"To the Moon": Market Manipulation By the People, For the People
About a week ago, news circulated the investing community of several major hedge funds including Melvin Capital and Citron shorting what were supposedly “failing” companies, including GameStop (GME) and BlackBerry (BB). A short is most simplistically defined as a bet “against” a company or an industry—essentially, if you short a company, you make returns if that company’s value decreases. For some perspective, if you were to buy a company’s stock, the amount of money you can lose is capped at the amount you bought it for. If you bought $100 in Apple stock, the most you can lose is $100. However, if you were to short Apple stock, you could lose much more—in fact, you will continue to lose money as long as Apple stock increases.
In response to the news of the billionaires’ short strategy against GameStop, several members of the Reddit investing community on r/wallstreetbets, made up of amateur retail investors who refer to themselves as “degenerates” and “retards” and mostly use Robinhood—an app that offers easy-use, low-fee methods of equity and cryptocurrency investing to anyone who installs it, with no minimum capital requirement—decided to pour all their savings into GameStop and Blackberry equities. Not only buying on the money they already had, but also on margin—meaning purchasing stocks on loans from either their banks or brokers.
Today, just as Robinhood and major investing overseers have closed GameStop trading avenues to prevent hedge funds from losing as much money as they already have, the millionaires and billionaires who initially shorted the aforementioned “failing” companies are at a negative 200 percent short position. Even the Securities and Exchange Commission, which passed a measure in 2001 that required that people have $25,000 on hand in order to day trade, has gotten involved, surveying r/wallstreetbets in a market manipulation case. As the Dow Jones Industrial Index sees a 600 point loss this afternoon and the S&P 500 goes red for the year, GameStop’s stock price is up 109 percent. Today, a New York Times headline reads, "'Dumb Money' is on GameStop, and It's Beating Wall Street at Its Own Game."
In essence, thousands of amateur investors throwing their cash at GameStop “for the meme” has led to millions of dollars in losses for large hedge funds. The same people who said they were holding their equity until the price reached (and I quote) “$4200.69” are responsible for these losses at the top. Whether or not these losses will take effect depending on whether market overseers find this sort of market manipulation illegitimate, time will tell. Today, Melvin and Citron, the funds that originally placed the shorts, have surrendered and closed their bets.
At this point in time, this “movement” seems to no longer be just “for the meme.” Here is an example of the top-notch Blackberry stock analysis that is being done in the subreddit:
Here are some examples of reactions to the news that the SEC, which u/arondaniel called the “Shortseller Enrichment Commission”, would be reviewing the subreddit:
"To the SEC retards in this sub: go fuck yourself. Why don’t you start investigating why companies can shut down trading so their hedge fund buddies don’t lose money. But when people lose money it’s completely ok. Eat a dick." - u/BoringBusinessClass
"Dear SEC, I hope you go down in history as the pieces of trash that didn’t do anything in the face of blatant market manipulation by hedge funds, and instead went after the average working man with a family to feed. Fuck off, you pathetic parasitic losers." - u/Willkthewpboy
“Let them come. Fuck them. There's nothing illegal going on here. This is nothing more than market capitalism working for the wrong group of people it seems. YOU are also being watched.” - u/METAL4_BREAKFST
"Will the SEC subpoena pheonixdick69?? Relax guys. We literally have done nothing wrong. If we get regulated so does CNBC. We’re clearly a bunch of retards. Go fucking sniff around the hedge funds and you’ll see a shitload more market manipulation than fucking Reddit, Jesus Christ." - deleted
"I'm pretty damn low income, and have never even humored the idea of buying or trading stocks. But that changes today. $150 I'm in you bastards." - deleted
“Why didn't they prosecute the senators who committed insider trading or the hedges shorting over 100% of a stock, instead of a sub full of autists sharing publicly available information?” - u/SneakingForAFriend
“It's only a crime when the poors do it.” - u/Canuck0987
“And don't forget we aren't the ones trying to short a company that employs 50,000 low income employees during a fucking pandemic.” - u/ard1992
"Amateur unemployed retard here reporting for duty! Bought 44 shares of BB for 900 total, sold at 1100 today and flipped it all into GME right before close at 341 a share. Holding till 1000.69!" - deleted
"YOU FUCKING PAPER HANDED BITCHES CALL THIS A DIP? I REMEMBER WHEN GME DIPPED 6% YEAH...THEN IT FUCKING ROCKETED UP 40% YOU DUMB FUCK. DIAMOND HANDS" - deleted
"The SEC has no authority on the fucking MOON!!!” - u/bahbahda
Even now, people are still encouraging people to buy. One guy posted "Bought at the top to encourage you retards to not give up" with a screenshot of him purchasing $5,000 in additional shares just yesterday. Today, however, Robinhood has disabled purchasing of GME.
