I first saw this theory in a post by and this is my adaptation.

Introduction

When you short a stock, you need assets to maintain that position. If the price of that stock goes up, the person you borrowed it from needs to know that you’re still good to buy that stock back and return it.

For example if I short a stock at $100 and it goes up to $150, I need to prove that I have $50 in assets I can sell to cover the short with.

I also need to pay a borrow fee for the service the lender is offering me.

For example if I short a stock at $100 on a 1% borrow fee and it stays at $100 for the next year, I now need an additional $1 to maintain my position. This is the classic theory behind “we can stay retarded longer than they can stay solvent”.

I can also plot this decay mathematically.

A = P(1 + rt)

A = 100 (1 + (0.01 * 1))

A = $101

*A=Net Liability, P=Initial Short Price, r=Rate of Growth/Decay, t=Time

And from this we know that the maintenance margin has increased $101 - 100 = $1. So I need an additional $1 in assets to keep my position open.

Critical Margin Theory

has theorized that the resistance we have seen on GameStop over the last 1.5 years is a safe guard against margin calls.

There’s just one thing.

This line isn’t going down with the borrow rate. Not even close.

I’m going to work with 2 dates for this next section (circled above)

The time between these 2 points is 204 trading days or 294 calendar days. 294 days over the 365.25 days in a calendar year is 0.80. Or 294 days is 80% of a calendar year.

So back to the borrow equation.

A = P(1 + rt)

A = 344.66 (1 + (0.01 * 0.8))

A = $347.42

And from that we know that the maintenance margin has increased $347.42 - $344.66 = $2.76.

Um… Hey , if the maintenance margin only increased $2.76 per share over that period why did we bounce off resistance at $199.41?

Great question .

I’m about to speculate, but I’m speculating based on real data so stick with me.

If the Critical Margin theory is true - that is to say that the bounces off the blue line highlighted above are HFs trying to save their ass - the critical margin is deteriorating WAY faster than the borrow rate.

How much faster? This is the cool part. I’m going to use the same dates as above.

A = P(1 + rt)

**quick algebras

r = ((A/P) -1)/t

r = ((199.41/344.66)-1)/0.8

r = -0.53

Holy shit. So the maintenance margin is going up 53% every year…

But hold onto your seats because there’s a catch. The stock price from June 2021 -> March 2022 went down. -42.5% from peak to peak to be exact. So someone made 42.5% on their short position but the maintenance margin is STILL up 53%. I want to hammer this home. The 53% increase in maintenance margin INCLUDES the 42.5% profit that was made. That means the actual rate of decay on the critical margin line is 95.5%.

I’m going to round up to 100% and you’ll see why in a second.

And just one more time because this is crucial. I short a stock at $100 on a 100% borrow rate. The stock goes to $50. I have made +$50 from my short position but lost -$100 due to the borrow fee. So I’m $50 closer to being margin called. This is why the blue line has a negative slope.

The average borrow rate of GME is 1% over that period, but the critical margin is increasing as if the borrow rate was 100% (95.5% to be exact). That doesn’t make sense. Is there some sort of financial tool out there that would give you 100x leverage on a stock? Hmm…

Well, option contracts get sold in groups of 100. What a coincidence.

Back to our $100 stock example - let’s say that instead of borrowing and selling a stock, I borrow an ITM Put contract, which gives me the ability to sell 100 shares at a given strike price. I exercise it, and sell those shares.

100 shares in a contract, 1% borrow fee per share. Well look at that, 1% * 100 is 100%…

It might not be Puts but some other financial tool like swaps. But the leverage is undeniable.

Today, the critical margin is at $169.10 (nice). One +30% day and hedges are potentially fuk. There’s more research to be done here and maybe a way to size the real short position - I will post updates accordingly.

tldr: Critical Margin Theory says that the maintenance margin for GME shorts is increasing at a crazy high pace. From circle 1 to circle 2; the price at which someone will be margin called (the blue line) has gone down 53%. I.e. where I would have been margin called at $344 now I'm margin called at $199. Which is crazy because I made money on my short position. If I exclude that profit the real decay is close to 100%. The only way I can see this being possible is if shorts are leveraged through options.

