Tuesday - April 18, 2023
Today's newsletter will take 7.83 minutes to read if you actually read the entire thing.
DRS UPDATE: 54.83%* (estimated percent of GME shares direct registered)
On tap this morning:
GameStop NFT update
Did you know?
Serious Squeeze Talk
Good Morning! This is Mother Squeezer, the newsletter that is a little hard of hearing this morning after all of that volume yesterday, but still brings you updates and insights along with timely information about our favorite Activist Investor, Ryan Cohen, and our favorite stocks - GME and BBBY.
Wow - did you see that volume yesterday? BBBY traded almost 337 million shares. For a stock that only has a free float of 116 million shares, that's a bit excessive, don't you think?
Aside from the volume surge in BBBY, the biggest story from yesterday was released by Nordstrom. They reported that as of March 6, 2023, RC Ventures has a 4.2% stake in the company. After seeing the attack that BBBY has received, we're not suggesting you rush to buy shares.
It's too early to tell what his motives are. Some believe it's to oust the former CEO of BBBY and now Independent Director at Nordstrom. Others think he's looking to expand the baby market that Nordstrom has developed. We're unsure. What we do know is that it seems there's something bigger going on and we're only able to see a few of the dots.
Monday Recap: BBBY traded between a low of $0.24 and a high of $0.32 before closing at $0.28. Trading volume was 336.55 million shares.
Cost to borrow: There were 3,600,000 shares available to borrow this morning and as of now, 3,500,000 remain. The cost to borrow has remained elevated at 21.3%.
Pre market: Bed Bath and Beyond is trading up $0.03 to $0.31 an increase of 8.85% on over 13 million volume.
Max pain: The current max pain for BBBY has remained at $0.50.
Monday Recap: GME traded between a low of $22.14 and a high of $22.68 before closing at $22.28. Trading volume was 2.07 million shares.
Cost to borrow: There were 600,000 shares available earlier this morning. Currently there are 450,000 remaining. The cost to borrow has remained elevated at 11.3%.
Pre market: GameStop is trading up $0.11 to $22.39 an increase of 0.49% on around 11 thousand volume.
Max pain: The current max pain for GME has remained at $22.50.
Get rolling with these adorable dice from the @dTweenies collection🎲
— GameStopNFT (@GameStopNFT)
Apr 17, 2023
They are cute!
Did you know?
Nordstrom is a luxury department store chain based in Seattle, Washington, that was founded in 1901 by John W. Nordstrom and Carl F. Wallin. Initially, the store focused on selling shoes and eventually expanded to clothing in 1963, becoming the Nordstrom full-line retailer by 1971.
The company also operates its off-price Nordstrom Rack division, which was founded in 1973. Nordstrom has expanded its presence throughout the United States and into Canada since its inception, competing with other department stores like Bloomingdale's, Macy's, Neiman Marcus, and Saks Fifth Avenue in the American market.
Serious Squeeze Talk
u/Region-Formal posted this yesterday which reminded us of what can happen. It's lengthy but very exciting!
So you're worried that even if this thing squeezes, given how low the share price has fallen...it still won't even cover your cost base? (Let alone whether it will be enough to mean you won't ever have to work again for a living...)
See the title. It is a very real fear that many or even most of you must have. Any rational mind - myself included - is probably thinking this, and it is completely understandable. The share price has fallen off a cliff in the last 2.5 months, to the extent that the OG in this stock (such as myself) are deep in the red. Hence even if we were to squeeze, would it be enough to make this a profitable play? This post attempts to answer that question, although as I will explain: the real answer is more down to YOU!
