Bottle does stonks

Hey Bottle, what's a short squeeze? 

That's a spicy meatball there Skip. Why? Have you been talking to Capsaicin again? 

Well, he was just talking out loud, but i don't know what half the words mean, and it sounded more like a movie gun fight than anything. 

Yeah, insider jargon is special. What's your conceptual framework of the stock market? 

Huh? 

Conceptual framework. You know, is it a normal boring market, is it gambling, is it connected to reality, are stock brokers providing a service to their customers or selling a product? Do you want to know about Citron and Melvin specifically, or do you need the schism between daytraders and investment firms as background. Is this an answer your 2 questions humorously thing, or do i have to start from scratch? 

Oh. I dunno. I guess i just wondered how they're still in business after losing 5 billion dollars. 

Because a couple other billionaires bailed them out. Citron covered its position quickly for a mere 100% loss. Melvin tried to fight back, and some other big hedge funds helped cover the damage. Ooh, that face on your face. Where did i lose you? 

Kind of at the beginning. 

Oh, so all the way back we go. Ok, for you the stock market is a little black box that you put money into, tell it when you're going to come back, and when you do you might get more or less than you put in. It all depends on what actually happens inside the box. There's actually many little black boxes, but let's just pretend there's only 1. Basically, Compy's talking about some crazy stuff that happened inside the box recently. 

Ok, that makes sense. So it's not like real real? 

Yes and no. If you aren't counting on getting any money out of the box, then it's all relatively unimportant. If you are, then you should know that inside the box is looking a lot like the 1980s at the moment. 

Good with part 1? 

I think so. 

Ok, then let's take a break, and we'll come back and talk about what's in the box.

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Welcome to part 2 of Bottle does stonks! Let's step into the doorway and float a bit in the infinite ether of INVESTING (picture it like the doorway on last night's Lighthouse album). 

Two people, both alike in dignity, playing a game with numbers. One person wants to sell a thing, one person wants to buy a thing, it might happen, it might not, the only real rule is you have to declare your position first, then see if they are compatible. It's like rock, paper, scissors meets musical chairs. I'm kidding, the stock exchanges quite boringly match buyers and sellers according to their terms of trade. 

Now, the normal way trading works is the familiar "buy low, sell high." You buy things you think will increase in value by the time you come back and find out, you sell things when you don't want to wait any longer, either because they rose enough to make you happy or because you're afraid they'll go way down. There's lots of nuance and rules and information that goes into making those decisions, but that's the game they play on Wall Street. 

With stocks, the normal framework is investing in stocks that will rise in value and selling them once they they do. But, there's an Alice Through the Looking Glass version of that called "short selling." That's where you borrow a security and sell it, hoping that the value will drop by the time you buy it back to return to the lender, pocketing the profit. 

Isn't that bad? I'm sure i heard that's bad. 

Only if you suck at it. Remember my Romeo and Juiet quote from a couple pararaphs ago? No position is inherently good or bad, but some are inherently more risky than others. Short selling is super risky because the profit is capped at 100% but the potential loss is infinite. Traditional investment, a "long" position, is the standard, but "short" is merely it's inverse. I think the stock market as a whole is garbage anyway. I'll believe my 401k when it's in my own bank account. Until then it's just gibberish numbers on trash can food, as far as i'm concerned. 

So why is everybody all freaked out about Gamestop? 

Ok, that's trickier. Traditional investors think they are the good guys, selling relatively safe strategies for reasonable returns at a moderate risk. They have proven track records, consistent earnings, yadda yadda yadda. The hedge fund guys are crazy desperados robbing trains and orphanages in traditional eyes. Again, i think they're all wackos, but whatever. Let's do some actual research into this particular situation. 

Citron. What's Andrew Left's actual business plan? He's an analyst/short seller. He tries to find stocks that are overvalued due to management fraud; he searches out companies that are straight up lying to their own investors and customers, and short sells them when he thinks they are about to crash. He's also guilty of being wrong and getting sanctioned for influencing trade with faulty research or outright false information on multiple occasions. Legit business model, not so legit person. Same story with fewer ethics complaints for Melvin. 

