Business & Investment

GameStop: GameStop frenzy reaches Biden and Powell when hedge funds are squeezed

Back in 2019, everything started innocently, and people on the bulletin board exchanged ideas about the remaining chains of mall stores.

Now it’s much bigger. For professionals who tend to be dramatic, it is the parable of David vs. Goliath in an era of wealth inequality. Perhaps a legacy of trumpist traces and populist opposition to the “elite.”

For some of the hedge fund industry, it’s an existential crisis. For old school investors who preach discipline and do homework before hitting a “buy,” it’s a horror story they expect to end badly. This is at least part of the reason the entire stock market crashed on Wednesday.

A certain saga GameStop Corp. was nothing more than a national sensation, reaching the gateway to both new presidents Joe BidenManagement and Federal Reserve President Jerome Powell.. We’ve found that each is on the receiving side of a nasty question about working on a business that sells five used video games for $ 10.

Matt Maley, Chief Market Strategist at Miller Tabak + Co, said:


At first glance, it’s hard to explain that the stock prices of companies that are expected to lose sales in four of the last five years and are likely to announce losses for the third consecutive year have risen by about 1,800. The previous% in January and 8,000% in the last 12 months. Take a closer look, and it makes more sense. “Buy what you know” is Warren Buffett’s mantra. Therefore, many millennial traders who are trapped in the midst of a pandemic and have no opportunity to spend disposable cash elsewhere or whose savings are swelling due to government stimulus payments are one or two about the game. It’s easy to see why you know one thing.

Especially when they approach the market like video games and their strategy includes something similar to what gamers call “cheat codes”, in this case they unite in a way that close teams attack. And stack up on individual stocks and related options A full room of “World of Warcraft” dragons. It aims to force short-sellers and derivative dealers to buy stock, raising prices beyond what traditional investors consider reasonable.

On Reddit’s Wall Street Bets forum and other social media sites, the game is rapidly becoming a myriad of stocks they’re trying to make for a powerful “degenerate” group of about 3 million people colluding with this new day trader’s army. It has spread. Next GameStop. ”

Hedge fundBloomberg

Clothing maker Naked Brand Group Ltd, whose inventory has increased 618% this month. there is. And the cinema company AMC Entertainment Holdings Inc. is making more than 800% profit. Real estate investment trust Maserich has more than doubled this month. This list will grow steadily.

Still, the benchmark stock index fell on Wednesday. The S & P 500 plunged almost 3%, the worst drop since October. How can you do that? One theory is Hedge fund They are forced to abandon the company they really love in order to raise cash to buy the stocks they dislike. why? As a result, Larry opposes them, allowing them to end short bets before the loss becomes too great.

Gross leverage, or hedge fund risk appetite for long and short positions is diminishing. In four sessions to Tuesday, both bullish and bearish betting pools were the fastest outflow since October 2014, according to data compiled by Goldman Sachs Group Inc.’s Prime Brokerage Unit. ..

Michael Purves, founder and CEO of Tallbacken Capital Advisors, said there are many examples of short squeeze notorious in the past, but current squeeze has a lasting impact on market dynamics, such as the volatility implosion in early 2018. It states that it may give. In a short-term, high-interest screening of small businesses, he found that there were hundreds of targets that individual investors could choose, and there was evidence that “squeeze transmission” was on the rise every day. did.

This means that you can continue to push long / short hedge funds to rewind shorts sales and thus deleverage your longbooks even if you’re not involved in some of the recently targeted names. ..

“Both of these de-leveraging processes (long and short) can have a significant impact on market behavior in the coming weeks and promote significant volatility within the market,” Perbs wrote. ..

It’s useless to try to collect all the strands because the story changes so quickly, but for beginners, there is a squeeze effect on the seller of the shorts and their solvency. Search for the next bull raid target. The challenge of calculating the actual fair value of GameStop. That really means for wealth inequality, given that the ultra-rich are reaping the plunge. The impact on Internet-based brokerage firms and the role played by the elimination of fees in all of them. And Biden, Powell, securities regulators, Ministry of Finance Secretary Janet Yellen thinks and does it all.

Of course, a short aperture cannot last forever. The market will soon return to “normal”.

Max Gokuman, Head of Asset Allocation at Pacific Life Fund Advisors, said: “Currently, they are marginal buyers, but retail day traders do not have enough collective assets to keep the global market moving.” Small individual stocks? Absolutely. But that changes the big picture of investment. Is it unlikely? ”

GameStop: GameStop frenzy reaches Biden and Powell when hedge funds are squeezed GameStop: GameStop frenzy reaches Biden and Powell when hedge funds are squeezed

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