[e79]

Re #3: I held off investing significant money into Bitcoin because I was convinced that the forces of the market would pull it back down to $10 where it belonged soon enough. I’ve been asking myself ever since why I felt so sure at the time.

As for GME, there’s fundamental analysis and financial experts telling us it is only a matter of time before the price free falls. But there’s a serious behavioral dissymmetry here. The market is rich with GME stock buyers who don’t care to listen to any of these traditional buy/sell signals. I’m not sure you’re wrong, but I’m personally a little bit less certain that the price will drop — at least soon — due to this reason alone. As this article points out, feedback loops can be extremely powerful. And I suspect they can play out over longer periods than we expect.

[FabHK]

Your investment thesis would then be that GME becomes a token of value independent of the underlying business, dividends, and so on. More of a collector's item.

Intriguing, and (lamentably) not entirely impossible. But, you know: bubbles do have the habit of bursting.

[aphextron]

> Your investment thesis would then be that GME becomes a token of value independent of the underlying business, dividends, and so on. More of a collector's item.

Yes, that's basically the point we've reached with the stock market as a whole right now. Nothing is tied to any kind of fundamentals. It's all about "we like the stock".

[FabHK]

> Yes, that's basically the point we've reached with the stock market as a whole right now.

Not really, though. GME and other meme stocks might be out of whack a lot, temporarily, and stocks generally might be overvalued somewhat (and, I’d say, harder to value because rates are so low, making the horizon longer), but I’m pretty sure that the mechanisms are still there that fundamentals will reassert themselves.

[stickfigure]

At the very least, GME can print as much stock as they want and sell it into the market. They'd be crazy not to.

[rk06]

wouldn't that drive the value of stock down and threaten the company itself?

I am financially illiterate, but I understand the reddit posts to mean that short squeeze is inevitable because GME is >100% shorted and issuing more shares would kill the short squeeze and drive the price down

[stickfigure]

Unless the company is selling or buying stock (or otherwise exchanging value for stock, as with employee grants), the price is immaterial to it. Just a random number on a ticker.

A low stock price creates risk because it makes it hard (expensive) to raise capital. Well, here you are, it doesn't get better than this!

[dreamcompiler]

As Matt Levine pointed out in his columns this week, GME would likely attract a huge amount of SEC scrutiny if they tried to take advantage of this obvious insanity. That doesn't mean they would ultimately be found guilty of anything, but it would be a huge distraction from, you know, adding shareholder value by selling video games.

[dougmwne]

But that's the thing here. The reason their fundamentals are so terrible is that their business model is going the way of Blockbuster. Selling disks is distracting them from reinventing themselves. Many people buying GME are doing so because they don't want to see a company they have some sentiment for be destroyed by Wall Street. I think of this like a last-ditch public offering or a Kickstarter Hail Mary. They have an opportunity to raise the capital they need to reimagine the company and become worthy of their new valuation and continued existence.

[XargonEnder]

I think raising capital by issuing more shares would provide incredible shareholder value if they leverage that money to pivot into a better business model

[stickfigure]

> a huge amount of SEC scrutiny

A couple billion dollars in the bank buys you a lot of lawyers.

As Matt pointed out, AMC is doing it. I agree with dougmwne, this is the corporate kickstarter opportunity of a lifetime. They should take it.

It's also a negative feedback mechanism in a market full of positive feedback mechanisms (ie, the short squeeze). Creating more stock makes the market more stable.

[marvin]

> Nothing is tied to any kind of fundamentals. It's all about "we like the stock".

Now, if many peiple start believing that, it will cause an actual bubble. When interest rates are taken into consideration, the global stock market valuation in terms of average P/E rates is about where you’d expect it to be.

Which is higher than but a few times before, to be sure. But still in the realm of plausible fundamentals.

[T-A]

https://www.hussmanfunds.com/comment/mc210118/

[brightball]

It’s as if it is a cryptocurrency all its own at this point.

[anonisko]

Except that it can be arbitrarily inflated.

[sverhagen]

Asking in earnest: how's that not true for crypto, like what Musk did to Doge?

[anonisko]

Musk didn't inflate Doge. He tweeted about it and a bunch of get rich quick folks scrambled to buy, driving the price up like a penny stock.

A share of stock represents a tiny percentage share in a company's assets and profits. For simplicity, let's say a company has 100 shares, and you own 1 share or 1%. If they then issue 100 new shares and sell them on the market to raise cash, your ownership in the company has been diluted from 1% to 0.5%.

That's why company shares will never be safe as an arbitrary store of value like bitcoin is. No one can arbitrarily dilute your share of the bitcoin pie.

[girvo]

I think they mean more stock can be issued, rather than the value being driven up.

[uyt]

That's disturbingly intriguing indeed.

In theory, what is stopping any stock from being a cryptocurrency (minus the crypto part)? Can anything tradeable with a fixed supply become a currency? What other magic requirement is missing?

[brmgb]

> Can anything tradeable with a fixed supply become a currency?

