Thursday, January 28, 2021

GameStop: the steps that deflated the bubble are even more outrageous than the bubble itself

I didn't expect Wild West financial market trading of masses to be a flavor of the first weeks of the new far left regime in the U.S. However, as I described in the previous blog post, "anti-shortseller activists" at Reddit WallStreetBets have targeted several stocks and drove their prices to insane levels. They included mainly GME, AMC, NOK, BB, and BBBY. Nokia is the only one in the list whose current price remained close to the widely perceived intrinsic value; BlackBerry is second. The rest are just insane bubbles created by the kids who put their life savings whatever the price is, just like what they have done with Tesla and Bitcoin.

GameStop Corp, a network of outdated videotape and game media shops in the dirty passages, became the most important target of the group. The stock price was a bit below $20 on the first days of 2021; some hedge funds thought it was still too much. If you click at the hyperlink in this paragraph, you will see the incredible growth up to $470 earlier today (the price doubled in a day and it has done so many times). Because the company has 70 million shares, the two numbers translate to $1.4 billion and $33 billion, respectively. Yes, by capitalization, the GameStop company became a bit bigger than Nokia itself. Well, it is no longer the case.

The bubble has burst but it hasn't burst naturally – which would probably happen later. Instead, Robinhood, the activists' main trading platform, along with some other platforms (Lynx, Interactive Brokers, and several others) did something extremely problematic: they disabled the purchase of new stocks in a list. You could only sell your existing stock positions in these companies!

It is very obvious that by "canceling" the whole demand from these platforms' users, the platforms have exerted a huge pressure to make the prices drop. When you can only sell, clearly, some people realize that there is a risk that the price will drop and they sell, indeed (instead of holding the line, like the "diamond hands" do in the jargon of these kids). The price drops and it becomes a self-fulfilling prophesy. The platforms effectively and intentionally pushed the price downwards by the ban (for GME, AMC, NOK, BB...). They can do so for their own profit – or the profit of friends who hired them to do so.

In particular, the shortsellers who (reasonably) shorted the stocks may have ordered the platforms to deflate the bubble and when the price is low again, they may cover their short positions and make a handy profit. GameStop has dropped from the $470 high to $126 at this moment (the price may drop further but there are some signs of stabilization here). This drop is quite some potential for profits of the shortsellers (who may cover their positions somewhere, I guess). Also, the Reddit WallStreetBets pages seem to be down, another suspicious circumstance.

The panic buying by the mob – that has previously made two hedge funds, Melvin and Citron, poorer by several billion dollars – is stupid and morally problematic. But I think that this one-sided ban on the trading is much worse. It must be criminal and if it is not, it should be made criminal. The people who did it should spend decades in the jail, especially if it is shown that they earned a fraction of the money that someone made by these steps.

It is the selective, one-sided character of the action that is problematic. Interestingly enough, this problematic intervention is analogous to the interventions by other platforms, the Sillicon Valley Internet communication companies, into the free speech of the users. That is also extremely one-sided – the Californian scumbags effectively allow the speech by the lying brain-dead left-wing scum similar to themselves only.

The situations aren't identical but the character of the "problem that must be addressed by some sensitive rules" is analogous. It is about the "platforms" that are pretending to do something "technically straightforward" for the users which should be "neutral" in many ways (they shouldn't study the content) but it is not neutral. The non-neutral interventions into the communication or trading must be made illegal in some way that doesn't cripple the activities much.

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