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GameStopE2: The GME & CHWY Correlation (Edited/Re-released)
23 Plays4 months ago
Deep dive on all factors that cause GME & CHWY to have direct and inverse correlations.
Image Credit: Iuliia Duzhnikova
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Transcript
00:00:01
Speaker
A. A. A. Magnificent shit. A. Magnificent shit. day i give the shit the shit hey i give the shit
00:00:32
Speaker
<unk> magnificent episode and we're going to keep going with gamestop i'm still obsessed i still need to know what the hell is gonna happen here So I'm gonna stick with it until I get the answer. And this one is gonna be more specific on ah the relationship between GameStop and Chewy. And I'll back up even further and say, I kind of, when I try to understand what's unfolding here, I break it down into two categories. There's the category of what Ryan Cohen and the GameStop leadership is pursuing, what their goals are, what their strategies are for that transformation.
00:01:11
Speaker
and then separately other category. um We've got ah Deep Fucking Value, Keith Gill, Roenkeria, whatever you want to call him. He is his own category where he is a very influential, influential.
00:01:27
Speaker
influential investor. um So he's got his completely own strategy. He's not in cahoots. He's doing his own thing. He's not transforming game. He's just understanding the larger strategies at play here and all the other parties that are involved um for and against GME.
00:01:48
Speaker
and he's trying to play accordingly. So that's that the latter category. ah Deep fucking values, um strategic investment, ah and like all of his strategies around his investment with GME and Chewy, that's what we're going to be looking at in this episode.
00:02:05
Speaker
um I would like to say Shinashina Hala. That's a Swedish greeting. i got After my first GameStop podcast episode, I got one person to respond and they're from Sweden and they said this was not for them and I don't blame them whatsoever. This episode is not for many, um not for many people. Probably, you know, it might not even be for anybody.
00:02:35
Speaker
So it's a zero budget, negative budget podcast. If you really want to think about it, make a zero money on this. Just, I think it's fun to vent my um passions and obsessions. So good outlet for me. But anyway, shout out to the Swedish listener there. um Also, I was looking at the analytics here. Kind of cool. There are five downloads in Germany.
00:03:02
Speaker
and like, I don't know, a dozen or six or so in the US. So shout out to the German apes. Shout out, thank you for listening, very cool. um While I'm doing shout outs, I'm just gonna keep going. Shout out to Richard Newton, incredible content. If you haven't watched any of his videos and you're interested in GameStop, watch his videos. I finally watched one of his videos. I didn't know what to expect.
00:03:30
Speaker
I assumed um it would be more like hype-related videos, so I just kind of stayed away. But then, ah you know, Humblebrag, he did kind of ah highlight one of my posts in one of his videos, and and somebody on ah the GameStop enthusiasts community let me know, so I watched the video, of course, had to.
00:03:56
Speaker
And I was blown away. ah Richard Newton, I mean, to do a daily GameStop YouTube video is incredible. I just thought what could he be talking about? But he has so much to cover in 30 minutes every single day. There's so much to go through.
00:04:13
Speaker
And he does an incredible job of just looking at all the relevant data points and going through them one by one and how it ah relates to GameStop. And then he has views of upcoming catalysts and which ones are bearish and which ones are bullish. And he has such a very detailed history of GameStop. And I think his spreadsheet, it's just so deep. there's It's just so good.
00:04:38
Speaker
and the way he does it. um Genuine person, got to support the genuine people. And yeah, absolutely check him out. Humblebrag, he did highlight one of my posts, I was pretty pumped about that. I've only been involved in Reddit, um I guess, longer term lurker.
00:04:56
Speaker
But more recently, I've been um you know active in there doing posts ever since DFV returned. And that's when I got interested. I guess the way I'm going to try to organize this in my head, we're going to go through a lot. We're going to have some fun looking at some old DFV memes where he brings our attention two Chewie and two GameStop back in 2021. So we're going to push on that a little bit and then bring it to today where he obviously has a huge position in Chewie today as well. So trying to understand what he sees and what levers he's going to try to pull with both of his large positions. um I'm going to i'll try to simplify this in a little bit better with additional content.
00:05:46
Speaker
and my first ever super stonk post, I finally have enough karma for that. So that'll be there. That'll be interesting. um Other random thoughts. Let's see. I thought it'd be funny. This is probably not worth, ah you know, interject, like probably not worth talking about right here, but I'm just going to, cause it was kind of funny. um The games, there's like GameStop meltdown community.
00:06:14
Speaker
And I don't think they're hostile people. um They do a great job of calling out, ah and this is good on on every side, calling out people that might be a little off the the edge of.
