BETTING THAT SHORTY GETS GOT

I had decidedly mixed feelings about this one. I must confess, on the one hand, that I experienced a certain amount of glee at the thought of fat cats getting creamed at the casino; there was something exhilarating about the idea of the rich getting clocked by representatives of the rest. The whole thing seemed like a classic morality play where David dominates Goliath. Where the little ones use the master's tools to wreck the Big House. Where the "losers" walk into the casino, belly up to the table, take the house to the woodshed, and then walk laughing and flushed with cash. They were like the counters at the black jet table, able to keep track of whether the deck was rich with high cards (10, jack, queen, king, ace) and favoring the player or with an excess of low cards (2,3,5,6) and favoring the dealer. They knew whether the ratio of high to low cards were in their favor and adjusted their bets accordingly. And they weren't getting caught and "asked" to leave or, as in the movies, getting beat up by goons. They were smooth with it. And, yeah, it looked and smelled sweet.

On the other hand, though, there were something about the saga that kind of threw me. Some White dude going by the name "roaring kitty," posting YouTube videos, and chopping it up on Reddit about how he had found something in which he was making a killing. As far as I could tell, he was camped out in a basement and using various social media outlets to post and chat for hours about how he had managed to flip fifty grand into some serious money. "Roaring Kitty" had attracted a throng of followers, many of whom seemed to have deified him. I also read stories about working stiffs had found a way to gamble their way out of economic precarity.

And then there's this astronomically rich and relentlessly self-promoting guy--Elon Musk-- talking some stuff about "get shorty." Shorty?! Who the hell is that, and why does Musk want Shorty to get got? And, as if that's enough, I visited and was mystified by the memes on Reddit's Wall Street Bets forum (WSB) and --at least initially-- was somewhat dumbfounded by what appeared to be coded language, at least to outsiders like myself.

Now, unless you've been hiding under that proverbial rock, you know that I'm talking about GameStop, the world's largest retail gaming destination that, to some, looks increasingly like a dinosaur in the digital age. Another Blockbuster waiting to be buried. But it's also about much more than that. On a broader level, it's about the democratization of finance and the corresponding claim that what we're witnessing is the opening round of a new era in finance capitalism that will result in a redistribution of wealth. The wall-street suits, at least according to this narrative, best get prepared to learn an important lesson: Dumb money ain't all that dumb.

SHORTY GETS SQUEEZED

What we're witnessing is a classic short squeeze, and it revolves around some good old fashion betting on which way the share price will go--up or down. Those investors waging that the share price will be headed southward are essentially betting against GameStop. They're banking that they'll make their bread by borrowing stock from a trader, immediately selling it, and then repurchasing the stock at a lower price and returning them to the trader. Clear? If not, here's an admittedly simple yet, I think, a helpful example: Say you borrow some stock from a trader and you immediately sell it for $100. Let's say that the price of the stock goes down to $50 bucks. If you're betting against the company, you could repurchase the stock at that lower price of $50, return them to the trader, and pocket the difference. You walk away with $50-- the difference between what you sold the stock for and what you paid to repurchase and return to the trader. Two quick points. First, the money sloshing around in betting against GameStop is the billions, and there's some serious cash to be made if the bet is right. Second, those betting against GameStop-- that is, betting that the share price is going to drop-- are engaged in what's known as "shorting" the stock. With a couple of hedge funds leading the charge, they're the "shorty “that some desperately want to see get got. Feeling that the whole damn system is rigged against the "little" folk, there's not a whole lot of sympathy for the "Goliaths” of finance capitalism. Ain't nobody crying if David drop kicks Goliath.

Get Shorty.

DAVID'S TIRED OF GETTING DROPPED

One way for "shorty" to get got is for the share price to go up rather than down. In fact, if you're a David rather than a Goliath, you might get together with your kith and kin and 'help" the price go up. You know, hang out in chat rooms with other people who are--or who pose as financial Davids-- and share stories about how you're making a killing by buying GameStop stock. You know, chopping it up with your kith and kin, and hyping them up to "get in" and make some serious money moves. You know, posting your paperwork showing how the purchase of said stock has sent your wealth to stratosphere. Here's the chance for the amateurs, for the little people, to break into the game that heretofore been the exclusive playground of hedge funds and the rich. As more people--more financial little people, more Davids, more novices-- get the bug and start to buy the stock, the share price goes up. And as more jump in and buy it goes it up further. And then, as even more sign up, the share price...well, you get where I'm going.

Remember shorty? The one who has been betting that the share price is headed down rather than up? Remember him? Well, shorty gets squeezed when the price keeps going up. And the higher it goes up, the more money shorty loses. Shorty, in short, is on the wrong side of the bet.

When shorty gets squeezed, shorty gets got.

Now, if you're a short, and you’re bleeding like this, you're probably going to close your position. That's just shop talk for saying that you're going to buy up the shares you owe the broker and return them. But here's the kicker: That increased demand will drive the share price higher, and a short that waits too long to close position could really get smashed.

