.20 there and here, but now they’ve gone up to $2.40 in 10 days. Traffic was light both ways so demand isn’t up much here.

Edit

I didn’t finish my thought. I thought that we should do roving strikes. One week no one buys any gas. Next week another business. Something like that. Don’t know if it’d work. Don’t buy Black Friday doesn’t seem to.

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Submitted by Marie on Sun, 01/31/2021 - 10:17pm

@Pricknick supply and demand worked in accordance with the model; demand increased and supply didn't, so the price skyrocketed.

Not surprising that grocery store food prices have increased. Demand increased as people ate fewer meals in restaurants and that demand outstretched the usual supply chain for stores.

Housing in the US is a chronic problem. In part because far too much of the housing stock is privatized and therefore, the competition for the rentiers is almost non-existent and that's combined with the American home ownership fetish.

Gasoline prices January 2020 - $2.636; January 2021 - $2.420. Demand isn't back to where it was 1/20, but perhaps cutting off the supply from Venezuela in 2019 is finally beginning to bite us.

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Submitted by Pricknick on Sun, 01/31/2021 - 11:12pm
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@Marie
are not included in inflationary prices.
But when they go up who pays? Those with the least to afford and can not afford.
Only a capitalistic regime discounts that which cost the most for ordinary people.

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Submitted by Marie on Mon, 02/01/2021 - 12:59am

@Pricknick gasoline prices aren't included in the CPI? That would be incorrect as it does include gasoline. Where it seems to fall very short is on housing and health insurance, but maybe that's because I'm in CA and except both have continued to increase at rates higher than the CPI since like forever with the exception of the housing market collapse in 2009 but it rebounded by 2019.

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Submitted by The Voice In th... on Mon, 02/01/2021 - 10:02am

@Marie
My 2021 net pension is lower than 2020. Gross pension increased by 1.2% but health insurance increased more for a slight net loss. At least SS and Medicare are "hold harmless".

Re gasoline. AFAIK, Venezuela production did not go to US refineries being heavier or something. Real cause of the gas price increase IMO is the end of the price war between Russia and KSA as each tried to out produce the other. Don't know who blinked or if KSA just realized that the Nordstream deal meant that KSA couldn't bankrupt Russia,
In my limited experience, playing chicken with Russians is a VERY foolish game. I never met such fatalistic people.

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Submitted by Marie on Mon, 02/01/2021 - 11:36am

@The Voice In the Wilderness cracked the heavy Venezuela oil had to retool when that supply was cut off. Might explain why the price increased in early 2000.

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Submitted by The Voice In th... on Mon, 02/01/2021 - 10:07am

@Pricknick
is the private information I was given that the hedge funds sold 110% of the outstanding shares short. Meaning that they were engaging in illegal "naked shorts". Like the 2007-2008 illegal housing foreclosures on forged documents, there will be no prosecution. the same team is back in charge!

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Submitted by Marie on Mon, 02/01/2021 - 12:56pm

@The Voice In the Wilderness @The Voice In the Wilderness a 140% of capital stock was short. As it's not really feasible to borrow 100% of capital stock to short (some being restricted and some owners don't want their stock tied up in a loan), the naked short selling (meaning they didn't bother to borrow the stock and pay the service fee to do so) was massive and illegal.

It's possible that that 140% is the sum of short purchases over some period of time -- say three months -- and doesn't deduct the interim settlements/rollovers. For example, A borrows from B for 30 days, the price is up at the margin call date, A buys another 30 day borrow and ponies up more in his/her margin account, rinse, repeat. Double down and then triple down which is what some reports on this indicated. These margin accounts are totally inadequate in a volatile market.

Of course it's been made much more complicated than I suggested. See the article that eyo posted below. In the short run it's perfectly legal for major brokers to create phantom stock to facilitate shorts, etc.

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Submitted by The Voice In th... on Mon, 02/01/2021 - 1:47pm

@Marie
Although it seems huge, even 110% is huge. Even 40% of the shorts being naked is huge.

