Posted on 01/29/2021 10:02:15 AM PST by knighthawk
If Game Stop has any shares in the treasury, they should sell them now, and that will pump the company full of cash, and may make it more viable as it works out new marketing strategies.
Citadel doesn’t own Robinhood.
Don’t eat all the mushrooms, and don’t turn FR into a fake news site.
I am sure they broke laws. There are so many laws they had to break some. But in principle, they didn’t do anything really wrong or anything that isn’t common practice by wall street insiders.
An argument can be made for securities manipulation type charges, that they organized an effort to manipulate the share price of GameStop. But they did so openly and freely and publicly, some even openly admitted that their motive was to teach these giant short selling funds a lesson... and these giant funds do the exact same thing, they just do it from ivory towers with political connections and in hushed tones most of the time (or, they hire firms to publish negative research reports with dubious credibility to influence the public into selling or avoiding specific stocks).
In the end, like we have seen over and over again the last many years, I would bet money that the SEC will send the FBI to drag a few people out of bed in their pajamas over this. But the optics of doing so may not turn out so well - unless the social platforms and media decide to stifle discussion over it.
George Soros in 1992 shorted the British pound and made a billion.
https://www.investopedia.com/ask/answers/08/george-soros-bank-of-england.asp
“Soros, for his part in “enforcing” market dynamics, pocketed $1 billion on the deal and cemented his reputation as the premier currency speculator in the world.”
“Spotting the writing on the wall, Britain upped its interest rates to the teens in an effort to attract more people to the pound. However, speculators such as George Soros began to heavily short the currency.6 Consequently, the British government gave in and withdrew from the ERM, once it became clear that it was losing billions of pounds in its attempt to artificially buoy its currency to higher levels.”
I would not be surprised if GME is in discussions for a secondary offering. They can always issue more stock even if they have none left on the books, a vote by the Board they can dilute themselves and add another 100 million shares and sell some of them (say, 10 million) in a public secondary offering.
But that takes time.
Many troubled companies have organized themselves in a way that would allow themselves to pull the trigger quickly, by having some mechanism to sell shares to the public. One way is called an ATM (which is kinda ironic because it is like an ATM machine for public companies) where they have pre-arranged with a bank and ongoing prospectus that gives them the ability to sell shares At The Market (ATM) at any time through the investment bank - basically, allows the company to trade (sell) in their own stock. The underwriters usually have ability to move a million shares here or there and in this case, perhaps tens of millions.
I have also seen even more troubled companies, often startups and drug research companies that burn money with no income, that have a credit line open using their treasury stock as collateral. In that case they can close a deal very fast because all they do is call the bank and say “I need $1 billion” and the bank “lends” them $1 billion and receives something like $1.1 billion or more in stock as collateral against the loan. Of course, the lender promptly sells those shares “At The Market” immediately, the loan is paid off basically the same day, and the lender pockets a nice profit for having the credit available to the company.
Not sure that GME had/has any of these at the ready. But they should be talking to wall street right now because there is clearly a shortage in shares. The way the market really works is so bizarre and byzantine it would take many more paragraphs to explain, but when YOU buy a stock the trade doesn’t actually settle until the 4th day after the trade. Meanwhile, Market Makers have 10 days to settle trades and can roll that out indefinitely just by closing and re-opening. And in the middle, there are millions of people who buy and sell on the same day - these trades have to be settled, but it’s basically spinning wheels. The problem here with GameStop is that when you short a stock, you have to borrow it from someone else. But nobody is watching too closely whether there are shares available to borrow, and it’s almost impossible to calculate because the different players all have different regulations about when a trade has actually settled. It’s not like there are people in a back room trading paper slips around. It’s all electronic. The actual shares of virtually every company are held in a trust. The ownership is on a ledger at the various brokerages. Now you would think with blockchain technology and computer serialization it should be easy to track the numbers of shares out there that would prevent double and triple borrowing of shares to short - but Wall Street doesn’t want that. At least not yet.
Hertz talked about issuing shares after it rallied from 56 cents after they declared bankruptcy to over $5 a few weeks later. They decided not to, after the SEC said they had "comments" regarding a sale.
when YOU buy a stock the trade doesn't actually settle until the 4th day after the trade.
Ummmmm....most trades settle in 2 business days now.
I guess in hindsight, they could have bought low, held the stock in treasury to sell now. Or the directors could sell their shares, (some have many shares,) then loan the money back to the company after figuring the tax cost.
They would be converting stock options to loans at a much higher nominal value and rate. The stock will likely never be this high again.
Again, a timing issue, how long would it take them to convert options and sell them.
I think there must be some advantage here to Game Stop, and a way of funding future expansion and re-marketing.
This shortage is temporary, eventually it will wash out and the shorts will take it in the shorts. But, I'd look for a way to take advantage of this situation now.
Thanks for your detailed explanation. I think us average folks are becoming increasingly frustrated and angry. The elites are stoking a very, very dangerous fire.
Robinhood, TD Ameritrade marketed to average people, told them that they had “tools” to make them better investors, research, etc. They told their prospective customers how smart those customers were, and they could compete with the big boys using charts and market information. They told the mice they could compete with the elephants.
First of all, they got a ton of marketing info about them. Banking info, financial info, demographic and other personal info. By looking at their trades, they could determine their consumer and risk preference. They could sell this info to others, or use it themselves to market additional products to these customers. They could figure out just who was vulnerable to get-rich-quick stock schemes, or sleezy stock sellers could use this info to peddle pump and dump penny stocks.
Secondly, they generated billions of shares of trades that got put thought the HFT “partners” for a kickback. The customer pays more for the stock than he should.
Finally, a lot of these casual traders turn into double or nothing if they make money. Leave it on the table and roll again. Double or nothing is a suckers’ game, sooner or later you end up with nothing. They thought these people were sheep to be sheared. When the sheep got smart, they shut them down.
We know that the short position that the hedge fund dudes had taken was as high as 140% of the float but as I read this at the close of Friday trading, it would appear that this number still is at about 120% of the float. Plus the stock price at this very moment is $320. It would appear to me that those who bought it up are looking like they are going to hold so this fun looks like it is going to last a bunch longer...and in fact, it might just be starting.
Does this not appear to be a Mexican standoff? Or am I missing something?
https://www.marketwatch.com/investing/stock/gme
Most likely.
The hedge funds tried to do a ‘short ladder attack’ on GameStop in the last hours of trading, buying and selling shares between themselves at artifically low prices in order to drive down the posted price. It was an attempt to spook the retail investors into a selling stampede.
The short ladder attack drove the share price down to $240 just before the final hour of trading, but then WallStreetBets yelled “It’s a trick! Hold! Don’t sell!” It worked and GameStop closed the week at $320.
Thanks for the added insight... sure looks like that’s what happened.
No.
Are they on the hook for $300 Game Stop shares?
Only if shares are bought on margin. Or if customers lose money and sue for being allowed to buy unsuitable investments.
By looking at their trades, they could determine their consumer and risk preference.
Really?
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