By Joe Doran
Game on! Young traders rattle the financial status quo with GameStop.
This past week witnessed an earthquake on Wall Street and in markets around the world that few saw coming. The “Youth Revolution,” forecast by Gerald Celente, happened on a front few expected: not via riots in the streets but with a risky, collective powerplay executed via agile trading apps against some of the biggest powers on Wall Street. Following is a deep-dive into the many angles of the story that might just change how the game is played.
TOP TREND 2021: “YOUTH REBELLION” – GAMESTOP POPULIST INSURGENCY TERRIFIES WALL STREET. As we have forecast, 2021 is already seeing a youth revolution that is shaking Wall Street, the halls of Congress, and the entire world.
A “Youth Revolution”, one of our Top Trends of 2021, detailed this past December, noted that young people would finally be fed up with the “can’ts” of 2020: “Can’t go to college, can’t get a job, can’t move out of your parent’s house, can’t pay off your debts, can’t buy a new car… The American Dream, or the dream of any youngster around the world, has become a COVID nightmare.”
The frustration found an explosive outlet in the saga of GameStop, the week’s biggest story. Millions of day traders used cheap trading apps like Robinhood to buy up shares of a company that was shorted by huge Wall Street hedge funds. In a matter of a few weeks, they turned a $14 stock into a $400 phenom and forced huge losses on some of Wall Street’s biggest speculators. A new front was suddenly opened in the war of populism versus the power elites, this time centered in global finance.
“SLACK” DAY TRADERS OF THE WORLD, UNITE AND TAKE OVER. In early January, GameStop, a video gaming store that many 20-somethings grew up with, was wallowing, along with countless other brick-and-mortars. Their business model seemed outmoded, especially in the time of COVID lockdown. There was some potential upside. They had decent cash on hand, and Ryan Cohen, a co-founder of Chewy, a successful online seller of pet supplies, joined its board. Investors see Ryan Cohen helping GameStop’s digital transformation. But analysts were still dim on the company’s prospects. Some saw it heading for a slow death, like the Blockbuster video chain in the early 2000s.
Then something changed. A loose-knit group of day traders on a Reddit forum called “Wall Street Bets” found out that major hedge funds had placed “short bets” on GameStop stock shares. The hedge funds stood to gain big if the company’s stock continued to slide.
That’s when a two-million strong band of merry young app-wielding slackers swung into action. Using cheap trading apps including one titled “Robinhood” (take from the rich, give to the poor), the “degenerates,” as they officially refer to themselves on Reddit, went on a GameStop buying spree. In a matter of a few weeks, they drove up the price of the company’s stock almost 2,000 percent. They also started buying shorted stocks of other companies, including Bed Bath & Beyond and AMC.
Mega hedge funds including Melvin Capital ended up taking multi-billion dollar losses. By 28 January, the financial world was reeling. The NYSE briefly stopped trades of GameStop. Massachusetts state regulator William Galvin went further, calling for the NYSE to suspend GameStop trading for 30 days.
Angry behemoths on Wall Street called for crackdowns on Reddit, and a Discord server hosting communications for trading groups was taken down. But Reddit co-founder Alexis Ohanian voiced support for the Wall Street Bets forum. He described the GameStop saga as a turning point in the U.S. investing landscape.
“The frenzy raises all sorts of questions with respect to possible market manipulation,” Michael Hewson, chief market analyst at retail broker CMC Markets UK, claimed. “It is already illegal for institutions to coordinate in the manner currently being seen in moving prices on these stocks, raising questions about the legality of what is currently taking place right now on these forums.”
But despite the howling of pundits and burned players who are used to winning, there’s currently no law that precludes individual small investors from agreeing with each other to buy stocks of various companies.
HOW THE “YOUTH REVOLUTION” EXECUTED A “SHORT SQUEEZE” ON THE BIGS OF WALL STREET. When major hedge funds decided to short GameStop stock, they obviously had no idea they were setting themselves up for a fall. Shorting companies with poor prospects or balance sheets was hardly an innovation for the mega speculators.
