In September 2020, when writing the article “WSB, Wall Street after the wave? The new American Retail Investor” article (available in Chinese only), I became concerned that this group of young people who grew up in the era of social media leading the most unpredictable waves in Wall Street, but I never thought it would be possible for them to create such a “success” with Gamestop (NYSE:GME), and making the analysts worry about a retail investors bloodbath on Wall Street. In China, WSB’s investors would be called “Chives”; in other words, vegetables that are born to be cut down by the market.
Editor’s note: While the US stock markets are seeing increased volatility and uncertainty, our readers should be aware that commodities, particularly base metals, battery metals and precious metals are at the beginning of a super cycle. Learn about these opportunities on February 3 and 4 at our FREE GCFF Virtual Conference!
Starting at 8:00am PST/11:00am EST
13 Investment Opportunity Presentations
Featuring Lithium, Nickel, Zinc, Copper and other
base and battery metals exploration companies
Starting at 8:00am PST/11:00am EST
14 Publicly Listed Company Presentations
Featuring Gold, Silver, and other
precious metals exploration companies
After a few days of fermentation, the story has become very clear, a lot of analysis have already provided a detailed elaboration of the causes and consequences.
In fact, this event has been revealed much earlier; on April 13, 2020, a user posted on the WSB forum that 84% of the shares of GameStop (NYSE:GME) had been shorted, and that his shares were being lent to short sellers by brokers.
Founded in 1996, GameStop is an established retailer of gaming products, with a focus on offline retail stores. Hit by online gaming, it has been losing money year after year since 2018, and its stock price has fallen off, from $28 in 2016 all the way to $3 at the end of 2019, on the verge of delisting, making it one of the most shorted stocks on Wall Street in 2020.
And many retail investors rallied through forum postings to get in on the action, spurred by the constant stream of profitable posts, and vigorously bought GameStop stock, which reached more than $40 by Jan. 14. At this point, Wall Street’s “regular army” – the institutions – became more aggressive in shorting GameStop shares, angering WSB’s retail investors. By using options, they took advantage of their numbers and pushed the stock price up sharply until it reached an ultra-high level of over 400, forcing many well-known shorting institutions to lose so much money that they were forced to liquidate their positions.
This unprecedented battle of retail investors against institutions has not quite come to an end. On Thursday’s opening, GME stock continued to rise sharply, however, 1 hour later, all electronic trading platforms, led by Robinhood, restricted retail investors from buying GME, AMC and other stocks, causing the stock price to fall off a cliff.
But the retail investors’ battle line was not broken, and they surged over 60% again after the bell. And the restrictions on retail trading ushered in fierce criticism and backlash, forcing the opening of trading on Friday.
In fact, no matter how dramatic the middle market renders, no matter how many short institutions are defeated, the ending is already written at the beginning, the last retail investors to get in are harvested hard, without any possible second ending. And whether the reaper is an institution or a forum opinion leader, it will not be the majority of retail investors.
Purely from the technical point of view, the retail investors acted as gamblers, not “smart money”, completely breaking the traditional stock valuation system, making the stock a gambling chip.
In the short term, as long as there are enough people to buy, the short will always be burst, but on this “battle”, there may be a play hedge fund bankruptcy liquidation, and may even trigger a cascade effect, the entire capital market will be pulled down, but after a few retail investors can really profit from it?
It’s just a farce in which the capital unites the retail investors by “fooling” them against another wave of capital, and ultimately harvests them in the name of the retail investors, who are still condemned for their fanaticism and irrationality.
Most of the young people in this wave are participating in this game with the mentality of getting rich overnight, but to be able to rush forward so united, which is mixed with complex anger, some people participate in this “war” with the psychology of dying fish rushing out of a broken net. On January 28, WSB forum a user’s open letter expresses this psychology: “Because you are on Wall Street, you have a lot of money.”
“Because you guys on Wall Street are getting bailed out and rewarded for making horrible illegal financial decisions that have changed the lives of millions of people, with terrible consequences. I bought stock a few days ago, I paid out my savings for GameStop stock, and you can let all the mainstream media vilify us as demons and monsters for all I care. I’m going to do everything I can to make you miserable.”
On a deeper level, this “retailer uprising” with a tragic ending is not completely meaningless, it not only unveils the elite that covers the ugly face of Wall Street, but also makes the extreme social division in the United States and the consequences of the Fed’s rogue money printing public.
Can Wall Street’s options, shorting, and derivatives really help value discovery and promote healthy markets, or do they give institutions more tools to harvest people’s wealth?
If retail investors do not talk about value investing and use stocks as gambling chips alone, does the current trend of U.S. stocks really reflect the fundamentals of the economy?
The government has made the stock market the first target of care under the pandemic, and the Federal Reserve has turned on the money printing machine without principle, which eventually pushed up the price of capital by flooding the market.
U.S. White House press secretary Pusaki said U.S. Treasury Secretary Yellen and Biden’s economic team is closely monitoring the activities of GameStop and other companies whose stocks have been heavily shorted, and GameStop’s unusual trading “is a good reminder that the stock market is not the only measure of the health of our economy.”
Of course, a farce will not affect the normal operation of the U.S. stock market, but hopefully it will play a positive role in building the system. “Speculation is as old as the hills,” and in the stock market, nothing is new, and today’s social media and opinion leaders are just powerful drivers of the new fueled speculation.
On the other hand, investment anchored by the growth value of the company is never out of fashion, and finding valuable investment targets is the only choice for investors to live long.
In the face of the Federal Reserve’s easing, the dollar has weakened, and commodities are ushering in a wave of markets. Investors are invited to attend our upcoming events on February 3rd (Base and Energy Metals Day) and 4th (Precious Metals Day).