TL;DR: GME is a safe haven asset with strong fundamentals and a demand that will only be increasing post-split. The economic factors associated with GME will inevitably beget MOASS, and ultimately pave the way for a potential GME price per share in the millions.

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Recommended Prerequisite DD:

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Economic Principles of GameStop

§1: Supply & Demand Analysis

§2: Stock Split (In the Form of a Dividend)

§3: GameStop's Fundamentals

§4: GME as a Store of Value

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§1: Supply & Demand Analysis

The supply and demand factors of GameStop can be demonstrated with a few simplistic models.

We all know the basic market dynamics that shape prices in a microeconomic setting, but in the of GameStop, we're constricted by heavy SHF manipulation.

We can consider this constraint imposed by SHFs as a price ceiling.

Now, generally, when we have a price ceiling, we'd be facing a circumstance as illustrated by the following graph:

In essence, the price is not being allowed to move any higher; this is comparable to GME being forced below critical margin levels. However, unlike the general model, there is no shortage of shares. There is a shortage of real shares, but not synthetics. SHFs can combine covered calls and married puts to create a synthetic share (). This is why registering your GME shares makes matters more costly and difficult for SHFs in the long run. And in the event all shares get accounted for (the free float gets locked), MOASS would ignite, as there would no longer be room for fake shares to exist when every GME share has been publicly and visibly recorded. Although, the MOASS would most likely take place well before then.

We can obtain further confirmation of price suppression (and a SHF imposed price ceiling), by analyzing DRS rates.

Computershare accounts have only been increasing since nearly an entire year.

Same with DRS'ed shares. These are the number of registered shares since the past month.

Since September 2021, Apes have registered over 16 million GME shares, yet instead of the price steadily increasing along with DRS rates increasing, it has steadily been going down in the long-term (this is because of SHF price suppression and because their critical margin levels have continued to slowly decrease over time). The current GME price movement is inconsistent with a stock that is actively being directly registered, and especially when registration rates are increasing per quarter (as confirmed by GameStop's most ). As such, it can be said with a high degree of confidence that there is heavy price suppression from SHFs, which is algorithmically constraining GME from reaching legitimate price discovery.

Synthetics, IOUs, dark pool manipulation, short ladder attacks, spoofing, FTDs, and a variety of other means of manipulation are used to prevent the price from surpassing the SHF imposed price ceiling (aka critical margin levels).

When the time comes for SHFs to close all their short positions, whether it be due to DRS, failed margin calls, etc., or a SHF is being liquidated and the DTCC computers kick in to close all short positions, the shares will need to be bought at whatever price.

In this case, we're dealing with a perfectly inelastic demand and relatively inelastic supply. The supply is relatively inelastic, as it's being obstinately held (as well as directly registered).

The following graph illustrates this circumstance:

As you can see, no matter how high the price goes, the demand stays the same, because the shares must be bought, regardless of the price. The price ceiling would not only be lifted, but the one's that imposed the price ceiling (SHFs) would be forced to buy back every share at whatever the price, in order to close their short positions [DTCC would take over closing the positions upon default of a clearing member]. This scenario is a nightmare for SHFs, though an inevitability, as their price suppression on GME is unsustainable in the long-term.

Now, let's take a look at an example of a situation where there was relatively inelastic demand and supply. Bitcoin, a cryptocurrency that had originally started as a fraction of a penny grew to a currency worth a solid 5 figures. Bitcoin was not heavily shorted by SHFs, unlike GME. The Chicago Mercantile Exchange didn't even introduce derivative trading on Bitcoin up until it had already hit 5 figures.

It has an inelastic supply cap at 21 million, millions of which haven't been mined or had been lost.

FOMO was the sole driver that increased Bitcoin's value by 100,000,000%+.