1. Squeeze Me, Baby...
Whether we come out of this ahead boils down to if the stock squeezes. But what does that mean? What exactly is a 'Squeeze'? There are, in fact, four main kinds:
This is not so much a stock market squeeze, but that of a company's competitors. By creating superior products and services, being a pioneer for developing certain technologies, holding unique intellectual propery, or simply by squashing rivals through buyouts and skulduggery, a company could put itself far ahead of the competition in their field. By doing so, they can create a huge 'moat' between themselves and any threat to their supremacy. If that continues for a long duration, typically the company (if it is publicly listed) sees a continous increase in their stock price e.g. Apple over the last 15 or so years:
Fear Of Missing Out. It is a very real emotion, and I am sure many or most of you have fallen prey to this at some point in your amateur trading careers. Typically such a scenario occurs when an equity has a very sudden increase in its price, attracting media interest and generating word-of-mouth. Greed is one of those human feelings that is difficult to control, and the irrationality can cause even normally "stable and boring" minds to chase a quick buck e.g. Bitcoin has probably seen multiple such squeezes just in the last 5-6 years or so:
A Gamma Squeeze can happen when traders who own Call Options contracts try to force the price of the underlying asset to go up in order to make a profit. This can happen when there is a sudden increase in demand for the options contracts, bringing Call Options 'In The Money'. As the price of the underlying asset goes up, more Put traders may thus need to buy shares to cover their positions, which pushes the price even higher. This can lead to a rapid increase in the price of the asset, which can be profitable for the traders who own the Call Options contracts e.g. AMC Entertainment in mid-2021:
This is when traders who have bet against a stock by borrowing shares and selling them (known as Short Selling) are forced to buy those shares back at a higher price than they sold them for. This can happen when the stock suddenly becomes very popular and many people want to buy it, causing the price to go up. The short sellers may have to buy the shares back to limit their losses, which creates more demand for the shares and pushes the price up even further. This can continue until all the short sellers have bought back their shares e.g. the then heavily shorted Tesla for around a 2 year period from the start of 2022
2. So which of these Squeezes could BBBY undergo?
In fact, potentially all of them! In fact, with the very sequence shown above i.e. Competition Squeeze --> FOMO Squeeze --> Gamma Squeeze --> Short Squeeze. In BBBY's case, the Competition Squeeze may come about from mere confirmation that the company will survive, in either its current form or another. BBBY operates in a category where it is far and away the market leader, and in BABY possesses a subisidary which is the same in its own field to an even greater extent. Hence if the thesis that the company will no longer be able to survive ceases to be a realistic scenario, we could very well see such a step-by-step domino effect.
If you have followed by various DDs over the last few weeks and months, you would know that I am bullish on BBBY's survival. A thorough study of the various filings since February has led me to believe that a certain mystery investor has been actioning an acquisition of the company, using Hudson Bay Capital and B. Riley as proxies. I have even more confidence in this theory due to more 'Easter Eggs' that I identified in additional filings made just prior to the Easter weekend. The subsequent supplementary filings also appear to point to the same conclusion, as is my take on why BBBY's CEO conducted a public interview last Friday, when this was not really necessary.
Hence if we were to get a bullish announcement that tips the first domino, it could very well trigger a snowball effect that leads to this above described sequence. What could such an annoucement be? As I presented a few weeks back, that annoucement is likely to be be in the form of a "Fundamental Transaction". Through this, BBBY may undergo an acquisition, instigate a spin-off, carry out a carve-out, or potentially a mixture of some or all of these. Whatever the exact nature of the "Fundamental Transaction" may be, or who the mystery party or parties are behind it, step-by-step a dismantling of short sellers' thesis may well ensure.
But I believe it is not just a four step process of Competition Squeeze --> FOMO Squeeze --> Gamma Squeeze --> Short Squeeze. With BBBY, I believe there would in fact be a fifth step...
3. Naked Short Squeeze
"WTF is this?" I hear you say. Let us recap once more what a short sale is, as a visual diagram:
With a Naked Short Sale, however, the original lending does not occur:
Instead, the Naked Short Seller is able to receive a share from their broker - typically a Market Maker - without any need to borrow from a real share owner (or be the one and the same). The casino that is Wall Street, and the ludicrous laws that Washington has used to prop this up, has resulted in Market Makers having the legal means to create company stock (basically) out of thin air. By so doing, they can satisfy the demands of Naked Short Sellers to a near-inifinite capacity, flooding the market with "fake" shares that are bought by yet more investors. Effectively this dilutes the stock, leading to its share price falling due to greater supply than demand, and thus in a position to drive companies even towards bankruptcy.