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Submitted by Marie on Mon, 02/01/2021 - 3:19pm

@The Voice In the Wilderness
percentage were naked. Perhaps that information will be collected and reported on sometime in the future.

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Submitted by The Voice In th... on Tue, 02/02/2021 - 9:49am

@Marie
The fact that more shares were sold short than were issued is important. It shows that someone, on a grand scale was cheating. I look at the usual suspects, GS, Citibank, vary dark pools ...

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Submitted by Marie on Tue, 02/02/2021 - 11:27am

@The Voice In the Wilderness
Apparently this isn't uncommon. Difference being that it all gets settled by the end of the day and before any outside prying eyes notice; whereas the GameStop manipulators got caught short.

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Submitted by tle on Mon, 02/01/2021 - 1:08pm

@The Voice In the Wilderness "Back in charge" implies that there was a different approach under Trump. The only difference with Trump was that the corruption was loud and proud.

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Submitted by The Voice In th... on Tue, 02/02/2021 - 9:50am

@tle

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Submitted by RantingRooster on Sun, 01/31/2021 - 7:09pm
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I've been a bit skeptical of this GameStop frenzy and the people vs wall street narrative.

First, the guy behind the WallStreetBets GameStop play, user DeepFuckingValue, aka Roaring Kitty on youtube and Keith Gill for those who have looked a bit further, he holds multiple, high level securities trading licensee, and doesn't indicate anywhere he has these stock broker licenses.
From WallStreetOnParade.com:

Wall Street On Parade has confirmed that Keith Patrick Gill, a man holding highly sophisticated licenses to trade and supervise others on Wall Street, is the same man using multiple identities to promote GameStop on social media platforms. Gill, and a member of his family, have confirmed to other media outlets that Gill used the identity of DeepF***ingValue on Reddit’s WallStreetBets message board to promote GameStop and that he used the identity of Roaring Kitty on his YouTube channel and Twitter page to help engineer a short squeeze against the hedge funds that were betting the price of GameStop would fall.

Snip

This is highly likely to be a serious problem for both Gill and MassMutual. A genuine amateur trader could plead ignorance of industry rules about hyping stocks to the public. A heavily licensed industry professional cannot. The fact that Gill passed all those exams means that he knows what the rules are. In addition, the broker-dealer unit of MassMutual, MML Investor Services LLC, that employed Gill as a Registered Rep, could potentially face charges of failure to supervise.

Wall Street’s self-regulator, FINRA, shows on its publicly available BrokerCheck, that Keith Patrick Gill holds the following licenses: a Series 7 that allows him to trade stocks and corporate bonds for clients; a Series 3 which allows him to trade commodities for clients; and a Series 24 which allows him to function as a branch manager of a brokerage firm and supervise other licensed traders. Gill passed his exam for the commodities license eight years ago. He obtained the Series 7 and Series 24 licenses more than four years ago.

This video from his Youtube channel, he makes his case (thesis) for why GameStop. (it's pretty long so...)
[video:https://youtu.be/GZTr1-Gp74U]

There is this also from WallStreetonParade.com about Dark Pools trading in these stocks for some time now.

Dark Pools owned by the biggest names on Wall Street – such as Goldman Sachs’ Sigma X2, JPMorgan Chase’s JPM-X, UBS’ UBSA, Morgan Stanley’s MSPL, and Credit Suisse’s Crossfinder — have been making tens of thousands of trades in the shares of GameStop on an ongoing weekly basis. FINRA, Wall Street’s highly compromised self-regulator, reports the Dark Pool data on a stale basis, two to three weeks after the trading has occurred. It is then lumped together for the whole week, rendering it useless in terms of monitoring price manipulation. The chart above is taken from the latest available information from FINRA. (See our previous reporting on Dark Pools in Related Articles below.)

