The dollar touched a five-week high before trimming gains and there was a discernible sense of angst in markets even as US equities clawed back losses. Long story short, investors and traders have been forced to ponder the prospect that triple-digit surges in what Bloomberg described as “fringe, oddball stocks,” may be proof that they do ring bells at the top after all.
Many of those stocks were crushed Thursday after a hodgepodge of platforms implemented trading restrictions prompting outrage, scrutiny from lawmakers, and legal action.
This week “should” have been dominated by earnings reports from the most important stocks on the planet, the Fed meeting, and GDP, but instead, the news cycle was hijacked by a Reddit message board and its users’ efforts to make mountains of molehills and ash heaps of short positions.
That forward operating base briefly went dark on Wednesday evening as members reportedly fretted over how to police content. Another board, “Wallstreetbetsnew,” garnered 350,000 members.
This is all kinds of silly (whether the participants realize it or not) and it won’t end well. Janet Yellen is watching as is the SEC. Congressional hearings are in the works.
“A portfolio of the top 5% most shorted stocks has doubled since the end of October – 40% of that gain was this year,” SocGen’s Andrew Lapthorne wrote Thursday. “And this top tranche has now broken away from the next one, implying that the level of short interest itself is the target for much of this activity.”
Elizabeth Warren and Alexandria Ocasio-Cortez are interested. Both were sympathetic to the Reddit traders’ “cause,” even as they stopped short of explicitly condoning the situation.
“For years, the same hedge funds, private equity firms, and wealthy investors dismayed by the GameStop trades have treated the stock market like their own personal casino while everyone else pays the price,” Warren said. “It’s long past time for the SEC and other financial regulators to wake up and do their jobs – and with a new administration and Democrats running Congress, I intend to make sure they do.”
“Gotta admit it’s really something to see Wall Streeters with a long history of treating our economy as a casino complain about a message board of posters also treating the market as a casino,” Ocasio-Cortez remarked.
That’s all duly noted, but I would simply reiterate my point from Wednesday — namely that this is not the kind of attention you want if you believe you may be involved in something that regulators might construe (however unfairly) as unscrupulous or collusive. Your actions are now being discussed by some of the most prominent politicians in the United States.
Read more: ‘Insane, Dangerous’ Reddit Stock Phenomenon Raises Uncomfortable Questions
The Twitter account for WallStreetBets moderators (which is verified) cited the “in tents” load the forum was under Wednesday for the decision to go dark momentarily.
I assume (and hope) that “in tents” was a ubiquitous and intentional misspelling and/or some reference to the Occupy movement, rather than an attempt at phonetic spelling gone horribly awry.
The forum is apparently unconcerned about what is sure to be “in tents” scrutiny over the next several weeks. The same tweet featured a picture of Leonardo DiCaprio as Jordan Belfort with the all-caps caption “The show must go on.”
Being too new to the trading game to recall exactly what occurred during the Dotcom bubble, I have heard stories about similar volatility. Would anyone here see parallels to that era of trading with what we are seeing in GME now, HTZ last summer, and even Bitcoin over the past year? Is it indicative of the type of bubble we find ourselves in now, or is this is a wholly new type of bubble?
I have been and currently am invested in some heavily shorted stocks- because I did my own extensive, fundamental research and I am very confident that the “shorts” are incorrect.
However, the pathway has not been a straight line and I have used the times when the “shorts” were winning to add to my position and have taken some profits when “short squeezes” took the price too high ( imho)- altho usually, too soon with hindsight!
Must know the fundamentals and be very confident of your position, understand the impact of overall market/liquidity and have a very, very long time line.
Undoubtedly, lots of real money will be both made and lost with what is going on in GME and the likes. I would never go long in GME because it is a dying business model (imo) and I don’t ever “short”- so my perspective might be not applicable.
I do the same and volatility gives me a chance to pick up companies at better prices. Unfortunately I live on the west coast and didn’t get up early enough to sell a couple more speculative names when the prices spiked before falling back on Wednesday morning.
Me too. And I am a long hold only, awaiting the news that will determine the bona fides (it is a biopharm awaiting trial results) of my researched and reasoned investment decision. Yesterday, there was a terrific short squeeze on this stock as it was on some of the highly shorted lists and it was in the throes of pushme-pullyou phase still with shorts covering, and longs playing options to catch the swings and reload so as to end up with larger positions as the day ended.
