“Market Populism”: How a Reddit community fought off establishment hedge funds

In a historically unprecedented battle between retail investors and large, capital-heavy hedge funds, an army of Reddit users proved that the people can have their say on the financial markets.

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Gamestop was among the most shorted stocks on the financial markets, along with AMC Theatres, Bed Bad & Beyond and Blockbuster. 

Shorting a stock is the action of borrowing a company’s stock only to sell it, motivated by the idea that the price is too high and that it will go down. When a short-seller has to buy the stock for a lower price than what he borrowed it for, the difference is essentially his profit. 

Short selling is therefore betting on a stock’s decline in price. 

The videogame retailer found itself in a bad position as most videogames today are bought directly from consoles or gaming platforms via virtual format. 

Gamestop gained some traction earlier this month when the co-founder of an online pet supplies company joined the videogame retailer’s board. This move was seen as a step in the right direction, signalling Gamestop would be focusing on online sales and closing down their brick-and-mortar stores. 

The stock jumped from $18 to nearly $20. As many short sellers decided to exit their bet, they were forced to buy shares in the company, pushing Gamestop’s price even higher. 

In the meantime, users of the subreddit r/wallstreetbets ( which today has 4.6m “Degenerates”, or members) became highly enthusiastic about Gamestop’s stock. 

Half meme, half euphoria, the movement spread rapidly over social media and retail investors took to their Robin Hood accounts to massively buy the stock. 

The motivation behind the massive retail investor frenzy rapidly became somewhat political, as Reddit users explained that for years, hedge funds and institutional investors had manipulated the markets for their personal gains, and now it was Redditor’s time to shine. By their sheer amount, they could too manipulate the markets. 

On Thursday, the stock reached $400, up over 3,000% from its previous $20 price. TD Ameritrade announced it would restrict the purchase of Gamestop and AMC, another stock acclaimed by the WSB community. 

Rapidly, elite institutional investors and hedge funds called for the government to intervene. 

Retail investors and populists were quick to remind the government that their treasury and their Federal Reserve had bailed out large banks in 2008, and these institutions likely did not act in their best interest when they did so. 

Alexandra Ocasio-Cortez chimed in with a popular feeling among the WSB community, that they were being unfairly targeted by market institutions for doing exactly what large funds had been doing for years, treating financial markets as a casino. 

On Thursday, trading platform Robin Hood restricted further the purchase of Gamestop and other stocks. 

What this ultimately comes to is a community of retail investors on a mission to make large, establishment hedge funds lose money. Redditors are well aware that for years, these funds have been in control of the markets, using CNBC and establishment channels to manipulate price movement.

All in all, short-sellers in the United States have lost $70 billion since the start of 2021, a staggering amount caused in large by the short squeeze of WSB users. This represents a massive transfer of wealth from large institutional funds to everyday retail investors.

One Redditor summarized the general feeling, posting the following message: 

“Can we just pause for a minute and think of the magnitude of this forum’s impact on the global economy. Millions of people suppressed by the 1% are coming out in droves to fight back. To take back a small, but significant piece of what we’ve help build. We’ve lined the pockets of the greedy corporations, who have exploited the working class. In 1965, CEO employee ratio was 21:1, today it is 320:1 and rising. This move has provided an opportunity for new and veteran retail traders to regain some of that capital back.

This forum’s open and transparent dialogue has helped people pay off loans, make their rent payments, and perhaps get back on their feet after a horrific and painful 2020. It’s time the world gets to enjoy some tendies. Today, some kid’s $2k to $50k trade can help him regain some footing. Perhaps he can buy something supporting a small business or even start his own.

This forum has transformed the economic narrative. Short traders pushing to bankrupt businesses at 138% of a company’s value will forever need to reconsider their moves. America was built on the backs of hard working people. Many of these people still work at some of these companies earning minimal pay. Shorts like this puts more people out of work and further into debt further suppressing their ability to make a sustainable living. Billion dollar hedge funds will need think twice about trying to bulldoze America simply for the benefit of a few.

Many of us grew up with some of these companies. Companies like GameStop and AMC are part of Americana. Sure, you may not have liked the $3 trade in for your game or perhaps you always wondered if the popcorn attendant came in your bucket, but fuck did you not still enjoy the movie experience. Other’s like Nokia and BB helped transform the way we communicate, share and communicate today. Way before we would browse Reddit while shitting, we were playing snake on our 6160. BB was, and still is Canadian. We hated their phones, but love our neighbors. These companies, who have lived among the most shorted companies, finally tells corporate greed that their game stops.

