Billboard in Portland, Oregon on February 5, 2021
GME went up 19.2% on February 5 relative to the previous day after rising as much as 77.6% earlier in the day. With their ability to buy the stock restored, many GME bulls took the opportunity to acquire more shares.
To set a constant reminder to Wall Street of what happened in January 2021 (and what, the Redditors promise, will keep happening), a fundraiser to take over billboards in Times Square (such as NASDAQ) for months during high traffic hours is underway. The $10,000 fundraiser is at almost 40% of its goal as of February 6, 2021
“TL;DR”
As Redditors repeatedly stated (often ad nauseum) that this wasn’t about money, this was about sending a message. The message was directed at Wall Street: they’re as vulnerable as the common man in the free markets that they so cherish.
These Redditors, however, are a small part of a new generation of investors who – as opposed to those that are typically catered to by full-service brokerages – are seen to have a pronounced disinterest in index-based ETFs in favour of single stocks. In terms of strategies, there is an outsized interest in options contracts albeit with a solid interest in cash positions, i.e. stock ownership as well. It is also likely that they share a (best case) neutral opinion of Wall Street “Titans” or (worst case) have a deeply negative opinion.
These investors are spread across the globe, as supported by the fact that similar actions were seen on the European and Asian GDRs of “meme stocks” as well as the US-listed stocks themselves. Interest in the GDRs or outright foreign ownership of US-listed stocks drove a number of “meme stocks” into the leaderboards of European brokerages in the end of 2020 and January 2021.
The events of January 2021, on the surface, didn’t seem to add up to much, relative to other events in Wall Street. Analytics firm Ortex estimated on January 28 that Wall Street’s short-sellers have lost more than $70 billion in the year to date (YTD). Shorting GME was estimated to have cost $1.03 billion, while shorts on Bed, Bath & Beyond (a “meme stock”) were looking at a $600 million loss.
However, it bears noting that the largest losses were estimated to be from Tesla, which tops the list of most shorted names (in value) with $47 billion worth of bearish positions, followed by fuel cell maker Plug Power. Neither Tesla nor Plug Power was a “meme stock”. Also, Ortex data showed that as of January 27, there were loss-making short positions on more than 5,000 U.S. firms (and not just “meme stocks”). Credit Suisse attributed this to the liquidity triggered by waves of monetary and fiscal stimulus and advised its clients that this liquidity is expected to increase after the next round of government stimulus.
On February 1, Ortex revised its estimates of losses and reported that hedge funds have lost $12.5 billion on GME over January. Given that most short positions were likely centered around GME being worth less than $20 and GME (as of February 5, 2021) closed at $63.77 with after-hours trading pushing it to $66.31,it would be a fair assumption to make that some short positions on the likes of GME and other “meme stocks” were rolled forward via complex structured deals that might continue to bleed for a little while.
In Europe, retail investors targeted the most shorted European names including Pearson and Cineworld, likely with the same strategy as with “meme stocks” in the US. Pearson shorts had estimated losses of $208 million, followed by Nokia at $205 million. Short-sellers booked US$28 million losses on their bets against Cineworld.
However, attributing
all of the $70 billion loss to the actions of r/wsb and their allies would be premature.
It also bears noting that Wall Street is by no means a monolith that exclusively targeted the likes of GME with short positions. Richard Mashaal and Brian Gonic’s New York-based hedge fund Senvest Management LLC made $700 million after investing in GME in September 2020 and riding the wave until January 2021. The company reportedly became curious after a compelling presentation by its new CEO George Sherman and investor Ryan Cohen at an investment conference in January 2020. By October 2020, it owned more than 5% of the company. It exited its stake because of a tweet fired off by Elon Musk on January 26, which helped extend the short squeeze and sent GME surging another 157% when the market reopened the following morning.
