dChan
Anonymous ID: 34d4cb Jan. 28, 2021, 5:16 a.m. No.12741948   🗄️.is đź”—kun

Very good comparison for those not familiar with short squeezes to understand what's happening to GameStop

 

Here's How the GameStop Short Squeeze Is like the VW Squeeze of 2008

 

https://www.autoweek.com/news/industry-news/a35340727/heres-how-the-gamestop-short-squeeze-is-like-the-vw-squeeze-of-2008/

 

As unprecedented as the situation seems at the moment—and it is, since such coordination among retail investors has been rare—it's similar to something that happened to Porsche and Volkswagen more than a decade ago, though for different reasons.

 

The starting point for the short squeeze at that time was Porsche's desire to accumulate more voting rights in Volkswagen. It did so by buying up VW shares in an effort to gain a greater foothold in the company, which at the time was a frequent but unrelated business partner. As Porsche started buying up VW shares, seeiking more voting rights and control of the board, VW stock price continued to inch up through 2006 and 2007, going from about €30 in 2005 to over €150 by 2007, seemingly absent any outside reason. The stock began to appear massively overvalued, and hedge funds took notice and began shorting the stock, betting that it would go down eventually.

 

The squeeze itself happened in late 2008. By that time VW became the most valuable automaker on the planet thanks to its stock price having skyrocketed, while the short position had ballooned to 12% of outstanding shares. The kicker was, Porsche had owned 43% of VW shares and also another 32% in share options. The German government, however, owned another 20.2%. This left very little that could be purchased by anybody else. This disparity caused short sellers to rush to buy more stock to cover their positions, driving the stock price further still through the month of October 2008, with VW stock price now hovering just above €900, and at one point exceeding €1,000 in intraday trading.

 

The end result was that hedge funds that had been shorting VW stock had lost some $30 billion in the process. The result for Porsche was that it had been able to make billions in just a few weeks at a time when the auto industry was doing exceptionally badly in car sales.

 

Porsche had effectively made more money in trading stock than in selling cars—and it's not dissimilar with what has been happening with Tesla stock in the recent months, either, with Tesla becoming the world's most valuable automaker. The common thread is that those who had been shorting Tesla stock over the past few years have absorbed significant losses in the process, spread out over a longer period of time.