The stock already sits at 600% valuation, what kind of turnaround will justify a multiple of that?

600% from what? Price discovery is broken when large market participants and market makers have access to mechanisms that enable unlimited shorting.

Current price is, in part, driven by asymmetrical risk/reward - there's a small potential loss (size of one's position in GME) and subjectively high chance of having a real stock squeeze (and having a 10/100/1000x reward) assuming that original 120%+ short interest was not closed and is still held in the form of various derivatives.

The assumption hasn't been disproved so far, partly because current regulatory environment is very lax on reporting (which makes it very hard to disprove the thesis using public data) and partly due to other indicators (like retail owning over 10% of float as of last earnings report).

> The assumption hasn't been disproved so far

This assumption is disproved every day by publicly available short interest data. If you operate on the assumption that all official data is false you can make all the wild claims you want, but you're not being serious and your theory is unfalsifiable.

It's entirely falsifiable in multiple ways: (1) a voluntary share recall triggered by GameStop would force an accurate share count; (2) an extraordinary action triggered by shareholders for a formal accounting; (3) a special dividend with no equivalent cash value (eg NFT); or (4) a majority of shares getting direct registered (DRS) with the company's transfer agent (ComputerShare) rather than through brokerages so that the unique market maker powers at the Depository Trust Company (DTC) cannot mask the underlying share count.

I will also say: you can read SEC sources about RegSHO limitations about how short interest can be manipulated and masked through "Failures to Deliver" (FTD). So this is not exactly an assumption, more of a preposition about magnitude.

> If you operate on the assumption that all official data is false

This is a strawman. It is possible to believe (and there is motive and opportunity in this case) that one "official" statistic is manipulated or does not show the whole picture without being a raving conspiracy theorist who trusts no official.

> Price discovery is broken when large market participants and market makers have access to mechanisms that enable unlimited shorting.

Actually, it's the other way round: you can only have accurate price discovery if people can take both long (buy) and short positions (short sell). If shorting is restricted, price discovery is much less likely, since only current owners of the shares can sell them. That's like only allowing current owners of the shares to buy more of them.

I think it's more that by law, long positions require disclosures, while short positions can be, and mostly are, opaque.

The more opaque information discovery is in general, the less accurate markets are in the short term.

The OP you are replying to here is obviously talking about shorting MORE than 100% of the float, which indeed should not be possible.

You need to stop getting your information from wsb conspiracy theorists. Here's an example of perfectly possible 200% float short:

Acme Corp has exactly 1 share of float, owned by Alice.

Bob borrows the share from Alice and sells to Charlie.

Diana borrows the share from Charlie and sells it to Eve.

Bob and Diana are each short 1 share for a total of 2. Total short position is 200% of float.

The better indicator of sketchy activity is FTDs, which may indicate that people are selling short without a locate.

Shorting more than 100% is absolutely possible and the reason it is possible and normal is explained in the SEC report.

600% from where it sat before the craze, which was the market price for a failing company. The company has seen revenue decline by 40%, lost roughly half a billion dollars in both 2019 and 2020, their EBITDA is negative, cash flow is negative, their margins are negative and falling. Their only plan to turnaround the ship so far seems to be entering the NFT market...

> subjectively high chance of having a real stock squeeze

Ha, that explains a lot. The only way to believe the stock will go up, is the fairy-tale short squeeze. The current valuation is extremely generous based on reality.

>market makers have access to mechanisms that enable unlimited shorting.

Uhh, what?

Market makers are allowed to be temporarily naked short because it's required for them to do the job they're supposed to do - provide liquidity. A market maker can sell short if they don't have any stock because they will almost certainly be buying it soon after. There's no evidence that any market makers are abusing this privilege with GameStop.

Yeah; it's not exactly what I'd called "unlimited shorting"; all of the pre-borrow and closeout requirements from Regulation SHO apply ... plus, as you say, the market maker exception is specifically there to stabilize markets by providing liquidity in the face of sudden rushes to buy.

I guess one man's price stabilization is another man's market manipulation.

It also needs to be mentioned that the entire business of MMs is to capture the spread by buying at the bid and selling at the offer. As such, they are passive market participants who will only transact if someone executes a marketable order against one of their resting orders. This means, they can only be as (naked) short as someone else is willing to buy from them. But they are also not interested in having directional exposure and will go to great lengths in order to balance their inventory.

The idea that MMs would somehow use their privilege to actively sell massive amounts of non-existent shares into the market in order to manipulate the price downwards is preposterous. That is literally the opposite of their business model and such activity would certainly be flagged by regulators.

Right - the entire Volcker reporting framework would instantly reveal anything of that nature.

Honestly it feels like a lot of the conspiracy theories around these meme stocks are based on reading a lot into a very narrow slice of regulatory text without any real understand of the whole.