It’s a fair guess that you haven’t heard a peep about Dark Pools on the evening news. The fact that you haven’t is a perfect commentary on why mainstream media is failing the American people when it comes to exposing Wall Street’s serial looting of the little guy.

But this sticks out to me

It’s important to remember who has been pumping the GameStop/Reddit story on CNBC. That would be none other than Andrew Ross Sorkin, who created a completely false narrative about who and what caused the crash of 2008 – appearing to be intentionally protecting the reputations of the mega banks on Wall Street. Sorkin’s reporting on the 2008 crash looked even more suspect when we repeatedly asked the New York Times to correct his outrageously incorrect reporting and they failed to change one word.

There this from none other than CNBC from Oct. 10th 2020, The Rise and Fall of GameStop
[video:https://youtu.be/dX6xBdcdUCg]

It's like they are making the case, GameStop is over.

Then there's this from Reuters.com about BlackRock

BlackRock Inc, the world’s largest asset manager, could have made gains of about $2.4 billion on its investment in GameStop Corp as retail investors pour money into the video-game retailer’s shares.

The asset manager owned about 9.2 million shares, or a roughly 13% stake, in GameStop as of Dec. 31, 2020, a regulatory filing showed on Tuesday. (bit.ly/39nfDwv)

Assuming no change in BlackRock’s position, the value of its stake would be worth $2.6 billion now, compared with $173.6 million as of December.

And speaking of "Dumb Money", i.e. retail investors, we can't leave out JPMorgan Chase, more from WallStreetOnParade.com:

We’re dismissing what happened to the put that JPMorgan held on 19,300 shares of GameStop for this reason: JPMorgan Chase just happens to be one of Melvin Capital’s Prime Brokers, the hedge fund making news because it was bleeding badly from its short position in GameStop. Melvin Capital’s other Prime Brokers include Goldman Sachs, Morgan Stanley and National Financial Services, according to Melvin Capital’s Form ADV filing with the SEC. A Prime Broker typically provides hedge funds with one or more of the following services: trade financing, securities lending so hedge funds can take short positions, trade executions, and serving as custodian of securities.

JPMorgan is not just the Prime Broker to Melvin Capital. It services a large number of other hedge funds. That gives JPMorgan the ability to see which way trades are moving. One can assume that when JPMorgan saw its hedge fund clients closing out their short positions on GameStop in a panic, it exited its own put position before yesterday. It may have even purchased more shares of GameStop as it saw the runup in the share price occurring and had an insider’s view of exactly how short its own hedge fund customers were and how much more stock they had to buy to fully close out their positions.

The mainstream media narrative is that a bunch of amateur traders on a Reddit message board, r/WallStreetBets, wanted to take down evil hedge funds, like Melvin Capital, that were shorting the stock of GameStop (making bets it would decline in price) so these egalitarian activists set out to pump up the stock price.

There are a lot of problems with this narrative. For starters, the trading platform that a lot of the traders at WallStreetBets uses is called Robinhood, a private company whose investors include private equity firms and – wait for it – hedge funds. Robinhood provides commission-free trading to the WallStreetBets’ crowd but then sells those trades to – wait for it – hedge funds. So just as JPMorgan gains market advantage by seeing what its hedge fund customers are doing, these hedge funds gain market advantage by seeing what Robinhood’s customers are doing.

It’s not a big leap to question if hedge funds might have invented Robinhood in order to trade against the dumb money.

(bold mine)

Think for a moment, equity capital and hedge funds invested in a company (Robinhood) to sell them the trade data of their (Robinhood's) retail investors. What on earth would they do with all that trade data before it reaches the ETF clearing houses?

Hmmm I wonder....

I'll wager $10 bucks Keith Gill gets prosecuted for Market Manipulation and the hedge funds walk free, at least legally...