00:06:28
Speaker
you know, maybe just going through certain episodes as it pertains to the GameStop saga. And I think people can get there anywhere in any community and just kind of become a little unhinged. So they're calling people out there, which is great. If I get unhinged, I would want to be called out too. And maybe I get on their radar and they start doing that to me. But I doubt it. I doubt I'm going to get that big. But I thought it'd be kind of fun to post in their community and invite them to ah to put me in their crosshairs and then say, you know, I'm i'm um talking about GameStop, I'm passionate about it, I started a new podcast, but then I was gonna link my poopisode, which is just 30 minutes of dudes talking about poop and poop stories.
00:07:17
Speaker
and different ways to poop and all sorts of things. um Which is really, it just highlights from the very first season of Magnificent, which was focused on fantasy football talk. But when you get dudes together, you just tend to talk about shit a lot, especially when the title of the show is Magnificent. So I archived that first season and I grabbed all the highlights of all those poop stories into one Magnificent episode called the poopisode.
00:07:43
Speaker
So fun little way to engage with that community community. I thought we'll see. I don't want to, you know, not trying to do anything petty or anything like that. But if I can do it in a playful way and I feel like the community is honestly less toxic than I initially realized, um I think what they're passionate about is.
00:08:03
Speaker
you know people that look at GameStop as a get-rich-quick ah scheme, which it's not. um Spoiler alert, it's not. ah you know And and like their whole thought is people think they're trying to um target the people that think it is a get-rich-quick scheme, and um ah they're upset about people that invest that way without any strategy or due diligence or anything like that. So I think that's a fair call-out.
00:08:33
Speaker
I'll give them that, it's a fair call out. And what I will say, um counterpoint here and just to highlight the incredible community on the GameStop side, very passionate about GME.
00:08:45
Speaker
I would say my interest in this entire story since DFE came back has helped me become far more knowledgeable about the stock market and all the parties than I ever imagined I would be. So I would argue um me following GameStop made me extremely, extremely knowledgeable ah Helps me ah create a thesis and help me understand the larger parties and strategies that exist. And ultimately, I don't think I ever want to invest in the stock market ever again after the story unfolds. So terrified by all the odds that are against me after that deep dive. um So I thank GameStop for that. Thank you. Who knows how much money that could have potentially saved me in the future? Who knows?
00:09:35
Speaker
Anyway, um so yeah, shout out to them, but mostly, mostly a shout out to GameStop underscore enthusiasts. Great community. I'm very active there. I love um obviously GME community, super stonk, lots of great communities, learning a lot about Reddit. It's been the blast.
00:09:51
Speaker
Okay, so that was quite the tangent. um Okay, so let's get back to this Jimmy and Chewy relationship. This is what we're gonna focus on. um Obviously, I'm just talking about speculation. I'm talking about memes. We're trying to understand what's unfolding here. I'm not trying to um make any predictions.
00:10:16
Speaker
So none of that, none of this, I feel like everyone has to explain and have a disclaimer. No financial advice. So obviously not. I'm just fixated. I want to know what the hell's going on and I'm trying to cover that story. None of this is looking at strategic financial investment decisions or anything like that. So if you're here for that, then you can leave. Do your own due diligence ultimately whenever you're doing an investment and trust yourself, nobody else.
00:10:46
Speaker
Okay, another disclaimer. Let's do a disclaimer for tinfoil because that's part of the the speculation. ah What's incredible about these cryptic mean memes that diet deep fucking value creates some posts on Twitter.
00:11:02
Speaker
ah There's just so many different ways you can interpret things and so many different ways you can stretch the tinfoil for it to kind of mean it's related to this theory or that theory and like pulling numbers and dates and all this stuff. There's some very creative tinfoil out there. I'm going to try to rein it in as much as possible when I go through this stuff.
00:11:25
Speaker
and try to stick to what I think is obvious. But of course, um it it might not be depending on who you're talking to. So that's the tinfoil disclaimer. And hey, I got a look at this. um I'll go I have a couple Swedish ah notes here. So cope into Greece in a socket. I don't know if I said that right.
00:11:49
Speaker
But that says don't buy something without having inspected it first, which is ah one of the top Swedish sayings um that I Googled. um So that one goes back to the financial advice. And then, Smacken ar som bakendilad, which means taste is like your bum, it's divided. So that's, you know,
00:12:12
Speaker
I thought that would relate well to the tin foil disclaimer. Um, there's a lot of opinions. They're all divided. So we're kind of, we're going into these polarizing discussions here, which is fine. Um, I don't care which slide you're on. I think we're all in this together. So it's all good. Um, but yeah, okay. So I'm going to start, we're finally getting into this episode.
00:12:36
Speaker
13 minutes in. um If you're still with me, thank you. So we're gonna start looking at this from, it's gonna start with a DFV meme back on March 30th, 2021, titled The Season of Perpetual Hope.