Shorts are a way of making money off a company whose stock is going nowhere. A stock is “shorted” via a few steps:
- First, shares of stock are borrowed from an existing owner
- The stock is sold for cash proceeds
- When the stock dips as hoped for, the stock is repurchased at a lower price
- Shares are returned to the original owner(s), and speculators pocket the price difference as profit
But in borrowing an asset, speculators have to pay interest on that debt. Even if a stock drops, it might not go low enough to cover interest costs. And if the stock goes up, it gets even worse.
That’s exactly what happened to giant hedge funds in the GameStop blow-out. App traders on the Wall Street Bets Reddit group realized they could pull off what’s called a “short squeeze.” They bought up GameStop stock and refused to sell it. The result, when short positions came due, was crushing losses for the Wall Street Bigs.
Reuters reported that losses on short positions in U.S. firms have topped $70 billion just since the beginning of 2021. That figure was according to Ortex, a financial analytics firm, which sources short interest data from submissions by agent lenders, prime brokers, and broker-dealers. GameStop alone has accounted for at least five billion of those losses.
THE KITTY WHO ROARED: GAMESTOP RALLY CALLED BY YOUTUBER. A 34-year-old financial analyst with a YouTube channel called “Roaring Kitty” is being reported as one of the main figures behind rallying others to buy GameStop stock. Keith Patrick Gill, who also posts on the Wall Street Bets subreddit with the username DeepF***ingValue, was an early and consistent proteolyzer for GameStop, according to The New York Times.
Gill, a Massachusetts native, appears to be holding the line despite the wild ups and downs of the stock. He recently posted screenshots that showed he had lost $14 million in a Thursday sell-off. But he is staying with his long position, which is still up by over $30 million from his original $53 thousand investment.
GameStop has been at the center of an ongoing battle between mega hedge funds who have shorted the stock, and masses of young traders who are buying and holding it, possibly profit, but definitely to inflict damage on the Wall Street Bigs.
Contacted by the media by phone, Gill’s mother said only “I’m proud,” before hanging up. Gill himself has so far declined comment on the saga. But his “Loss Porn” post on Reddit (a term the group uses for reports of negative numbers from dogged risk-taking) garnered cheers and support on the forum. “If he’s in, we’re in,” many users made clear.
D.C. “SHERIFFS” GO AFTER ROBINHOOD OVER GAMESTOP TRADING LIMIT. A bipartisan group of lawmakers last week criticized the Robinhood app after it announced that it limited the trade of stocks like GameStop that surged after a tidal wave of investments from amateur investors.
Representative Alexandria Ocasio-Cortez tweeted, “This is unacceptable. We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock they see fit. As a member of the Financial Service cmte, I’d support a hearing if necessary.”
Senator Ted Cruz, a Republican from Texas who is usually at odds with the New York Democrat, tweeted, “Fully agree.”
Robinhood cited “recent market volatility” as the reason why it limited the purchase of stocks that CNN called “Reddit darlings.” These stocks include GameStop, AMC, and Nokia. The report said that part of the anger comes from those who believe that the app intentionally limited the trading to protect hedge funds on Wall Street that shorted the stock.
Melvin Capital Management bet against GameStop and was bailed out after the hedge fund Citadel, provided $2 billion in liquidity. The CNN report said that Citadel is also a “major source of revenue for Robinhood.”
Representative Rashida Tlaib, another Democrat, called Robinhood’s move “market manipulation.”
Arizona Rep Paul Gosar had a more forceful take, calling for a DOJ investigation. He said Robinhood’s actions were taken “in a concerted effort to de-platform and silence individual investors.”
Citing a Bloomberg news article that confirmed about 40 percent of Robinhood’s revenue owed to Citadel and other large Wall Street hedge funds, Gosar said the evident conflict of interest cried out for scrutiny.
