Wall Street traders and hedgefunds are currently very upset, as the “unwashed masses” lose them billions in a short squeeze of GameStop and other stocks.
Users of the subreddit r/WallStreetBets are fighting back against the multi-billion dollar hedgefunds in a rather creative way. GameStop became one of the most shorted stocks on Wall Street last week, after a newsletter from a short seller, Andrew Left of Citron Capital, encouraged people to short the company. Gamestop had a short interest of 102% of its shares, making it one of the most shorted on the market.
To “short” a company is to bet on the price of the stock falling, in simple terms. The hedgefunds would borrow shares of the company from other investors, sell the shares on the markets at the current high price, then buy them back at the expected future low price, and return them to the investors, pocketing a profit.
In response, the users of the subreddit saw a perfect opportunity to “own” the hedgefunds, as the newsletter from Left allegedly noted some of them buying GameStop stock. By buying GameStop stock, they could initiate a “short squeeze,” sending the price of the stock up, and forcing the hedgefunds to buy more of the stock to cover themselves.
Who is winning the war:
Most shorted names exploding higher, as top hedge fund position plummet pic.twitter.com/aEGnf5eCbH
— zerohedge (@zerohedge) January 27, 2021
The stock was then bought enmasse, with GameStop ending up as the most traded equity on the planet on Tuesday, beating out Apple, Tesla, and Microsoft. As a result, the price skyrocketed by hundreds of percent, and one of the hedge funds, Melvin Capital Management, had to be bailed out for $2.75 billion. The stock price went even further up after Elon Musk, the CEO of Tesla, tweeted out “Gamestonk.”
— Eric Balchunas (@EricBalchunas) January 26, 2021
Other stocks from “failing” companies that were targeted for shorts have also been boosted by the self-proclaimed “degenerates.” These include AMC, the cinema company who have been shut since the pandemic, BlackBerry, the makers of the popular phones from 10 years ago, and Nokia, another previous mobile phone giant.
Understandably, many on Wall Street and in the traditional financial media were very upset with the action taken on the GameStop stocks, comparing it to “cheering on hackers” defacing websites. NASDAQ’s Adena Friedman even claimed that they would halt trading on certain stocks if they match “social media chatter” with “unusual” stock activity, and a number of trading exchanges banned trades on GameStop and other stocks.
One Wall Street hedgefund trader told the New York Post that the situation was a “bloodbath,” and expressed his frustration that the “unwashed masses have figured out how to play the shorts” and beat them at their own game. “It’s f**king carnage,” he added.
Jennifer Epstein, Bloomberg’s White House reporter, asked Jen Psaki about what the Biden administration’s response to the rise in GameStop stock was, and asked if there had been “any conversations with the SEC about how to proceed.” Psaki replied by repeating that the Biden administration had appointed the first female Treasury Secretary Janet Yellen, and that Yellen and the White House economic team would be “monitoring the situation.”
With the subreddit potentially coming under threat, WSB Chairman, an unofficial Twitter account for the subreddit, argued that if the subreddit was taken down for its role in the short squeeze, then “they better take down every single Wall Street hedge fund that has been endlessly using gangster tactics to make a quick buck.”
If they take down WallStreetBets, they better take down every single Wall Street hedge fund that has been endlessly using gangster tactics to make a quick buck.
— WSB Chairman (@WSBChairman) January 26, 2021
Some did come to the defence of the GameStop investors however. Speaking on CNBC, Chamath Palihapitiya, the CEO of Social Capital, was asked whether there was anything wrong with “the integrity of the system” for the stock to go up so much.
“The lack of integrity in the system is the precursor that cause GameStop to be sold short 136%, and for people to pile on and destroy a company in front of our eyes. That feels pretty wrong, and pretty un-American if you ask me,” Palihapitiya replied. “The fact that [GameStop] shouldn’t be allowed to exist because all of a sudden we decide that they should be obliterated into the ground, that feels pretty wrong to me.”
Billionaire CEO Chamath Palihapitiya debates against CNBC's Scott Wapner on people investing in Gamestop stocks pic.twitter.com/MHtvcB9umw
— SOUND (@itsavibe) January 27, 2021
The Hill’s Saagar Enjeti highlighted that short sellers had been manipulating the market for years, using the media to “force massive runs on well meaning companies all so they can make billions on the flip side… leeching off the American financial system,” and now they were upset at having the game flipped back on them by what he describes as the financial markets first “populist uprising.”
When Hedge Funders and others loot our markets its all good. But when retail investors destroy a hedge fund then all of a sudden CNBC analysts start calling for regulation, blame foreign powers, and talk "fundamentals"
— Saagar Enjeti (@esaagar) January 27, 2021
Of course, the second biggest winners of the whole situation, just behind the users of r/WallStreetBets, are those who are simply sitting back and watching everything unfold with a bucket of popcorn.
Pov: you just bankrupt a hedge fund pic.twitter.com/JdcUF21oYV
— puma (@OpticsPolice) January 27, 2021