00:12:52
Speaker
um which was a video, it was a clip from Home Alone where Kevin's mom, O'Hara, I forget the actress's name, but she's incredible, hilarious, and a bunch of things like Schitt's Creek. um She's coming back home to see her son Kevin, who's been home alone, um you know, over the holidays. So she's trying to fly back, but flying back around the holidays is a nightmare. All the flights were canceled. She just had to get to Chicago from Paris.
00:13:21
Speaker
And she needs to get there, but cancellations. What she what can she do? She's upset. She's frustrated. And in the DFV memes, he does some subtexts that um he's kind of using these examples, but then showing us what the metaphor for certain things are and the meaning there. So that's where a lot of this gets um polarizing, where some people get different interpretations. But when we look at this one, what I think is obvious, um And it says in the text, where Kevin's mom represents bag holders who are trying to get back to their cost average. And that's what a lot of the text says. She just says, I need to get back to my cost average. I was an investor in early January, 2021 when GameStop had the crazy, you know, three digit spike. So a lot of people bought in there and then it plummeted and they were caught holding the bag with a bad investment.
00:14:13
Speaker
Um, so then what happens is John Candy over here's and in that clip in Home Alone, John Candy is the poker master, the poker king. He's a, he was a hit in Sheboygan, Wisconsin. Great, great part. I think I read that, uh, John Candy actually improv that whole thing. Anyway, so John Candy comes up over here's and in this meme, he represents the fucking value of Keith Gill, Rowan Kitty. That's who he represents in this meme.
00:14:43
Speaker
He says, hey, I can't help it over here. You're trying to get back to your cost average. We have a crisis ourselves. um And if you'd like, we could try to get you back there. It might take a while. I don't know how long it's going to take, but he points and he's like, see that guy over there? um By the chewy sign is what he says. But in the movie, it's the budget, the budget car rental sign. um They're essentially going to rent this car and drive back to Chicago. And the metaphor there is,
00:15:12
Speaker
using Chewy as a vehicle to get back to the cost average from January 2021 in some way, shape or form. And it says not sure how long it's going to take. um But we hope we can do it, so to speak. So very powerful, especially now. I mean, that was in March of 2021. Now looking at this in October of 2024.
00:15:35
Speaker
um With all the other information we have that's pretty powerful. So this is something deep fucking value saw way back then and He saw an opportunity and he's been thinking about this plan how he could use this Chewie as a vehicle um For quite some time So this is it. We're trying to understand what the hell did he see? And I guess one other thing I'd like to point out. um It's interesting that John Candy in this meme has a jacket that has a beer glass on his coat. And I'll pause for a second because if you follow and we'll probably go into this in some other episodes.
00:16:18
Speaker
If you follow the emoji timeline, it ends with the beer cheersing emoji. So deep fucking value representing Keith Gill. Uh, John Candy has a beer on his jacket. So anyway, just pointing that out. Okay. So no guarantees. He expects Jimmy will get back to your, will drive you to your cost basis.
00:16:39
Speaker
doesn't know the timeline, but it's transfer transformation time. Okay, now one other call out. So that was a very big meme. um Just showing us, we're his audience. He's Keith Gill, Deep Fucking Value, showing us this relationship and plan and strategy around GME and Chewy way back in March of 2021, okay? So same day, Deep Fucking Value also posts another meme. This is just ah an image. It's not a video, but it's Chewbacca staring in the mirror at Buck the Bunny. And Buck the Bunny it was the GameStop mascot back back then.
00:17:18
Speaker
So Chewie representing Chewbacca and then GME you're representing Buck the Bunny. So why is Chewie staring at the mirror and seeing the reflection of GME? That's what that's representing.
00:17:31
Speaker
So there's some sort of relationship here that he is acknowledging on the same day in March 30th. So I was trying to look before and after if there were any other references right around that time. Didn't really see any before, um but on April 12th, so just you know ah less than two weeks later, there was a Top Gun meme. It was like a GIF where Tom Cruise was Kind of wiggling his hand, he says, oh, I was inverted. And I thought that was interesting because when you look at the correlations between the two takers of GME and Chewy throughout this time period, there's periods of, there's correlations, direct correlations and inverse correlations. So he goes, I was inverted.
00:18:11
Speaker
So this looks like it's kind of acknowledging inverted correlations between GME and Chewy, which makes sense when you think about Chewy looking in the mirror, which is an inverse um reflection, and that being GME. So this is starting to peak my interest. OK, so he's acknowledging some correlations between the two tickers. But let's dive in deeper. What are those correlations? When are they inverted? um Why are they inverted?
00:18:39
Speaker
What are all the different factors that can drive these correlations between two separate tickers? So that's what we're driving into. So just to look at over time, and now I'll shout out to bar chart. um Bar chart, there's a compare stocks feature that I looked at. So I wanted to compare GME and Chewy together. And then I can drag my mouse and it'll show me um up and down movement across both stocks during the same time period. So shout out there, not a sponsor.
