Tag: GameStop

Melvin Capital, GameStop and the road to disaster

Mary Pat Campbell

Link: https://www.ft.com/content/3f6b47f9-70c7-4839-8bb4-6a62f1bd39e0

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Excerpt:

It was a routine regulatory filing, the kind hedge funds must make every three months, where Melvin Capital first showed its hand.

The “Form 13F” filing that landed on August 14 last year listed 91 positions it held at the end of the second quarter, including shareholdings in household names from Microsoft and Amazon to Crocs and Domino’s Pizza. Halfway down the list: an apparently innocuous bet against GameStop, a struggling video game retailer.

That the New York hedge fund should think GameStop’s shares were going lower was hardly remarkable — many others were betting the same way. Wall Street analysts had sell ratings on the stock and the retailer’s prospects looked grim as gamers switched to downloads. But by using the options market for the bet, which forced it to disclose the position, Melvin had put a target on itself.

Author(s): Ortenca Aliaj and Michael Mackenzie in New York and Laurence Fletcher in London

Publication Date: 6 February 2021

Publication Site: Financial Times

GameStop Frenzy Lessons: Don’t Bet the Milk Money

Mary Pat Campbell

Link: https://marypatcampbell.substack.com/p/gamestop-frenzy-lessons-dont-bet

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Excerpt:

The failures we hear about are when staid institutions that have existed for centuries have done something incredibly risky, leading to serious consequences.

When it comes to institutional money management…. this kind of speculation is not really in keeping with professional standards, depending on the institution.

We may find that some institutions were betting the milk money by putting too much of their cash in very risky investment strategies. But really, only if they have to absorb the losses. Perhaps various players will save Melvin Capital et. al. You never know.

Author(s): Mary Pat Campbell

Publication Date: 6 February 2021

Publication Site: STUMP

GameStop insurgency is just the latest rebellion against ‘the Big Guys’

Mary Pat Campbell

Link: https://nypost.com/2021/01/28/gamestop-insurgency-just-latest-rebellion-against-the-big-guys/

Excerpt:

Writing for The Post this week, Charles Gasparino explained why the little guys got together to buy GameStop: “Mostly, they’re out to hurt the big guys.”

The Big Guys’ problem is that nobody likes them much. From Silicon Valley to Wall Street, they’re deeply unpopular with ordinary Americans, on both the left and the right, resentment they’ve stoked with selfishness, arrogance and condescension. Their solution to this unpopularity has been to use their control over online platforms, and their influence over the government, to silence their critics.

But they can’t stop the signal. No sooner did the tech giants collude to shut down Twitter alternative Parler than a new revolt sprang up somewhere else entirely among stock traders on Reddit. What will it be next? Truck drivers refusing to deliver food to Silicon Valley? Plumbers boycotting “woke” executives? It’ll probably be something cleverer and less foreseeable than that, but it’ll be something. The more the techno-elite tightens its grip, the more Americans will slip through its fingers.

Author(s): Glenn H. Reynolds

Publication Date: 28 January 2021

Publication Site: NY Post

Suck It, Wall Street

Mary Pat Campbell

Link: https://taibbi.substack.com/p/suck-it-wall-street

Excerpt:

The only thing “dangerous” about a gang of Reddit investors blowing up hedge funds is that some of us reading about it might die of laughter. That bit about investigating this as a “pump and dump scheme” to push prices away from their “fundamental value” is particularly hilarious. What does the Washington Post think the entire stock market is, in the bailout age?

America’s banks just had maybe their best year ever, raking in $125 billion in underwriting fees at a time when the rest of the country is dealing with record unemployment, thanks entirely to massive Federal Reserve intervention that turned a crash into a boom. Who thinks the “fundamental value” of most stocks would be this high, absent the Fed’s Atlas-like support in the last year?

