Shares of GameStop video game stores have climbed at a breakneck pace, putting the hedge fund in trouble that wagered on their decline. A “stock market revolt” against the establishment coordinated by a group of stock marketers on Reddit.
A digital reissue of the fight between David and Goliath? By coordinating online on the Reddit platform, small stock market investors have managed to raise the share price of the video game store GameStop, thus putting in great difficulty the hedge fund which had bet down on this title . An unprecedented situation monitored by the American financial market control authority and which arouses the enthusiasm of the left wing of the Democratic Party.
A historic name for American video game enthusiasts, GameStop is now a struggling brand. In question ? Internet purchases, downloads and online games have taken over from physical sales. Betting on an inevitable deterioration in the financial health of GameStop, hedge funds – or hedge funds – whose New York-based company Melvin Capital Management sold shares of the store chain short, that is to say by borrowing and then selling these shares in anticipation of a drop in their prices in order to buy them back at a cheaper price. later date, and earning a substantial profit. This strategy worked for 18 months, allowing Melvin Capital Management and his friends to earn hundreds of millions of dollars, as recalled Express.
A “stock market revolt” made possible by social networks
However, the situation has changed in recent days: with its some 3 million subscribers, the WallStreetBets forum on the Reddit site – where Internet users brag about their exploits or their stock market woes – was the seat of a “stock market revolt” small carriers against large investors. These Internet users agreed to massively buy GameStop shares, and the result was not long in coming: the stock took nearly 20% on January 25, doubled the next day, and saw its price multiplied by 2.35 on January 26, to reach $ 347.51 at the close when it was only worth $ 2.57 in March 2020, as recalled The world. Since January 1, GameStop’s stock has risen by more than 700% and the group now has a market capitalization of $ 24 billion, more than double that of carmaker Renault.
A mad rise fueled by Elon Musk – the boss of Tesla and SpaceX and now the richest man in the world – who tweeted a link to WallStreetBeets on the evening of January 26, accompanied in commentary by the pun “GameStonk” (stonk being a term for a financial decision that resulted in financial gain).
Faced with this sudden increase, funds that had bet down on GameStop were forced to buy back the title to limit their losses, causing a forced liquidation – or squeeze shorts – which made the action climb even more. Melvin Capital was even forced to beg $ 2.75 billion from its competitors to avoid bankruptcy.
The members of WallStreetBets were elated by this feat, seen as a middle finger in the deep sea. Some American media even spoke of a rebellion against the system. “Occupy Wall Street was protesting that the little people can’t participate in the stock market game. Now the little people have found a way to bypass the system from the inside, ”it read.
Financial authorities are monitoring the situation, the American left is enthusiastic
The affair caused a stir across the Atlantic: the Securities and Exchange Commission, the US federal regulator and supervisor of financial markets has announced that it is monitoring the situation closely, as has White House spokeswoman Jen Psaki. The famous Wall Street Journal has meanwhile opened a “live” to cover the case, as reported The world.
In the political world, the elected Democrat in the House of Representatives Alexandria Ocasio-Cortez welcomed the situation on Twitter in these terms: “It’s really something to see people on Wall Street who have long treated our economy like a casino complaining about a forum that also treats the market like a casino ”, before concluding:“ Whatever, tax the rich. ”
Her colleague Elizabeth Warren, senator and unsuccessful Democratic primary candidate, also took to Twitter: “For years those same hedge funds and wealthy investors appalled today by GameStop trading have treated the stock market as their own casino when everyone pays the price, ”she commented, adding,“ It is high time for the SEC and other financial regulators to wake up and do their jobs. And with a new administration and Democrats running Congress, I intend to make sure they do. ”
It’s long past time for the SEC and other financial regulators to wake up and do their jobs – and with a new administration and Democrats running Congress, I intend to make sure they do.
– Elizabeth Warren (@SenWarren) January 27, 2021
The $ 500 threshold that GameStop stock could soon reach, however, could be enough for many stock marketers to leave the game, which, as investing.com fears, would potentially cause the stock to fall even faster than the stock market. its take off. It is nevertheless a safe bet that the GameStop episode will not remain an isolated case: as recalled The world, stock marketers have already sent off other companies in crisis, such as theaters AMC and the maker of Blackberry phones, whose values respectively tripled and took 80% on the only day of the January 27.