In the case of GameStop, not only will FOMO start playing a more visible role once the synthetics get closed, but because SHFs need to close ALL their short positions, this will pose a situation much more destructive than Bitcoin's 100,000,000%+ increase. Bitcoin's increase came from relatively inelastic demand. There were many buying and holding the coin, but it was their choice. In the case of GME, SHFs MUST buy the shares. As such, demand will be perfectly inelastic. They have no choice but to buy the shares, because they need to close all their positions. Considering this, as well as the fact that there's at least (something Bitcoin never had, as it was built on blockchain), in addition to the fact that there's countless Apes refusing to sell their shares no matter what, and comparing the GME MOASS to Bitcoin's 100,000,000%+ increase may ultimately be understating the yield of the MOASS.

The supply of available GME shares for SHFs to close their short positions will be logarithmic. FOMO alone would take GME to the 4-5 figure range (this is confirmed by the SEC Report [which stated the 100x Jan 2021 run was from FOMO] as well as IBKR Chair Peterffy last year). When short positions start getting closed, the paper hands' shares will be the easiest for SHFs to obtain, but as SHFs keep buying the shares, the last 50+ or so million will be almost impossible. After all the paper hands are gone, SHFs will be still need to buy ALL the shares, and the final tens of millions will need to be bought from pure-blood diamond handed Apes. If you'd like to get a sample of who are the pure-blood diamond handed Apes, take a look at whose registering their shares. Diamond Handed Apes aren't going through the process of registering their shares for Mickey Mouse numbers. They demand phone number prices. This is why the more time goes on, the higher DRS numbers increase, and the more explosive MOASS will be.

Diamond Handed Apes are what will take the price of GME from $100,000 straight to the millions during MOASS. After all the paper hands are gone, SHFs will be left with diamond handed Apes, and since they must close ALL their short positions, they have no choice but to purchase shares from diamond handed Apes at whatever the price. And if diamond handed Apes refuse to sell until the price surpasses their accepted floor (for instance, the floor on ), then the DTCC must obtain shares at these prices in order to close out the short positions.

A GME price in the millions is more than possible, due to the

§2: Stock Split (In the Form of a Dividend)

, GameStop announced a 4:1 stock split in the form of a dividend. The 3 additional shares will be distributed "after the close of trading on July 21, 2022".

I originally discussed in my how I consider the stock split (in the form of a dividend) to be a catalyst for MOASS. Regardless of what happens, RC's decision to implement a stock split dividend is a very powerful move, and will greatly benefit Apes post-split.

Firstly, I argued how the stock split dividend would be a catalyst based on the following logic:

Premise 1: Synthetic shares were created.

Premise 2: The stock split dividend will need to be given to ALL shares, real or synthetic.

Premise 3: There exists only enough dividends for the real shares, not synthetics.

Conclusion: Upon distribution of the stock split (in the form of the dividend) fake shares will be revealed (as there's not enough dividends to satisfy the synthetics). Therefore, someone, whether a broker or SHF, is going to be in big trouble.

Furthermore, there's a limit to how many synthetics SHFs can create. If SHFs were capable of creating unlimited synthetics, GME would've been cellar boxed years ago. That, and they could've prevented the 100x GME rally leading to January 2021 altogether without needing to shut off the buy button (I also shouldn't have to remind you that removing the buy button created an insane amount of public backlash and chaos, and if unlimited synthetics could've been printed, all that could've been avoided to begin with). Hence, SHFs are not able to create unlimited synthetics. There's a limit to how many synthetics they can create. What that limit is, I don't entirely know. But there must be a limit.

This would make a stock split dividend devastating to them. For example, say they can only create a maximum of 1 million synthetics a week, and now when the stock split (in the form of a dividend) gets announced, they need to come up with hundreds of millions of shares before it gets implemented. It's been about 4 months since it got announced, and now it's about to get implemented. Did they get enough time to come up with enough synthetics? I personally don't think so, but if somehow the stock split dividend does not become a catalyst and nothing happens when implemented, I will assume one of 3 things happened (or a combination of the 3):

• Brokers gave IOUs instead of the dividends.

• SHFs used some sort of legal loophole around it that I wasn't aware of.

• SHFs came up with a fraction of the necessary synthetics to substitute the dividends and got help from brokers (and other loopholes) to take care of the rest.

