The Gamestop stock frenzy is a bottom-up revolution, a major phenomenon, perhaps as significant in terms of average people assailing the powers that be, as the Capitol invasion. It's costing hedge funds billions. And it looks like it's leading to what could be criminal shutting down by stock trading brokerages of sales of the most shorted stocks-- which protects the at risk hedge funds and screws "retail" main street investors. (read my book Bottom-up Revolution to learn more about the idea and all the ways it is manifesting.)
There's a huge, bottom-up revolution going on in the stock market. Small, "retail buyer" stock investors are buying the most shorted stocks and that is costing the big hedge funds that have shorted them billions.
This explosion started on a reddit subgroup WallStreetBets. That's where the bottom-up action was happening where the idea of investing in Gamestop started. There, people who were disgusted by the damage short-selling by multi billion dollar hedge funds does to companies trying to succeed. The idea of assailing these ultra wealthy hedgefunds and their investors seems, to me, similar, at least in scale, to the attack on the Capitol, as a rejection of the powers that be.
Gamestop was one of the most shorted stocks on the market, which put the exposure of hedgefunds betting against the stock by shorting it into billions of dollars, once Gamestop share value started going through the roof. The Melvin Capital group had to borrow almost $3 billion from Citadel hedge fund to cover losses from shorting (link)
In response, the small buyers are being screwed, probably because of pressure from the big, high volume buying hedgefunds.. The biggest stock trading company, Robinhood, which has over 13 million users, has stopped sales of some of the most shorted stocks, as buying of those stocks has exploded. CNBC reports in its article Robinhood restricts trading in GameStop, other names involved in frenzy,
"Retail brokerages restricted trading on Thursday in GameStop and other stocks caught in a frenzy that has captivated Wall Street and caused big losses for hedge funds. In some cases, investors would be able to sell only their positions and not open new ones.
and the article added,
"We continuously monitor the markets and make changes where necessary. In light of recent volatility, we are restricting transactions for certain securities to position closing only, including $AMC, $BB, $BBBY, $EXPR, $GME, $KOSS, $NAKD and $NOK. We also raised margin requirements for certain securities," Robinhood said in a statement.
Here's a connection between Robinhood and the hedgefund that has an influence on it, from the reddit subgroup WallStreetBets.
The hedge fund CITADEL pays Robinhood for their order flows, about 40% of CITADEL revenue is from Robinhood. CITADEL has HUGE short positions on GME. This is collusion and manipulation on a massive scale. Lawsuit incoming from r/wallstreetbets
This Robinhood stop is a very big deal. It sure looks criminal to me. Also bad, even the discussion of what's happening has been stopped, because Discord shut off reddit's WallstreetBets.
Some of the highly shorted stocks that were shut down AMC, ToosieRoll, Gamestop, Bed Bath and Beyond, Blackberry, Nokia, Sundial Growers, Koss. Many of these were seeing massive jumps in value that could have put hedge funds with big short positions in big trouble. It's being reported that Citadel was allowed to keep shorting stocks while Robinhood had locked the sales, which could have raised prices. The result of the Robinhood trading restrictions was a steep drop in GameStop.
Thousand are calling for a class action suit against Robinhood.
They said there was hate speech. But what was happening was the people on the WallStreetBets subreddit wanted to stick it to billionaires. As Glenn Greenwald describes in the video below, the subredditors figured out that a bottom-up swell of investing in Game Stop could really put the screws to hedge fund investors, particularly Melvin Capitol-- and that some of them could buy low and make money. And it worked. Gamestop, a marginally functioning, highly shorted company went from $5 a share to over $400 a share.
Citadel is a major investor in @RobinhoodApp. Citadel bailed Melvin out of their short position in $GME. Robinh… https://t.co/HriTDgqEAR at https://t.co/HriTDgqEAR— Nava Investments LLC. (@NavaInvest) January 28, 2021
We have to wonder how the Biden administration and the Democratic leadership will respond to this.