Drinks

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Submitted by Marie on Sun, 01/31/2021 - 7:37pm

@RantingRooster And I'll read the articles that you linked to. I purposely didn't read much before putting this essay together once I saw that Blackrock had a 13% stake in GameStop. Focused on studying GameStops financials and history and from there pieced together how this short squeeze evolved and assured myself that there wasn't a corporate raider looking to tank GameStop and pick it up for pennies on the dollar.

If the regulators do their freaking job, Gill and all the associated brokers will be in hot water. Those who want to play in this rigged game mustn't forget that it's a "Great Vampire Squid" (h/t Matt Taibbi) and they have more money and more insurance (Congress and WH) than ordinary people. And they spend 24/7 figuring out new scams to steal from ordinary people.

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Submitted by RantingRooster on Mon, 02/01/2021 - 2:29pm
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@Marie

And they spend 24/7 figuring out new scams to steal from ordinary people.

On one hand I can understand the ire of the WallStreetBets people for Robinhood stopping their trades, but on the other hand, they should have know Robinhood was front selling their trade data. It's always in the fine print just how they intended to screw you over.

Not to mention if it is FREE, then YOU are the product being sold. But I won't deny I wish I had a few hundred thousand shares of GameStop stock...

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Submitted by Marie on Mon, 02/01/2021 - 3:17pm

@RantingRooster
that Robinhood had no choice. The amount required in their margin account to continue buying was increased by $3 billion. (Don't know all the mechanics on that because I'm not an investment pro or even an amateur. It's games that I find boring and not worth the headache to understand beyond a superficial level. Don't like gambling either.)

Wonder if some of the wealthy hedge fund customers are upset to learn that the major brokers get their information. After all they pay high fees for their privacy.

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Submitted by snoopydawg on Sun, 01/31/2021 - 7:40pm
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@RantingRooster

If he is who they say he is then I couldn’t serve on his jury.

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Submitted by RantingRooster on Mon, 02/01/2021 - 2:30pm
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@snoopydawg I was hoping everyone would take the bet so I can make rent lol...

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Submitted by Marie on Sun, 01/31/2021 - 9:00pm

@RantingRooster it seemed fairly well balanced to me. They got stuck at the same place I did -- gamer customers -- and I'm guessing that GameStop knows a lot more about that than CNBC and a hell of a lot more than I do since I know nothing.

Objectively (once I set aside my disinterest in video games), GameStop should be around for a while. "A while" in the tech sector often isn't long, but GameStop has already hit the speed bumps and can see the ones ahead.

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Submitted by eyo on Mon, 02/01/2021 - 4:19am

@RantingRooster hello and thank you for writing about the WSoP articles. I am reading their "citizen guide to wall street" articles on the regular. In my dumb brain The Next Big Short started back in September 2019, and "we" are now approaching the outer limits of thievery. It's called Progress in California, the same as it ever was (for me anyway). Business as usual.

I also read HackerNews frequently, the Silicon Valley venture capital news blog. Today was posted this link to a page of 'splainations that will take me some time to digest. The psychology is profound.
http://counterfeitingstock.com/CS2.0/CounterfeitingStock.html

Illegal naked shorting and stock manipulation are two of Wall Street's deep, dark secrets. These practices have been around for decades and have resulted in trillions of dollars being fleeced from the American public by Wall Street. In the process, many emerging companies have been put out of business. This report will explain the magnitude of this problem, how it happens, why it has been covered up and how short sellers attack a company. It will also show how all of the participants; the short hedge funds, the prime brokers and the Depository Trust Clearing Corp. (DTCC)—make unconscionable profits while the fleecing of the small American investor continues unabated.

Why is This Important? This problem affects the investing public. Whether invested directly in the stock market or in mutual funds, IRAs, retirement or pension plans that hold stock — it touches the majority of Americans.

The participants in this fraud, which, when fully exposed, will make Enron look like child's play, have been very successful in maintaining a veil of secrecy and impenetrability. Congress and the SEC have unknowingly (?) helped keep the closet door closed. The public rarely knows when its pocket is being picked as unexplained drops in stock price get chalked up to “market forces” when they are often market manipulations.
...