Here's the thing, though...if a broker does replace a dividend with an IOU, they are virtually guaranteeing themselves bankruptcy, so unless they were already anticipating going bankrupt, this would literally be a self-destructive decision. Maybe Robinhood would do it because they were already expecting to go bankrupt during MOASS, but I find it hard to believe that the brokers managing trillions would do it. But if they are found to having done just that, then take that as a sign that the MOASS will be much more nuclear than even I anticipated.

As I explained in my , even if the stock split dividend isn't a catalyst for MOASS, it will subsequently increase demand for GME shares significantly:

§1 of my Checkmate DD: "Let’s say that, hypothetically, there was some hidden loophole they took advantage of and were somehow able to evade sparking MOASS from the stock split. In that case, as we’d continue to patiently wait for MOASS, we’d find DRS rates to increase post-split. This is primarily because the stock split will increase demand in GME, and as such, increase demand for registered shares.

The ticker price is a matter of perception. Retail investors are generally more inclined to purchase whole shares rather than fractional shares. Hence, registered shares would also increase post-split, especially the ones under “book”, as you can’t “book” a fractional.

Simply put, not only will demand increase for GME shares post-split, but also the rate of registered shares.

Example: You have $200, but the price of GME is $150. You can only purchase 1 share. 75% of your potential purchasing power has been utilized. A 7:1 split is introduced, bringing the price to approx. $21.43 per share. You can purchase 9 shares instead for approx. $192.87. Over 96% of your potential purchasing power has been utilized instead."

Here’s a graph to better illustrate:

Furthermore, as the current price gets divided by 4, so does the critical margin level. I'd consider $190 a solid level where SHFs could get margin called. Although the real level is lower, I prefer conservative estimates to be sure. And at $250 I'm virtually certain they'd get margin called.

Well, at a price of $140, post-split price would be $35, and critical margin levels would be at $48. And I'd put absolutely guaranteed margin call levels at $63. With such low prices, the demand for shares will be significantly stronger, and as such, much harder for SHFs to contain below critical margin levels. Fun times ahead!

§3: GameStop's Fundamentals

To ascertain GameStop's future fundamental performance, I'll be utilizing the Cobb-Douglas production function. The Cobb-Douglas production function is used to represent the technological relationship between inputs and outputs. It's commonly used in the manufacturing industry, but has also been applied to a variety of companies. In the case for GameStop, this quantitative model can work by substituting the correct inputs. For instance, higher capital should yield higher output/productivity, and with that comes higher profit margins. The ratio of capital to productivity is not one-to-one, as we must take into account diminishing marginal returns, which the Cobb-Douglas production function does an excellent job at taking into account.

The following slides are my analysis:

Research conducted by the determined the best companies were 40% more productive than the rest, and their profit margins were, on average, 40% higher than industry peers. Simply put, productivity increases are comparable to profit margins increases.

As for labor rates, I went off . Due note: even if labor rates were to decrease, it might not equate to less productivity, as the extra capital that comes from specific labor reductions could be used instead towards larger, more focused projects that could generate even more profit margins. It's not a straightforward evaluation.

By no means am I expecting the production function to precisely pinpoint the exact productivity increase from GameStop (there is no quantitative model complex enough to take every single variable into account). However, consider this as a general model projecting a significant increase in productivity as time goes on.

What the production function does not take into account is the NFT Marketplace, which will be playing a significant role in GameStop's fundamentals and profit margin increases going forward.

I did point out the potential of the NFT Marketplace in §6 of my DD, and will be reiterating it here.

"The NFT Market was valued at $40 billion in 2021, .

Considering GameStop’s market cap is valued at $10 billion, there’s a lot of potential revenue GameStop can tap into by entering this market. Not only that, but as time goes on and crypto/NFTs become more globalized, the NFT Market can easily exponentially increase in valuation, similarly to how Bitcoin did when it started getting adopted by institutions internationally as a store of value.

OpenSea, currently the world’s largest NFT Marketplace, is valued over $13 billion, .

Yet, the OpenSea NFT Marketplace is incommensurable to the soon to be GME NFT Marketplace, due to a variety of reasons:

1. OpenSea has extremely high gas fees, which deter business/revenue through their services and creates dead weight loss.

