This is the saga of the beginning of the year on Wall Street: in a few sessions, the action of video game stores GameStop has climbed at a bewildering rate, a rise fueled by a group of stock marketers crusading against the “establishment” .
A look back at an ongoing stock market “revolt” and what it reveals about the struggle between young investors and financial barons, almost 10 years after Occupy Wall Street.
How Internet users made GameStop climb?
A historic name for video game enthusiasts, the GameStop channel is far from offering a radiant model of growth in an era when online shopping, downloads, or remote play have taken over physical sales.
Due to these financial difficulties, the group’s stock is one of the most targeted on Wall Street by short selling.
This practice, common for large investment funds, consists of borrowing and then selling shares in anticipation of a fall in their prices in order to buy them back cheaper at a later date and to earn a substantial profit.
But a group of stock marketers, eager for risky financial bets, took it into their heads to prove these big names in finance wrong by massively buying the title of GameStop to inflate the price.
With some 3 million subscribers, the forum WallStreetBets the Reddit site, where Internet users brag about their exploits or, more often, their stock market woes with a lot of memes and saucy humor, has been the main tool of this unprecedented movement.
Result: Last Friday, the action of GameStop (GME at the New York Stock Exchange) took off by more than 50%.
What is a “short squeeze”?
This flight was only the beginning of a crazy epic.
Faced with this sudden rise, funds that had bet down on GME were forced to buy back the stock to limit their losses, causing a “short squeeze” (or “forced liquidation”), which further increased the price. ‘action.
GameStop rose 18% Monday, then 93% Tuesday and exploded 140% Wednesday.
The members of WallStreetBets were elated at this tour de force, seen as a middle finger in the deep sea. Some American media even spoke of a rebellion against the system.
For Jaime Rogozinski, who created the forum in 2012 but has since moved away from it, punters “have succeeded in doing what the Occupy Wall Street movement never did, but in a radically different way.”
“Occupy Wall Street was protesting that the little people cannot participate in the stock market game. Now the little people have found a way to bypass the system from within, ”he observes.
Can the stock market policeman intervene?
The jump of GameStop raises questions about a possible intervention of the regulator of the American stock exchange, the SEC.
For lawyer Jacob Frenkel, former prosecutor for the SEC, the extreme volatility of the title, whose listing has had to be suspended multiple times in recent days, would justify an action by the stock market policeman.
“Trading would be put on hold for 10 days to ensure that all investors have access to accurate and up-to-date information,” said Frenkel, who doubts however that such a step will be taken.
The SEC can also launch an investigation for manipulation of the stock price, but the commission almost never communicates before a case is opened.
The investor Andrew Left of Citron Research, for his part, said he was the victim of harassment last week after having counted on the fall of GameStop and indicated that he wanted to take legal action against these threats.
The GameStop soap opera is far from over. On Tuesday evening, whimsical Tesla boss Elon Musk, who has often attacked the “system” himself, tweeted a link to WallStreetBets, contributing to Wednesday’s rise.
The financier and venture capitalist Chamath Palihapitiya, for his part, revealed that he had bought 50,000 shares in the group.
Several funds have confirmed to American media that they have bought back their GameStop titles, which were sold short to limit breakage.
Reddit users have for their part already turned to another business in danger: the chain of cinemas AMC, whose title soared by more than 175% on Wednesday.