Wall Street an earthquake with an epicenter lives in companies such as GameStop, AMC or BlackBerry, for whose stock market the experts bet, but who the obsession of an army of coordinated investors in the digital forum Reddit, from which they encourage their valuation to skyrocket, shaking up large investment funds on their way to losing more than $ 5 billion.
“Wall Street Bets”, a Reddit sub-forum that describes itself as a “4chan crossed with a Bloomberg terminal” has been boiling for several days with hundreds of thousands of users encouraging each other to frantically buy shares under the slogan “YOLO“(you only live once) and and thus take down the speculative activities of the ‘hedge funds’, who admitted Wednesday to the creators of the call “Gamestonk“.
“We are very confused,” the investment fund’s official report tweeted Wednesday without any confusion Melvin Capital, one of the funds most exposed to GameStop short options, and have announced it who have covered these speculative operations after the losses caused by retail in recent days.
“In 2020, many ‘hedge funds’ have used their capacity as an institutional entity to position themselves ‘short’ with large capital volumes, ” he explains EFE XTB analyst Darío García on this type of speculative transaction is at the center of the controversy, which seeks profit with loss of value of the securities.
‘Wall Street Bets’ and its nearly three million users realized how many ‘shorts’ Melvin Capital had in companies like GameStop or the AMC movie theater chain, and By buying their shares and increasing their value in a stratospheric manner, they have “tried” to bring down those operations.
“Very clever fools”
While a string of market experts have come out over the week to criticize the inexperienced investors who caused these unexpected shakes on Wall Street, the “redditors“they knew very well they were making a call”short squeeze“, a multiplier effect to your trolling strategy.
An unexpected rise in the price of a stock, such as the one they caused, forces investors in the short options market to cut losses by buying the securities of those spoiled options, thus Purchases further increase the value of securities for no reason to the market.
GameStop touched on this Wednesday $ 380 per share then a week ago it was worth about 37 while AMC reached $ 20 when it had been five sessions, it was at 3 and led a volatile list that also includes phone manufacturers BlackBerry Y Nokia, or shops Bed Bath & Beyond y Express.
“It seems that retail (investors) are rebelling against the big hedge funds, who take advantage of their size and legal capacity to keep themselves small, to pull the strings, ”said Garcia.
“I do not think so none of them are necessarily a sign of a bubble, but from power of social media and the convenience of retail, ”added OANDA analyst Craig Erlam.
“Revenge of the losers”
Chasing the masses of investors are highly active social media businessmen like the controversial Tesla founder, Elon Musk, or the famous businessman Chamath Palihapitiya, the latter revealed today that he had bought GameStop options and donated the money raised, approximately $ 500,000.
In an interview with the channel CNBC, Palihapitiya said she had spent hours reading the forum and offered her conclusion that the phenomenon is a “push for the establishment” by young people in the 2008 financial crisis who saw Wall Street taking too many risks and being “saved” while their families lost homes and jobs.
Investor Michael Burry, on which the film “The Big Short” was based around that time and whose investment fund Scion Capital benefited from the rise of GameStop, said in a tweet this Tuesday that was removed within minutes that there should be “legal and regulatory implications” and that the move is “unnatural, crazy and dangerous”.
In this regard, White House spokeswoman Jen Psaki said on Wednesday that the Treasury Secretary, Janet Yellen “He’s monitoring the situation,” but the issue “is a good reminder that the stock market is not the only measure of economic health” and “doesn’t reflect how working and middle-class families are doing.”
No-commission brokerage platforms in the US, such as TD Ameritrade, decided on Wednesday to restrict certain transactions with GameStop and AMC in order to reduce “the risk” for their clients. Robin Hood, another of the most widely used, the titles enjoyed trading volumes well above what was common weeks ago.
However, after the boom, it is this app that has banned people from shorting companies. And it’s the users who start to massively rate them with a five-star rating.
Oanda analyst Ed Moya believed that “a new wave of retailers has triumphed against short-selling giants Citron and Melvin Capital,” as Reddit rebels claimed victory, also advertise companies with which they have a special connection, such as the GameStop video game store, which the great Wall Street celebrities considered dead.
“We see the essence of the democratization of markets: hedge funds have the freedom to do what they do and the retailers have complete freedom to do what they do. It is a war of economic power or capacity: in this case, the retailers have won many Davids’ battles against GoliathGarcia said.
With information from EFE
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