After a wild week, GameStop (GME) stock closed Friday up nearly 68% at $325.
Though the past few days have been extremely volatile for the game retailer’s stock (see this and yesterday’s liveblog), with Friday’s close it has gained 400% since last Friday, 1,784% since the start of 2021 and nearly 8,170% since this date last year.
US stocks finished a turbulent week sharply lower on Friday. The Dow and the S&P 500 recorded their first monthly losses since October. For the week, the two indexes, as well as the Nasdaq Composite, also logged losses.
The Dow closed 2%, or 621 points, lower, while the S&P ended the day down 1.9%. The Nasdaq fell 2%.
The volatile week came on the heels of a whole bunch of trends: Analysts fear the massive short-squeeze in GameStop (GME) and other Reddit favorites are beginning to curtail liquidity in other parts of the market as investors unwind positions. On top of that, earnings season is in full swing and investors are taking profits. Meanwhile, worries about whether President Joe Biden’s proposed $1.9 trillion stimulus package can actually get passed and uncertainty over the vaccine rollout are factors on the macroeconomic front.
GameStop shares closed the day up nearly 68%.
Some Reddit users behind the recent GameStop stock frenzy are moving away from trading on the Robinhood app after it temporarily restricted trades on more than a dozen red-hot stocks yesterday. They say they’re moving to alternatives like Fidelity, Schwab and Vanguard, and encouraging others to follow suit.
Fidelity said it is not restricting users from buying or selling shares of GameStop, AMC or Bed, Bath and Beyond, which were among the 13 stocks Robinhood blocked on Thursday. Fidelity said an “above average” number of users joined its platform Thursday, but it declined to say how many.
Charles Schwab, which owns Schwab and TD Ameritrade, says on its website that it hasn’t halted the buying or selling of these stocks, but has placed certain restrictions on them.
Vanguard said that its clients usually aren’t day traders, but tend to invest in the long-term. It declined to answer whether it’s seen an increase of users over the past few days. It added that it was keeping an eye on the market for “significant movements” and has added certain restrictions to protect clients in “a fast moving market” but kept buying and selling available.
On Thursday, Robinhood halted trading of securities including GameStop, AMC and Bed, Bath and Beyond, later describing it as a “risk-management decision.” The decision was met with outrage among amateur investors and some lawmakers. One trader responded by launching a class-action lawsuit against Robinhood. The app now allows limited trading of these stocks.
With lawmakers and financial regulators circling, the stock trading platform Robinhood is looking to ramp up its presence in Washington.
The platform is searching for a former congressional staffer to advocate for the company before members of Congress and US regulatory agencies.
Robinhood wants someone with “substantial experience” working on Capitol Hill, and who has “existing relationships and positive rapport with relevant government stakeholders and industry groups.”
In short, the company is looking for a well-connected Washington operative, following in the footsteps of many tech companies that have found themselves increasingly rubbing up against US policies.
The job opening was posted as recently as two weeks ago, according to a LinkedIn listing. But in light of the past week’s events, the pressure to quickly fill the role may now be increasing.
US lawmakers have said they intend to hold hearings to probe the role of online trading platforms amid the surge in shares of GameStop and other volatile stocks. And the Securities and Exchange Commission said Friday it would closely monitor moves by financial entities to restrict trading to retail investors, as well as reports of market manipulation.
Robinhood and other platforms have limited the amount of GameStop shares that retail investors may buy. The restrictions, Robinhood has said, reflected a “risk-management decision.”
Redditors behind the explosive group Wall Street Bets held AMA (Ask Me Anything) sessions on Twitter and Reddit on Friday to answer questions that have been coming their way this week.
They note that since the GameStop stock spike attracted public attention, the community has grown to over six million subscribers, up from 300,000 during the past year.
Describing the community of r/wallstreetbets as “irreverent and self-deprecating,” the team of moderators wrote that users originally gathered in this group to talk about their stock market losses and gains and celebrate or lament those experiences. The moderators denied having ties to “real world subcultures,” such as Trump supporters, Occupy Wall Street or the alt-right.
They declined to comment on the SEC’s monitoring of the volatility that’s been linked to their collective trades, saying “we are not the judges of this affair.”
The group also shed some light on its philosophy towards Wall Street.
“Traditional Wall Street is scared of retail understanding the individual power now at their fingertips, and for good reason. Wall Street has historically been the gatekeeper, whether for information or for actual control of people’s funds,” the team wrote. “Having retail investors cut them out and decide their investment choices on their own eliminates the informational advantage traditional Wall Street has enjoyed by being those gatekeepers.”
GameStop mania didn’t happen in a vacuum. It’s just the most glaring example of the bubble-like behavior running rampant in the financial markets.