00:19:08
Speaker
Nobody's paying me to talk. um So I just found that helpful. So I looked at the movement of both tickers since 2021 and I found inverse correlation um right pretty much right when the first squeeze happened for GameStop in January of 2021. At the end of the month, January 25, 2021 to September 3, 2021.
00:19:33
Speaker
And throughout that time, it's pretty clear an inverse correlation is happening. You see a pretty clear head and shoulder formation on GME, which is, think about it as one medium-sized spike and then a dip, and then one very large spike, and then a dip all the way back, and then another medium-sized spike, almost the same as the first ah spike. And that creates a ah formation that looks like a head and shoulders.
00:20:02
Speaker
So opposite, you kind of see ah inverse head and shoulders on Chewy during the same time period. It's not exact, um but it's very clearly inverse correlation. So you see that, um yeah, to January to September in 2021. Then in December, so it pauses for a little bit. And yeah, I think I had like this one is like only a week or two. So December 6th through the 20th, there was a Chewy spike.
00:20:31
Speaker
Um, before following GME again. So Chewy spike GME didn't, that's where you start to see some separation between the two stocks where there might be a very brief period of inverse correlation and then they just follow along together and create further, like more and more separation between their share price.
00:20:49
Speaker
So in very subtle ways, they could have like equal share price and then boop, one little difference. And then they like follow the same movement again. And now there's like five or 10 bucks in between the two. So then the only noteworthy thing, so is pretty much direct correlation until I called it flip mode. Shout out to another meme video. If you've seen it flip mode inverse correlation November 7th, 2022 to April 3rd, 2023. So quite a long period after a break.
00:21:19
Speaker
um of a long period of inverse correlation after a longer period of direct correlation. So we saw some inverse correlation there, November to April. And then it went direct um ah about for a year, almost exactly a year until April 8th of 2024. So direct pretty much for a whole year. And it started to invert.
00:21:47
Speaker
But then GME starts to spike higher on April 29th, and that was right before DeepFuckingValue came out. So he kind of messed with that relationship a little bit, just from him coming back. And then I called it maybe the canceled flip mode ah April to August, because then you start to see a direct correlation correlation between the two again, of course.
00:22:08
Speaker
um GME had some large spikes, so did Chewie, but for the most part, Chewie spiked the same time, Chewie spiked just not as large of spike and vice versa. So see those correlations until August.
00:22:23
Speaker
2020, August 23rd. Now, okay, notable things that happen here. So July 1st, that was the 13G filing. um That, yeah, okay. Why do I have July 1st? Anyway, June 27th was a DFE 13G filing for the 9 million shares.
00:22:44
Speaker
um Why do I have the first? I think that was the Monday when it was like public, but he actually filed them. That's what it was actually filed on 27th. So even with that, we still saw a direct correlation between the two takers for almost two months. And then starting on September six, i we start to see flip mode from now to date um or from then to date. So September six.
00:23:10
Speaker
up until October 18th is when I'm recording. So that's where we start to see inverse correlation. And what happened on September 6th was DFE's tweet of Andy and Toy Story dropping um Woody. um And Woody had the dog emoji on his face, which represents Chewy, the Chewy stock. But the dog eyes were red. So I think that was kind of calling out this inverse correlation. When dog falls, look over red. Red is the color of GameStop's logo. Look at Chewie. See what happens. or Sorry, look at GameStop. See what happens to GameStop when Chewie falls, and vice versa. So I think it's just
00:23:55
Speaker
calling that out. OK, so very fascinating. There's all these correlations and inverse correlations. So if you're noticing this, if you're deep fucking value and you're noticing this, how do you take advantage? um I think it starts by understanding what causes correlations. So we're just going to go through a high level um and understand what are the factors that drive these price correlations between GME and Chewy.
00:24:24
Speaker
So we're going to look at market vote forces, investor behavior, and other financial strategies that can affect the relationship between these two. And let's start with the ETFs.
00:24:38
Speaker
and their influence on stock correlations. so An exchange-traded fund, an ETF, is ah contains a group of stocks, and they're often tied together by sector or industry. um and ah The biggest one that contains both GME and CHUI is XRT,
00:24:56
Speaker
the most influential one, so we're gonna focus on that one. um Obviously, if there's a bunch of a group of stocks in the similar ah industry within an ETF, um you think about different factors that influence and an industry. It could be cyclical, it could be seasonal. you know There's gonna be a lot of things that impact the entire basket of those stocks in a direct way, so that can drive direct correlation, so we'll we'll call that out.