A statement by Robinhood claimed their move in shutting down trades of GameStop and other hedge fund shorted stocks seeing surges was out of a desire to protect its users. “We’re committed to helping our customers navigate this uncertainty,” the firm claimed.
The statement was met with withering criticism by many including Gosar, who was quick to point out that Robinhood seemed more concerned with Wall Street backers than millions of small-time day traders. Robinhood’s revenue stream in 2020 relied heavily on selling orders to hedge funds like Citadel. Citadel happens to be the entity that bailed out Melvin Capital, which took the biggest loss from their institutional gamble to short GameStop.
“Knowing the involvement Citadel has with Robinhood, it is clear that the actions taken today were motivated by anti-competitive reasons, not for concerns of volatility claimed by Robinhood,” said Gosar. “Because of this blatant conflict of interest and obvious monopolistic activity, I am calling on an immediate investigation by the US Department of Justice into Robinhood and the hedge fund of Citadel LLC.”
Members from both parties have agreed that hearings would be necessary after the events that unfolded last week and it seems as though Robinhood is planning for a fight on its hands. Business Insider reported the company posted a new job opportunity for a new position: manager for federal affairs. The report said the company is looking for a person with experience working for a member of Congress or on a Congressional committee.
Donald Trump Jr. took to Twitter and said any Republican in Washington, D.C. “worth a damn” should be calling for an investigation into Robinhood and Citadel.
“And while they’re at it, subpoena Janet Yellen & let’s find out if there was pressure coming from the Biden Admin to protect their cronies on Wall Street,” he wrote.
NEW SEC HEAD HAS YET TO GET INTO THE GAME. Gary Gensler, President Biden’s selection to lead the Security and Exchange Commission, will be forced to hit the ground running when he is eventually confirmed for the post.
Bloomberg reported that his confirmation, however, is “nowhere in sight.”
The Wall Street Journal reported that Gensler has been teaching finance at the Massachusetts Institute of Technology with a focus on cryptocurrencies. The surge in GameStop’s stock price due to the pooled funding of “inexperienced” investors has put hedge funds on the defensive and raised new questions about the pricing of stocks in general.
Senator Elizabeth Warren wrote a letter to the SEC and lamented the “wild fluctuations” of stocks and said they are “just the latest indication that many private equity firms, hedge funds, and other investors, big and small, are treating the stock market like a casino, giving little consideration to the companies, communities, workers, and consumers that may be affected by these risky bets.”
The paper pointed to a video lecture by Gensler that talked briefly about the business model of the Robinhood app, which has been credited for starting the trend of not charging a commission for trades.
The Journal reported in 2018 that Robinhood makes its money “in part, by sending customer orders to high-frequency traders in exchange for cash.”
YELLIN EARNED OVER $800K SPEAKING TO HEDGE FUND INVOLVED IN GAMESTOP STORY. As the GameStop app trader insurgency rattled Wall Street, President Joe Biden’s Treasury Secretary Janet Yellen announced she was monitoring the situation. But whether Yellen could be counted on to act with an even hand was called into question, after it was revealed she had previously been paid to speak to a hedge fund affected by the GameStop saga.
Fox News reported on January 28th that Yellen earned some $810,000 in speaking fees from the Citadel hedge fund in 2019 and 2020. Citadel bailed out Melvin Capital, one of the biggest losers in the recent GameStop frenzy. The Senate had just confirmed Yellen to the Treasury Secretary post on Monday. She previously led the Federal Reserve during former President Barack Obama’s administration.
When asked at a Thursday press conference whether Yellen would recuse herself from advising President Biden on GameStop, Psaki did not have an answer.
During a Friday press briefing, Psaki had even less to offer. Asked about market volatility, she pointed reporters to the Securities and Exchange Commission. “They are closely monitoring this situation but it is under their purview at this point of time.”
