Game Stop


GameStop is a retailer for video games and accessories based in Dallas, Texas.

Their website is down when accessed from UK and mainland Europe—sometimes US companies do that because of GDPR, the EU data protection law, but usually there is an explanatory message. This one reads more like a denial of service:

Access Denied

You don’t have permission to access “http://www.gamestop.com/” on this server.

Reference #18.16231102.1612006228.93d5a50

I guess the company’s founders thought the name represented a place to stop (and shop) for gamers, rather than a plea to stop games—a year ago, it boasted five thousand five hundred retail stores in the United States.

Not only was GameStop hit by the pandemic, but for years, online operators have been carving up the main street, bricks and mortar businesses.

Individual investment is a big thing in the States—according to the Motley Fool, about one-third of American adults have a brokerage account—you can’t even find a number for the EU or UK.

It was individual investors that drove the NASDAQ to frenzied heights in the nineties during the dotcom bubble, and it was the same folks who got skinned when the bottom fell out of the market.

The professional investment community, aka Wall Street, has a name for individual investors, the folks on Main Street—dumb money.

Stock market games have been a around a long time—the best book on the subject was written in 1923 by Edwin Lefèvre, about a legendary operator called Jesse Lauriston Livermore.

Livermore’s whole life was boom and bust, culminating with his suicide at the age of sixty-three. It’s hard to see how suicide would run in the family on a genetic basis, but his son and grandson went the same way.

One of the classic stock operator moves was to corner the market, i.e. to own enough stock to manipulate the price—after World War I, Livermore cornered the cotton market. It took a meeting with President Woodrow Wilson to get him to sell back the cotton for the purchase price—when the president asked why he’d cornered the market, Livermore replied, “To see if I could, Mr. President.”

One of Livermore’s many aphorisms. He would certainly have had something to say about GameStop.

Stock market operators, i.e. investment bankers, hedge funds, and others, use the gamut of tools available to make money.

In my book Atmos Fear, Wall Street trader named Mark Wendale is speaking with a Brit ‘merchant’ banker.

Wendale was now trading CDOs squared, and even cubed, where the product was supported on an identical product, making it increasingly difficult to grasp what the exposure was.

“Those cubed-things you have, they rather remind me of a flat earth story.”

“Huh?” Wendale drew a blank.

“Well, it’s the support, really. In the Middle Ages one thought the earth was a fleht dish. Do you know what supported it?”

“Before my time.”

Wendale couldn’t give a shit about flat dishes. Crazy limey stories. He held up his glass for some more burgundy, and stuffed his mouth with salmon.

“Elephants.” The Brit answered his own question.

“Elephants, huh? Pink ones?”

The British executive didn’t react.

“Four of them, one at each corner. Jolly big ones, one imagines.” He finished off his G & T and daintily picked at a cherry tomato, after anointing it with balsamic vinegar.

Wendale was totally confused. “What the hell do four elephants have to do with cubed CDOs?”

Goddamn limeys were so tortuous.

“Well you see, what troubles me is the support base. When they asked the chap what held up the elephants,  he said ‘it’s elephants all the way down!’.”

Short sports, as Lefèvre calls them, borrow stock from a broker and sell it, on the assumption that its price will decrease. Two conditions have to be met for that to happen: the first is that the stock actually decreases in price, so that when the short sport has had enough, he or she buys the stock back at the lower price and returns the ‘borrowed shares’ to the broker—of course they won’t be the same shares, but they will be identical.

The second is that there are enough shares to buy. If there aren’t, the price of each share increases due to demand, and by the time the operator closes his position, the sport has become rather dangerous, and there is plenty of money to be lost.

Of course, there’s a third possibility, which is that share-buying raises the price—when that happens, the short sport must hold his/her nerve, because the higher the shares go, the bigger the loss when the trade is finally closed.

This is the quintessential battle between bulls and bears, as a rule played institutionally—when the ‘dumb money’ dares to go against Wall Street wisdom, the pros gang up on the individual investors and give them a good trouncing to punish them for their arrogance.

In these days of alternate truth (the artist formerly known as lies), it’s great fun to watch what’s been happening to GameStop shares.

GameStop never intended that the company name could mean this, but when will the game stop?

Wall Street hedge funds analyzed the future of GameStop, and decided it was not headed for a happy ending—the obvious move therefore was to short them to the hilt.

At present, Bloomberg tells us that 139% of GameStop shares have been sold short. You may wonder how you can sell short more shares than actually exist? Let me give you an example:

A has an account with Broker 1, and owns 100 shares of GameStop.

B, who has an account with Broker 1, borrows them and sells 100 shares short.

C, who has an account with Broker 2, buys them.

D, who has an account with Broker 2, shorts them.

If the trade is called because e.g. the stock price goes up, and A and C wish to sell their shares and make a profit, there are 200 shares to return, 100 from B and 100 from D, but only 100 shares physically (or digitally) exist.

How much fun is that?

Social media has upended all our lives, even for those not involved in the fever of posting, pik-ing, and tiktok-ing.

In this case, Reddit drove the crazies, and because of a perfect storm, the dumb money upended the Wall Street operators—citizens watch from the sidelines and cheer.

What are the three ingredients of the perfect storm?

  1. The generalized use of brokerage accounts in the States;
  2. Lockdown, or some other form of pandemic confinement, which results in far higher internet activity;
  3. The US federal government stimulus checks, clearly put to good use.

Now, when you consider that the checks were sent (and signed) by the orang-u-tan himself, and that his favorite indicator for the US economy was the stock market, the whole thing gets far more jolly.

Add to that, one of the little people’s favorite broker has the extraordinary name of Robin Hood. Allegedly, under pressure from the hedge fund operators, at one point last week it suspended the purchase of GameStop shares, in an effort to staunch the bleeding as the hedge funds, squeezed to the testicles by the dumb money, desperately attempted to close their positions and cut their losses.

The net was immediately awash with comments predicated on the Sheriff of Nottingham and Sherwood Forest.

Alexandra Ocasio-Cortez came out as Maid Marian defending the ordinary folks, and Ted Cruz—Wibaux central casting’s choice for the evil Sir Guy of Gisborne—have taken up the cause, stunning even Biden with this display of bipartisan unity.

The hedge funds are preparing to do battle, as Fortune Magazine puts it, “Much like in trench warfare, after the first wave gets decimated, the second wave takes up the banner and marches onward.”

What a wonderful popular movement—and in these days of confinement, what else is there to do?

People of the world! All ye dumb investors! Arm thyselves, seize thy swords and maces, go forth and splurge, for the battle is joined—soon the day will be done and the war will be won.

The India Road, Atmos Fear, Clear Eyes, and Folk Tales For Future Dreamers. QR links for smartphones and tablets.

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