The coordinated Reddit investment army of which I wrote yesterday continues to stir up comment and trouble. First, though, the markets had a mild recovery today, so either they don’t realize there may be a danger here, or have discounted it.
Now, Gamestop (GME) and AMC (AMC) stock prices slid down the greased rope towards their old (that is, of 6 business days ago), and possibly proper, values today during normal trading, but as I type this, it appears that in after hours trading the army is making a play to prop GME back up. After a 44% drop today, it’s back up 49%. Keep in mind those two percentages are off of consecutive baselines, not the same baseline, so look up the numbers for yourself – they’re changing until after hours trading closes up. The AMC share price is exhibiting a similar behavior. There were five stocks listed by news services as being part of the action, and the other three are Bed, Bath, and Beyond (BBBY), Nokia (NOK), and Blackberry (BB), all notable as formerly sexy stocks that have lost their luster. I have not checked their share price behavior today.
The most interesting bit of news to me is the report that Robinhood, the app that permits free buys and sells of stocks and is reportedly the app of choice for the coordinated army, has restricted trading in these stocks:
GameStop traders sent the stock on a wild ride Thursday. The stock plunged more than 40% Thursday after surging nearly 40% at one point earlier in the day. Adding to the drama? Robinhood said it was restricting trading in the red hot stock as well as several others.
“We continuously monitor the markets and make changes where necessary. In light of recent volatility, we are restricting transactions for certain securities to position closing only,” Robinhood said in a statement, adding that it was also doing so for AMC (AMC), BlackBerry (BB), Bed Bath & Beyond (BBBY), Nokia (NOK) and three other stocks.
“Amid significant market volatility, it’s important as ever that we help customers stay informed,” Robinhood added.
The backlash was swift, and hours after implementing the restrictions, Robinhood appeared to backtrack, saying it would resume limited buys on those securities starting Friday. [CNN/Business]
I’d be interested in knowing the nature of the backlash. The army threatening to take its 2.2 million members and go somewhere else? Legal action? This latter reason is particularly interesting because I’m a little concerned that Robinhood’s action, while perhaps legal, is probably not ethical in the larger scheme of things. By that I mean the right to shut down trading in a stock without authorization from a higher authority amounts to trading manipulation, an old suspicion among amateur – and perhaps professional – traders towards the big market makers, firms responsible for the implementation of the market..
A reader writes:
From my reading, it appears that Game Stop was actually well positioned for success and growth, but that the short sellers were wrong but then sought to save their positions by further depressing the stock by buying more shorts. Then the long buyers on Reddit pushed it up, making it impossible for the shorts to cover their positions (short positions can be had for more than 100% of the stock available). So in this case, I don’t think the long buyers were artificially inflating Game Stop so much as pushing back against a fake downward pressure. I kind of like that some of the shorts got caught out.
From the above CNN/Business link:
Although the retailer reported decent holiday results and now has the backing of Chewy (CHWY) co-founder Ryan Cohen, GameStop is still losing money as the sales of video games have increasingly shifted from buying a cartridge in a box at a physical store to a download model.
I owned GME years and year ago, did decently, but got out for the same reasons as CNN cites – I didn’t see GME having a future with its then-business model, which I assume hasn’t changed much if they’re closing stores and losing money.
All that said, if the Internet were to suddenly collapse, GME would be an interesting opportunity.
And then there’s Erick Erickson, who sees everything through his far-right vision:
American history is full of stories of small entrepreneurs with good ideas displacing pre-existing giants in the marketplace. Over time, however, that has become less the case. Now, Goliath hires an army of lobbyists who help shape the regulatory code, the tax code, and draft legislation to provide competitive advantages for themselves or disadvantages for would be competitors.
The little guy cannot become the big guy because the big guy has lobbyists. It is no coincidence that Democrats are decrying the wealth gap and the inability of the little guy to become the big guy at a time the big guy is engaged in shaping federal policy and funding the Democrats. The Democrats’ solution is to make the little guy more comfortable, but also punish him if he dares to get too successful. The Republican solution has largely been to prop up the big guys and bail them out when they falter, equally ensuring there can be no competition.
The advent of the Web heralded a brand new wave of creative destruction – it hasn’t slowed it down. There’s a host of dead and dying retailers lying in the wake of Amazon and its competitors – of which there are a few.
And, somehow, the Democrats are the thumb puppets of Big Business.
But Erickson is stuck in his metaphor of David vs Goliath:
CNBC, the stock regulators, the business press, and various state Secretaries of State declare the regular Davids the bad guy for driving Goliath to a bail out. According to all of them, it is bad for David to slay Goliath because David might get hurt in the process. Ironically, these sorts of regular people trading are CNBC’s core audience and CNBC is vilifying them and protecting the hedge fund guys.
These guys on Reddit know that. They do not care. They know, with a subreddit called WallStreetBets that they are gambling on the stock market. They are not using it for a long term growth and income strategy.
But the system favors the existing large institutions. In the name of stability and paternalism, the regular guys driving up the prices are bad because they are destabilizing a system and possibly costing themselves money.
They have every right to do it, but the system is against them, which pushes the financial press against them, which makes me root for them even more.
The market will settle to the fair market value price. GameStop stock will go down. People will lose money. But I’m unsure why any of us should care that a group of multimillionaires or billionaire hedge fund guys lost their shirts to the regular guys when usually it is the regular guys losing their shirts and jobs to the hedge funds.
Or will it? He seems blind to the possibilities of this phenomenon – possibilities that have little to do with traditional stock markets. But I mentioned that in my prior post.
For Erickson it sometimes seems like every post is a chance to slime the Democrats and the left while propagating a political narrative, rather than exploring possibilities.
But there’s even more politics related to this incident!
Democratic Rep. Alexandria Ocasio-Cortez on Thursday accused Republican Sen. Ted Cruz of “trying to get me killed” during the January 6 insurrection at the US Capitol and called for his resignation from the Senate, after the Texas Republican appeared to agree with her on the need for an investigation into Robinhood following chaos on Wall Street.
“I am happy to work with Republicans on this issue where there’s common ground, but you almost had me murdered 3 weeks ago so you can sit this one out,” the New York congresswoman wrote in a tweet directed at the Texas senator Thursday. “Happy to work w/ almost any other GOP that aren’t trying to get me killed. In the meantime if you want to help, you can resign.”
She continued, “You haven’t even apologized for the serious physical + mental harm you contributed to from Capitol Police & custodial workers to your own fellow members of Congress. In the meantime, you can get off my timeline & stop clout-chasing. Thanks.” [CNN/Politics]
And she’s certainly justified in that comment. Make it clear he’s no longer welcome in polite company, eventually he’ll clear out in shame.
