Wall Street lives an earthquake with an epicenter in companies such as GameStop, AMC or BlackBerry, for which the stock market is declining pariah experts, but who have become the obsession of an army of coordinated investors in the Reddit digital forum, where it encourages its valuation to grow, shaking off large investment funds, which are on the verge of losing more than $ 5 billion.
“Wall Street Betting”, a Reddit sub-forum describing a “4chan crossover with a Bloomberg terminal” has been in full swing for several days, with hundreds of thousands of users encouraging each other to buy shares frantically under the sloganYOLO“(you only live once) and thus bringing down the speculative operations of the “hedge funds”, which on Wednesday gave way to the creators of the call “Gamestonk“.
“We are very deceived”, the official account of the investment fund wrote on Twitter on Wednesday, without circumcision Melvin Capital, one of the funds most exposed to short GameStop options and who announced which covered these speculative transactions after losses incurred in recent days by retailers.
“During 2020, many ‘hedge funds’ took advantage of their ability as an institutional entity to position themselves ‘short’ with large volumes of capital,” he explains. EFE XTB analyst Darío García on this type of speculative transaction at the center of the controversy, which seeks to make a profit by losing the value of securities.
Wall Street Bets and its nearly three million users have made the number of “short films” that Melvin Capital has had in companies such as GameStop or the AMC movie chain, and By buying their shares and increasing their value in a stratospheric way, they “tried to overthrow” those operations.
“Very smart fools”
Although a number of market experts came out during the week to criticize inexperienced investors who caused these unexpected tremors on Wall Street, “income“they knew perfectly well that I was making calls”short squeeze out“, a multiplier effect to your fishing strategy.
An unexpected rise in the price of a stock, such as the one they caused, forces investors in the short options market to mitigate losses by buying the securities of those impaired options, thus Acquisitions further increase the value of securities, without being justified by the market.
GameStop was hit on Wednesday $ 380 per share when a week ago it was worth about 37, while AMC reached $ 20 when five sessions ago it was at 3, leading a volatile list that includes phone manufacturers Blackberries Yes Nokia, or retail stores Bed Bath & Beyond and Express.
“It seems that retailers (investors) revolt against large hedge funds, who take advantage of their size and legal ability to position themselves short, to put them on the ropes, “Garcia said.
“I do not think none of them is necessarily a sign of a bubble, but from the power of social media and ease of retail trading “, added Craig Erlam, OANDA analyst.
“Revenge of the defeated”
In the haunt of the mass of investors, very active business figures appeared on social media, such as the controversial founder of Tesla, Elon Musk, or the well-known businessman Chamath Palihapitiya, the latter revealing today that he bought GameStop options and donated the money raised, about $ 500,000.
In an interview with the channel CNBC, Palihapitiya said he spent hours reading the forum and offered his conclusion that the phenomenon is a “push towards the establishment” of young people who, in the financial crisis of 2008, saw that Wall Street was taking too many risks and was “saved” while their families lost their homes and jobs.
Investor Michael Burry, on which the film about the time “The Big Short” was based and whose investment fund Scion Capital took advantage of the growth of GameStop, said in a tweet deleted in a few minutes that there should be “legal and regulatory repercussions” and that the movement is “unnatural, crazy and dangerous”.
In this regard, White House spokeswoman Jen Psaki said Wednesday that the Secretary of the Treasury, Janet Yellen “He monitors the situation,” but the issue “is a good reminder that the stock market is not the only measure of economic health” and “does not reflect the way working and middle-class families operate.”
U.S. zero-commission brokerage platforms, such as TD Ameritrade, decided on Wednesday to restrict certain transactions with GameStop and AMC to “mitigate risk” for their customers while they are in Robinhood, one of the most used, the securities enjoyed trading volumes well above what was usual weeks ago.
However, after the boom, this app banned people from investing short in companies. And users began to rate them massively with a five-star rating.
Oanda analyst Ed Moya opined that “a new wave of retailers triumphed over short-selling giants Citron and Melvin Capital,” while the Reddit rebels won. also promoting companies to which they have a special attachment, such as the GameStop video game store, which the great Wall Street luminaries considered dead.
“We see the very essence of democratizing markets: hedge funds have the freedom to do what they do, and retailers have complete freedom to do what they do. It is a war of power or economic capacity: in this case the retailers have won the battle of many Davids against Goliath.“Garcia said.
With information from EFE
We recommend METADATA, the RPP technology podcast. News, analysis, reviews, recommendations and everything you need to know about the technological world. To hear it better, #StayEnCasa.