Yes, very much so (including something with unpredictable supply). Through history, diverse things were used as currency including shells, salt, silver and gold.

The commonly used definition of a currency was coined by Aristotle and is that it's an asset fulfilling three requirements:

- being an intermediary of exchange;

- being a store of value;

- being a unit of account.

You might notice that most cryptocurrencies are not actually currency owning to the first point.

[Jtsummers]

Ease of exchange. I can’t (easily) give you 100 GME to buy a new car. We’d need a particular arrangement which isn’t easy to come by in the current setup.

[bobthepanda]

If anything, cryptocurrencies are becoming more like illiquid equity rather than a currency. I can't exactly go to the store and exchange BTC for milk.

Interestingly, local dispensaries at one point entertained the idea of BTC ATMs to get around the fact that they have no ability to take credit cards due to the illegal state of pot at the federal level, but this was abandoned after a bit because the volatility was too expensive to make this a worthwhile proposition.

[rorykoehler]

What I do is use the virtual crypto wallet in Revolut. Keep money in BTC and when I want to buy something move the exact amount across to the FIAT currency account and tap to pay.

I keep a small float in FIAT so I only do this when it’s the cheaper option.

[quercusa]

Once the race for the exits begins, the price will drop the way it rose.

[throwaway-571]

Aren't we in a bubble since march 2020, if not sometime in 2018?

[hahajk]

I guess you have to ask what gives stocks value in the first place... especially tech stocks that don’t issue dividends.

[grey-area]

Future earnings over the next few decades is the traditional definition of value (returned as dividends, or price increase, doesn’t matter which).

Periodically people lose sight of that and start talking about a new paradigm and new valuations (usually because using that metric means prices are insane), but it always returns to future earnings.

All indicators are we are near the top of a spectacular bubble in assets from bitcoin to spacs to tech stock prices the red signs are flashing. Who knows how or when it ends though.

[chii]

dividends are irrelevant when valuing a stock - it's the company's earnings (and margins etc), and the future expected earnings that matter.

[FabHK]

> dividends are irrelevant when valuing a stock

Aka the Modigliani–Miller theorem.

https://en.wikipedia.org/wiki/Dividend_policy#Modigliani%E2%...

[shanusmagnus]

Unless there are dividends, all the factors you mentioned are purely symbolic. The fact that this symbolic -> monetary imputation is now the dominant determinant of stock price was the parent's point.

[chii]

it's not symbolic - the value of a company (i.e., their share price, if public) can be exchanged with money by selling the share. This is true regardless of the actual dividend payouts. Irrelevancy of dividends is not the same as not _being able_ to pay dividends.

Paying dividends is just one way a company returns profits - but there are plenty of other ways, such as share buy backs, or reinvestments in the company (thus making future returns higher).

[bluecalm]

Man, it really doesn't matter if they pay out money or store it in a box. The box still belongs to the company. They can always pay out later or someone else may need a box full of money. Of course it's even better if they do something more useful with the money than just storing it in a box.

[danhak]

Not symbolic at all. Stock confers legal ownership of a company. Why is ownership of a company's assets any less valuable than ownership of cash dispersed to your personal account?

[grey-area]

What’s the difference between dividends and selling a portion of a holding every year?

[newacct583]

> The market is rich with GME stock buyers who don’t care to listen to any of these traditional buy/sell signals.

It is this week. But let's be honest: (1) wallstreetbets isn't a very large community compared with the whole market, or even the capitalization of GME or AMC and (2) these are investors engaged in a fun revolution.

This won't stay fun for months. These folks want to trade in those portfolios. And if this doesn't go up any farther (it's been flat at ~$300 since Thursday), how many of those will get bored and sell so they can trade whatever the next meme stock is? Not that many, sure. But enough to push the value down lower, to a threshold where more Robinhood traders decide to get out. And we have exactly the kind of feedback loop described in the linked article.

GME is going to fall because there's no reason for GME to stay high. Once the short squeeze is over and the lols play out, it's just another failing company.

(And I continue to believe that this is going to turn out to be a big astroturfed scam when this is all said and done and I'm betting a bunch of the early players will turn out to have been executing a pump and dump.)

[dreamcompiler]

Bitcoin is not a stock and has no fundamentals; GME does. There's no objective value metric for Bitcoin so it can float freely. But because GME is at least loosely tethered to the value of a real company, I'm confident that will bring the price back to reality.

[thaumasiotes]

I don't follow the logic. Bitcoin has no fundamentals, so it can go as high or low as it wants.

GameStop has fundamentals. But you're free to ignore them; they're not hurting anything. GameStop has everything Bitcoin has, plus some extra things; it is therefore worth even more than Bitcoin is.

Said another way, it is nonsensical to claim that Bitcoin has no fundamentals. If you believe that (1) Bitcoin has "no fundamentals"; and (2) GameStop has fundamentals tethering it to a market capitalization of a few million dollars, what you're actually saying is that Bitcoin has fundamentals tethering it to a market capitalization of zero dollars.

