Last week, I received texts and calls from so many of you asking what the hell was happening with Gamestop (whose stock ticker is GME) that I thought it would make sense to write an end of week, after market hours blog post explaining what happened. But what started as a fun wait-till-they-hear-about-this finance story quickly captured global headlines and every major news publisher has already written their take on what happened. As a result, I’ll give a more summarized view of what happened and point you to some resources for further reading of what transpired. Then, I’ll tell you what I think will happen in the weeks ahead. The market opens in less than 10 hours! Let’s get into it.

A rough timeline of how we got here
[Setting]: Amazon is slowly force choking every retail business in its path.

Money to the players
All gamers know Gamestop kind of sucks. The joke goes something like you could buy a game brand new from Target for $60 and later that day sell it to Gamestop for $3.99. As a retailer (strike one and two) offering in-person buying and selling of video games (strike three), most investors had written off the stock as the next JC Penny, Sears, etc. Writing a company off is fine. But betting that its shares will reach zero when they’re already as low as $3 is a completely different beast, equivalent to trying to get the very last bit of juice out of a lemon… probably not worth the squeeze. The reason betting against companies that have already lost significant value is that a) you don’t have much to gain financially and b) there’s always a chance for a turnaround, especially when interest rates are low and companies can borrow for cheap.

The fact that GME was down but not out is something DeepFuckingValue and Michael Burry realized before everyone else. The most obvious signal to both investors was GME’s cash on hand, which was significant compared to the amount of debt the company had. (Note, the only way a company can be forced into bankruptcy is by its creditors. If a company has no debt, it has no need to declare bankruptcy.)

                                                       A hilarious recreation from The Big Short

Recognizing that GME was heavily shorted, both these investors knew any positive news — like the PS5 and Xbox Series X refreshes — could mean the stock would move higher and increase the likelihood of a short squeeze. Only until last week did we realize just how right they were. 1

If you have the time, I urge you to read at least some of u/deepfuckingvalue’s reddit history. It is incredible how ably he defends his GME position in light of unrelenting attacks from internet strangers.

Lord, grant me the endurance to accept the flame of others, who are so ignorant in their ways. They know not that GME giveth and only DeepFuckingValue can taketh away. Amen.

Useful resources to learn @ the GME saga
If you want to learn even more about what’s been happening, look here.

Will this continue for a week? A month?
The tug of war in GME shares will only end when one side gives up. The metric to pay attention to is called short float. Getting up-to-date short data can be tricky — there are dozens of brokerages around the world with different market hours who report this information internally and externally at different times — and even if you do pay $2,000 a month for a Bloomberg terminal, you might only get this data updated once per day (AND on top of that, hedge funds can obscure their real short amounts). That said, Finviz does its best to maintain this data, and it’s a free website. Type in GME in the search bar, and you’ll find the short float listed in the table.

Until the short float falls below 100%, we can expect to see these wild swings up and down every day as redditors buy more shares and hedge funds dig in ever deeper to keep their shorts on and even add more to their positions. Once the short float falls below 100% on a sustainable basis, you’ll know that this amazing story is wrapping up.

Is it too late to buy GME and get rich?
Probably, yes. Options are called derivatives because they derive their value from something else (the underlying stock price). Options pricing is complicated and the guys that came up with this stuff have won Nobel prizes for it (and also crashed a hedge fund leading to the dot com bust, whoops), but what you generally need to know is that the more volatile a stock price is, the more expensive call options become.2 Right now, options on GME are insanely expensive. At the end of trading on Friday, I saw one contract that expired on Feb 5 (five trading days out!) that cost $19,000.

What about the other meme stocks? AMC? Nokia? Blackberry? Literally any other company that was thriving in 2002?
Not only is the short interest in these stocks lower, but the coordination to buy is much less concentrated. So while yours truly is hoping to offload some of his AMC calls in the near future (#diamondhands), know that opening positions in these stocks now is flipping a coin at best.

Why are people so upset with Robinhood? Should I be upset with Robinhood?
The entire premise of America is that hard work can lead to success no matter who you are or where you came from. Simply learn the rules of game, find out how you can maximize your chances of winning, and play the game to the best of your abilities.

To me, the beauty of the stock market has always been that it is the only place in life where you can actually put your money where you mouth is. I have been an investor in Tesla since 2012, and the number of people who have told me I was going to lose all my money is almost as large as the gains in my IRA. (Sick burn). To their point, I could have been wrong. There are many steps along the way where Tesla could have failed, the company could have declared bankruptcy, and as an equity holder, I would have walked away with nothing. But that was a risk I was willing to take. I knew the rules of the game, I placed my bets, and I waited patiently to see if I was right or wrong.

On Thursday, Robinhood called a timeout and said, we understand the game has already started, and chips are already on the table, but we’re going to rearrange some of the cards. (Other brokers including Charles Schwab quickly followed suit). They said, let’s ban the buying of GME, a stock that is going through the roof, so these large institutional investors — namely hedge funds who, by the way, make up a significant part of Robinhood’s revenues – can realign their positions (i.e. stop getting fucked by unemployed teenagers on an internet forum). It appears that Robinhood handed out a few get out of jail free cards to its hedge fund backers, and in doing, so probably signed its own death warrant.

This is where people get rightfully angry. Retail investors are out here grinding like everyone else: Make some money, try to grow that nest egg, hope you have enough saved for retirement. Instead, as soon as retail investors started making money, the rules of the game changed to the benefit of institutional investors, who, by definition should have more knowledge, capital, access, etc. and should be better at playing the game, no referee interference needed whatsoever.

So now what?
Already we’ve seen political consent like we haven’t seen on any issue in quite some time. When the Canadian trying to be President and AOC are agreeing that something needs to be fixed, that’s a pretty big red flag that something really needs to be fixed.

If the SEC and other market regulators handle this situation correctly – by penalizing Robinhood out of existence (which it looks like actually may happen) — that could go a long way toward creating actual unity in this country, at least on one small issue.

At Moody’s NYC office, there is an allegorical frieze I love that says “Credit is man’s confidence in man.” Do we trust that everyone in this country playing by the rules? Of course not. Senator Burr sells his stocks after the first COVID briefing with no repercussions. Hedge funds and private equity firms took PPP money. Airlines got $60 billion while 63% of Americans are living paycheck to paycheck. The list goes on and on.

What was so exciting about last week is that a dying retailer’s stock getting short squeezed — in any other time just a boring bit of finance trivia — morphed into a broader conversation about fairness and equality at the very moment our Senators debate raising the minimum wage for the first time in over a decade. We are living in two Americas, but hopefully, slowly, we can get back to trusting that everyone is playing by the same rules, that hard work is the best predictor of success, and that man once again has confidence in man.