Long before an army of Reddit traders sent GameStop, AMC (AMC) and other stocks “to the moon,” evidence of extreme market speculation had been mounting.
Shares of Airbnb, DoorDash and other unprofitable start ups have gone straight up on their first day of trading. Shell companies with no operating assets have raised gobs of money thanks to a phenomenon known as SPAC mania. Tesla (TSLA) is now worth nearly $800 billion – more than every other major automaker combined.
None of this is normal. Rock-bottom interest rates are forcing investors to take extraordinary risks – and for some, this will end badly.
Richard Fisher, the former president of the Dallas Federal Reserve, told CNN Business:
GameStop’s rally is one thing, but the rest of the market looks pretty bleak today.
The major indexes are all down more than 2% and the Dow and S&P 500 are on track for their first monthly loss since October. Ouch!
The Dow is off by 2.2% or more than 650 points in the early afternoon. The S&P is also down 2.2%. The Nasdaq Composite has fallen even more, down 2.4%.
The irony is delicious. An online flash mob beats Wall Street insiders at their own game.
Connected on social media during a work-from-home pandemic using free trading apps, the little guy sticks it to the man.
The man, of course, is Wall Street. Specifically, the high-frequency traders, hedge funds, and bank prop desks that for years have run the show.
Connected by the Reddit community WallStreetBets, small investors followed the advice on Reddit to drive up shares of GameStop, AMC and others. That buying spree cost the big hedge funds who were betting against those stocks billions.”
There was immediate online derision after billionaire investor Leon Cooperman (who has no position in GameStop) said these traders “don’t have any idea what they are doing” in an appearance on CNBC. “The reason the market is doing what it’s doing is, people are sitting at home, getting their checks from the government, basically trading for no commission and no interest rates.”
It was a lonely defense of the Wall Street elite, and this week the short squeeze became the newest front in America’s class war.
Investors betting against GameStop (GME) have, to quote John Goodman’s character in “The Big Lebowski,” entered a world of pain.
Short-sellers with a bearish position in GME were on track to lose more than $7.8 billion today, according to research from S3 Partners.
Ihor Dusaniwsky, the managing director of predictive analytics for S3, said in a tweet that GameStop short-sellers have recorded nearly $20 billion in losses so far in 2021.
The shorts have been squeezed hard as GameStop continues to surge. It was up more than 80% on Friday and has now soared nearly 1,800% this year.
Short-sellers have been forced to buy back stock that they borrowed and sold because they need to return the shares fast or risk losing more money as the stock climbs higher.
Dusaniwsky pointed out in another tweet that movie theater chain AMC (AMC), also a target of short-sellers, is inflicting pain on those betting against it – although the losses aren’t nearly as dramatic. Shorts had lost more than $210 million Friday and nearly $525 million this month.
It’s been a tough week for the bears. Citron Research, a firm that made a name for itself by recommending stocks to short and was attacked online by the Reddit WSB crowd, announced Friday it is no longer going to point out stocks it thinks are overvalued and will instead focus exclusively on highlighting buying opportunities.
Senator Elizabeth Warren of Massachusetts is asking the U.S. Securities and Exchange Commission to look into why GameStop stock has fluctuated in price so wildly in recent days, soaring from its usual $20 a share to over $440 at one point.
In a letter on Friday, Warren called on the SEC to prevent “these and future incidents of potential market manipulation.” She asked the regulators to investigate whether securities laws were violated by hedge funds shorting GameStop stock or Redditors buying up shares to inflate its price.
“These wild fluctuations 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,” Warren wrote.
Google took down tens of thousands of negative reviews about the Robinhood app from the Google Play Store from a flood of upset users, who encouraged each other to give the trading platform a one-star review. The trading app restricted trading on several stocks, including GameStop.
A Google spokesperson told CNN Business on Friday that it has long-standing systems that detect spam and abuse of its app reviews, including detecting coordinated or inorganic reviews. Its public guidelines state that users cannot “post fake reviews intended to boost or lower ratings.”
In a blog post last year, Google said ratings and reviews can violate its guidelines when they are “meant to manipulate an app’s average rating or top reviews” – whether that’s positively boosting an app’s average rating to five stars or giving it one star “to influence it negatively.”
On Friday, White House Press Secretary Jen Psaki pointed reporters to a statement from Securities and Exchange Commission regarding the GameStop frenzy on Wall Street, saying, “We of course respect the role of regulatory agencies.”
She continued: “They are closely monitoring the situation, but it’s under their purview at this point in time, and I guess part of our education can be conveying to people that the SEC is the regulatory body that would oversee this and can speak to it further.”
Earlier today, the SEC said it will “closely review” actions by trading platforms to restrict transactions.
Bitcoin prices are once again booming, but some Robinhood users may not be able to fully participate in the rally.