[T-A]

> GameStop has everything Bitcoin has, plus some extra things

Including the ability to keep making losses in perpetuity, which would make it worth negative infinity.

[thaumasiotes]

No, it wouldn't. As a stock owner, fiscal losses by the company named on the certificate don't impact you at all.

[T-A]

The only way a business can keep running at a loss year after year and not be declared bankrupt is by raising more capital, i.e. by getting more money from its investors. The price of your existing shares will not fall below zero, but you (or somebody else) will be paying up for new ones.

[anonisko]

One caveat is that the insane valuation could let the company raise enormous amounts of cash and attract talent. Perhaps enough to revitalize the company into something with a legit growth story.

I'd say this is very unlikely, but it's not beyond the realm of possibility that GME becomes like a TSLA or AMZN that is constantly trying to catch up to the absurdly high expectations of investors.

[AmericanChopper]

GME stock will undoubtedly be carried for some period of time after the squeeze is over (is it already over? I don’t know...) by momentum and hype. But the inevitable outcome is that it crashes, because GameStop fundamentals are simply bad.

Bitcoin is a completely different proposition however, because so much of the demand is driven by black market commerce, and other equally inscrutable factors. Both the supply of and demand for Bitcoin are completely volatile. There’s basically no hope of performing a reasonable analysis of where it’s value might be heading.

[nostrademons]

Bitcoin did end up dropping about 80% from its late-2017 high. It took about 10 months, but it bottomed out in the 3000s, down from $17K in Dec 2017.

Wouldn't surprise me if GME does the same thing - just the sheer number of shorts will blunt the price declines a bit, as they cover.

[Judgmentality]

Yah, but dropping 80% when you've inexplicably climbed 10,000,000% (depending on the timeline) sorta shows that you're anchoring the reality to something that is already incredibly, ridiculously distorted.

[cccc4all]

The GME situation is huge mess created by billionaire vulture short sellers shorting more than 100% of stocks. Thereby, when you buy current GME stock, the stock also has an attached buyer that has to buy that stock back, at ANY price. All you have to do is simply buy and hold the stock, and the price will go up.

Traditional buy/sell signals are irrelevant, because of the short seller shenanigans. The short sellers created this perfect trap for themselves, now they are scrambling to get out of using every dirty tricks. The more WSB crowd is aware of this scenario, the more they jump in to the diamond hands philosophy.

[FabHK]

> Thereby, when you buy current GME stock, the stock also has an attached buyer that has to buy that stock back, at ANY price.

Yeah, but as I've explained elsewhere: Suppose long interest is 240% and short interest 140% (leaving net supply of 100% shares). Then, even if redditor HODLers hold 99% of actual shares, and won't sell them, it's enough if there is 1% free float, and the 141% remaining longs (who have lent out their shares to the shorts) are happy to sell at the current inflated price. The shorts can then close out their position with 140 of those 141 longs, and then you're left with 99% shares held by redditors, and 1% held by someone else who might want to sell at this point.

To squeeze the shorts, you need to control 100% or more of the long interest. I doubt that's the case here.

[cccc4all]

This post can explain why you only need smaller percentage to squeeze short sellers.

https://wallstreetplayboys.com/amc-gamestop-and-nokia-why-it...

The bottom line, everyone knows they can sell to short sellers at ANY price, because the short sellers have to buy at ANY price. Why would anyone sell to short sellers at less than ANY price?

[chii]

> because the short sellers have to buy at ANY price.

no they don't. They can bankrupt, and default on their contractual obligations. And if they are smart, what they will do today is setup a structure that protects their existing assets from seizure, and then short GME, and then default if it doesn't turn out well (or gain massive profit if it does fall).

[cccc4all]

That's the funny thing, that's not what's happening. It would make sense for those companies to declare bankruptcy in these scenarios. Instead, these short seller companies are being propped up by even bigger companies and the entire financial press is pushing FUD propaganda to convince normal people to sell.

This has never happened before. Why is this happening the way it has for past week?

[onedognight]

From what I read on WSB (caveat emptor), the broker (JP Morgan) is on the hook if the shorts go bankrupt. JPM needs to prepare for that possibility.

[javitury]

Price is a function of supply and demand. Shorting 140% of the stock increases supply by 140% and demand by 140%. It looks balanced, but there is an asymmetry in terms of pressure to close positions.

Those shorting shares have to pay interest, place collateral if price goes up and need to buy back those shares regardless of market price. The ones holding shares don't have that pressure and their losses are bounded.

If options are used, the effect depends on how the price of the underlying moves. Generally they just have a multiplicative effect, the losing side has to increase collateral.

A particularity of shorted calls is that losses are unbounded.

[devoutsalsa]

If the short position’s larger than the float, the squeeze will get sqouze.

[FabHK]

No. As I’ve explained, the crucial cutoff point is that the squeezers have to hold more than 100% of the long interest to squeeze the shorts. Whether the short positions add to 90% or 110% of the net supply matters only a bit.