Yellin’s problems continued to grow though, as Politico, Fox News, and others reported more “speaking fees” Yellin took from Wall Street connected financial firms. In just two years, she earned over seven million dollars from entities including Citi, PIMCO, Barclays (BCS), Citadel, BNP Paribas, UBS (UBS), Credit Suisse (CS), ING, Standard Chartered Bank, City National Bank, Goldman Sachs, UBS, Citadel LLC, and Barclays.
Some of those lucrative engagements didn’t even involve travel or standing in front of an audience but were “virtual,” given from her home.
Concerning Yellin’s speaking fees, the press secretary said, “I don’t have anything further for you on it, except for to say, separate from this GameStop issue, the Treasury Secretary is a world-renowned expert on the economy. It should not be a surprise to anyone that she was paid to give her expert advice before she came into office.”
BILLIONAIRE GOES ON ANGRY TIRADE OVER “LAZY” GAMESTOP TRADERS. It was the worst of times for billionaires like Leon Cooperman. The CEO of Omega Advisors hurled insults and epithets during an appearance on CNBC’s Fast Money, in the wake of the GameStop frenzy.
He lamented at being shafted by “lazy people” spending government checks courtesy of his taxes, to buy company stocks shorted by Wall Street mega players like himself. He didn’t mention that the amount of the latest round of government checks to people devastated by endless COVID lockdowns was $600.
After lambasting day trade slackers, Cooperman panned President Biden’s proposed capital gains tax hikes, and called his notion of fair taxes “bullshit.” “I’m willing to work six months a year for the government, and six months for myself – which means a marginal tax rate of 50 percent. If you live in California, Connecticut, New Jersey, New York, you’re already well past that. This fair share is a bullshit concept. It’s just a way of attacking wealthy people.”
CNN PUZZLED BY “EXTREMISM” OF REDDIT FORUM. CNN quickly generated an “expose” of Wall Street Bets, the Reddit group shaking the foundations of vested powers. A story entitled “Inside the Reddit army that’s crushing Wall Street” painted young app traders as conspiracy-minded shysters.
The story opened with the sad story of “Omar,” a physics tutor who lost a bundle after reading something on the Reddit group in August of 2020 that he took as investment advice. “I would not have traded options if I had not found WallStreetBets,” the tutor lamented.
The CNN article alluded to the discontent of young app traders fueled by the confines and dictates surrounding the prolonged COVID lockdowns:
“But while millions are now discovering WallStreetBets for the first time, it has been building momentum throughout the pandemic. One can trace its epic rise to a perfect storm of favorable conditions: the exponential growth of the app Robinhood and its no-fee options trading, the extreme volatility Covid-19 brought to the markets, the stimulus checks mailed to millions of Americans, the lack of televised sports for much of the year, and the unwanted free time stuck at home the pandemic has forced on many people.”
While acknowledging the populist sentiment to turn the tables on more traditional powerful speculators on Wall Street, CNN couldn’t help bringing up trigger words like “extremism” and “4chan”:
“… fringe online movements have shown that internet culture can lead to extreme behaviors, making radical ideas palatable for people raised on memes and 4chan in a way that they likely wouldn’t be, at least at first, if presented in a straightforward manner. In the case of WallStreetBets that extremism has a real financial impact.”
The world of the subreddit, with its arcane language and protocols, will obviously be much scrutinized from here on out by the media and politicians. The wild risk-taking, the animus toward “normie” culture and values, together with the ability to act collectively, has got everyone’s attention.
“These guys can move markets,” said Jeremy Blackburn, an assistant professor of computer science at Binghamton University who studies extremist communities on the web.
And “Omar”? He told CNN Business that he’d recouped some of his losses from August by purchasing a GameStop option. “There is a pandemic. There is nothing to do. I can’t party. I can’t go outside, and the prospect of making a little money sounds really good.”