Now that these janky stock purchases around GameStop have yielded real consequences for investors everywhere, the “meme” has now become a philosophical challenge of sorts to the status quo of investing. The real appeal of the app Robinhood—when it was a startup in Menlo Park, California, in 2013—was that it allowed normal, working people involved in the stock market called “retail” investors. People in the well-established investing community frequently look down on what they call “Robinhood investors” as amateurs who can hardly afford the $10,000 capital requirement to participate in high-stakes day trading or even to download various high-frequency trading analysis software.
In a Reddit post that has since been removed by the moderators of r/wallstreetbets, someone writes the following:
The world of investing is the most obscene form of gatekeeping in the world, to keep regular, working people from the mechanisms that define whether they can afford basic necessities, whether they have jobs, whether they have housing, and whether they have retirement savings. And time and time again, it has been those at the top playing fast and loose with the lives of those at the bottom that has led to economic crises based on widespread structural infidelity and fraud.
The 2008 financial crisis in America’s housing market was the result of a decades-long degeneracy of high-yield securities trading that led to millions of Americans losing their homes, jobs, and pensions that ended with hardly any member of Wall Street going to jail—not to mention a Congressional bailout package that was necessary only because the system was designed prioritizing the institutions at the top as the arbiters of whether the economy was doing well or not. In essence, following the housing market crash, it was those at the top who got off scot-free and it was regular Americans who paid the price—just like it always is.
I’m not the only one who welcomes this development. CNBC’s Jim Cramer of “Mad Money”, who has now for some reason gone quiet in the midst of GameStop’s trip to the moon, and Chamath Palihapitiya, a venture capitalist in the tech sector who took $115,000 in calls on GME, closed his position just this morning, and donated his earnings totalling half a million dollars to Barstool, probably in the spirit of “the meme”), share my enthusiasm. “I think that what you’re seeing is essentially a pushback against the establishment in an important way,” Palihapitiya told CNBC, “this retail phenomenon is here to say … I think that [r/wallstreetbets] is as important as any hedge fund or a collection of hedge funds … it’s really disparaging to say that these guys cannot do the same research as a fund.”
When asked about the nature of r/wallstreetbets and the community’s sharing of investing strategy, in this case the rhetoric of “GameStop to the Moon,” Palihapitiya said, “The reason why this GameStop trade has caused so much pain is that at the top of pecking order was Melvin Capital. Those guys are incredible stock pickers and modelers of companies. But at the end of the day, what happens is, these trades are copied by other funds that just follow along.” Palihapitiya’s point was that institutional investors do exactly what r/wallstreetbets is doing on GameStop, and that this is an important moment in which major fund managers and analysts are now being met with regular people emboldened and enabled by a new age of technology, people who have largely been kept out of traditional and prevailing investing structures.
This Reddit-organized market insurrection may have been orchestrated by abrasive, unserious “memelords” who wanted to flip the finger to the big banks and hedge funds that have for years tortured working-class Americans for cocaine and strip club money. But it represents something bigger: in the age of technology and information, regular Americans have more power than they think over the forces that have long been gatekeeping the singular deciding aspect of the national economy. In other words, this was a case of something that has never happened before, something I believe was much needed in leveling the playing field: market manipulation by the people, for the people.
Mark Lu is an undergraduate senior double-majoring in Economics and Political Science. He is the Editor-in-Chief of the Agora.
Image courtesy Dwight Burdette, Creative Commons