Wow, this is wild. Let me see if I can summarize from my quick read of the links people have posted (just a summary, not claiming those links are correct).
The catalyst event happening is apparently an impending "short squeeze" for GameStop (GME) stock. The underlying issue is being painted as a power struggle between individuals ("retail investors") and hedge funds / institutional investors.
The idea of the short squeeze is that institutional investors short-sold GME, meaning they took money in exchange for a promise to deliver shares later. This seemed safe because they thought it would be easy to buy cheap shares later and deliver as they are supposed to.
However, the share price started going up. People know the holders of shorts will need to buy back shares, so people (wallstreetsbets people?) buy the shares first. This drives up the price even more, increasing the potential desperation of the shorts-holders, and this cycle can theoretically get really vicious really fast, leading to a "squeeze". So retail investors are hoping to make a bunch of money off the institutional investors holding the shorts. In theory, if everyone bought Gamestop shares and refused to sell, the holders of shorts would be failing to fulfill their contract and be in huge trouble (but they will pay big prices first).
This leads to the David-and-Goliath story. The claim is that institutional investors are actively trying to paint reddit as market manipulators, in an attempt (either short or long term) to get regulators to shut down individual investing and tilt the field more to institutions. This narrative is aided by WSB trends to invest as a block in "meme stocks".
On the other hand, redditors are painting the institutions as serial entrenched market manipulators who got caught with their pants down in this instance, and who are trying dirty tricks to get out of a sticky situation.
There’s a tiny bit more - the institutional guys let their exposure get out of hand by shorting more than the stock’s float (I think something like 140%!), so there was never going to be a way to cover the short interest without moving the market against themselves. And beyond a short squeeze, there are some positive fundamentals in place that the WSB guys pointed out repeatedly.
I think this is a crowded short trade and the institutional guys are not as smart as they think they are. When they lose, they get pouty and start complaining to regulators.
Just FYI, people often forget that shorting shares creates synthetic shares that, conceptually, should to be added to the float.
Imagine a company with 1 share outstanding. I borrow a share from Person A, and I sell it to Person B. Person A and Person B now both own 1 share, and I own -1 shares. The total shares outstanding is still 1 share (2 + -1), but the float has increased. The short interest, as commonly reported, will be -100%. But it's actually only 50% of the shares that could trade. The effective float has increased by the size of the short interest.
Looks like instutional investors goals are 2 fold:
- Asap: Get public (media coverage) to sell GME to lower price and reduce squeeze.
- Long term: Discredit and diminish WSB.
I think some serious unintended consequences will occur today.
The short sellers are getting absolutely roasted right now. I think they really misunderestimated the willingness of the WSB hivemind to blindly keep purchasing shares. This entire week, every time there's been an institutional move causing a significant intraday drop, it just gets pushed back up relentlessly. Incredible stuff to watch.
The evidence that there is a conspiracy is an unscreenshotted, unverified and unquoted "source" from someone who works with investors. The way they hit back was by getting them more media attention, coincidentally just after WSB themselves started a Twitter to promote themselves and had just appeared in the financial news for one particularly wild success at adjusting the price of a stock?
Kind of would have expected HN to look for a higher barrier of proof than that. Sounds more like WSB got a bit too big, started to draw some degree of actual scrutiny (partially through their own actions in tweeting out egotistical statements from their Twitter) and now are blaming it on some vague conspiracy?
I've no doubt that lots of institutional investors would be happy to keep things like WSB out. But it would be a strange and convenient coincidence that there happens to be an international conspiracy involving investors, media and financial regulators that just so happens to fit perfectly with the 'underdog' PR story WSB is trying to build itself on.
So institutional investors have steered the market for years and if you lost your hat because of them, well, that's investing. You clearly played it to you personal risk tolerance.
The momemt they get burned by someone else moving markets... Oh, how the tune changes.
I'm no expert on this stuff by any means--I'm just a casual trader who lurks on WSB sometimes for the latest memes--so instead of trying to (badly) provide more details about this myself, I'll just link to some of the discussions that are spilling over to WSB's sister subreddits:
Having recently joined WSB in time for the GME hype, I realized that this might be one of the first times in history where enough retail "investors" (a lot of meme-loving kids with Robinhood) have gathered under a common cause to pose a threat to institutional investors, as acknowledged by Jim Cramer. Rallying a 1.9m subscriber community with an underlying anti-boomer sentiment, especially because Gamestop is about video games which the older generation does not favor, has proved a potent force, which wsb-ers like to call "retard strength".
My first thought was that this a super spicy meme that will generate even more buzz. I would love to IANAL opinions on the legality of memes impacting markets though.
The subreddit is back up as of this morning. It’s possible this is just self produced meme drama. Also worth noting GME is way up, to the great enjoyment of WSB members.
WSB has been a fountain of wealth for me. They actually do move the market, everyone who has taken notice and jumped on the hype train has done extremely well for themselves. I hope it continues, then I can leave my job forever
That just shows what a travesty the stock market is today. It was meant to be a mechanism for people to invest in companies in which they had an interest or belief. Now it's just a way of transferring wealth from one place to another without benefit to the company.
I can't say I'm happy seeing this post on the front page of HN right now. I left reddit behind because of the immaturity and now it's come to roost. I don't exactly know where to go from here but I see eternal September is alive and well.
The catalyst event happening is apparently an impending "short squeeze" for GameStop (GME) stock. The underlying issue is being painted as a power struggle between individuals ("retail investors") and hedge funds / institutional investors.
The idea of the short squeeze is that institutional investors short-sold GME, meaning they took money in exchange for a promise to deliver shares later. This seemed safe because they thought it would be easy to buy cheap shares later and deliver as they are supposed to.
However, the share price started going up. People know the holders of shorts will need to buy back shares, so people (wallstreetsbets people?) buy the shares first. This drives up the price even more, increasing the potential desperation of the shorts-holders, and this cycle can theoretically get really vicious really fast, leading to a "squeeze". So retail investors are hoping to make a bunch of money off the institutional investors holding the shorts. In theory, if everyone bought Gamestop shares and refused to sell, the holders of shorts would be failing to fulfill their contract and be in huge trouble (but they will pay big prices first).
This leads to the David-and-Goliath story. The claim is that institutional investors are actively trying to paint reddit as market manipulators, in an attempt (either short or long term) to get regulators to shut down individual investing and tilt the field more to institutions. This narrative is aided by WSB trends to invest as a block in "meme stocks".
On the other hand, redditors are painting the institutions as serial entrenched market manipulators who got caught with their pants down in this instance, and who are trying dirty tricks to get out of a sticky situation.
Did I get it right?