Their position was and still is completely legitimate according to the rules of the little black box, and with regard to the specific stocks in this instance (the top ten most shorted stocks are legitimately not good traditional investments at the moment). That's why their friends bailed them out. However, they both made the mistake of leaving their ridiculously aggressive (however justifiable from a real world perspective) calls dangling in the breeze during a period of excess funds, loose day trading with low buy ins, and personal antagonism. Essentially, they took their guns to a gunfight and were somehow surprised that people who don't like them opened fire. If you're wondering why Elon Musk was giddy it's because he hates short sellers in general, and Tesla itself has crushed a few of them in recent years. But he also wants to 'splode people to Mars and has a child with Grimes, so both alike in dignity i remember myself saying. 

Any questions?

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So why does any of this matter, Bottle?

Well, you see, half of our economy is tied up in it, and the executives of all those publicly traded companies are only there to increase shareholder profits. Out in the real world, companies are struggling. Why? Because people can't afford the stuff those companies sell.

Why can't they afford stuff? 

Because the people with billions of dollars aren't reinvesting that money into wages and education. They make us pay to learn how to do a job they won't pay us to do. They aren't rewarding their employees with proper raises, funding schools or arts, or even throwing big parties. They hide more and more of their money in foreign banks, waste psychotic amounts of money endorsing laughable political candidates, and absolutely refuse to pay taxes to compensate for any of it.

Look, i can't put a percentage to it, but most jobs are garbage. The crummier the job, the more people want to be paid to do it. A job is just a task the people around you don't want to do themselves. The biggest problem is that trying to figure out how many cantaloupes equal replacing an alternator is a stupid waste of time and energy. Have you ever considered paying people to be friendly and share their talents with their neighbors instead of sitting at a computer hoping for a spontaneous brain hemorrhage? Have you? It could possibly work.

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But back to the actual saga.

"Borrowed stock" is a bit of a misnomer. It's only borrowed in the sense that it will be replaced in full at the end of a complete transaction. Borrowed in the sense of a money loan repaid with some amount of interest. 

Say you "borrow" $10 from a friend, go out and make $40, then give your friend $15.  It's not the same physical $10 bill, but you both made a profit from "borrowing it." 

One of the underlying questions is, what did you do to turn that 10 into 40? Another is, is that system still fair when you elevate the numbers into the millions of dollars? A third is, how does this ethically operate when the original $10 was borrowed from yet another unknown person in the first place?

Then you have to understand that robinhood and ameritrade are brokerages; the firms doing the actual trading. Did they break their license by stopping trades? (No) Is there a malfunction in their software, or was the whole process completely legit? (Legit)

The whole thing is exponentially more complicated than a hastily written one sided facebook news story.

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Ok, so some people made tons of money and some people went bankrupt?

No idea, this is all happening inside the box. None of these people are telling you their actual real life money. This is all brokerage financials, net assets, paper valuations. It's like me telling you the discogs values for my record collection.

Whaaaa!?

What's anybody's time frame for taking money out of the box? Next week? 25 years from now? The only way you get to take that money into the real world is by actually selling your assets and closing out your account. It might effect somebody's dividends next quarter, they might lose everything tomorrow on some other trade. Just because your holdings are valued at millions or billions, doesn't mean anyone will actually buy them from you. 

I'm so confused.

Of course you are. You're reading garbage information. Securities are no different from cars, or jewelry, or record collections, or baseball cards, or real estate, or any other investment. We're getting dangerously close to the capitalist/communist argument again, but you have to understand that the stock market is pure abstract capitalism, spending money for the sole purpose of getting back more money. It's raw capitalism superimposed on top of the real world. It's buying and selling claims to the profit/loss of buying/selling commodities.

Gamestop isn't making tangible profits in the real world. They might with new leadership and a change of strategy, but right now they look like they are going to go bankrupt and fold in a year or two. Not a good investment to own any percentage of zero dollars. Likewise, not a good idea to blindly insert your life savings into the little black box.

What bothers me the most is the way the whole situation is being reported. This is a mechanics of trading episode with absolutely no connection to the real world other than keeping money out of general circulation.

Then, when the company tanks, the execs and majority holders get their money through liquidation. Real people lose their jobs and no one above the level of store manager cares because they haven't actually lost anything.