However, what if a "Fundamental Transaction" of such a naked shorted stock were to take place e.g. the company decides to spin-off a subsidiary or business unit? In such a scenario, the company would issue shares of the new firm it is spinning off, in a proportion equal to the number of shares outstanding of its own stock. Hence all the 'Market (Buyers)' in the above diagrams would be expecting to receive shares of the spun-off firm, as is their right. But as you can see, these shares held by the 'Market (Buyer)' were created by Market Makers, and thus synthetic. Therefore not ones which the company would issue shares of the spun-off company to...because they are NOT in the company's record of shareholders...
Nonetheless, due to the funfigibility of shares in the stock market - meaning every share is basically identical to any other share - these 'Market (Buyers)' would demand the stock of the spun-off company, in the event of this type of "Fundamental Transaction". However if the company has not spun-off their subsidiary just yet, and thus not released the new stock just yet, then the Short Sellers - as well as their Market Maker cronies - have a real problem on their hands! The company would only be issuing a limited amount of spun-off stock. most likely nowehere near the amount needed to be distributed to all 'Market (Buyers)' in the case of a heavily naked shorted and diluted stock.
4. GME and the limits of dilution
So how about if the Market Makers just create shares of the new, spun-off company's stock out of thin air again? And following that also distribute these synthetic shares of the spun-off firm to to all the Short Sellers, so that they can pass these onto shareholders. This would allow the Wall Street masquerade to continue unabated, and preclude Short Sellers of the original stock from having to buy real shares of the spun-off firm, to distribute to 'Market (Buyers') of the original stock, thereby preventing a Short Squeeze.
Although this sounds possible in theory, we know for certain that there is a limit to how many shares Market Makers can create out of thin air. The reason we can be sure of this is because if that were the case, companies such as GME and BBBY would already have been 'cellar boxed' into bankruptcy. Avs evidently that is not the case, clearly three is a limit to how much "black magic" those entities can carry out, at least to the extent that they cannot create an inifinite number over a short duration.
Further evidence of the limitatons of Short Sellers and Market Makers to create inifite numbers of synthetic shares is evidenced by the events of January 2021 with GME stock:
The fact is that the Wall Street cretins lost control of their ability to manipulate the stock price through continued Naked Short Selling. My own theory is that there is a limit to how many synthetics they can produce over a certain period of time, to the extent that when demand exceeds their ability to create these out of nothing...it is panic stations!
By early 2021 it was clear that GME, with Ryan Cohen at its helm, it was clear that the company was no longer going to go bankrupt. Thus a Competition Squeeze --> FOMO Squeeze --> Gamma Squeeze --> Short Squeeze --> Naked Short Squeeze domino effect commenced by mid-January 2021. However only at the very early stages of a Gamma Squeeze (potentially even before that), the Market Makers lost their ability to create sufficient synthetic shares in high enough quantities to meet retail investors demand...leading to the "nuclear" option of turning off the 'Buy' button to prevent their doom:
Thus I believe if a similar snowball effect now commences with BBBY, it is not going to be possible for Market Makers to produce enough synthetic shares to meet demand. In particular, if these shares are having a new CUSIP number - for example of a successor company following an M&A, or of a spun-off or carved out firm - then the task is even more difficult. Hence it is my firm belief that if BBBY undergoes a "Fundamental Transaction", a five-step squeeze will be triggered: Competition Squeeze --> FOMO Squeeze --> Gamma Squeeze --> Short Squeeze --> Naked Short Squeeze