2. Weak security protocols. They have tons of vulnerabilities in their code that make them susceptible to attacks/thefts. Many examples in the past of OpenSea users suing the Marketplace for letting their NFTS get stolen by cyber thieves due to their “security vulnerabilities”.

3. GameStop gets nearly 1,000x more organic traffic via search engines than OpenSea does.

GME succeeds where OpenSea fails, by utilizing its partnerships with Loopring & Immutable X to eliminate high gas fees as well as reinforce security, using Ethereum’s security rather than Polygon’s (etc.). GameStop’s NFT Marketplace will not only supersede, but augment the NFT Market as the dominant NFT Marketplace.

That being said, GME’s market cap is already $10 billion. Say they get in the NFT Market in the summer and hit a valuation just half that of OpenSea this year. GME would end up with a high enough valuation putting itself past a $200 price. Maintaining a GME price past $200 would obliterate critical margin levels at this point, initiating MOASS.

In case you haven’t noticed, something very big is gearing up this year, and I don’t think RC bought extremely OTM BBBY calls this year just for the fun of it."

GameStop has already launched its Beta Stage of its NFT marketplace as of July 11, and so far it has already exceeded expectations:

[].

Due note that this is all with the marketplace simply in Beta Stage (or in this case, Phase 0):

This marketplace is most certainly a game changer for GameStop, and so it's not surprising that the opposition is feeling threatened and will try to control growth in the GameStop NFT marketplace.

In addition to negative MSM campaigns against the GameStop NFT marketplace, you can see that SHF owned companies, like the Motley Fool, have already dominated SEO for NFT Marketplace search results.

For instance, if you search up "top nft marketplaces", the first thing that'll come up is the Motley Fool suggesting marketplaces.

It's not surprising they'll be trying to control where prospective NFT marketplace customers go when they want to shop for NFTs. And due to their conflict of interests, they'd most likely use their SEO to try to sway people away from the GameStop NFT marketplace.

Take this as a sign, however, that they genuinely find the GameStop NFT marketplace threatening, and with good reason, as the marketplace has the best chance of dominating the NFT Market and producing exceptional returns, which would undermine the extremely negative MSM sentiment against GME.

Moreover, in addition to the GameStop NFT marketplace still being in Beta Stage, the potentially insanely large partnerships with blue chip companies have yet to be revealed:

§4:GME as a Store of Value

To better understand why GME is an excellent store of value, let's start with the quantity theory of money, which demonstrates the relationships between prices and monetary policy.

Quantity theory of money: MV = PY , where

M = money supply

V = velocity of money

P = price level

Y = aggregate output (aka real GDP)

We can rearrange the formula to isolate P & get: P= (MV)/Y, which shows us that (in theory) if GDP falls, the price level should increase (inflation). This doesn't always work in practice, however, as we've seen historically with recessions in the U.S being concurrent with deflationary periods. This is because there's a variety of variables at play. In theory, inflation should happen during a recession, as when output drops, so does supply, and if demand stays the same, should trigger price increases/inflation. Though, a lot of the times consumption decreases during recessions, which ultimately negates that premise.

In the case of 2022, however, as GDP drops, inflation is also rising, and it's only going to be getting worse, because in this instance, consumption doesn't actually decrease, but increases. We never saw the full effects quantitative easing had on the economy, because a lot of that stimulus money was invested in the market; hence, it never found its way in circulation with the money supply. But as the GDP drops and the stock market tanks, retail investors that didn't invest in the basket stocks, but instead invested in index funds, etc., will pull out that money from the market and most likely end up using it after storing the money for so long. According to a , 46% of stimulus check recipients invested at least some of their stimulus checks. And, according to , 10-15% of stimulus money was immediately invested in the stock market upon receiving it. Also, a of the $9 trillion stimulus injection went to bailing out Wall Street. So, as these overleveraged institutions deleverage, and as the recession continues, the stock market drops, and retail investors continue selling their index funds, most of that money will pour into the current circulating money supply and massively contribute to the ongoing inflation rate increase.

