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Well, they’ve got the White House’s attention. The Reddit-orchestrated effort to drive up the stock price of GameStop has sunk short-selling investment firms, picked up support from noted Twitter capitalists Chamath Palihapitiya and Elon Musk, and diverted the attention of every financial newsroom on the continent. If you’re just tuning into the story, you’ve got a lot to catch up on.
What’s GameStop?: A Grapevine, Tex.-headquartered retailer of new and used video games and pop-culture merchandise. It has 5,000-plus stores, many in malls. In Canada, it operates under its own name, as well as under the EB Games banner.
What happened to $GME today?: GameStop’s shares, which trade on the New York Stock Exchange, opened Wednesday at US$354.83, more than double their trading price when markets closed on Tuesday evening. They closed Wednesday at US$347.51, up nearly 135 per cent on the day.
Why?: Reddit users on the subreddit /r/wallstreetbets are buying GameStop shares, as well as call options. Explanations of the phenomenon range from the simple financial opportunity to anger at market manipulation and power disparities, as well as economic inequality.
Who’s out: Short sellers—traders who borrow shares, then sell them, making money by buying back and returning them once the price falls. New York-based Melvin Capital backed off its bet against the stock today after losing billions; it was also forced to take on US$2.75 billion in new capital from two other hedge funds. Citron Capital also closed most of its position; CEO Andrew Left is most famous on these shores for arguing in October 2017 that Shopify’s growth was unsustainable.
Who’s in: Musk tweeted “Gamestonk!!” on Tuesday evening. (There’s no good way to explain the meme. Just search “stonks” on Twitter.) Palihapitiya bought some GameStop call options yesterday and closed his position today. BlackRock, which owned a 13 per cent stake at the end of last year, may have made US$2.4 billion. Many of GameStop’s largest holders are index and exchange-traded funds, popular in the portfolios of retail investors.
The wider effect: The Reddit forum has gotten behind other heavily shorted stocks, including Waterloo, Ont.-based cybersecurity-software maker BlackBerry—the 8.3 per cent stake of Prem Watsa’s Fairfax Financial Holdings is worth an extra $1.16 billion as a result, per Scotiabank—and theatre chain AMC. Online brokerages Robinhood, E*Trade, Fidelity and TD Ameritrade were unavailable at times on Wednesday; the last of those services limited trading in $GME, $AMC and other targeted stocks. Ordinary people have signed up to such low- or no-fee platforms in large numbers during the pandemic, driving up volumes.
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The authorities have been informed: New U.S. Treasury Secretary Janet Yellen is “monitoring the situation.” White House press secretary Jen Psaki reminded assembled reporters and the public, “The stock market isn’t the only measure of the health of our economy.” Actually, I think that’s also the point of the “stonks” meme.