The GameStop frenzy is a thought-provoking moment in the populist financial markets.
Over the past week, GameStop, a video game retailer that had been fading into oblivion, has suddenly burst into the limelight, with ordinary people becoming concerned about why GameStop’s stock price has skyrocketed and why retail investors are taking on the big players in the air.
The “shoeshine boy theory” originated in the 1920s, when the U.S. stock market bubble was taking shape and even shoeshine boys at the bottom of the social ladder were putting their meager funds into the stock market to report to customers. After the stock market became a national sport, the stock market began to decline from strength to strength, and in 1929 the Wall Street stock market collapsed, followed by the Great Depression.
Today, nearly a century later, U.S. stocks are defying the new crown virus (Chinese Communist virus) and are hitting all-Time highs surrounded by hot money, whether or not they are bubbling remains to be verified by time. Regardless of the general market, from the traditional point of view, GameStop stocks, which are highly sought after by retail investors, are definitely in a bubble.
The 34-year-old financial advisor Keith Gill, who has a background in finance, has been working on the troubled GameStop since June 2019, and as the number of followers who believe in his investment philosophy grows, the price of GameStop shares, which have been shorted by large investors, has risen, giving Gill the money to brag about it on the Reddit stock market discussion forum.
But the retail investors who have recently heard of the “war” are not necessarily as deep into the research as Gill, and there are few young people who are purely in support of retail investors and don’t care about losing money. Online brokerages such as Robinhood, which allows them to buy stocks with a few clicks on their phones, are the driving force behind this increasingly lively ‘game’.
Robinhood, established in 2013 under the banner of “democratization” of the financial market, offers no fees for buying and selling stocks, lowering the investment threshold significantly, and increasing the number of ordinary people who are not fully aware of the risks involved in the stock market.
When a large number of people were bored at Home due to the Epidemic and did not know where to spend their free money, GameStop emerged like a “bright light”, attracting an endless stream of funds. tesla‘s CEO, Elon Musk, is playing the role of a celebrity to help the cause.
Musk tweeted Gamestonk in a social media post on the 26th, using stock (stock) harmonics, and attached a link to the Reddit stock market discussion forum WallStreetBets, and the next day GameStop’s share price soared 135%.
“Shouting that water will freeze” is an apt description of Musk, who has more than 44 million Twitter followers. He tweeted early on the 26th that he loved the shopping site Etsy, and Etsy shares jumped 8% after the opening bell.
The reason why Musk is on the same side as retail investors is partly because Tesla has been a vulture shorting affected household for years. With Tesla’s stock price on the rise, Musk released a limited edition of women’s red shorts in July 2020, called Tesla Short Shorts, which mocked the short side.
The company’s newest product, the Tesla Short Shorts, will be released in 2020.
At that time, Robin Hood, seeing that retail investors were buying too much, announced that he would impose restrictions on investments in GameStop, theater operator AMC and 10 other popular stocks. A large number of investors were in an uproar, accusing Robin Hood of sacrificing the rights of retail investors and being in cahoots with the “sore losers” on Wall Street.
In the eyes of retail investors, who are holding the banner of justice, this is a “holy war” to teach Wall Street a lesson and make the rich pay the price for the 2008 financial tsunami. But the truth is, this time the gray-headed hedge fund is only the “fringe” of the Wall Street system, and the cloth short order is a common hedging tool, but also to prevent the market all the way up the adjustment mechanism.
In addition, Robin Hood is not the only retail investors to invest in soaring stocks to set limits on the industry, Charles Schwab (Charles Schwab) and Demerit Securities (TD Ameritrade) also do so. This is related to the explosion of retail trading and the clearing house’s demand for margin calls from online brokerages.
At its root, the GameStop frenzy stems from an overabundance of market lenders, with retail investors rushing into popular targets with the short sale, whether to crash the system or to make a buck while they can, highlighting the irrational side of the financial markets.
After this week, many people only know the name of GameStop, not clear that its more than 5,000 physical stores struggled to survive during the epidemic, and even two years of double-digit revenue decline. Even with the successful development of an online channel, GameStop, founded 37 years ago, is still a long way from getting out of its operational difficulties.
GameStop’s stock price has soared 4 times in a single week and 16 times in a monthly period, surging to $325, with a market value of $22.6 billion.
The symbol of robbing the rich to help the poor Robin Hood has become the target of the 29 in the retail investors and federal Congressman Ocasio-Cortez (Alexandria Ocasio-Cortez) and other political figures criticism open limited buy GameStop and other popular shares, tasted the bitter fruit of the market from democracy to populism, the road to initial public offering (IPO) also overshadowed.
If we only look at the short term, retail investors have the upper hand in this Wall Street version of the “small shrimp against the big whale” drama that will go down in history; in the long term, it is hard to say who will win and who will lose.
In the past, it was the main force that speculated on the stock price to kill the retail investors, and it is not yet known who will be the victim of the GameStop frenzy. What is certain is that sooner or later, GameStop’s stock price will return to its “rightful” level, resulting in a trap for those who bought into the trend. After this wave of the new generation crashing into the Wall Street system, it will definitely set off a wave of criticism.
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