00:25:26
Speaker
um The ETF manager activities, so when there's buy and sell decisions within an ETF, so the managers, the authorized participants, buy or sell underlying stocks to match the ETF's composition of the basket of stocks, which could create correlated movements. um and ETFs have a very unique creation and redemption mechanism that only these authorized participants or the large financial institutions have exclusive rights to, so they can only create or redeem those ETF shares. um But yeah, XRT contains both GME and Chewy, um which influences the price of both stocks.
00:26:06
Speaker
through rebalancing and trading volume. So rebalancing, um you know, these ETFs are weighted differently across each ticker. It's not an equal distribution. So I know Chewy was up to, what was it, like 5%? I'll double check my notes there. I know GME, or maybe I'm mixing the two. One of them was 8%. It was GME.
00:26:30
Speaker
GMU is up to 8%, which is crazy because it's usually right around 1.5%, but then it went up to freaking 8% right around when a DFV came back. Let me double check my notes. Yeah, and I inflated that. I think that was from is remembering, uh, percentages from 2020. Anyway, um, XRT top holdings, uh, has, so it has chewy at 1.73% right now. Number seven, it was a top holding back in June. Um, right around the time when DFE had his large position and Jimmy has been right about right around 1.5%.
00:27:16
Speaker
and it was 2.9% in May when he came back. So it's interesting, you're seeing a correlation there where percentages increase, um where there's a ton of volume, ah almost like when there's a ton of volume for them to short it back down to the net asset value. So let's let's call that out for a second.
00:27:37
Speaker
Okay, so so yeah, that's interesting. So kind of what I was saying, the focus on the the net asset value um and let's focus on the arbitrage process and ETFs. So these authorized participants, those large institutions will exploit price deviations from the net asset value ah to keep prices ah aligned, which can result in stocks moving together within an ETF. So another direct correlation.
00:28:05
Speaker
which um Yeah, which just just means i mean the ETF contains the whole basket. If there's one stock within the basket that's overvalued or undervalued, they're going to rebalance the the weight, the percentage of those stocks accordingly. Okay, so other factors that influence um So, looking at hedge funds and their positions in GME and Chewy. So, hedge funds hold long positions to hedge against short positions. It's kind of a risk averse strategy. So, Citadel for example, back in 2021, notoriously short on GME, but held long positions in Chewy.
00:28:48
Speaker
So that's where we saw a lot of the inverse correlations um when GME first ah sneezed or had a you know a squeeze. um Hedge funds, long positions, and chewy.
00:29:01
Speaker
force them to sell those positions to cover short positions in GME. So buying one, selling one, um inverse, right? So that's pretty simple, um which is kind of fascinating. so And that's thinking about what DFVs saw there. So if they're hedging with Chewy um on both positions of the game, GME. I could see him doing something similar today. Now he's got positions in both. So he's kind of playing the hedge fund game, which is kind of interesting. Although, obviously, the ETF um creates a major loophole that's very hard for the average investor to to battle against.
00:29:43
Speaker
um There's also, you know, hedge fund adjustments, so of course they have to balance their positions, um you know, when they're long and short and different ones, which I kind of covered. And then just, what is this note? So, just a note on market majors and makers and hedge funds.
00:30:04
Speaker
using complex derivatives and options to hedge short positions on GME while holding long positions in Chui. There's a note about delta hedging. so That's where they can actually use options to balance their risk and give extra depth um between that relationship of their short and long positions. right Now we're going to get into dark pools, naked short selling, and market distortions. so Dark pools are private exchanges where large trades can occur anonymously and um potentially mask the true value of stocks like GME and Chewy. And it gives um you know large specialty hedge funds an ability to have large volume um go in and out kind of in a discreet way without influencing the market. So that's what the dark pool is.
00:30:54
Speaker
um So I guess I had another note on that. So yeah, yeah mask larger buys or sells, which ah could be relevant for inverse movements between Chui and Jimmy. So if they're adjusting positions in a quiet market with one or the other, that can cause the inverse relationship. So seeing those signs, understanding the the mechanisms,
00:31:18
Speaker
and all the different parties and strategies, you can see action in their strategies based on movement between the two takers. And I think that's what DFV was acknowledging back in 2021. So, okay, naked short selling. So that's where ah you sell shares without borrowing them or even confirming if they can be borrowed and and that can exasperate downward pressure on stocks.
00:31:44
Speaker
which happened um is illegal in most countries. and um That's why ETFs are popular amongst all the naked short sellers because they have a very discreet way of um returning those shares um through ETFs because that's a huge basket. A lot of creative ways they can um you know deliver those those shares from naked short selling through the guise of an ETF and the entire basket of stocks within the ETF. An XRT has 78 stocks. so That ah gives them a lot of flexibility.
