The start of the new year has been marked by a number of major topics that have received global attention, but these events have not been able to overshadow in recent days a revolution that is taking place on Wall Street. If four years ago, Trump and his supporters began a historic impact on the traditional American political establishment under the banner of populism and economic nationalism, many observers believe that the crusade of retail investors against big investors and hedge funds that is currently taking place on the U.S. stock market may have no less historical status than the revolution that took place four years ago.
A netizen-made composite of the movie “The Big Short” and the protagonist of the event, GameStop
If you are a fan of the Hollywood superstar Christian Bale, who played the movie “Batman,” you have seen “The Big Short,” a movie released in 2015 about how Wall Street investors, driven by profit and greed, caused the global economic crisis of 2008. The movie is based on a true story of how a sharp investor who saw the problem before the bursting of the giant bubble in the U.S. real estate industry made a fortune from the banks on Wall Street by shorting real estate financial products during the crisis. Who would have thought that almost 13 years after the global financial crisis, thousands of retail investors would have started a historic crusade against Wall Street investors and large hedge funds.
The story goes like this: GameStop is a chain of brick-and-mortar retailers of video games in the United States. If you live in the U.S., you’ll usually find this store selling games and their peripherals to customers in shopping malls. But with the rapid development of online game download platforms and online ordering platforms such as Amazon, GameStop, a company that relies on the economic model of the last century to make a profit, has been increasingly impacted by the development of the Internet in recent years. The share price of this company, which can be described as “old-fashioned”, has also been declining. In addition to the outbreak of the new crown Epidemic in 2020, the company added to its woes and had to permanently shut down nearly 500 stores.
The trend of GameStop’s bleak performance in reality has also attracted the attention of many Wall Street hedge funds. Rumor has it that many hedge funds are already shorting GameStop’s stock price. Shorting is a common operation in the stock futures market, operating in anticipation of a downward trend in the stock futures market, the operator sells the chips in hand at the market price and then buys them after the stock futures have fallen to earn the intermediate spread. But what happened recently made these elite investors who have been running Wall Street for dozens of years never expected that this Time the financial moguls and their hedge funds not only did not get their way, but also rolled over.
Recently, the share price of GameStop did not keep falling as shorting agencies had hoped, but suddenly became the hottest investment object in the country, with the share price closing at $309 on the 29th from $19 on January 12, and its share price had soared by 1000% in the past two weeks. The simplest explanation for what happened is that the “Ozeki-go” of this “leek” uprising began with the famous internet posting “Wall Street Bets” on the Reddit website ( r/WallStreetBets. According to reports, the board recently spread the news that several large hedge funds were shorting the game station, and some good people called on the forum to pool their money to raise the price of the game station’s shares and bet against these Wall Street giants.
According to the report, before the stock price surged, there were many institutions shorting GameStop, and according to FactSet’s data, the net short position of GameStop once reached 138% of the stock’s outstanding volume, once becoming the most shorted listed company on the U.S. stock market. After market hours on January 26, Musk, the world’s richest man, released a tweet shouting “Gamestonk! Musk’s tweet, to the original crazy market added a fire, 27 pre-market game station shares soared up to 143%, shares once rose to $360 per share. 28 U.S. trading session, the game station shares once rose to a record high of $483, then experienced 17 meltdowns, and finally closed down more than 40%. Previously, Citron, a well-known Wall Street short-seller, had issued a bearish report on GameStop, arguing that its reasonable share price was only $20.
The call to invest in GameStop’s stock was met with a massive response, with retail investors “rolling the dice” by collectively and massively designating a higher price for GameStop’s stock, i.e. quickly raising the stock price so that short-sellers would have to buy it at a higher price to reap huge profits. These retail investors, after grouping together through the Internet, lured the large hedge funds who had placed bets to fall into the trap, so that the latter’s attempt to short GameStop’s stock price did not succeed, and also encountered a huge loss after an unprecedented “financial uprising” and a class struggle without smoke and mirrors. The Wall Street elite’s long-term control of the capital market also allowed these retail investors to cry out in this revolution, “the king and the king would rather have the seeds”.
But why Internet users can skip the traditional investment threshold to invest directly in stocks, and even influence the stock market, it is inseparable from their skillful use of new software such as “zero commission” online brokerage Robinhood (Robinhood). This so-called “head-to-head” situation was often considered impossible in the old days. The two sides were simply too disparate in terms of capital power. However, the epidemic has accelerated the highly networked nature of personal Life. Retail investors are also highly networked in their personal investment orientation, such as taking investment advice and making buying and selling moves on forums. In the past year, the rapid proliferation of new online retail securities applications such as Robin Hood and other online forums have catalyzed discussions that have made previously unimaginable retail investor coordination possible.
This retail investor outreach has led to the “surrender” of at least two Wall Street hedge funds that shorted GameStop. In addition to GameStop, other surging stocks named in the “Wall Street Bet” section, such as AMC and Blackberry, were also restricted from trading, and investors could only sell their existing positions but not buy them. The “Wall Street Bet” section was also restricted from trading. The servers of the “Wall Street Bets” section were also blocked at one point on the grounds that it violated anti-hate speech policies rather than trading practices.