Here's what Representative Tlaib had to say, but I'm not sure it will be the response by Biden or the Dem leadership:
This is beyond absurd. @FSCDems need to have a hearing on Robinhood's market manipulation. They're blocking the abi… https://t.co/RIfngcIg1P at https://t.co/RIfngcIg1P— Rashida Tlaib (@RashidaTlaib) January 28, 2021
My son, who does some stock trading, says what's going on in the stock market is almost an event of 9/11 stature, and that it is kind of like what happened with Tickle Me Elmo sales in 1996 at Christmas time, when the $29 toy was being bought by some parents and grandparents who had promised them as gifts, and maybe even investors, for as much as $1500. The lesson is, people were allowed to pay such prices for the toy. And investors should be allowed to pay whatever the price
The reality is, as CNBC reports Reddit co-founder Alexis Ohanian says, the Gamestop stock explosion is a "Bottom-up Revolution."
What's happening is, on Reddit, a lot of people discussed the possibility of making money selling a stock, Gamestock, that was heavily shorted (people buying the opportunity to sell it later for a profit if it goes down in value.) Gamestock saw a massive increase in value, caused by millions of small investors, so Hedgefunds have lost billions of dollars.
What's happening now is those big investors are being protected. But it's happening at the expense of the small investors, the ones who have started this bottom-up revolution.
If you are interested in this "situation" people are also looking at other heavily shorted stocks. That's why Robinhood also restricted sales of other stocks, like AMC, Bed Bath and Beyond, Nokia, Koss and others.
Glenn Greenwald says this is a positive populist uprising and has this to say about what's going on:
VIDEO: The Reddit Revolution, GameStop and Melvin Capital One of the most interesting and potentially significant conflicts to happen in some time - not just financially but culturally and politically - deserves serious scrutiny.
A remarkable series of events culminated in at least one major Wall Street hedge fund on the verge of insolvency and widespread anxiety and even panic from the titans of the financial system. It was all initiated on a sub-group of Reddit known for its heterodox interest in stock markets, video games, and vaguely populist politics.
Purposely targeting the stock of a company that had long been written off by Wall Street and which short sellers had decided to ravage the video game retailer GameStop these small investors, many apparently working class or debt-ridden, banded together to drive up the stock price of that company into the stratosphere, abruptly leaving the hedge fund short-sellers with billions of dollars in losses.
Although it may be more complex than this once all the facts are all known, this is being treated by those excited by it and those aghast as a type of populist uprising, a David v. Goliath tale in which ordinary people united to brilliantly beat Wall Street at its own game, thereby transferring plutocratic wealth back to the public. Oligarchs and their media spokespeople spent all day on CNBC and other pro-Wall-Street outlets expressing outrage and demanding government intervention to protect them from what they regard as this grave injustice.
And the sub-Reddit has now been banned by at least one platform, on the highly suspicious ground that it was due to "hate speech" and not the use of this group to sabotage Wall Street billionaires (what a remarkable coincidence of timing that this sub-Reddit's "hate speech" suddenly crossed a line exactly as hedge fund managers were demanding their heads; the page continues, however, to appear on Reddit itself).
In the video below, I discuss what happened and what the implications are. One note about the video: though I do discuss the amorphous and trans-ideological politics driving both the Reddit uprising and the reaction to it, that topic in particular merits much more consideration. Liberal journalists and pundits love to mock the idea that "economic anxiety" drives anything remotely adjacent to right-wing populism the primary drivers are racism and other types of bigotry, they insist in unison yet all one has to do is spend any non-trivial amount of time in that sub-Reddit to see genuine and significant levels of rational economic anger often quite untethered, even hostile, to left-liberal cultural pieties and political niceties. Given their recent noble success, everyone now wants to claim these Redditors as their own, but their politics, like many people's, defy the clean left-right dichotomy on which the professional media and punditry classes depend, the only prism through which they can understand the world.
This is one of the most interesting and potentially significant events - not just financially but culturally and politically - to happen in some time, and I try here to explain the key components and highlight some of the most consequential implications [note that this video was filmed late last night before the banning of the sub-Reddit by Discord on obviously specious grounds and, far worse, the corrupted banning this morning by major trading platforms, including RobinHood, of any attempts to buy GameStop and other targeted stocks while still allowing them to be sold: the ultimate expression of what should be illegal market manipulation to protect hedge funds):
Not all hedgefunds lost money on Gamestop. Vice.com reports that Blackrock made about $3 billion from the stake it has held. Other investors who bought Gamestock last year are making multibillion dollar fortunes too.
So why should Robinhood have the right to shut down trading? The read on the street is they are doing it to protect the big shorters.
What's your take on what's happening?