00:32:22
Speaker
so um Regulation SHO was introduced to prevent abusive short selling practices But you know ETF has been used as a loophole around that. um so yeah So ah naked shorts can pile up FTDs and exasperated that price distortion um ah within GME. So the need to cover those short positions, especially ah if they're using illegal practices like naked shorting, can create inverse price movements between GME and Chui, which makes sense. We kind of covered that.
00:33:02
Speaker
Okay, beat that one to death. Okay, now, just looking at the role of ETFs in short selling and price manipulation, some of this is, I guess, a similar theme, but there's some additional points here I just want to acknowledge. So, authorized participants can create or redeem ETF shares by delivering a basket of stocks, including GME or Chewy, which can help manage those short positions indirectly. And we covered that. That is just kind of another way of saying it.
00:33:29
Speaker
um And then touching on the creation and redemption mechanism, which I kind of touched on, so authorized participants have exclusive rights to that. This might be an opportunity to kind of go down a different tinfoil theory. And I'm going to shout out a post on Superstalk.
00:33:46
Speaker
They go in pretty deep on ah FTDs and cycles and swaps and all sorts of stuff. So look up the law of unintended consequences. They've posted this and updated over the years. Now there's one called, there was the original one, then there was a revisited one, and this is the re-revisited one. So look that up on Super Stonk. I think it's a great breakdown and it's very surprising.
00:34:11
Speaker
that there's really a big three when it comes to um ah the parties that maintain ETFs. It's BlackRock, Vanguard, and State Street. um Excuse me. So State Street actually owns the ETF XRT.
00:34:31
Speaker
and their top authorized participants um include meryrrill Merrill Lynch is one of them. What's interesting about Merrill Lynch is that's Bank of America. um So if Bank of America is exchanging ATF shares and having some trouble producing those shares with all the the naked shorting. The problem, you you know XRT has like almost 400% short interest just on that ETF, GME had like 140% short interest when it squeezed. So that could be an oh shit moment for them. And what's happening with Bank america of America today? Well, Warren Buffett has sold off billions of dollars of his investment in Bank of America. So there's some warning flags. I'm just going to make that connection. You can expand on that further. I just found it very interesting.
00:35:25
Speaker
and also very interesting in the same post. This poster, I don't know if I should give them a shout out or not. Anyway, look up TurdFerg23. So Turd Ferguson shout out.
00:35:39
Speaker
um Yeah, so they have a figure that shows market share of active APs across all ATFs and Bank of America is by far number one at over almost a quarter of the market share. So we'll call it 23, 24%. And then it's sc gold them so Goldman Sachs at like 15%. So very interesting, something to connect to ah the larger headlines with Bank of America and Warren Buffett.
00:36:08
Speaker
um Yeah, I think that was a good tangent. um So thinking about that process and that mechanism, so it allows through this creation and redemption ah mechanism that the authorized participants can only do. It allows short short sellers to offload FTDs indirectly by bundling so stocks, including GME and Chewy, into those ATFs. And I kind of touched on that, but it acts as a buffer against open market dynamics, which is kind of interesting.
00:36:42
Speaker
um So XRT, there's other ETFs that can contain GME, but there's the highest trading volume and a high amount of assets under me management in XRT. So it has the most impact on GME and on Chewy. But yeah, the short interest on that ETF is just mind boggling to me.
00:37:05
Speaker
Okay, so what is this? A short squeeze potential on ETF. I was kind of curious. So buying up ETF shares or underlying securities, a force for short squeeze, increases the net asset value of the ETF, which could spike prices for stocks like GME. Just a note. I i don't think that was worth bringing up, to be honest. So ignore that.
00:37:25
Speaker
Okay, some other corporate events that could cause correlations between GME and Chewy. So here's two big ones. um We know this year, since summer, springish, GME has had three offerings, which increases outstanding shares and increases supply, which can depress prices. And thinking about that creation and redemption process, um it's it's much easier when there's more shares being introduced,
00:37:54
Speaker
But then the opposite side, Chewie has initiated bivax this year, which reduces share count and lowers supply. Not at a clip to balance out what GME's offerings have provided um from a share count perspective, but still note where they how those are two inverse ah mechanisms. So that could drive some inverse correlations. um I guess Chewie, so thinking about Chewy actually had a little bit of a, I wouldn't call it dilution, but more an increase in their outstanding shares. Buddychester Sub, their was their top investor in Chewy, sold 500 million worth of the stock. um They converted class B shares to class A, which just adds more shares.
00:38:42
Speaker
ah outstanding shares because it's all about Class A. And then Chewy bought 300 million of that. So now there's 200 million worth of outstanding shares that were just added to the Class A common stock ah for Chewy. So that kind of helps out all the the bad actors involved with naked short selling and trying to produce all these FTDs.