5. How Naked Shorted could BBBY be?
A 'normal' short squeeze could ensue when the share price of a 'high' short interest stock begins to rise, causing a feedback loop that forces short sellers to re-purchase more and more of the stock. Traditionally the definition of 'high interest' was typically a figure of around 20% or higher of the remaning float. Many of the famous Short Squeezes of yesteryear have taken place when short interest has reached such a level, and sometimes not even at that mark. For example, perhaps the most historically famous short squeeze, that of Volkswagen in 2008 occured when short interest in its stock was only 12%:
As I write this, BBBY's current short interest is now at a figure of about 17% according to Fintel. That is significantly down from 126% only three weeks ago, due to the continued announcements of additional shares being created by the corporate actions BBBY has been undertaking. However, some of you may recall a post I made then using various publicly available data, that hypothesised that as many as a billion synthetic shares have been sold to investors:
We do not have means to know the true figure, but I bet it is way, way, WAY over the number of shares outstanding. And if a "Fundamental Transaction" of BBBY is indeed announced, a squeeze could and probably would commence requiring all these to be turned into "real" shares...
6. So how high could this thing go?
However that is where the Short Sellers and Market Makers, of course, would have a problem! If the number of shares they have sold is a multiple of shares outstanding, but each of those share owners expects (for example) the same number of shares of a newly spun-off firm, then how will they deliver these? As I theorised earlier, there is a limit to how much synthesising of new shares out of thin air they can effect. Hence the options may be to try and commit crime once again - which would be extremely difficult now, given they already played that card with GME - or the alternative: attempting to purchase 'real' shares in the open market.
And that is where you BoBBYs diamond-handedness will matter, for it is really up to shareholders to set the price at that point. If there are enough of you that just refuse to sell, true market mechanics dictates that the asking price would have to continue rising and rising (and rising...) It then becomes a psycholigical game of who can HODL on, and in how many numbers. If both are sufficiently high, then this thing will go beyond what GME experienced in January 2021, and move well past the makings of a Gamma Squeeze to a 'normal' Short Squeeze, and ultimately a true 'Naked Short Squeeze'.
What could that mean for the price? Let me leave you with a post I made a couple of months ago, which went into some detail into various squeezes that have taken place in just these last three years. Specifically the example I turn to is the "truest" of those squeezes, in my opinion, which took place just last year:
The final example I want to give is not from the US at all, with its corrupted protection of Wall Street, but South Korea where financial regulations seem to applied as they should be. Hence to show you how a "true" short squeeze could play out, free of government intervention or criminality, see this article below referenced in my previous DD on the potential effects of non-Cash M&A deals:
Both stocks here experienced enormous short squeezes, for DIAC leading to a 70x price increase on Short Interest of only 5%. But let me save the best for last: Dual's short squeeze from the same M&A saw the price increase by 1500x. Yes, you read that correctly - one thousand five hundred times*.*
There are four main types of squeezes - Competition, FOMO, Gamma, and Short Squeeze.
BBBY could undergo all four types of squeezes, potentially leading to a step-by-step domino effect that could make the stock price rise.
A bullish announcement of a "Fundamental Transaction" that BBBY may undergo, could be the tipping point for the domino effect.
In that case, I believe that there would be a fifth step - a Naked Short Squeeze.
BBBY's true short interest is at a level - potentially with well over a billion synthetic shares in the market - which could be uncontrollable for Market Makers, in the even of a "Fundamental Transaction".
Thus if such a scenario were to take place (e.g. through an M&A, Spin-Off, Carve Out) then it is very likley a five step squeeze would occur.
At that point the price is very much dependant on how hard and long shareholders are prepared to HODL onto their shares.
If some of the past such squeezes are a guide, then be prepared to say goodbye to your current life as it is.
Read the full discussion here.
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We love Ryan Cohen and think he's the greatest Activist Investor of our generation. We are passionate followers of his moves and words and would love for others to know more about this great leader. We feel strongly that life is all about learning who to follow. If you have someone that needs more RC in their life, share Mother Squeezer with them!
Some of our Favorite Resources
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Financial Disclaimer: None of this is meant to be financial advice. We love Ryan Cohen, RC Ventures, GameStop and Bed Bath and Beyond, and like learning and sharing these insights and commentary.