$GME, Reddit, and Wall St.

Before we get started, this post will not be covering any financial advice, investment positions, buy, hold, sell, none of that. People took their risks, have cashed in, are holding, or have sold for a loss. What’s done is done and if the past few weeks have taught anything is that no one really knows what’s going to happen…except maybe the very large multi-billion dollar players.

In 2008, when the housing market crisis brought the world’s economy to it’s knees, and the US Gov bailed out the big banks to a tune of nearly $500 BILLION in taxpayer money, most people understood just how rigged the economic system really was. Even for the “too big to fail” crowd, that doesn’t exactly cover the literal millions of people who lost their homes and saw no relief from that bailout. To boot, no significant laws or regulations were put in place to prevent that sort of thing from happening again. Not to mention that many of the same predatory practices of home ownership are being used again right this very moment but that’s not what we’re here to talk about.

Still, that was mostly Wall Street gambling amongst themselves (albeit at the expense of everyday people), so as the economy bounced back over the last 10 years, everyone kind of just, moved along after that initial wave of the Occupy Wall St movement. But something significant has changed in the last couple of weeks. Technology, zero fee trading brokerage apps, and social media have likely changed the way investing and Wall St approach the stock market. Or at least, the opportunity may be there.

Reddit discovered a major risky short position some hedge funds had taken with GameStop, and the nearly 6 month long play that started with a single independent investor dropping $55k when $GME was trading at single digits, appears to have culminated in the last week as popularity for the /r/wallstreetbets subreddit is at an all time high, as well as trading apps across iOS & Android. Individuals bought in to a movement to stick it to Wall St, many taking the chance at an expensive but worth it to them middle finger to the hedge funds, others attempting to flip a quick profit. It’s not a new or entirely crazy idea, to squeeze a short, and the numbers seemed to make sense…when the stock was trading at $5-$20 a share. Again, not here to talk about what could or could not still happen, just where it started. So, hype builds up, people dive in, and the media goes into a frenzy along with the hedge funds scrambling to mitigate their losses.

And then Robinhood (along with other brokerages, but RH was at the main center in user base) fully halted purchasing, and only allowed selling, right when it seemed to be taking off to the moon. Price dives from nearly $500 at one point on Jan 27, to closing at $193 the next day, back up on the 29th…and now sitting at sub $100 as RH starts removing some restrictions. Look, there’s a lot of information out there as to why RH did this, but what it really comes down to is that they simply did not have the capital (funds) to continue to support the volume. However, knowing that Citadel has a stake in RH, and Citadel being one of the firms that loaned Melvin Capital (one of the larger short position holders of GME) nearly $3 Billion to hold their positions and likely attempt to recoup any losses, many many people have now experienced first hand, with their own money in the stock market, how rigged the game is. If you can’t buy and the only option is to sell, one would naturally think that it would force prices down. And despite what excuses RH provides, the evidence is not good, and even if they weren’t directed to do this by their big players, the fact that they couldn’t afford to handle this volume should keep people away from them for good.

So, is it all for nothing? I wouldn’t say so. Yes, anyone that bought in to the hype at the peak are likely seeing major losses, but as of this post, $GME is STILL sitting at nearly $100/share, up 460% in the last month. Will the price settle a bit lower once this saga is completely over? Yea, most likely, but who knows when exactly that is or if any other spikes are coming. But anyone that got in early enough, did their due diligence and didn’t buy in JUST for the hype, have learned a ton about the market and trading, and Wall St even now understands that there’s real power to move the markets behind this new wave of independent investors. Real money did move from those large funds to normal people’s hands, maybe not all of it, maybe not even most of it, but the needle did move. So yes, the game is rigged, there’s irrefutable evidence of it at this point, but maybe, just maybe this new found knowledge starts benefiting normal people in smaller chunks down the line, assuming no new regulations suddenly come in to restrict independent traders, that would be the final nail in the coffin for any “free market” discusions. Only time will tell.