As a society, we have never been more polarised. Whether its by politics, ideology, race or gender, a cavernous void has slowly been opening beneath the feet of Western Nations for the past 8-10 years.
I am not here to preach my side of the aisle and I am steadfast in my decision keep my politics and ideology out of the public forum, but I do think it is important acknowledging this societal polarisation, at least for the purpose of this article.
Enter WallStreetBets, a community for individuals to communicate with one another about the stock market (specifically the NYSE) on Reddit. Having its own culture, and subculture, WallStreetBets came to the forefront of mainstream media in early 2021 when the communities sentiment shifted its focus onto GameStop (GME).
At the time GameStop, the video game retail chain in the US (akin to our EB Games), was on the ropes from a brutal beating in 2020. The corona virus had taken its toll on the company, with the lockdowns driving game sales online, much like everything else. Due to this downturn it was apparent that the writing was on the wall for GameStop and it was only a matter of time before retailer went out of business.
This is when Wall St decided to enter the game (pun intended). Major hedge funds decided they would heavily short the stock, so heavily in-fact that the Short Interest (SI) neared 130% of the available stock (meaning these hedge funds shorted more stock, than stock available) and by doing they created a self fulfilling prophesy.
Shorting the stock to this extent would send a clear message that GameStop was a dying company while also sealing the companies fate as shorting the stock lowers the stocks price (the same way buying the stock increases the price).
This is where WallStreetBets comes into the story. Some savvy investors noticed the SI was over 100% of the stock and decided that they would initiate a ‘short-squeeze’. This means buying the stock and raising the price to the point where the Hedge Funds would be forced to either ‘cover’ their short positions (buy back the stock they shorted at the now much higher price, further increasing the stock price) or pay the daily interest accompanying the short which gets more and more expensive as the stock price increases.
The concept whipped the community into a frenzy and soon GME was being purchased by retail investors the world over. The price of the stock surged from $20 per share to $480 per share within a matter of months. The short squeeze hadn’t even taken place yet but the hedge funds who had shorted the stock so dramatically began to feel the pinch, with Melvin Capital requiring a $3+ billion bailout.
Soon after major retail brokerages, in a move that was perplexing and as well as illegal, began limiting and blocking the purchase of the stock and in some instances selling investors positions without consent in a move that is currently has these brokerage firms under investigation, RobinHood being the most egregious case.
This move halted the short-squeeze in it’s tracks and as the hedge funds were the only ones able to buy GME, short ladder attacks were launched to bring the price down along with coordinated disinformation campaigns within the WallStreetBets community and major financial news networks (Hedge fund Melvin Capital closes out GameStop short: CNBC, an article claiming that Melvin Capital exited it’s short positions at the peak of the stock with no word of how they managed to buy back 80,000,000 shares for at $400 ($32 billion) with an AUM of around $8 billion).
This emboldened the retail investors and the community on WallStreetBets and solidified their resolve.
To WallStreetBets GameStop was not only about making money, it was also about sending a message to Wall St and hitting them where it hurt the most. Most of the retail investors in the community are millennials or younger, they remember the hard times during the GFC created by the greediness of Wall St. This was an opportunity to drive a knife deep into the heart of the marketplace that cause so much misery 12 years ago.
Storied began coming out about individuals remembering eating pasta and ketchup for months because they couldn’t afford a proper dinner, uncles and grandparents all moving in together as homes were deserted and jobs disappeared. The community knew that though Melvin or even Citadel may not have been responsible for the GFC, for the synthetic CDO’s or the terrible loans being given to those who couldn’t afford them. The shorting of the stock to well above its own floated shares was just another symptom of the same issue: Greed.
All of a sudden, millions of new members joined the community, all of which put aside years of political polarisation to stand side by side against a common enemy. The socialists chanted “down with the bourgeoisie!” and held their stock, the capitalists chanted “down with those that destroyed my business!” and held their stock, the anarchists chanted “down with the system!” and held their stock and the libertarians chanted “down with big business!” and held their stock.
In the face of seemingly insurmountable odds, an enemy with power and means beyond that of most countries and drastically diminishing returns… people who once hated each other decided to put aside their differences, unify and hold their ground together.
We are still waiting for that short-squeeze to happen. As of today the ‘self-reported’ SI is sitting at a little over 70% and the community is steadfast in its resolve to either get rich or go bust.