A real estate salesman in Valparaiso, Ind. A former line cook from the Bronx. An evangelical pastor and his wife in Huntington Beach, Calif. A high school student in the Milwaukee suburbs.
Meanwhile, “Wall Street is losing its mind” and Steve Cohen is losing a whole lot of money and a whole slew of other seeming hopeless companies are seeing their share prices rocket hundreds of percent. At this point in the Great GameStop Game—after it looked briefly like the professionals had taken back control, only to see r/WallStreetBets’ degenerates retake the offensive—it seems fair to ask, “What the hell is going on?” And everyone is.
It is tempting to see GameStop as merely clownish behavior in a chat room having some amusing effects on a stock few care about. That would be a mistake…. GameStop’s soaring stock—and similar moves in BlackBerry, Nokia and others—is a bubble in microcosm, with lessons for those of us worrying about froth elsewhere in the market…. The absence of emotional stability on r/WSB is obvious and has worked out beautifully for buyers of GameStop so far. But when the stock is weighed, many will be found wanting, as they always are in bubbles.
If your theory of GameStop’s stock is that it is a market plaything utterly disconnected from any fundamental information about GameStop the company, a way “to use easter eggs in the mechanical infrastructure of the market to make money,” a pure token for YOLO gambling—that doesn’t have to just mean Reddit gambling…. Surely a lot of professional investors are white-knuckling this thing, buying it as a trade and hoping they can get out before the redditors do…. WallStreetBets started this but anyone can jump in now.
Judging by volumes, everyone has. Yesterday Bloomberg’s Eric Balchunas pointed out that GameStop was “the most traded equity on the planet,” with $20 billion of volume. Tesla was No. 2. GameStop closed yesterday at $147.98, for a market capitalization of about $10 billion, up 93% from the day before, up 641% from two weeks ago. That was before Musk tweeted.
A message on the forum’s landing page initially said WallStreetBets had been taken private by its moderators because of technical difficulties on an “unprecedented scale as a result of the newfound interest in WSB.”/About an hour later, the forum was made available to the public again….
Separately, chat service Discord banned WallStreetBets’ server late Wednesday…. A Discord spokeswoman said the WallStreetBets server had been on the platform’s radar for some time “due to the occasional content” that violates community guidelines, including “hate speech, glorifying violence, and spreading misinformation.”
TD Ameritrade said it placed restrictions on certain types of trading activity on the companies “in the interest of mitigating risk for our company and clients….” Charles Schwab said shares of GameStop could no longer be traded on margin, meaning trades cannot be placed with money borrowed from the company. And Robinhood, the trading app that has made it easier for inexperienced traders to enter the market, said it wouldn’t allow margin trading of shares of both GameStop and AMC.
Anyway, back to the broader whys and hows and wherefores.
The frenzy of activity is stirring regulatory and legal concerns, as well as the attention of the Biden administration. The White House press secretary said on Wednesday that its economic team, including Treasury Secretary Janet Yellen, is monitoring the situation.
The newbie investors are gathering on platforms such as Reddit, Discord, Facebook and Twitter. They are encouraging each other to pile into stocks, bragging about their gains and, at times, intentionally banding together to intensify losses among professional traders, who protest that social-media hordes are conspiring to move stock prices….
“I think the big takeaway is, fundamentals do not apply to retail traders,” said [Noah] Williams. “It’s all about sentiment. The only reason why Tesla is worth what it is is because people believe in that company.”
What an apt comparison, Noah. How is the original GameStop doing?
Tesla Inc. reported fourth quarter sales of $10.7 billion and earnings of 24 cents a share on Wednesday, its fifth straight quarter of profits…. The stock changed hands at 1,371 times trailing earnings as of Wednesday. Even that cartoonishly large multiple provides false comfort: In the fourth quarter, Tesla earned $270 million in net income but sold $401 million in regulatory credits to other auto makers needing to meet emissions mandates, primarily in Europe. Before tax, those revenues carry 100% profit margins. Tesla’s credit sales have significantly outpaced net income for five consecutive quarters, and those credits might become less valuable over time, as more manufacturers step up electric car production.
But, seriously: What the fuck is going on? As befits what historians will no doubt refer to as the “Long 2020,” everything and nothing and who the hell knows? Certainly, not the people who inadvertently helped make it happen, whatever it is.
The traders’ motivations vary widely. Some reason that GameStop’s shares are a good value. Others are just riding the wave. And others want to squeeze Melvin Capital, a hedge fund that was shorting GameStop. They’re the ones quoting Heath Ledger’s Joker character from “The Dark Knight”: “It’s not about money; it’s about sending a message.”
But the aggressive maneuvers against the shorts aren’t necessarily limited to the amateurs. Wall Street’s big players know a good opportunity when they see it.
“It’s a little like watching one of those horror films where you can see the bad guy slowly going up the stairs,” [r/WallStreetBets creator] Jaime Rogozinski said. “You see this train wreck happening in real time….”
When an online mob goes after an investor’s kids or spouse—that crosses the line, he said.
“It’s no longer what it used to be,” he said.
GameStop Mania Reveals Power Shift on Wall Street—and the Pros Are Reeling [WSJ]
‘Dumb Money’ Is on GameStop, and It’s Beating Wall Street at Its Own Game [NYT]
GameStop Is a Bubble in Its Purest Form [WSJ]
GameStonk Rocket Rocket Rocket [Matt/Bloomberg]
Tesla’s Stock Is the Original GameStop [WSJ]
4 Things to Know About the GameStop Insanity [NYT]
Wall Street is ‘losing its mind’ as small investors are ‘taking down the billionaires’: Charles Payne [Fox Business]
AMC’s Pandemic Survival Gets Boost From Trading Mania [WSJ]
Reddit’s WallStreetBets Forum Briefly Goes Dark [WSJ]
Trading platforms are limiting trades of GameStop and other companies. [NYT]
‘This is a drastic shift’ – Reddit founder Alexis Ohanian on WallStreetBets short squeeze [CNBC]
WallStreetBets Founder Reckons With Legacy Amid Stock-Market Frenzy [WSJ]
Mark Cuban says his 11-yearold son ‘made trades’ in AMC, BlackBerry with Reddit’s WallStreetBets: ‘He hasn’t made money yet’ [CNBC]