Retail traders short on a company that is struggling to pay back

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Retail traders short on a company that is struggling to pay back

Over the past year the meme stock craze has made rental cars, video games and movie theaters into day traders' playthings. Wednesday took another dark turn as Reddit horde brought prisoners to the mix.

Retail traders took shares of Geo Group Inc. in a world with high profits up to 73%, even while the company struggles for survival in a world turning on private prison operators.

U.S. President Joe Biden plans to end the banking relationship with the industry, and lenders like Bank of America Corp. have promised no more than two days to finance prisons. When Geo Downgraded its US rating of its creditworthiness in March, it noted that prison operators face 'ongoing social and governance risks. A proposed Alabama bond sale for a public-prison firm was derailed earlier this year by opposition from activist groups.

The action of Geo shares seemed to have originated on the same message boards driving fundamental gains in GameStop Corp. and AMC Entertainment Holdings Inc. After all, for retail traders on the WallStreetBets Forum and elsewhere on social media, the same challenges faced Geo are beside the point. And there is irony in the fact that the freedom of actual humans is at stake with Geo, which often conflicts with the loud populist cries coming from Redditors.

According to S 3 Partners data, shorting of Geo's stock amounts to about 37% of the company's float or publicly available shares for trading. It puts Geo in the crosshairs of retail speculators who have systematically shorted companies into heavily bidding up levels.

These investors rally buyers to send detractors to cover their pessimistic bets on a stock. The cycle quickly snowballs.

The strategy requires at least a thin bull case for investing. One Reddit user Wednesday made the case that even companies like Geo, which are widely berated by Wall Street, can find funding somewhere.

As Geo wrote to the Agitated Curve 2655, 'It is not the end of world. When there is cash available, someone will loan GEO, some overseas banks, a private equity company.

Was Agitated Curve 2655 similarly sanguine in the matter of company losing federal business that consisted of about a quarter of its revenues?

The order doesn't renew existing contracts, wrote the user. 'OK Biden. Lets make a new one then read the post. 'Problem solved.'

In credit markets, the action seems to skept more closely to the reality, which has a debt load that Geo is struggling to manage. The company announced in May that it has hired financial and legal advisers to help it deal with upcoming maturities it can't pay back. If the process leads to a Debitor restructuring, the value of Geo's equity would probably be wiped out by mining and reclaimed from the community in an earlier period.

SoJerZ is apparently having a good day over stocks land, but in stocks land Twitter user SoJerZ has apparently had a good day.

Thanks to GEO, I made $33,000 in my sleep.

More stories like this are available on bloomberg.com.

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