People keep asking me about GameStop.
I’ve been extremely reluctant to engage. But, against my better judgement, I’m going to pacify the audience.
First of all, this “story” isn’t a story. And even if it is, the idea that anyone not directly involved would be spending more than a few minutes reading about it is ludicrous.
Bloomberg has developed a veritable obsession with it, which is highly unfortunate and speaks volumes about the extent to which what matters to the financial media is not what matters in the real world.
Over the past 48 hours, you could actually observe, in something like real-time, the tug of war over at Bloomberg, where Donald Trump’s impeachment trial, historic drama in the US Senate, and the fate of Joe Biden’s $1.9 trillion stimulus plan, all vied for space with what felt like an endless deluge of articles about the GameStop short squeeze.
The GameStop story is, in part, an extension of dynamics observed last year, when the Reddit crowd figured out how to weaponize gamma and otherwise forcibly enlist dealers in a quest to drive up the price of popular retail stocks and push short-dated calls closer to the money so they could cash out and brag about it.
That was at least somewhat interesting because it coincided with the SoftBank story, and came just two months after the same retail crowd took to buying up shares in companies that were literally bankrupt. (In at least one case, that latter dynamic raised the specter of the Robinhood set accidentally funding payouts to investors higher up in the capital structure.)
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The GameStop farce has elements of those stories, but it also has other features that make it attractive as tabloid fodder. There are some recognizable names involved, there’s a “getting back at the nefarious shorts” angle, and, apparently, it’s being framed as a manifestation of populism, an editorial reach so ridiculous that the political scientist in me is nauseated.
Stripped of the sensationalism, the bottom line is just this: Shorts are engaged in an absurd (and costly) dispute with a vengeful Reddit crowd or, more to the point, a dispute with the kind of people who, when they’re not on Reddit, might congregate at a GameStop.
Unfortunately for shorts, Reddit has decided that winning World War II for the hundredth time and/or battling the forces of Emperor Palpatine can wait. Right now, the more noble Call of Duty is “winning” the GameStop fight, which, based on dozens of screenshots Bloomberg used for their “articles,” is playing out precisely like the conversations 14-year-olds have on headsets when they’re engaged in joint, virtual combat on Xbox or otherwise collectively immersed in some fantasy world spun out of a disk they bought at… well, again, at a GameStop.
So absurd is this nonsense, that Ken Griffin and Steve Cohen injected some $2.75 billion into Melvin Capital after shorts, including GameStop, went sour. Griffin noted that Melvin’s Gabe Plotkin has “delivered exceptional results” over the firm’s history. “We have great confidence in Gabe and his team,” he added.
On Wednesday, both Melvin Capital and Citron said they closed out their shorts in GameStop. Andrew Left said Citron covered the majority of the GameStop short “in the $90’s.”
Here’s the thing, folks. This isn’t “new,” let alone “news.” While the big names involved and the connection with last year’s Reddit/Robinhood dynamics make for an entertaining story, there’s nothing entirely “new” under the sun.
Once upon a time, around a year after the events described in the visceral, opening vignette to “Where Were You When The World Didn’t End?,” I remember sitting on a faux leather couch which, like the plasma TV in front of it, was on an installment plan from Aaron’s, a lease-to-own retailer. They belonged (or, I guess, didn’t yet belong), to a guy named Jason.
Across the room, he gleefully pointed at a monitor I’d bought him a few weeks previous. Shares of a penny stock he was obsessed with had risen to 28 cents, quadrupling just days after he bought them. The amount of money involved was pitiable. Something like $600.
Jason liked to describe himself as a “sous chef.” He worked at an Italian restaurant I frequented around the time Lehman collapsed. He wasn’t a sous chef. It wasn’t even that kind of restaurant. He was a line cook.
I liked him, and he idolized me. Whenever I’d sit at the bar, he’d sneak off the line, duck under the wooden shelf where the bartender put drinks ordered by the servers for patrons, and quiz me on markets. (“Did you see what Cramer said last night?”)
I don’t know what happened to Jason. But I still remember the name of that penny stock he liked. It was called “Spongetech.”