Yesterday the complaints on the more sophisticated forums, where no one address each other as “retards” or includes sexist memes, was all about the many halts that kept taking the pressure off the full-on squeeze play underway. Then, as the momentum shifted and the SP fell, there were no more halts. Today, the premarket suggested the rocket ride would continue and then the same boards were complaining about their online accounts not allowing them to trade in the name at all, letting the shorts off the hook again. Tonight the SP is 1/2 of where it stalled out yesterday. I am long, and don’t play the swings with options and avoid all leverage so I will sleep a bit better knowing that I believe in the thesis of my investment decision and that the shorts will be shown to be trapped. I do think a bunch either escaped today though or were given a chance to make some back and reload. I suspect I will have lost out on some upside torque too eventually.
These are not all millenial traders here, and there are lots and lots of others affected by all this. And the class-action suits are already flying. I now have a new risk quandry that has come out of nowhere and threatens to spill-over to pretty much all my positions.
What a shisshow !
I’ve followed WSB before they reached 1M subs. They are a self-deprecating, supportive community that shares information from all corners of the internet, but encourages everyone to set their strategies according to their own profiles. Most are not afraid to lose even 95% or more on positions and learn humbly from these lessons, posting embarrassing “loss-porn.” In doing so, they have taken the shame out of losing, injecting the levity of comedy, coming back stronger every time. They, along with their mods, are also super-quick to aggressively root out bad actors/bots, one of the finest practical displays of a Turing-type test I’ve seen in action.
These players certainly know what they are getting into and their risk tolerance and returns are likely higher than most of Wall Street (and on a risk-adjusted basis). Who bet on Tesla? If anyone is afraid of getting hurt, it’s Wall Street. The quality of WSB’s best DD is far more balanced compared to shops like Citron Research and light-years more intelligent and thoughtful, while less arrogant. I compare what I’ve learned from this blog and I don’t find their conclusions (or humor) much different.
To me it became crystal, when I heard the pundits say they just didn’t want the kids to get hurt. Yesterday for over 30 minutes, Chamath Palihapitiya schooled a CNBC host who came off as angry, while failing/refusing to offer a single argument based on fundamentals while demanding that from Chamath incessantly. This is the typical shifting of the burden of proof in favor of “traditionalism.” Everyone else is a “radical.” That is relativist rhetoric, i.e., intellectual and meaningless, without values rooted in humanity.
Everyone who knows gaming knows Gamestop. To flip the question, why is it fundamentally reasonable to believe Gamestop would be so dumb as to repeat the harsh lesson of Blockbuster when given the unique chance to pivot? So tell me then, who else is supposed to become the Netflix of gaming?
Like you said this is a riot, but maybe this is a protest. Where BLM could not physically be there in every city, or for every oppressed group, social media technology (that is not facebook) has now put the power of capitalism in the hands of everyone with a smartphone and that power is information in real-time. As in the game show “Who Wants to Be a Millionaire?”, in pursuing a unified goal the audience was always the most reliable lifeline to the truth.
It’s always nice to find a sense of community. So congratulations on that score.
With that out of the way, by its very nature WSB is more a herd of wildebeests than a new investing paradigm.
As for GameStop, the company is in no way comparable to Netflix. Even a superficial analysis of the relative positions of the two companies in their respective industries offers clear proof of that. But hey, there are any number of new millionaires this week thanks to GME, so it’s all good.
If nothing else, this week on Wall Street has been lively and entertaining.
“So tell me then, who else is supposed to become the Netflix of gaming?”
Did Steam, etc disappear?
Let’s not forget Google Stadia!
And Sony PlayStation… and Epic… and even GOG.
Jeez. The idea that GameStop was going to pivot… I mean, everything’s possible with a new major investor putting in new management but they had certainly not demonstrated any ability nor intent to try pivoting.
bleepbloop thank you for sharing your experience of who made up WSB and what it was about. financial types don’t get nerds. but nerds have the upper hand in understanding and using tech… and the markets are just another interesting puzzle, a game, to solve. here I was wondering how AI was changing the way markets function. now we have a tidlewave of retail investors from around the world behaving like an AI gone rogue! wallstreet will never be the same again.
Pushing back a bit there; apart from sales people, financial types often ARE nerds.