Hey Jesshortsellers
It’s been ages since I’ve had the everyday banter outside financial circles speak about short selling! Since the 2008 financial crises and the movie the big short, a few years later no ones really spoke about this form of trading in public conversion.
It’s been going on for years, and due to its risk and betting against something such as a business that creates jobs, this so-called dark art has had a narrative pushed on it of evil short-sellers.
Those trying to kill companies for a quick profit and think nothing of the lives they ruin.
The narrative game
This narrative is so strong and hard to break, but like anything in life, it’s a lot more nuanced than that.
- Are their short-sellers who put out dubious research or PR campaigns once they've taken a position so they can push prices down and pocket the spread on a short term trade?
Yes!
- Are there short-sellers who do the research, spot a dying business model being propped up, find fraud and stop companies from suckering in investors by putting them out of business?
Yes!
Short selling is part of running an effective market, while it's by no means squeaky clean, it's part of the ecosystem, and we can't paint everyone with the same brush.
Enter Gamestonk gate
The GameStop story has gripped the financial press with a firm narrative. The retail traders, the little guys, aiming Wallstreet and their big bad short selling. Some are hailing this a victory, but if we look at the facts, it's again more nuanced than that.
Yes, there was naked speculative short selling at play, with hedge funds shorting more than the available stock float and then ramped up with leverage. This is a dangerous game to play, and when spotted by the retail guys, they blew up the trade by leveraging the derivatives market.
Retail won the first round
Some GameStop retail investors made a killing, getting in early, but since this stock will eventually revert to its actual value of 0, many bag holders will get hurt, depending on where they got in.
Some say that's the cost of blowing up a hedge fund and are fine with sending the message, but whose money is the hedge fund gambling? Certainly not there own or they wouldn't be this careless.
Everyone has the right to bid up a company regardless of its fundamentals; we see this with Tesla and other tech stocks all the time.
Wall street wins round 2 + the war
Wall Street hit back by putting pressure on these retail broker apps to limit access to the market. Having this limit meant hedge funds could gain the upper hand once again and with retail only allowed to close positions, they look to force the market on these shorted stocks back down.
The unintended consequences
However, the damage has been done, billions have been lost, and retail has sent a powerful message to the wrong people, in my opinion.
In the process of sticking one to the hedge funds and this warning that they'll be going after short-sellers, many good short sellers are not going to take the risk. Even if they are correct, the danger is too great of getting caught in the crossfire.
As short sellers pull out of the market, they remove any breaks on the market. Fraud, malinvestment and scams can continue to take up more of the public market, and with the prices only getting bid up without short-sellers, it's only going to sucker more people into the market who will end up getting hurt.
I am by no means against the WSB crowd, I hope their message is heard, and things do change, but I think what has happened leaves us in ever more dangerous territory.
Have your say
What do you good people of HIVE think?
So have at it my Jessies! If you don't have something to comment, comment "I am a Jessie."
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