You've probably never heard of the business called Gamestop. It sells video games across the United States. Gamestop is losing money and plans to close over 450 stores this year.
And yet the losses the company is making don't compare with the billions it is costing some of the largest Hedge Funds in the world.
This is a true David and Goliath tale fought on the boards of the New York Stock Exchange.
Gamestop is a failing company in a declining industry. Their stock price was expected to grind lower and lower over time making money for the short-selling hedge funds.
These funds, borrowed Gamestop stock from other investors, sold them on the market expecting to buy them back at a lower price and hence make a profit.
Then a strategic investor stepped in and purchased a large slice of the company with plans to make it an online retail rival to Amazon. The stock price soared.
The hedge funds doubled down on their bets, piling on more shorts. At this point this is a normal battle over the direction of the company. But its also where it gets interesting.
A popular 'forum' for keen daytraders is known as Wall Street Bets. It boasts a user group in the millions of people. Through the power of millions of small purchasers, they started to buy Gamestop stock.
As the stock price continued to rise, the short sellers had to make margin calls or buy the stock back. This put more upward pressure on stock prices delivering a self-reinforcing feedback loop.
The daytraders encouraged each other to hold the stock as the price soared and they advised their brokers to not allow their holdings to be used as a loan for short sellers. Again, this drove the price higher.
One hedge fund had to receive a $2.7 billion dollar capital injection to stay operating. Another is rumoured to be on its last legs.
And still the price is climbing. From a low of around $3.25 last year, Gamestop stock traded as high as $377. That's a hundred fold increase!
Little wonder the short sellers are hurting.
So how is it going to end? Like every other financial battle. Some people will make money and others will lose.
Here's my expectations.
The first wave of short sellers will lose a pile of money. Others will then enter the game and eventually some of them will make an enormous amount. It could be the second, third or fourth wave of shorts that make it with more losers along the way. Timing is everything when it comes to short selling and making money.
However, human nature virtually assures some of them will make a killing.
That's because the mass of Wall Street Bets punters will want to sell at some stage to make off with some gains. A trickle of sellers will eventually turn into a flood as buyers dry up and the shorters hang out for maximum profits by waiting for ever lower prices.
The rush to the exits for the small players will see a waterfall decline in price. Many will rue their missed opportunity by waiting too long while others will have made millions.
It's only a question of when. The forum crowd say they are holding out for a stock price of $1000 before they sell. My bet is most of them will be looking to offload well before then.
In this battle, the opposing armies of David and Goliath will contain both the winners and the losers.
Addition: There is so much more to this story and will write a new post but this on air meltdown by Jim Kramer says it all "Forget the Investors" .
See how passionate he is to protect the bankers and hedge fund owners. The system is clearly stacked against us in favor of the establishment.
Cory Bernardi is the author of seven books and has been a member of the Australian rowing team, a publican, an investment portfolio manager and spent nearly 14 years as an Australian Senator.