At the same time, pro-Wall Street media outlets such as CNBC began to question the legitimacy of the retail investors’ grouping together to raise stock prices, and alleged market manipulation. A user of the “Wall Street Bet” board, which participated in the “financial uprising,” posted an open letter to hedge fund Melvin Capital, CNBC and all the board users who were forced to close out their short positions in GameStop. users. In the letter, the retailer blamed Wall Street institutions, represented by Melvin Capital, for causing great suffering to millions of ordinary people in the 2008 financial crisis without being punished and instead being bailed out, and now for blatantly and illegally shorting stocks like GameStop without learning a single lesson from the crisis.
The retail investor also accused CNBC of being sponsored by large corporations, giving them a voice and “demonizing” retail investors for their hot speculation on stocks like GameStop, saying that such media outlets are short-sighted and profitable in touting institutions. Now, retail investors are taking the once-in-a-lifetime opportunity to punish these institutions. Their supporters emphasize that the Wall Street giants only allow the state to set fire to the people. They questioned online brokerages such as Robin Hood’s complicity with the hedge funds.
Some people have gone to Wall Street to protest, and others have filed a class action lawsuit in court, accusing Robin Hood of “market manipulation”. According to the New York Post 29, dozens of protesters gathered outside the New York Stock Exchange that day to protest Robin Man’s restrictive trading behavior, including some shouting “shame”, “eat the rich”. The report said the people held signs that said “Tax Wall Street trading” and shouted “I want my money, now” and “We want free markets”.
In a tweet Thursday, AOC said Robin Hood’s decision to prevent retail investors from buying stock in companies like GameStop and BlackBerry was unacceptable. In addition, she said she would support holding hearings if necessary. aOC is a member of the House Financial Services Committee, which has the power to regulate the stock market and securities and trading more broadly.
For his part, Sen. Ted Cruz (R-Texas), a radical on the right, retweeted AOC’s tweet and said in a rare move that he fully agreed with her. Trump’s son Donald Trump Jr. also tweeted criticism, saying, “In less than a day, Big Tech, Big Government and the corporate media are moving in and starting to conspire to protect their hedge fund buddies on Wall Street. This is what a rigged system looks like, folks!” Robin Hood CEO Vlad Tenev denied that the brokerage firm was an “accomplice” to short-selling hedge funds on the 28th, saying that the restriction on buying some stocks subject to concentrated speculative trading was “to protect the firm and our clients “.
We face net capital requirements from the Securities and Exchange Commission and clearing house deposit requirements,” Tenev told CNBC. We have to deposit that money with a number of different clearing houses. Some of these requirements change with market volatility. In the current situation, these requirements have changed significantly as social media has gone viral with these stocks being quite volatile and showing a lot of concentrated action.” He likewise denied that his company was having liquidity problems, saying it was borrowing out of precaution. Bloomberg News reported that day that Robin Hood had borrowed at least hundreds of millions of dollars. The report suggested that the loan was a considerable amount for a business valued at about $12 billion a few months ago. The lenders include JPMorgan Chase & Co. and Goldman Sachs Group.
It’s worth noting that Michael Burry, the aforementioned character based on the movie “The Big Short,” made a bold move last April to buy about $15 million worth of GameStop stock during the market crash caused by the new crown epidemic. Burry’s Scion Asset Management disclosed at the time that it had acquired 5.3 percent of the shares (34 million shares) of the struggling GameStop at prices ranging from $2 to $4.20 per share, for a total cost of about $15 million. However, regulatory filings show that Brie began selling his shares before GameStop’s stock price really started to explode. As of the end of September last year, he had sold half of his position, leaving 1.7 million shares, and had likely reduced his position further heading into the end of the year.
Also on this topic, the movie “The Wolf of Wall Street” prototype character Belfort (Jordan Belfort) said in an interview with CNN on the 28th that he thinks it’s very dangerous for some retail investors to get in now, “actually the average person can make money with a hot stock, but it’s easy to all lose money.” He said, “This is really a modified pull-up-and-go scam, because it will definitely come back down in the end. GameStop isn’t trading at any reasonable underlying value.”
Belfort warned, “Keep in mind that every time the market goes up, GameStop goes up, which will make the next move up harder and harder because the market cap is unsustainable.” In response, he also described those who attend party tailgates as usually being the biggest victims. He also believes that the current law makes it difficult to prove that the “Wall Street bets” section is carrying out illegal activities, although the so-called advocacy of solidarity could theoretically be seen as illegal, but he still doubts that the U.S. Securities and Exchange Commission (SEC) will try to bring a lawsuit on this basis.
Notably, Texas Attorney General Ken Paxton issued 13 civil investigative demand (CID) letters to investigate matters related to banning the purchase of certain stocks, requiring higher margins for trading certain companies’ shares, and suspending the activities of online chat platforms. He tweeted, “Today, I’m launching an investigation into Robin Hood, @discord, and the hedge funds that are manipulating our free markets for the benefit of the Wall Street elite.” He claimed, “America’s economy should be transparent and open. The coordinated corruption of the oligarchy this week shows it is not. I will help fix this.”
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