00:39:06
Speaker
Okay, so that's worth a little call out and some historical stuff. So thinking about in 2019 when GME did buybacks, it caused massive FTDs. So similar to what Chewie did today. um I mean, thinking about the leadership and the the retail support of Ryan Cohen, a little bit different than what's going on with Chewie. So kind of an inverse relationship there. And I think those are all the major correlations, but now what I want to touch on is FTDs and the T plus 35 rule. So failure to delivers, FTDs occur when a party fails to deliver shares or cash by settlement date. And for a normal trader, you have two business days, um but you have exclusive rules. If you're a major institution or hedge fund, there's you have five business days, and then you have an extended time period.
00:40:04
Speaker
which is plus 35 days um to deliver those shares or cash by the settlement date. So that's the extended window. And when you think about um that for a moment, when out of nowhere, a huge investor gobbles up 9 million shares, that may or may not be there. That puts these parties, these bad actors in a tough situation to deliver those shares. um But they have some time. They have worth of 40 days.
00:40:51
Speaker
shadow DFE. All right, now the rebalancing, I think I touched on rebalancing, but XRT rebalancing could increase GME share supply and indirectly assisting short sellers in covering their positions, which we kind of touched on. Seemed to happen, um the percentage always increased with GME or two way around significant events where they may or may not have been viewed as overvalued.
00:41:15
Speaker
i mean Okay, so let's see passive ETF flows. This was kind of an interesting note, which is automatic buying and selling triggered by rebalancing, which can move um stocks without any regard to fundamentals.
00:41:31
Speaker
ah which is a key driver of volatility in GME that's kind of interesting and helps underscore the um kind of the mechanical over the strategic nature of you yeah ETFs influences and stocks um Yeah, I think that's all I want to touch on that one Okay, so there you go that those are a lot of correlations. So let's just kind of recap that There's mostly, I guess we'll start with hedge funds. Hedge funds can have long positions to hedge against short positions. And that's where we saw a lot of the inverse correlation between GME and Chewy. And then how ETFs act um as similar industries that move together um with say similar seasonality or you know factors that influence the industry can cause direct correlations.
00:42:18
Speaker
And then some of the inverse correlations happen with rebalancing in the basket um and FTDs and all that other stuff I mentioned. We won't go back into detail. But there's actually quite a bit, quite a few different factors influence direct and inverse correlations between Jimmy and Chewie. So if you were DFE,
00:42:40
Speaker
You see this back in 2021, he just became a millionaire, walked away with 30-ish, 30 plus million. um And then fast forward to today, we know he has at least 250 million, could have upwards of 1 billion. And he's looking at these relationships and he's trying to take advantage on on both stocks. So if you have a deep understanding, this is what I'm trying to understand next, deep understanding of all the parties, all the strategies, and how they directly um drive correlation between Jamie and Chewy, how do you take advantage? And that's what I think DFE is trying to do here. So I really pushed into this, just given all these factors, and I tried to understand what could he be doing.
00:43:28
Speaker
And I put all of my notes into chat GPT and just asked, what but are some strategies deep fucking value could be um pursuing? So um I also layered in the election year and the possibility of the economic collapse that we keep seeing signs of. So the key through themes that gave me was hedging against economic uncertainty maximizing short-term gains in GME through short squeezes and ETF mechanics, and then leveraging Chewy as a defensive long-term play, which kind of makes sense exactly how the Citadel did it back in 2021. So the strategy with GME, if you're DFE, according to Chad GPT, short squeeze acceleration. So the objective would be to trigger multiple short squeezes before potential market instability or new regulations that would happen after the election.
00:44:22
Speaker
um So key actions would be to increase share prices share purchases, so your stake before the T plus 35 cycles. And I put in some rough dates because the when was it? It was June. June 12 was the yellow update where he had 9 million shares of GME. So if we did cycle from there, key dates were July 18th, which long gone from now. And then it's acknowledging February 2025.
00:44:52
Speaker
um So the more shares you can acquire before then would amplify pressure on short sellers. So that's a goal, which would stir retail interest and frame GME as a counter institutional play in a politically charged environment that's already established and creates volatility for short so sellers to cover the positions during key dates. So that's what's kind of happening.
00:45:16
Speaker
Now there's derivatives-based leverage, which the objective here is to maximize upside potential while minimizing exposure to downside risks. So using like ah call options to amplify gains during expected price spikes,
00:45:32
Speaker
So if he knows those cycles, he knows those correlations, he's going to leverage options to maximize his gains and he'll know when to sell. He'll know when those sell triggers are. He also talks about put options, protecting his potential downside and economic collapse.