AND THE WALL STREET BETS INSURGENCY ONLY GROWS. Even as politicians and the masters of Wall Street tried to get a handle on what was happening with the upending of the financial markets, app traders widened the revolution. Wall Street Bets moved into cryptocurrencies, and in the space of 24 hours between Thursday and Friday, Dogecoin blew up eight-fold in value.
Trading app Robinhood, already in hot water for halting trades on GameStop and other Reddit forum-fueled companies, shut things down again, this time restricting crypto trading.
“Due to extraordinary market conditions, we’ve temporarily turned off Instant buying power for crypto,” a Robinhood spokesperson said. “Customers can still use settled funds to buy crypto. We’ll keep monitoring market conditions and communicating with our customers.”
Some analysts are predicting companies like Robinhood will face legal issues for preventing purchases, which itself could easily be viewed as market manipulation, putting downward pressure on targeted stocks and currencies.
At least Robinhood didn’t have to worry about the thousands of one-star reviews piling up for their trading app on the Google Play app store for Android. Google stepped in and deleted nearly 100,000 poor reviews.
Google claimed it was taking action regarding reviews it felt violated policies against “manipulation.” The tech giant confirmed they were the one doing the deleting, saying companies do not have the ability to delete reviews themselves.
GAMESTOP: STOPPING THE ELITES ON WALL STREET PROVES MORE THAN JUST A FINANCIAL STORY. By the end of last week, the larger implications of the “Youth Revolution” forecast by Gerald Celente in December 2020, was being contemplated by the likes of Tucker Carlson and many others.
The underemployed degenerates, stripped of so much of normal life, found a way to strike back. No doubt they were fed up with being underemployed, and told they were of no consequence, “non-essential.”
“Hedge fund managers live in the past, and continue to look down upon the retail investors,” was the way one WallStreetBets commenter put it. “This is the world they want to live in. This was the past.”
The “Youth Revolution” has made a major move to take that world down.
As Sam Faddis wrote in The Federalist, “It’s not that Wall Street dislikes retail investors, it’s that Wall Street views them as little more than commission factories for the big brokerage houses. Those rubes don’t know anything. They’re not sophisticated. They don’t have the credentials or pedigrees of the geniuses who simultaneously destroyed the housing market and economy in 2008.”
Rich Repetto, a research analyst at Piper Sandler, acknowledged, “We have different behavior now. Will trading be as elevated? Maybe not, but we are not going back to 2019. We have a whole new generation that has been introduced to the market through apps.”
The degenerates, having banded together successfully, may just be getting started. At least for the moment, they’ve flipped the script on who wins and who loses.
This isn’t going to stop with GameStop,” says Faddis. “It’s going to replicate itself within and toward every major institution of American, and global, life from here on out, whether it manifests in protests or riots or crazy elections or entire nation-states removing themselves from global super-governments.”
SOME BELIEVE RIVAL FACTIONS MANIPULATED REDDIT INVESTORS. Some people with deep knowledge of the stock market are suggesting Reddit investors on Wall Street Bets may have been subject to manipulation from larger players intent on driving up GameStop stock.
“The overarching question will be: did any of the big players engage in a direct role on Reddit or incentivize the people posting on the Reddit message board, WallStreetBets, to hawk the shares of GameStop,” wrote Pam and Russ Marten, of wallstreetonparade.com.
They pointed to large investors that happened to take large upside stakes in GameStop, in the months before the stock started to skyrocket. Among the players are Ryan Cohen’s RC Ventures, which increased its position in GameStop to 9,001,000 shares on 10 January, Senvest Management, and Permit Capital.
It’s also been pointed out that Kathy Vrabeck, Chair of GameStop’s Board of Directors, sold 50,000 shares on 13 January for $1.4 million, at prices ranging between $26.74 to $30.94. The 50,000 shares represented 22 percent of her holdings at the time. GameStop has traded close to $400, though it was in the $15 range at the start of January.