By: Jack Osborne
The past few days saw the New York Stock Exchange saw one of the biggest fuck you in it’s history after stocks sored for video game store, Gamestop after redditors invested in the struggling company which saw billionaire hedge funds crash.
I’m not clued up with stocks and shares at all, so I guess some of my readers also are not clued up in this situation and what is unfolding at the moment on Wall Street, so I will keep it very simple.
On the 28th of January 2021 a post on Reddit went viral and it was posted on a subreddit called “r/wallstreetbets“. The Reddit post read “There is NO organized effort by those [of] us who moderate this community to promote, advise or recommend any stock. It is against our policy to do so and we feel it is crucial to allow members to be able to share their ideas amongst each other with autonomy.”
Before we get more into it, what are hedge funds?. A hedge fund is a pooled investment fund that trades in relatively liquid assets and is able to make extensive use of more complex trading, portfolio-construction and risk management techniques to improve performance, such as short selling, leverage, and derivatives. For example a person with hedge funds would bet on stocks that they borrowed from brokers and take it to the market to see the shares shrink due to short selling. They would buy it then sell it back to the broker with lower share but the person would make a huge profit. This would often be done with money of multi million and billionaires. This video by Ben Shapiro should explain it better.
Ben Shapiro Breaks Down the Funniest Wall Street Prank Ever – YouTube
Many members of this Reddit community, went on brokerage apps like “Robinhood” and started to buy shares in GameStop. On January 20th (Joe Biden’s presidential inauguration) the share price was at 39.12 USD which it posted a net short of -0.24 but a gradual growth following this saw the shares grow by near enough 22 USD. The biggest growth was seen on January 26th when the share price sky rocketed to 147.98 USD and when trading closed it was up 92.7 percent. The share price saw an even bigger growth after founder of SpaceX and Tesla, Elon Musk tweeted “Gamestonk!!” followed by the link to r/wallstreetbets subreddit. A brief, sharp rise in the share price to over $200 followed Musk’s tweet which sent the people with hedge funds in serious panic mode. As of January 28, 2021, the all-time highest intraday stock price for GameStop, is $483.00 (nearly 190 times the record low of $2.57). In premarket trading hours, it briefly hit $500 the same day.
Following the short squeeze on GameStop the redditor’s also made investments in Blackberry Limited, AMC Theatre’s and Nokia Corporation. To protect hedge funds the Robinhood app halted purchases stock and many other apps followed suit, some of the brokers and traders called for lawsuits against some of the Reddit posts and the website itself. In the United Kingdom trading apps like Trading212 and eToro followed the American traders and blocked all stock sales to GameStop.
It is believed that short sellers have lost around $6 billion and one of Wall Street’s largest investment firm Melvin Capital who were very known for short selling GameStop, suffered the most as they had lost 30 percent of its value since the start of 2021, and by the end of January had suffered a loss of 53% of its investments since the short squeeze. Melvin Capital started the year with $12.5 billion in assets but it ended January with $8 billion in assets.
The situation was monitored by the White House. White House press secretary Jen Psaki said that Treasury Secretary Janet Yellen and others in the Biden administration were monitoring the situation, and Speaker of the House Nancy Pelosi said that Congress will also be reviewing it. Many other politicians criticized Robinhood for blocking sales of GameStop stocks and encouraged people to invest into the stock. Ted Cruz, Marjorie Taylor Greene and Rashida Tlaib. Senator Elizabeth Warren criticized both the short sellers and the buyers, and argued that more regulation was needed. She stated that the large investors and hedge funds who were criticizing the rally “have treated the stock market like their own personal casino while everyone else pays the price”.
The first two days of February saw a decline in the stock price of GameStop, losing more than 80 percent of its value from its peak price, recorded during the previous week. GameStop shares lost 60 percent of their value on February 2, closing below $100 for the first time since January 25. CNN claim this loss is due to the restrictions placed by Robinhood.
Hopefully that makes sense on what happened on Wall Street concerning GameStop and Reddit. If any information is wrong please consider I am not an expert in stocks and shares.
Jack Osborne Blogs 