00:45:49
Speaker
or market solve. So way more risk around these periods post-election. So there's ways to protect yourself there. um And then we're we're looking at ETF arbitrage and rebalancing exploitation. Okay, so the objective here would be to exploit the creation ah and redemption
00:46:19
Speaker
like XRT to influence GME's price. So what could he do? Says he could accumulate GME shares ahead of that rebalancing, which happens it's on a quarterly basis. So it says um before late September or January 2025 to force upward price movement as ETF managers buy shares.
00:46:43
Speaker
Okay, very interesting. Then use ETF creations to allow short sellers to cover FTDs indirectly, which influences price dynamics at critical moments. Interesting.
00:46:58
Speaker
Okay, then we have navigating regulatory uncertainty. So objective here, hedge against potential new regulations. So we're looking at the election, um which takes a while for that stuff to come into place, regardless of who wins the election. So monitor the outcomes, adjust timings of short squeeze attempts accordingly. Interesting.
00:47:20
Speaker
um Then it says sell off GME shares or trigger squeezes earlier in 2024 to lock in games before regulatory pressures. Okay, or changes. Okay, so maybe potentially a shift in strategy um with a lot of uncertainty after the election.
00:47:40
Speaker
ah which would cause a different approach. um Okay, use dark pools. I don't know if he, I don't know, I'm not gonna go into that one. All right, and then we have capitalizing on retail sentiment. So we're not gonna get into that one, because we kind of know what that's all about. Retail sentiment around GME is here to stay.
00:48:04
Speaker
Okay, then on the Chewy side, that's the defensive hedge, which is great. I'm glad I asked this because I had some crazy theories about what he was planning to do with Chewy and I didn't really think about it as being a defensive hedge and it kind of makes a ton of sense to me. So using Chewy to hedge against GME's volatility, um which is ah the objective. Chewy is more stable market position as a hedge against GME's volatility and market risk.
00:48:30
Speaker
probably what Citadel saw in 2021. So holding or increasing chewy holdings during times of market uncertainty. So that's the good ah shift in strategy. they're In periods of uncertainty, put some more over at chewy, where there's a little bit more certainty and more chance of volatility in a good way for GME. That's where you hedge accordingly. He's becoming a hedge fundge hedge fund manager at the retail level and not at the expense of
00:49:02
Speaker
ah the masses like especially hedge fund would be. um Which is very interesting. Okay, so leveraging buybacks to provide a price for. So this is more about if he wanted to be an activist. ah Active investor versus passive. um And right now he's passive, I'm sure he could just switch.
00:49:24
Speaker
the 13G to the 13D and change that and try to ah encourage additional buybacks. But I don't think they need someone, I mean all these parties at Chewy and um they they know they get they're already doing buybacks. they They probably understand the strategy here. So I don't know if they need Keith Gill to switch to 13D and wait for him to tell him to do additional buybacks. But maybe it's something a company will do just on their own. And then timing 2E purchases around the ETF rebalancing. So exploiting the rebalancing cycles, just like with GME ahead of every quarter, and increasing the position before then, which could lead to an ETF-driven demand and increasing 2E's weight in the ETF.
00:50:13
Speaker
So yeah, again, Chewie would just be a safer play in this theory and then expanding corporate influence and strategic moves. So maybe some of what he could do is advocating for international expansion or um do more aggressive shareholder actions or push for a merger with GME.
00:50:37
Speaker
maybe. But again, I don't think they need an activist investor to tell them to do that. I'm sure that's on the radar. um Leadership on both sides, Jimmy and Chewie. So I don't know, I'm not i' not really going to take that seriously. But we kind of talked about this too, adapting to economic collapse and uncertainties. So accelerating squeeze cycles and adjusting your actions around those events accordingly, shifting more capital and that Chewie is the safer hedge.
00:51:07
Speaker
um But very interesting. You know, there was a lot of detail. I'm not going to lie, this is very hard to prepare for because there's just so much information. I learned a lot throughout this. But really what we we aimed to discuss here is ah deep fucking values saw something in 2021, correlations between GME and Chewy.
00:51:31
Speaker
We dove into what all the different different factors are that could drive direct correlations and indirect correlations, or inverse correlations, I mean, not indirect, um and how DFE could potentially ah take advantage. So there you have it. that's That's all of it. And still so much to to look into. I think in the future episodes, be looking more at um what what are some strategies Grind Cohen and leadership could breath be pursuing um and focusing on some of the history of their strategy as well, just to get a better understanding of of ah you know their tactics.
00:52:13
Speaker
Um, would love to dive deep into tinfoil and all the the conspiracies around those means. So lots to look forward to. And hopefully this is helpful. I'll do a, I'm gonna do some sort of summarization on a post. So look forward to that. But otherwise.
00:52:34
Speaker
yet again for listening to a very mediocre podcast episode of Magnificent. Well, I'm Magnificent, kind of on top of this, sort of crushing through four quarters, not quite right in the border, just an average bitch who's gonna be paid.