Actor Christian Bale played Dr. Michael Burry in “The Great Short,” winning several film awards for his … [+]
(Photo by Lester Cohen / WireImage)
In April, Dr. Michael Burry, the hedge fund investor who made millions of subprime mortgages short during the 2008 crisis and was dramatized by Christian Bale in “The Big Short,” made a bold play in the depths of the Coronavirus pandemic. .
Burry hedge fund Scion Asset Management has revealed it has bought 5.3% of struggling video game vendor GameStop
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Burry’s play helped unleash one of the craziest and most out-of-control financial histories, beating billions of dollars in paper profits for some investors, including many amateur speculators, and causing billions of dollars in losses for some of the world’s most sophisticated hedge funds.
GameStop rose from a low of $ 2.57 per share when Burry built its position this spring to over $ 240 at some point in after-hours trading, as used by a gang of amateur speculators the social networking application Reddit to throw the very short-circuited stock of GameStop. The subsequent rise in GameStop shares created pressure reminiscent of Volkswagen’s 2008 rise to a market cap of half a trillion dollars in the depths of the 2008 crisis, which led to losses of hedge funds of about $ 30 billion. .
At the urging of investors like Burry, GameStop bought about $ 200 million in stock in 2019, reducing its outstanding shares by 38%. The redemptions, combined with massive speculative fund betting against GameStop as it suffers from declining video game sales in the store, meant it ended in 2020 as one of the strongest stocks in the world.
Enter the Reddit thread r / wallstreetbets, where for months the posters have been trying to take out the GameStop bears and pump up the company’s stock. As GameStop took off due to the addition of Chewy
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Founder Ryan Cohen, as an investor and increasing PlayStation sales, Redditors began to smell blood in the water. In January, a gathering organized by social networks took place, which fueled a gain of 881% in GameStop shares in the last month.
Battle Royale is reminiscent of a similar confrontation about 15 years ago, although one of the professional traders, compared to today’s iteration, in which amateurs share gigantic funds. In 2006, billionaire John Arnold traded against Brian Hunter, the hedge fund Amaranth Advisors, for a giant transaction (March / short April) in the future of natural gas. The duel made Arnold a fortune, but cost Amaranth $ 6 billion and killed the fund.
As GameStop’s valuation rose to $ 14 billion, making some retailers millionaires, it was at the expense of successful funding. The Melvin Capital hedge fund, one of the largest shorts broadcast by GameStop, has lost a lot of boat due to the squeeze of GameStop. Was it seems to have fallen by 30% since Monday, according to the Wall Street Journal, and asked for $ 2.7 in aid from billionaires Ken Griffin and Steven A. Cohen of Citadel and Point 72 Asset Management, respectively, to stay afloat.
As the squeeze turned into a kind of Wall Street fiasco, once a decade, two of Silicon Valley’s biggest mouthpieces, Elon Musk and investor Chamath Palihapitiya, came into play.
Palihapitiya traded in squeeze, buying call options on GameStop, which seemed to accelerate squeeze on Tuesday afternoon. Following Palihapitiya’s tweet, GameStop rose from $ 90 to $ 147.98.
A few minutes after the market closed, Musk joined the party with even stronger results. With tens of millions of avid fans around the world and a talent for action movement with a single unsurpassed tweet, Musk simply wrote “Gamestonk.” He connected to the Reddit thread where the squeeze was coordinated. This was good enough for a 43% increase in GameStop shares when trading after the program.
Now, GameStop’s hedge fund bull, Michael Burry, probably the person who instigated the current circumstances with his massive ransom call, says the squeeze is “unnatural, crazy and dangerous.” In a tweet, Burry said there should be legal and regulatory implications for the increase. (Apparently deleted the tweet later).
Maybe Burry is trying to put a lid on the Pandora’s Box he helped open. Or maybe he’s suffering from a little FOMO or he’s afraid of missing out. The 3.4 million shares that Burry bought for about $ 15 million would be worth $ 710 million at current prices, making him almost a billionaire.
Unfortunately for Burry, the securities deposits revised by Forbes indicate that he sold his GameStop before the fun really started. As of September 30, Burry owned only 1.7 million shares and it is more than certain that he continued to sell as GameStop was broken at the end of the year.
For more about GameStop:
GameStop’s massive surface creates a new billionaire as Reddit traders bet against Wall Street