Enjoy one of the rare moments of enlightenment when the public can see Wall Street picking their pockets, but don't catch any hope the system might change before that same public hits the snooze button and goes back to sleep. During Obama's terms I learned most citizens read and comprehend text at an 8th grade level, the masses are not college educated. I just want to live in peace, for once in my life please.

Peace and Love

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Submitted by ovals49 on Mon, 02/01/2021 - 9:06am

@eyo
Disclaimers aside, the Counterfeiting Stock 2.0 piece you linked describes a multigenerational criminal enterprise that answers to no law, hiding in plain sight. The days of owning actual Common Stock paper certificates of a known and certified quantity are long gone. Digital forgeries may well outnumber the actual number issued, for all we know, since the numbers “in play” are never tallied or reconciled by any meaningful accounting standard.

It is little wonder that market “crashes” inevitably benefit those who run the show, hidden behind the iconic scenery of Bulls and Bears, stripping the assets of the credulous who have entrusted their small fortunes expecting their small share of the prosperity and wealth.

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Submitted by eyo on Mon, 02/01/2021 - 10:30am

@ovals49 yeah, that was 2.0 this now is 3.0? I don't know, it's hard for me to understand because the intention is so odious it disturbs my peace of mind to even know such people exist. I just finished reading lotlizard's link to The Big Short screenplay, and the end is the beginning again it seems. Ouch my head hurts. LOL

"Michael Burry contacted the government several times to see
if anyone wanted to interview him to find out how he knew the
system would collapse years before anyone else. No one ever
returned his calls. But he was audited four times and
questioned by the FBI. The small investing he still does is
all focused on one commodity: water."
After a beat...
"In 2015 several large banks began selling billions in
something called a "bespoke tranche opportunity." Which
according to the Wall Street Journal is just another name for
a CDO."
END.

Nothing surprises me anymore, it just makes me sicker. Oh well.

Peace and Love

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Submitted by The Voice In th... on Mon, 02/01/2021 - 10:08am

@RantingRooster

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Submitted by lotlizard on Mon, 02/01/2021 - 1:43am
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Want to know what’s at the core of our financial system? Watch the movie or perhaps even better for still-in-the-Gutenberg-era, print-oriented people like myself, read the screenplay.

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Submitted by eyo on Mon, 02/01/2021 - 11:23am

@lotlizard thanks for the screenplay link, I like reading historical fiction genre. I forgot a lot from that movie already, only saw it once. Real Life Michael Burry used his aspie super powers to make himself 200 million dollars back then, Perhaps that part was fictionalized and not Real Life, there was also a book. I wonder what he's up to now?
...
'Big Short' investor Michael Burry blasts Reddit-fueled GameStop rally as 'unnatural, insane, and dangerous'
LOL and sheesh! How would he know? never mind

Scion owned 1.7 million GameStop shares at the end of September. Assuming Burry hasn't altered the size of the holding, it has ballooned in value from about $17 million to $250 million as of Tuesday's close - an almost 1,400% gain in under four months.

Woo! That was so last week. Another chapter, another book? Endless possibility.

Peace and Love

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Submitted by Marie on Mon, 02/01/2021 - 11:34am

@eyo offered GameStop some financial advice in 2019 and GameStop acted on that advice which is why its 1/31/20 balance sheet was cleaner than it's ever been.

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Submitted by Marie on Mon, 02/01/2021 - 12:09pm

@lotlizard had difficulty funding his margin account as the stocks he had shorted weren't dropping in price as quickly as his bets. Timing is a critical element and there's a certain amount of luck involved. Burry could have been wiped out if the market crash had been just a bit slower.

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Submitted by aliasalias on Mon, 02/01/2021 - 2:51pm

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Submitted by Marie on Mon, 02/01/2021 - 3:26pm

@aliasalias
However, when you say, "lies ahead," perhaps you had a narrow question in mind that could be intelligibly discussed.

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