For context, Goldman, Sachs posted revenues of $44.56 billion in 2020, its best year since 2009, a.k.a. the last year Wall Street cashed in on a bailout. Back then, the shortcut back to giganto-bonuses was underwriting fees for financial companies raising money to purge themselves of TARP debt. This time it’s underwriting fees for bond issues and IPOs. The subtext of both bailouts was that anyone who owned or underwrote financial assets got richer, while everyone else got the proverbial high hat. It’s no accident that income inequality dramatically accelerated after the last bailouts, and that the only people to see net gains in wealth since 2008 have been the richest 20% of Americans, a pattern almost certain to continue.

Author: Matt Taibbi

Publication Date: 28 January 2021

Publication Site: TK News

GameStop Mania Drives Scrutiny of Payments to Online Brokers

Mary Pat Campbell

Link: https://www.wsj.com/articles/gamestop-mania-drives-scrutiny-of-payments-to-online-brokers-11612434601

Excerpt:

The Reddit-fueled frenzy in stocks such as GameStop Corp. and AMC Entertainment Holdings Inc. is prompting calls for regulators to reconsider a decades-old practice in the U.S. stock market: payment for order flow.

The practice, in which high-speed trading firms pay brokerages for the right to execute orders submitted by individual investors, has long been controversial. Some have said it warps the incentives of brokers and encourages them to maximize their revenue at the expense of customers. Supporters, including many brokers and trading firms, said it helps ensure investors get seamless executions and good prices on trades.

Last year, brokerages such as Charles Schwab Corp., TD Ameritrade, Robinhood Markets Inc. and E*Trade collected nearly $2.6 billion in payments for stock and option orders, according to JMP Securities. The biggest sources of the payments were electronic-trading firms such as Citadel Securities, Susquehanna International Group LLP and Virtu Financial Inc.

Payment for order flow helped set the stage for the manic trading in GameStop, whose shares began the year around $18, surged to a record close of $347.51 on Jan. 27 and ended Thursday’s session at $53.50. Other once-hot stocks such as AMC and Koss Corp. fell more than 20% on Thursday as the Reddit rally lost steam.

Author(s): Alexander Osipovich

Publication Date: 4 February 2021

Publication Site: Wall Street Journal

Inside the Reddit army that’s crushing Wall Street

Mary Pat Campbell

Link: https://edition.cnn.com/2021/01/29/investing/wallstreetbets-reddit-culture/index.html

Excerpt:

This past week has been a banner one for Reddit’s island of misfit investors.

WallStreetBets exploded into the mainstream, moving from the front page of Reddit to the front page of the New York Times and nearly every other major news site. The subreddit’s short-squeeze of GameStop helped shoot up the price of the video game retailer’s stock a mind-boggling 1,700% from the beginning of January to Wednesday (before it fell again Thursday), captivating the minds and wallets of investors — both casual and institutional — and financial regulators.

But while millions are now discovering WallStreetBets for the first time, it has been building momentum throughout the pandemic. One can trace its epic rise to a perfect storm of favorable conditions: the exponential growth of the app Robinhood and its no-fee options trading, the extreme volatility Covid-19 brought to the markets, the stimulus checks mailed to millions of Americans, the lack of televised sports for much of the year, and the unwanted free time stuck at home the pandemic has forced on many people.

Author: Jon Sarlin

Publication Date: 30 January 2021

Publication Site: CNN

Robinhood’s future is ‘toast,’ says ‘Wolf of Wall Street’ Jordan Belfort

Mary Pat Campbell

Link: https://finance.yahoo.com/news/robinhoods-future-is-toast-says-wolf-of-wall-street-jordan-belfort-143933479.html

Excerpt:

The self proclaimed “Wolf of Wall Street,” Jordan Belfort, expects the Robinhood trading platform to go out of business over the GameStop (GME) trading controversy. “I really believe the lawsuits are going to be very problematic,” Belfort told Yahoo Finance Live.

Belfort was the founder of the defunct Stratton Oakmont brokerage. He plead guilty in 1999 to running an illegal “pump and dump” stock scheme that cost his clients more than $100 million. Belfort served 22 months in federal prison and later authored a memoir, “The Wolf of Wall Street,” which became a film starring Leonardo DiCaprio.

GameStop shares soared more than 1,600%, in three months, hitting $483 last week and that surprised Belfort. “When I first looked at it I said, ‘Yeah, it’s a modified pump and dump,’” he said.

