Gamestop (GME) and other retail location stocks have had a very rough year. With everything moving online, then with Covid hitting, profits were way down. In fact, GME was losing money.

Smart money (Hedge Funds) have been betting against retail all year. GME in particular was heavily "shorted". That means big institutions like hedge funds were selling shares they did not own. We can do that as well, but when we "retail" investors do it we have to borrow shares first (and pay "rent" on them). Big institutions do not have to borrow shares.

In the case of GME, around 100 million shares were shorted (most just made up). There were only 70 million shares outstanding. GME was on the way to bankruptcy and the hedge funds licked their lips. Then GME partnered with MSFT to change their business model. We don't know if it will work yet but the shares started rising from $10 to $20 a share.

Wall Street Bets (WSB) is an online group of retail traders who like to take some risks. They saw GME had 140% short float on the stock and decided they could make some of the short-sellers have to buy pushing up the stock. You see - if you have sold the stock and have to buy it later, you have to keep some $$ around to buy back the shares. As share prices rise you need even more $$ to buy the stock.

On Friday and over the weekend WSB got enough people purchasing that the share price in GME soared. Some hedge funds did not have enough $$$ to buy the stock and had to be bailed out by other funds. With the bailout money, they had to buy shares at a now inflated price. This pushed prices higher and is called a short squeeze.

Let's look at the numbers for today. GME at $300 a share. 300 - 20 (share price of short-sellers) = $280 in the hole per share. Times that by 100 Million shares and we have $28 Billion dollars worth of losses for hedge funds. On top of that, hundreds of thousands of options contracts that equate to a similar number on top.

Now we are in a position where other funds are looking at what they have shorted ... a ton of stocks - a lot of retail ... and don't want a short squeeze to happen to them. So big investors all over the place are covering their shorts. But to do so you need to have capital. Where do they get this capital? They have to sell other assets. This selling of other assets to cover shorts was a reinforcing cycle. Add onto the top all of the algorithm trading that saw the selling and jumped in.

Now we are down 3% across every market except the set of assets that had the worst financials - because everyone is too scared to keep shorts on. Nobody knows when it will end, but end it will with the majority of the inflated assets back down to near they were before.

The fallout very well may trigger a market correction, so be careful out there my friends.