Good morning John. I wasn't gonna do this, but then I saw a former head of the SEC on CNBC comparing the freakin' GameStop short squeeze to the siege on The Capitol and I got too mad and so now I'm here. 
 
I think it's fairly easy to pull back the curtain here and talk about why this happened, why-- does this mean that you shouldn't have faith in the stock market, and why it is nothing like the siege on the Capitol.

GameStop is a mall retailer that sells video games, and so it's been struggling. Its current business model is not well suited to a pandemic or the future in general. A bunch of finance people noticed this, not a complicated thing to notice, and they wanna make money off of that. Now they might not own GameStop stock, they didn't buy when it was high, so they can't really sell it when it's low. They can buy it low and sell it lower, but the way to really make money off this is to make a bet. To bet that it will go down a certain amount in a certain amount of time. And just like in Vegas, when you bet gets more specific, your payout if you win will be higher. They then make these bets public, the rest of the market sees it, and that should drive the prices of the stock down. But then, someone notices that GameStop isn't actually doing that poorly. They're sitting on a fair amount of cash, people are coming in and buying PS5s, they're not doing well, but they're not going bankrupt. So those people start to buy GameStop stock. And then it stops crashing. But the people who made the bets get worried, so they make more bets so that the market will see that and they will lower the price again. And this works for an amount of time. They do it so much that they actually, it turns out, have made promises to buy more GameStop stock than exists on the market. Someone notices this, and they say a fairly simple sentence. "The finance guys have promised to buy so much GameStop stock that if it doesn't go bankrupt or get purchased by a private equity fund in the next like three months, they're going to have to buy GameStop stock at whatever the price is. And we can be the ones selling it to them. At whatever the price is."

Other people hear that and they're like, "you know what? You're right." So they do that. They start to push the price of the stock up probably closer to what it actually should be worth, considering that the company is not going bankrupt. And then the stocks start to increase in value, a lot, and that becomes news, and that brings more people and whether they understand what's going on or not. And at some point here this starts to transition from squeezing value out of hedgefunds, to just a little mini pyramid scheme. Buying the stock because people are buying the stock, and then trying to get more people to buy the stock so you can sell the stock when it's higher.

Because eventually, the price of Gamestop is going to go back down to a rational number. From even the most optimistic perspective, Gamestop is worth ten times less what it's trading at right now. As long as you're still squeezing the hedge funds it's about that, not about the price, but eventually, those squeezes run out and it has to go back down to a normal price. That is eventually going to happen and on the way down people are going to lose a lot of money.

Now for everyone involved in this, this was a gamble. This was not investment. If you go into the discords where these things are organized, it's just a bunch of people bullying each other not to sell while slowly selling in the background to make sure they've locked their profits in. Also, it's very exciting. And for certain brains, mine included, that kind of feedback is dangerous and addictive. And we've seen the exuberance of this sort of, like, explode out into other places. Like there wasn't a fundamental, weird reason why dogecoin was suddenly worth more.

The important thing here is that this instability was not created by Reddit. It was created by hedge funds who promised to buy more stock than existed. There are some real, terrible, arcane systems for manipulating our world for the benefit of, like, the worst people. And it's just people. It's not magic, it's decipherable. And none of it has much to do with how the market actually works, which is that people buy shares in companies that they think are doing well and will do better, and sell shares in companies they think will not do well.

Now, these manipulating agencies should be regulated out of existence. They shouldn't be able to do what they do. But instead, at least in this one way, they got memed out of existence. That door has been slammed in their face by a few hundred people who figured something out, and a few million people who were mobilized in a financial action unlike anyone has ever seen ever in the world.

Eventually, people are going to figure out how powerful they are. It'll be interesting to see what we do with that. John, I'll see you on Tuesday.