So, to my fellow autist, as we rise this morning and gain further momentum, get ready to B.A.N.G. hard. There’s no time to slow fuck this. Get up, stay hard, and seize fucking the day. Our time has come.

I like the stocks, but LOVE you all.”

Another user wrote the following: “An Open Letter to Melvin Capital, CNBC, Boomers, and WSB” 

I was in my early teens during the ’08 crisis. I vividly remember the enormous repercussions that the reckless actions by those on Wall Street had in my personal life, and the lives of those close to me. I was fortunate – my parents were prudent and a little paranoid, and they had some food storage saved up. When that crisis hit our family, we were able to keep our little house, but we lived off of pancake mix, and powdered milk, and beans and rice for a year. Ever since then, my parents have kept a food storage, and they keep it updated and fresh.

Those close to me, my friends and extended family, were not nearly as fortunate. My aunt moved in with us and paid what little rent she could to my family while she tried to find any sort of work. Do you know what tomato soup made out of school cafeteria ketchup packets taste like? My friends got to find out. Almost a year after the crisis’ low, my dad had stabilized our income stream and to help out others, he was hiring my friends’ dads for odd house work. One of them built a new closet in our guest room. Another one did some landscaping in our backyard. I will forever be so proud of my parents, because in a time of need, even when I have no doubt money was still tight, they had the mindfulness and compassion to help out those who absolutely needed it.

To Melvin Capital: you stand for everything that I hated during that time. You’re a firm who makes money off of exploiting a company and manipulating markets and media to your advantage. Your continued existence is a sharp reminder that the ones in charge of so much hardship during the ’08 crisis were not punished. And your blatant disregard for the law, made obvious months ago through your (for the Melvin lawyers out there: alleged) illegal naked short selling and more recently your obscene market manipulation after hours shows that you haven’t learned a single thing since ’08. And why would you? Your ilk were bailed out and rewarded for terrible and illegal financial decisions that negatively changed the lives of millions. I bought shares a few days ago. I dumped my savings into GME, paid my rent for this month with my credit card, and dumped my rent money into more GME (which for the people here at WSB, I would not recommend). And I’m holding. This is personal for me, and millions of others. You can drop the price of GME after hours $120, I’m not going anywhere. You can pay for thousands of reddit bots, I’m holding. You can get every mainstream media outlet to demonize us, I don’t care. I’m making this as painful as I can for you.

To CNBC: you must realize your short term gains through promoting institutions’ agenda is just that – short term. Your staple audience will soon become too old to care, and the millions of us, not just at WSB but every person affected by the ’08 crash that’s now paying attention to GME, are going to remember how you stuck up for the firms that ruined so many of us, and tried to tear down the little guys. I know for sure I’ll remember this. In response, here is a list of CNBC sponsors and partners. They include, but are not limited to, IBM, Cisco, TMobile, JPMorgan, Oracle, and ZipRecruiter. Their parent company is NBCUniversal, owned by Comcast and GE.

To the boomers, and/or people close to that age, just now paying attention to these “millennial blog posts”: you realize that, even if you weren’t adversely effected by the ’08 crash, your children and perhaps grandchildren most likely were? We’re not enemies, we’re on the same side. Stop listening to the media that’s making us out to be market destroyers, and start rooting for us, because we have a once in a lifetime opportunity to punish the sort of people who caused so much pain and stress a decade ago, and we’re taking that opportunity. Your children, your grandchildren, might have suffered as I described because of the institutions that we’re fighting against. You really want to choose them, over your own family and friends? We’re not asking you to risk your 401k or retirement fund on a single GME bet. We’re just asking you to be understanding, supportive, and to not support the people that caused so much suffering a decade ago.

To WSB: you all are amazing. I imagine that I’m not the only one that this is personal for. I’ve read myself so many posts on what you guys went through during the ’08 crash. Whether you’re here for the gains, to stick it to the man as I am, or just to be part of a potentially market changing movement – thank you. Each and every one of you are the reason that we have this chance. I’ve never felt this optimistic about the future before. This is life changing amounts of money for so many of you, and to be part of a rare instance of a wealth distribution from the rich to the poor is just incredible. I love you all.

For those interested in the financial technicalities of the short squeeze, The Deep Dive offers a good summary. 

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