Jim Cramer Exposes Illegal Hedge Fund Tactics (2014) [video]
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https://seekingalpha.com/instablog/11442671-gerald-klein/309...
Sure, it's neat to see stories of people making from tens of thousands to millions of dollars due to the short squeeze. And yet it is easy to forget that those who played the game were buying GME all the way up to $500 one day, $420 the next day and $300-something the next. People also bought puts at different levels.
All of this will come crashing down on top of them. It's a Ponzi scheme (or whatever the appropriate analogy might be). The people who, through hubris and ignorance, bought these stocks chasing them up the price scale to "Help our brothers who bought at $350 get positive" and other encouragement found on r/wallstreetbets are going to get shafted (if they haven't already).
In other words, the institutional short sellers are not the only ones who lost money. The difference is, they KNOW they can win.
Why?
Because there is no way GME is worth $200, $300, $400, $500 or $1,000. At some point in the future gravity will do its thing and this stock will suffer a violent crash. And you can bet there will be short sellers there to profit from it. And you can bet a large number of people who are hoping to get rich quickly are going to lose unimaginable amounts of money.
As a side question: I wonder how much Chinese money went into pumping GME off the charts? I already saw one or two articles about this. It would be truly terrible if "average folk" in the US and Europe became useful idiots in the hands of heavy capital from China who saw an opportunity to extract billions of dollars from both of these economies.
https://seekingalpha.com/instablog/11442671-gerald-klein/309...
This stock isn't worth even half of where it finished on Friday. Which means it is almost guaranteed to take a dive at some point. When it does, everyone who bought at ridiculous valuations to support the other mob members will be devastated. And who will profit from the almost certain drop? Some of the very same companies and individuals who the mob thought they were hurting.
Think about it for a moment. This stock was being shorted (over 140% of it, which is very, very wrong -- rules should change) when it was just a few bucks. They were short GME when they knew they could only make a few bucks per share. What do you think is going to happen now that they know they can make HUNDREDS of dollars per share?
The question isn't whether or not this is a good short. The only question is when to short it. That's the chess game at the moment. It's a weird combination of psychology and timing. I don't know the answer to this question, yet I am as close to 100% certain that GME will implode as I can be (not enough to gamble my money, I don't gamble).
So, yes, in many ways it is like a Ponzi scheme: Some made a ton of money, others a little money, and the based of the pyramid will eventually get hurt.
Isn't this the normal way that the market operates? No one will baby-sit your saving, you are responsible for what you put your money into to. The people who lose big were just making the market less efficient, and so will be removed from the market.
EDIT: To be clear, I'm not a "free market fundamentalist". I don't think that efficient markets are or should be an end in itself. But if the idea that the market is hard to beat because the weak participants get eliminated has any truth to it at all, this is it.
I got up early to watch pre-market action the day it went up to $500 in after hours trading. The next day it dropped all the way down to $112.
Who bought on the trip up to $500 and who got hurt on the way down to $112? There is no way to know without a forensic investigation of the transaction record. I am sure the SEC will investigate, if anything to understand how to prevent this kind of a thing from happening again (or how to slow down the rate of change, if that makes sense).
I am of the opinion that this will end in disaster and tears for a large number of people. I hope only a few bet their life savings on this after getting sucked into the emotion of the mob.