Author: Adam Shapiro

Publication Date: 2 February 2021

Publication Site: Yahoo Finance

Why the GameStop frenzy may hurt retirees along with hedge funds

Mary Pat Campbell

Link: https://www.cnbc.com/2021/02/01/why-the-gamestop-frenzy-may-hurt-retirees-along-with-hedge-funds.html

Excerpt:

KEY POINTS

Retail investors such as Reddit users have targeted stocks like GameStop that are heavily shorted by Wall Street.

Some hedge fund losses extended into the double digits.

That could spill over to pension plans. Some invest more than 20% of their assets in hedge funds.

Author: Greg Iacurci

Publication Date: 1 February 2021

Publication Site: CNBC

GameStop’s Reddit-fueled rally, explained

Mary Pat Campbell
GameStop’s Reddit-fueled rally, explained

Excerpt:

Bloomberg has a fantastic rundown:

  1. $GME was first pitched as an investment on r/WallStreetBets about 2 years ago, but the current craze built up over the past 12 months.
  2. Members on the subreddit r/WallStreetBets believed that GameStop, with 5k+ brick ‘n’ mortar locations, could turn around its fortunes by going digital.
  3. On Aug. 31, 2020, Ryan Cohen — the billionaire founder of pet company Chewy — bought up a big position in $GME (he now owns 10%+ of it) with plans to modernize the company.
  4. In the months since, a number of prominent hedge funds (Citron, Melvin Capital) revealed they were betting against (AKA short selling) $GME.
  5. Typically in short selling, you: 1) borrow a stock; 2) sell it to a buyer; and 3) if the price of the stock falls, you can buy it for a cheaper price you sold it at and return the stock to the person who lent it to you.
  6. One risk of short selling is called a “short squeeze.” Since you have to eventually return the stock you borrowed, problems can arise if there is a limited supply of the stock.
  7. In a “short squeeze,” the underlying stock will get bid up as short sellers try to get their hands on stock that they have to return.
  8. Options trading — the right, but not obligation, to buy a stock at a certain price — is also driving $GME up as institutions that sell these options are buying $GME stock to hedge their position.
  9. $GME stock is on an upward tear as these market mechanics play out and r/WallStreetBets traders coordinate their efforts.

Author: Trung T. Phan

Publication Date: 26 January 2021

Publication Site: The Hustle

Hedge fund Melvin sustains 53% loss after Reddit onslaught

Mary Pat Campbell

Link: https://arstechnica.com/gadgets/2021/01/hedge-fund-melvin-sustains-53-loss-after-reddit-onslaught/

Excerpt:

Melvin Capital, the hedge fund that was wrongfooted by retail traders who drove up shares in GameStop and other companies it had bet against, lost 53 percent in January, according to people familiar with the firm’s results.

The New York-based hedge fund sustained a $4.5 billion fall in its assets from the end of last year to $8 billion, even after a $2.75 billion cash injection from Steve Cohen’s Point72 Asset Management and Ken Griffin’s Citadel.

Authors: ORTENCA ALIAJ AND ERIC PLATT

Publication Date: 31 January 2021

Publication Site: Ars Technica

How GameStop exposed the market

Mary Pat Campbell

Link: https://www.axios.com/stock-market-gamestop-reddit-exposed-d7eb06e2-f6c7-4aa8-99d7-24a51df27fa9.html

Excerpt:

Despite looking like a run-of-the-mill short squeeze, what’s happening in GameStop is anything but that, Ihor Dusaniwsky, managing director of predictive analytics at S3 Partners, tells Axios. Short sellers overall are not being squeezed out of the trade, despite having lost more than $6 billion since Jan. 1.

“I’ve talked to several brokers, they’ve got a line of guys looking to short the stock if there’s any stock available to borrow,” even though shorting GameStop now costs a fee of 150%.

“The value shorts are getting squeezed out and being replaced by momentum shorts looking to ride the stock price down the back end of the roller coaster.”

Author: Dion Rabouin

Publication Date: 28 January 2021

Publication Site: Axios