And here's how the narrative about GameStop gets played out: The increasing price confirms the wisdom of the rebels who wagered on a price increase, and, to boot, some fat cats--the ones who've been shorting the stock-- get a real nice comeuppance. Wealth is transferred from the rich to rest. It's a wealth redistribution with an iPhone, an app, and commission-free platform to execute trades. Talk about the revolution not being televised!

Score one for David.

HERE'S HOW IT ENDS

So, how does all this gambling end? Will GameStop be proof positive that betting is route to a more equitable distribution of wealth? Are retail investors---the little ones, the amateurs, the so-called dumb money-- poised to deploy the logic of the casino to financially punch the plutocrats? Can David use blackjack to drop Goliath?

The short answer is no. Not by a long shot. And here's why I think it's delusional to think that GameStop saga represents the opening salvo in a wagering war that eventuates in a redistribution of wealth from the rich to the rest.

First, just think about the deep pocket investors represented by the hedge funds. As everybody knows, they've been betting against GameStop by shorting its stock. Betting that the price will do down. No doubt, some of have taken a beat down by the rise in the share price. Wrong side of the bet, and a couple of hedge funds have suffered big losses. But to end the story there yields a misleading conclusion. Now, though, is probably as good as time as any to bet against--to short-- GameStop. There's a good possibility that the stock, having hit highs, is more likely to go down now than up. Shorts aren't stupid; they can smell a profit opportunity. Even though the share price is way higher than it was when this whole thing jumped off, a short who can borrow the stock now can sell it at the now higher price and repurchase the shares at a price that stands a pretty chance of being lower, return the shares to the trader-- and, in the process, pocket a fistful of dollars in the process. If that happens, then we've got is this: Some shorts lose but others win. There's no redistribution of wealth from the rich to the rest. Only a movement of wealth from the pockets of one short to another short. All shorts don't get got.

Second, any wealth that's been gained by retail investors--the small folk-- during this gambling is all in the form of seriously inflated GameStop stock. A share price that is utterly detached from GameStop's fundamentals. No one in their right mind believes that the currently high price reflects a serious analysis of the company's ability to earn and grow its profits in the future. Or a new and promising announcement about a new business model. Or the announcement of some new product that's bound to be in high demand. Or its cash flow. Or its debt load. Gambling--and nothing more-- accounts for its crazily high share price. It's a classic bubble, and there's never been a bubble that ain't burst. The balloon will pop. It's just a matter of time. And when--not if--that happens a lot of people will start selling their shares and the stock will crash. Those retail investors who got in, and out, before the bubble pops, will be winners. But the ones don't will watch their wealth disappear right before their eyes. They get hosed down. Real good. The result: Some retail investors make money, other lose. Big time. Just another shuffling of wealth within the group, and nothing approximating a serious redistribution of wealth from the rich to the rest.

Third, and this is an interesting wrinkle: As the bubble burst and the price drops, guess who'll gain? Any short seller who maintained their position and rides the popping bubble out. If they hold out, if they don't close position, they'll get exactly what they wanted and betted on: A declining price and an opportunity to make some serious cash. Again, hardly a redistribution of income from the money elites to regular folk.

Score one for Goliath. Big time.

A COLOSSAL WASTE

Anyway you cut it, this whole thing is a colossal waste. In the midst of all this betting, not a single thing of value is created. No new product. No investment in R&D. No investment in workers. Nothing. In truth, the entire shebang is more akin to value extraction than value creation. It's straight up gambling that shuffles "wealth" around and between the casino and the players. And it's very telling that not a single word is uttered about people who still work for GameStop. Do they have families? Spouses? Partners? Health insurance? What impact, if any, does all this gambling have on them? There's something parasitical about the whole thing.

Sure, there will be some winners and some losers. Sure, some shorts will get got, and some retail investors will benefit. But when it's all over, there will be no siginficant impact on the distrubution of wealth between rich and the rest. And, as a good friend of mine with experience and knowledge in this reminds me, even the shorts who do get burnt will still be able to back to deep pocket investors and get some more pension money to play with. They don't have to worry about losing their yachts and getting booted from their fancy cribs. But the small time folk, the ones who get hosed down as others head toward the exit when the ballon burts? They'll go back to jobs they hate and that don't respect their human dignity, all the while hanging out in chat rooms, and hoping that another Goliath will arrive to make them great.

So, what can be done? I'll talk more about that in a subsequent post. But, for those who can't wait, here's a taste: We need to seriously push for wealth and financial transaction taxes. We need to support those folk out here organzing in the name of economic justice. We need to fight--in whatever space we find ourselves-- for an economy that priortizes the needs of the least of these.

We need to realize that gambling is never a strategy that can flip the tables in casino capitalism.

We need to remember that every bubble burts, and that--no matter how hard you try-- you can't keep inflating a ballon without it eventually popping.

We need to remember, as my pastor says, that you can't eat the rich if you trying to be the rich.

Oh, before I forget: Over the last month, George Sherman, the CEO of GameStop, has watched the value of his shares rocket from $45 million to $1.13 billion.

Life in Vegas!

Catch you on the flip side,

Doc Greene