This is the current inflation rate []:

Due note that the current inflation rates are measured by the Consumer Price Index (CPI). Policymakers at the Federal Reserve monitor inflation and use it when determining monetary policy, even though the CPI is inaccurate and most likely being understated. For example, the CPI doesn't take into account consumer spending shifts from assumed rates in the market basket, which they most likely have shifted (as per my previous explanation on investor stimulus checks and the GDP).

Regardless, even if we go by CPI, at this rate it's detrimental to the value of the dollar. The deterioration of the USD that the Fed has failed to mitigate is only becoming a nightmare on a macroeconomic level.

What has been the Fed's response? Rate hikes.

The theory of liquidity preference demonstrates the relationship between supply and demand for real money balances, as well as the interest rates. The quantity of money demanded is dependent on the interest rate.

Ergo, Fed's open market operations raise interest rates ⇒ quantity of money demanded drops ⇒ inflation becomes less unstable (in theory). Nevertheless, considering the extent of quantitative easing from the Fed in the past years, as well as the current state of the market, extreme measures would have to be taken to lower the high inflation rates. The current rate hikes have not been enough.

Where does GameStop come into play?

Unlike the dollar, GME has a cap of about 76 million outstanding shares (about 304 million when adjusted post-split). And considering the fact that GameStop has virtually no debt and a solid $1 billion cash on hand, I see no probability of dilution in the future.

The Fed printing trillions of dollars is currency dilution, similar to share dilution.

Hence, if the USD is being actively diluted but GME won't be in the foreseeable future, GME is a safeguard against USD inflation. Yes, there are synthetic GME shares floating around, but they must be bought back—for this reason, GME is not only a safe haven asset against inflation, but a generational wealth creating machine, due to the inevitable MOASS upon the closing of synthetics (& ultimately all short positions).

Another significant reason as to why GME is a safe haven asset is because it's a hedge against a market crash. When overleveraged firms start getting liquidated and the market tanks, a variety of outcomes can take place, but they all lead to the benefit of GME, as opposed to the rest of the market.

For one, in the event of a market crash, GME would likely first drop in tandem with the market, only to finally take off in the opposite direction once shorts start closing their positions, due to failed margin calls.

In the event that GME were to drop in tandem with the market crash, but there were somehow no failed margin calls for SHFs (unlikely), GME couldn't drop as hard as the market, lest SHFs let GME enter critical float lock levels.

The graph below from my DD "", illustrates both critical levels that SHFs need to avoid GME from entering:

Whether it be the spike in credit default swaps or unprecedented records of margin debt to be the initiating factor in this market crash, the market would have a long way to go before bottoming out. And although the market can create unprecedented troughs, GME can't. There's a hard limit to how much GME can drop. If GME drops to critical float lock levels, the float would get locked within a few months maximum (if not a few weeks). And this is assuming GameStop & RC don't instantly lock the float themselves (or at least expedite it), as a GME price in critical float lock levels would technically be low enough for them to finish the float lock. It would be a catalyst for MOASS either way.

Regardless of what happens, GME is the biggest safe haven asset during a market crash. The crypto market will crash along with the stock market, as hedge funds have been and are heavily invested in Bitcoin/altcoins. The primary reason the major cryptocurrencies generally move in tandem is because institutions trade them in an etf basket, similar with "meme stocks", but I digress.

Crypto will not be safe during a market crash, neither will real estate, or commodities.

GME is not only shielded from inflation, but also a market crash. Regardless of how the stock market crash plays out, every outcome leads to GME being on top, and MOASS inevitably initiating.

Apes can rest comfortably knowing they are shielded from adverse macroeconomic events. Others, however, may not realize GME is an ark in a sea of red until it's too late.

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Additional Citations:

Hassani, Ashkan. Applications of Cobb-Douglas Production Function in Construction Time-Cost Analysis. University of Nebraska, Dec. 2012, .

Mankiw NG. . Worth Publishers; 2010.

“SEC Filing: Gamestop Corp..” SEC Filing | Gamestop Corp., SEC, 30 Apr. 2022,

“SEC Filing: Gamestop Corp..” SEC Filing | Gamestop Corp., SEC, 1 May. 2021,

“SEC Filing: Gamestop Corp..” SEC Filing | Gamestop Corp., SEC, 2 May. 2020, .