Seoul-based Must Asset Management had presented a rosy view on GME in a Bloomberg interview on March 2020 and held a 4.7% stake in the company as of April 2020. On January 25, however, CEO Kim Doo-yong told Bloomberg that the company’s view on GameStop have turned less bullish on account of the stock’s high volatility and more-than-ten times surge since March 2020. He also declined to reveal Must’s holdings in GME but instead stated that it has increased its stake in US-listed Kaleyra Inc (KLR) to 5.2%.
PlusTick Administration in Charlottesville (Virginia), which runs a hedge fund managing about $120 million, gained 20% in January, mostly due to rallies in BlackBerry and Macerich which were both “meme stocks”.
Similarly, New York-based hedge fund Mudrick Capital Management LP made $200 million on another “meme stock” AMC in the month of January 2021. The fund’s holdings were principally in AMC’s debt, which rallied in January’s final week as AMC’s share value soared. The fund additionally made about $50 million writing and promoting name choices on AMC and GME shares it owned.
“It is not just little people on the long side here. There are huge players playing both sides of GameStop,” said Thomas Peterffy, chairman of Interactive Brokers Group to the Wall Street Journal on February 3.
Reddit CEO Steve Huffman stated on February 1, “The big change I see coming is the fulfillment of the promise of the internet. What we’re going to see over the next 20 years is the democratization of economics, not just what we’re seeing on Wall Street Bets”. Hedge fund billionaire and Bridgewater Associates founder Ray Dalio said of the GameStop frenzy on February 3, “Is this a big thing? It doesn’t come close to these other big things. How should wealth be distributed? Why doesn’t capitalism achieve the goal of being good for most people and how do you engineer it that way, while increasing productivity and its efficiency? That kind of engineering is the big thing and I don’t think they’re paying enough attention to that.” Dalio had argued in 2019 that the economic system does not serve the interests of most Americans. He also said he believes in more protections for individual investors.
Seemingly sympathetic towards the short-sellers’ predicament was Senator Elizabeth Warren of the ruling Democratic Party, who had long been touted by the media as being hawkish on Wall Street greed. “We need an SEC that has clear rules about market manipulation and then has the backbone to get in and enforce those rules,” said Senator Warren on January 27. “To have a healthy stock market, you’ve got to have a cop on the beat.”
With regard to the short-selling “Titans” of the industry:
Melvin Capital founder Gabe Plotkin, personally worth at an estimated $300 million, has seen his company lose 53% of its value due to its short positions in GME while in the midst of a $44 million plan to expand the 1935 Miami Beach house he bought for $12 million by replacing the adjacent property with amenity courts, a new 1,316-square-foot cabana, a children’s playground and open space. Some speculators opine that he likely would be hard-pressed right now to justify his expenses. Plotkin’s neighbours Dan Loeb (founder of activist hedge fund Third Point) and Cindy Crawford (veteran of many a magazine cover and fashion ramp) were not approached for comment by the media.
Melvin Capital ally Point72 led by Steven A. Cohen slid 10% in January, according to a source with knowledge of the fund’s returns. Point72 declined to comment to the media.
Citadel’s Melvin investment had an immaterial impact on its flagship multi-strategy hedge funds, according to a source, who added that it made up about 1% of the losses incurred by its Kensington Global Strategies Fund and 3% of the losses incurred by its Wellington Fund for January. Citadel declined to comment to the media.
On January 29, outspoken activist short seller Andrew Left announced that, after 20 years, his company Citron Research will no longer publish ‘short reports’ on companies whose value may fall. Citron, he said, will focus instead “on giving long side multibagger opportunities for individual investors.”
Activist short seller Hindenburg Research outlined a negative view of health-care software maker Clover Health Investments after four months of investigation on February 4. Hindenberg CEO Nate Anderson says his firm isn’t planning to give up short-selling any time soon. However, in light of the climate around short selling, Hindenburg isn’t currently short Clover Health stock. They simply state that their published research – which also accuses Chamath Palihapitiya of misleading investors about Clover – is meant to prove a point.
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