Embed from Getty Images
I’m old enough to remember what kind of “internet age” we were promised. We were promised mass information, mass communication, and the rise of a socialist-lite egalitarian community. What we got was “too big to fail” banks wrecking the economy and the rise of Nazis, fascism and dumbf–k conspiracies like QAnon. But this story has made me hopeful that at least some people are trying to bring chaotic good to the stock market. The backstory: hedge funds wield their $100 billion-plus portfolios around, making massive bets that this stock will fail or that stock will rise. Some of the biggest hedge funds in the world decided to short GameStop’s stock, betting that the stock would continue to decline and that they would reap a huge profit. Then a wide variety of small investors, mostly self-organizing on Reddit, decided to mass invest in GameStop and a handful of other declining stocks. Reddit’s small investors pushed the price of GameStop’s stock so high, and now they’re cashing out, making a huge profit on their small investment. Wall Street is FREAKING OUT.
A real estate salesman in Valparaiso, Ind. A former line cook from the Bronx. An evangelical pastor and his wife in Huntington Beach, Calif. A high school student in the Milwaukee suburbs. They are among the millions of amateur traders collectively taking on some of Wall Street’s most sophisticated investors — and, for the moment at least, winning. Propelled by a mix of greed and boredom, gleefully determined to teach Wall Street a lesson, and turbocharged by an endless flow of get-rich-quick hype and ideas delivered via social media, these investors have piled into trades around several companies, pushing their stock prices to stratospheric levels.
Some of the names are from an earlier business era. BlackBerry’s shares are up nearly 280 percent this year. Stock in AMC, the movie theater chain, has surged nearly 840 percent. But the trade that captures the David-versus-Goliath nature of the moment involves GameStop, the troubled video game retailer that was once a fixture in suburban malls.
On Wall Street, individual investors are often derided as “dumb money,” destined to lose against the highly compensated analysts and traders who buy and sell stocks for a living. But in recent days, individual investors — many of them followers of a popular, juvenile, foul-mouthed Reddit page called Wall Street Bets — have upended that narrative by banding together to put the squeeze on at least two hedge funds that had bet that GameStop’s shares would fall.
While the hedge funds and other professional money managers had been shorting GameStop’s shares, betting that its stock was doomed to further decline, the retail investors — online traders, mom-and-pop investors, small brokers and others — have been pushing the other way, buying shares and stock options. That caused GameStop’s market value to increase to over $24 billion from $2 billion in a matter of days. Its shares have risen over 1,700 percent since December. Between Tuesday and Wednesday, the market value rose over $10 billion.
The tribal framing online, as a kind of team sport pitting plucky upstarts against well-heeled Wall Streeters, has been especially helpful in motivating more investors to participate. This week, Tesla’s chief executive, Elon Musk, fueled the trading by posting about the Reddit page on Twitter. And speculation is growing that other investors are seeing fresh opportunities to push the stock even higher.
No one knows how this ends. Some analysts say the intense activity could eventually prompt a wider sell-off in the market by forcing hedge funds on the losing side of these trades to sell parts of their portfolios to raise cash to cover their losses. While this speculative frenzy played out on the market’s sidelines, the S&P 500 fell more than 2.5 percent on Wednesday, its worst day since late October, as the Federal Reserve gave a glum assessment of the economy and before a number of big tech companies announced their earnings.
[From The NY Times]
There’s no hedge fund which will ever be designated “too big to fail” – meaning, there is no bailout on the horizon. Instead, you have the so-called professional class of Wall Street commentators completely flummoxed by what is happening, and some of the richest hedge funds in America losing billions in a matter of days. It honestly is like an episode of Billions (a show I love). I saw one Wall Street analyst try to explain what was happening as “it’s a combination of boredom and people investing their stimulus checks.” Which is funny, because that’s the way these douchebags think – “we gave the peasants a few dollars and now look what happened!” Anyway, I’m proud of these small investors. I saw some screencaps from Reddit where the small investors were talking about donating portions of their profits to charity and helping family members pay for medical care. These are real people… screwing over faceless hedge-funds and feeding the poor.
White House press secretary Jen Psaki was asked about this mess too, lol.
— Aaron Rupar (@atrupar) January 27, 2021
— manny (@mannyfidel) January 27, 2021
— Bess Kalb (@bessbell) January 28, 2021
— Zack Bornstein (@ZackBornstein) January 28, 2021
Embed from Getty Images
Photos courtesy of Getty.
Source: Read Full Article