Robinhood announced Friday it turned off its instant buying power feature for crypto due to “extraordinary market conditions.”
As its name implies, the feature gives users instant access to cash that was either deposited from a bank account or generated from stock transactions. It’s available to Robinhood Gold and Robinhood Instant customers.
Customers can still buy bitcoin and other cryptocurrencies by using funds that have already settled, Robinhood said.
“We’ll keep monitoring market conditions and communicating with our customers,” a spokesperson said in a statement.
The move comes after Robinhood set off an uproar by prohibiting purchases of GameStop (GME), AMC (AMC) and other stocks popular with an army of Reddit traders.
The Securities and Exchange Commission said it will “closely review” actions by trading platforms to restrict transactions, following moves by Robinhood and others to limit the trading of GameStop and other stocks.
The statement reflects the mounting pressure for financial regulators to step in following the trading frenzy led by a group of reddit users that’s spelled disaster for many hedge funds and short sellers.
The Reddit group WallStreetBets has been taking aim at short-sellers — and now one of their main targets, Citron Research, is getting out of the game:
Citron is an investing firm that has for 20 years published reports about stocks it thinks are overvalued, and could be good short-selling candidates. It became a chief target of the WSB crowd for its GameStop call.
Just last week Citron’s founder Andrew Left called GameStop a “failing mall-based retailer” and mocked traders fueling the stock’s rise, predicting a crash to $20. Enter Reddit, and well, you know the rest: The stock closed above $197 on Thursday. Left had already given up on shorting GameStop, citing harassment by the stock’s backers.
And now Citron won’t publish short-selling research at all.
According to Left’s video posted Friday morning, the firm is shifting focus because he founded Citron to “be against the establishment,” but realized “we’ve actually become the establishment.”
US stocks opened lower on Friday, sliding amid chaos in the market and more corporate earnings.
Meanwhile, Reddit favorite GameStop (GME) is back on top, soaring some 100% at the opening bell after trading platform Robinhood reversed its restriction on trading the stock. Meanwhile, analysts are beginning to worry that the short-squeeze in GameStop and other stocks is affecting liquidity elsewhere in the market.
CNN’s Chris Cuomo speaks with Vlad Tenev, CEO of the stock-trading app Robinhood, after the company barred traders from buying shares of GameStop promoted by WallStreetBets, a popular subreddit for investors.
Users on the Reddit board refer to themselves as “degenerates,” and they often speak in memes as well as shorthand phrases, often borrowed from other internet subcultures. Here’s a glossary of some of the most popular terms.
GameStop (GME) CEO George Sherman has been quiet during this Reddit vs. short seller drama. But the stock’s huge spike is great news for him.
He owns a 3.4% stake in the company: 2.36 million shares that now are worth more than $800 million, based on premarket action Friday.
Sherman hasn’t made any media appearances this week. He was quoted in a press release about the company winning top marks as a place for LGBTQ workplace equality. But he’s been mum about the stock’s breakneck volatility.
Sherman is a retail veteran who joined GameStop as CEO in 2019 after previous stints at Advanced Auto Parts (AAP), Best Buy (BBY), Home Depot (HD) and Target (TGT).
Meanwhile Ryan Cohen, the Chewy (CHWY) founder who is now on GameStop’s board, runs a fund that owns nearly 13% of GameStop – a stake now worth about $3 billion that makes it the second biggest investor in the company.
Big money managers Fidelity, BlackRock, Vanguard and Susquehanna are the other top five shareholders.
And Donald Foss, a retired billionaire who is the founder of subprime auto lender Credit Acceptance Corp (CACC), bought a 5% stake in GameStop last year that’s now worth $1.2 billion.
WallStreetBets’ burst into the mainstream has left it in uncharted territory.
The legal side of things
There are the legal questions surrounding the site’s collective push to boost GameStop’s shares, with the SEC announcing in a statement that it is “aware of and actively monitoring” the volatility of the markets.
The White House and newly sworn-in Treasury Secretary Janet Yellen are “monitoring” GameStop’s stock bonanza and WallStreetBets briefly went private on Wednesday, as the moderators made the site private to “ensure Reddit’s content policy and the WSB rules are enforceable.”
On Thursday, Robinhood, the trading platform of choice on WallStreetBets, made a controversial move to limit trading on GameStop, AMC, Nokia and other stocks promoted on the subreddit.
Reddit said in a statement to CNN Business that its “site-wide policies prohibit posting illegal content or soliciting or facilitating illegal transactions. We will review and cooperate with valid law enforcement investigations or actions as needed.”
The community
And even if the forum survives scrutiny — whether regulatory, legal or from Reddit — it will have another issue to contend with. When part of the draw of a place online is the community, the shared language and jokes and memes, what happens when new people unfamiliar with any of that come suddenly flooding in?
