Wall Street Underestimates the Force of Robin Hood

At least two hedge funds got carted out betting against GameStop massive rise on a short squeeze.

GameStop, a company that is inherently worth next to nothing in a practical sense soared from obscurity to one of the the most widely discussed topics in the world.

Not Just GameStop

And it's not just GameStop. Dozens of near-bankrupt or fundamentally worthless companies have soared into the stratosphere. 

Wolf Richter at Wolf Street compiled a big list of companies soaring into the stratosphere.

One Day Performance Wolf Street

 Tian Ruixiang Holdings [TIRX] whose American Depositary Receipt (ADR) went public on the NYSE on Tuesday at $4 a share started trading today, and amid various trading halts soared by over 1,000% intraday and closed up 538%. That’s how nuts the whole mania was.

Most of the companies on his complete list I have not heard of. But it also includes Bed Bath & Beyond, Nokia, and Blackberry. 

44 Circuit Breakers Triggered on Wednesday

As part of volatility control, 44 Circuit Breakers Triggered on Wednesday

About 44 circuit-breaker halts were triggered in the first two hours of trading Wednesday amid the rapid ascension of amateur investors armed with Robinhood and their favorite social media platforms.

From cult-favorite GameStop Corp. to stereo headphone and loudspeaker retailer Koss Corp., trading volume soared as gains and losses fluctuated by the minute.

Online brokerages including Robinhood Markets and Charles Schwab Corp. were hit again Wednesday by service disruptions as traders were transfixed by wild swings in shares of GameStop Corp. and other heavily shorted stocks. TD Ameritrade Holding Corp., Morgan Stanley’s E*Trade and Fidelity were also affected, according to Downdetector.com, which tracks user complaints.

GameStop shares, which soared as much as 157% Wednesday, were halted at least twice, while movie theater company AMC Entertainment Holdings Inc. triggered four halts as it more than quadrupled on volume that was roughly 13 times the three-month average.

AOC and Elon Musk Chime In

Yesterday, Robinhood put trading curbs on GameStop. That did not last long as the traders railed against Robinhood. 

AOC is clearly concerned about trading curbs, not the volatility. 

Ted Cruz and AOC on Same Side

Gamestonk

In response to that Elon Musk Tweet, GameStop rose 50%.

Rage Against Wall Street

Bloomberg writer John Authers comments GameStop Is Rage Against the Financial Machine

This is all fascinating. In the space of 12 years, the role of the short-seller has turned on its head. Back in 2008, it was the shorts who upset the status quo, revealed what was rotten in the state of Wall Street, and brought down the big shots. They were even the heroes of a big movie. It was the Wall Streeters who attacked them.

Alienation has deepened since then. Short-selling hedge funds are now seen as part of a corrupt establishment, as is the media. The motives of anyone defending the shorts, or anyone wearing a suit, must be suspect. And there is a deep generational divide; those unable to own their own home and forced to rely on defined contribution pensions have a stunningly unfair deal compared to those a generation older, living in mortgage-free homes with guaranteed pensions. That percolates into anger, and a determination to right the scales by making money at the expense of corrupt short-sellers. 

One respondent warned that the people squeezing the shorts aren’t “a herd of impressionable youngsters with Robinhood accounts. No. They are an experienced & ruthless army of insomniacs followed by a silent legion of rapidly learning new traders. This is a new paradigm that won’t go away.”

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Ugly Side of Investing

The Wall Street Journal comments The GameStop Short Squeeze Shows an Ugly Side of the Investing World.

Andrew Left is no stranger to conflict when it comes to investing. He makes a living betting that companies will stumble, and he calls out executives by name.

Companies and their supporters fight back, but the criticism he normally gets is nothing compared with the venom spewed in recent days by stock traders who have come together online to drive up shares of an unlikely momentum stock, mall retailer GameStop Corp.

The angry traders have shared his personal information, hacked into Mr. Left’s social-media accounts and texted Mr. Left and his two children, using threatening, profane and personal language, according to people close to the matter.

The company’s fans have ordered dozens of pizzas sent to his home, well past midnight. Mr. Left even reached out to one online critic after he asked Mr. Left why he made his Twitter account private. “We spoke on the phone, he sounded like 15 years old,” Mr. Left said.

But Mr. Left has also contacted the Federal Bureau of Investigation and the Securities Exchange Commission about the more vicious abuse and what he sees as collusion among the investors. In a YouTube video posted on Wednesday, Mr. Left said he has now closed most of his short position.

“It’s extreme capitalism gone wild,” Mr. Left says. “We’re a nation of gamblers.”

Attack on Hedge Funds

Andrew Left of Citron Research and Gabriel Plotkin of Melvin Capital Management hedge fund manager attracted the ire of the WallStreetBets a group on Redditt. 

Andrew left used to publish a list of short stock ideas. 

Not any more. Today he threw in the towel.

Andrew Left Throws in the Towel

"We uncovered more fraud than any non-governmental agency out there. We helped bring down drug pricing against the interest of hedge funds. But now after 20 years we noticed something. We started Citron to be against the establishment. We have become the establishment. As of today, Citron Research will no longer be publishing short selling research."

Summation

"Wall Street clearly underestimated a generation raised on highly coordinated Friday night World of Warcraft raids."

I can guarantee you this will end badly, but I cannot tell you when. 

Holding or if you prefer "HODLing" worthless or nearly worthless companies is not the route to long-term success.

Service Issues

As an aside someone just informed me they are having service issues with Robinhood. 

So consider my post from last October: Robinhood Accounts Looted and No Customer Service to Call

I have not heard more complaints of looting but customer service still seems to be lacking.

Mish