This poster knows what they're talking about. The market making exception is there to prevent liquidity completely evaporating as it did during the flash crash. It's not there to encourage them to bend the rules -- it's to compel them to trade when it might be unprofitable.

Every trade has to be marked correctly, whether it's short with a physical locate or short on a riskless principal basis. Equity swaps trade and are marked as riskless principal trades (ie. they're fully hedged positions and the short position is the market maker's aggregate short position). That information gets aggregated at client level and reported to regulators.

After Dodd Frank equity swaps and rehypo became even more heavily restricted. Swaps go through a clearing house and rehypothication was basically dead the last time I worked in the industry (though that might have changed).

I'm 99% sure that the speculation about the "elites" and their sinister role in GME's trading activity is simply caused by booking errors and/or aggregation mistakes.

I think it's also worth pointing out that when selling short (naked or not), there's a big difference between adding liquidity and taking liquidity, and market makers are primarily (if not exclusively) in the business of adding liquidity.

If you're taking liquidity (i.e. "I want to sell right now"), you're directly applying downward price pressure to the market, by removing shares from the buy side.

If you're adding liquidity ("I'm selling, but I'm waiting for a buyer"), that's likely to have much less (if any) effect on the price.

> a market maker engaged in bona fide market making, particularly in a fast-moving market, may need to sell the security short without having arranged to borrow shares

It's literally called the "madoff rule" and the "madoff exemption" because he's the one that pushed the SEC to allow it.

https://www.sec.gov/investor/pubs/regsho.htm

What exactly is a "600% valuation"? In 2020 Gamestop was valued at a level that implied bankruptcy within two years.

Their financials still imply eventual bankruptcy at the moment, even after the massive windfall from stock appreciation.

A lot of people got in when the stock was near the peak so they were left holding the bag. They're holding, hoping for a potential return on their investment as selling now would be at a loss.

I can't speak to the claims about potential profitability of GameStop's business ventures, but one theory endorsed by a lot of the /r/wallstreetbets and /r/SuperStonk redditors is that hedge funds still have significant undisclosed shorts and we have yet to see the "mother of all short squeezes" (MoASS), in which case the stock price can be well in excess of what is justified by future profitability.

Related to this theory, a lot of them believe the ease of closing short positions is facilitated by shady phantom shares and are trying to stamp that out by directly registering shares with the broker Computershare.

Disclaimer: I own GME stock.

He genuinely made a case for a better valuation, but the case was on its face ridiculous. Correct me if I'm wrong, but wasn't his idea that there is some big digital play for gamestop? Which...sure..maybe with huge investments, but they'd be going up against the stores already built into the major consoles and mobile devices, and then the number of major game stores available for a PC. I'll wager 1 GME: Gamestop will never be a major digital player and DFV's thesis was wrong.

No, the original thesis was solely to survive another console cycle. As I said elsewhere, the 2020 valuation implied Gamestop defaulting on it's debt in 2021, because most analysts didn't even expect gen5 consoles to have an optical drive. It all blew through the roof when Ryan Cohen stepped in and speculation on Gamestop entering new markets started.

The 2020 valuation implied that it's very likely Gamestop won't ever make much profit again, whether it bankrupts next year or 20, if it never makes profit the stock is worth $0. And as we've seen through the cycle, this was actually true. Gamestop hasn't made an annual profit in over 3 years. With this "undervalued" gaming cycle you talk about, they made $80m in a quarter which they promptly blew in losses the next quarter and are increasingly losing money, to the tune of $100m/quarter. Instead of a typical small cap value company that is making 15 P/E, Gamestop is doing the opposite and losing that much money, -15 P/E, in a dying, declining growth business. Feel free to buy shares for $100, where every year they give you $94 value back, to sell physical copies of video games... Those are the actual fundamentals.

Gamestop stock value represents a lottery ticket that they will ever make some money again. It's not worth much.

> whether it bankrupts next year or 20, if it never makes profit the stock is worth $0.

A business is at least worth it's liquidation value at any time. And $GME was trading near liquidation value. Feel free to read up on Cigar Butt Investing if interested.

> A business is at least worth it's liquidation value at any time.

Only if majority shareholders will actually liquidate. If they are set on a futile attempt to light the money on fire, you don't have that $100 you lent your cousin Johnny to start his door-to-door knife selling business anymore...

It is actually astonishing how much GME/WSB'ers have continuously gotten wrong from this saga and keep trucking along in cognitive dissonance: alleged Robinhood + Citadel collusion, not understanding DTCC collateral requirements spike, short sellers / "wall street" covering and going bankrupt anyday now... First QAnon, then most of these WSB'ers probably derided QAnon'ers imaginary conspiracy world, only to jump on board the same flavor a months later?? Internet is doing some damage.

All my comments were in regard to the original thesis by Roaring Kitty, that it should trade at least in the $20s instead of below $5. I don't understand why you keep making references to current price and the resulted community, which we can agree is full of BS.