What an epic week it has been, as much was written about a particular war that was taking place in cyberspace where billions of $$ were being wagered by 2 opposing teams.
David took on Goliath and slugged it out on the Robinhood trading platform via WallStreetBets sub-Reddit. The difference cannot be more extreme. The “ants” of numerous retail investors versus the armies of hedge funds with deep pockets fought a daily battle over one stock: GameStop got Game Stonk’ed.
Anger is now the new investment emotion taking over the traditional Greed and Fear drivers. A revolution has been set up. Objective: Sweet revenge against the evil financial empire that was responsible for the 2008 GFC where no evil bankers were punished with jail time and all were bailed out by the central banks.
It was the rise of Robinhood traders in these COVID19 times. Thanks to technology and the novel way of providing free trades to the retail sector, many that were stuck at home with much time to kill turned their laser focus attention to a single cause – to punish the fat cats who have been taking the common people for a ride for so many years.
The GameStop fight was also a very smart trading strategy that took a few months to be developed before all the stars started to align themselves to trigger the great big war this week. https://www.wsj.com/articles/keith-gill-drove-the-gamestop-reddit-mania-he-talked-to-the-journal-11611931696
Short only hedge funds have been the villains of the markets that even Elon Musk hated. He eventually crushed the Tesla shorts totally. Such funds tend to crowd around the same ideas to muscle into a company, pressuring them to their knees in the name of corporate activism. In the process, they make tons of money.
Some like Muddy Waters call out the frauds – Chinese names which were doing fanciful financial accounting. Others shorted the investment banks in the 2008 GFC and brought down Bear Stearns, Lehman and Merrill Lynch. But is it right to create short positions that are more than 5 times of the available stock? It sets a ripe situation to engineer a short squeeze, which was what the Robinhood masses did to the funds with great success.
While hedge funds do serve a function to make the market more efficient, there are others that do questionable actions to gang up against a company. They get into grey areas like insider trading info in order to get a successful kill. When caught, they are handed a big fine which they can easily afford, which will get them off the hook. Example: Steve Cohen and the $1.8 billion fine which inspired the Axel Rod character in the TV series Billions. Incidentally, these same names are also indirectly involved in the current GameStop mega battle too.
The politicians have also jumped onto the bandwagon when the platforms started to limit the buying behaviours of the Robinhood retail players, who cried murder and accusation of double standards. The stock had already shot up like a rocket into the stratosphere, mortally wounding hedge funds like Melvin Capital. The Robinhood CEO explained that it was a necessary action as the increased volatility and more buying actions meant that they had to borrow and stump up much more collateral to post in the exchanges. Hence the justification to slow down the buying frenzy.
And into the week, the GameStop stock price jumped one day to fall the next before the retail hordes came back again to pump the price back up. This was like a DOTA game where winning was everything and making lotsa money the by-product. It was the conviction and the belief in the cause that mattered most. The Battle Royale was fought in real-time and both sides refused to blink while the GameStop senior management was sidelined, unable to do anything and looking totally helpless as things got out of control.
We all know how this is going to end though. If we follow the fundamentals of the company, it will not in its wildest dreams, be able to fulfil the current price valuation. In the long term, it is likely to collapse in price. But in the short term, it seems like newer and higher price records will be broken as the hedge funds continue to be pushed out of their short positions.
Like BLM, the masses are saying that they have enough of being ripped off by Wall Street and that it is time to fight back. The anger and a newfound ability that each and every individual’s action can collectively tip the iceberg into their favour is a powerful adrenaline rush for them. Using short-dated options and various leverage methods, their small capital can be amplified multiple folds to combat against the might of the giant hedge funds. The rallying cry via memes: to hold the ground and be a diamond rocket. To never sell but to buy more. It becomes a cultish act for the greater good, profit be damned. Will many be eventually burned by being the last to hold the hot potato when the avalanche of orders to exit happens?
This evolving epic war will continue into next week and no one can foresee the final outcome. I see a new pattern of more such similar fights to come in the future. The masses have been empowered and they are not going to take any more shit from the elites. If they see a noble cause worth defending, they will rally the troops and create an Avengers response to the Thanos hordes. Game on and suit up, people!!!
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