Class warfare, gamma squeezes, and Twitter memes

If you’re not on Twitter following a bunch of finance types, then you’re missing out.

Last week there was a serious bull market in content.

Memes, jokes, new pages, battle lines, wins, losses, rants, and results.

For absolutely none of these things you can follow me. I just share good articles that I’ve read, and occasionally, if you’re lucky, bad jokes.

What was it all about?

A new dimension in investing, based on a kind of hybrid strategy that I can imagine Russell Brand enjoying.

The Pit Bulls

I had always slightly envied the people who had experienced a real life, old school trading pit.

I would have been terrible at it, but I’d have loved to just see one in full flow. Maybe there are some still out there, but not the classic, paper waving, phone smacking, hollering mess from way back.

That buzz of excitement when everyone is talking about the same thing is pretty exciting.

I remember I got a taste of it back in March, in the office (!), when markets kept hitting the circuit breakers. Those were some wild days and everyone was talking about it.

Last Thursday though, I got my first taste, bizarrely.

It was a busy week for me, but on Thursday afternoon, something stopped me in my tracks.

I work on the generously named “dining table” (IKEA plywood rectangle) in the living room of my flat, opposite one of three flatmates. He, appropriately, works at a trading platform.

And so on Thursday afternoon, both of us were simply glued to our screens, watching history in real time.

Dave Portnoy of Twitter day trading fame was involved. Elon Musk and the recently self-anointed king of the pump Chamath Palihapitiya were in on it too. Not entirely sure they are the pinnacles of a good and moral society, but hey ho.

They were all talking about one thing.

R/wallstreetbets.

I imagine most of you have cottoned on to this story by now but if not, here is my one-line summary…

GME and AMC to the #mooooon #rocketship #rocketship #rocketship #screwwallst #diamondhands.

Which translates broadly to, “a number of heavily shorted stocks such as GameStop (GME) and cinema chain AMC Corp have been capturing the imagination of millions of online retail traders, who are buying stocks at a frenzied pace, creating a feedback loop of short and gamma squeezes (I’ll tell you later) to push these struggling companies’ share prices to dizzying levels, partially for fun, partially for gain, and also, partially out of a slight feeling of resentment for the ‘suits’ and ‘bankers’ that they still haven’t forgiven for the devastation of 2008”.

“To the moon” means a stock is going all the way up.

The rocketship emoji is used to designate stocks which are going to the moon.

Diamond hands are the strongest hands – great for holding the line.

Holding the line means sticking together, not selling out, and makes buying stocks analogous to a military line of defence.

This has all produced a frenzied level of content creation. I’m talking memes. I’m talking gifs. I’m talking Central Banter.

For example:

“Not so funny when you realise a lot of these hedge fund managers have secret families to feed.”

“If I was a Hedge Fund losing billions to Reddit S***posters, I would get a second job driving for Uber, cut out the Starbucks, and skip the avocado toast.”

There is an element of revenge to all this.

There is a warlike feeling of rage towards Wall Street bankers, “suits”, who escaped punishment for 2008, and have had one over the little guy since forever.

The mood on Twitter was broadly supportive of these “traiders” (this is more akin to a viking raid than a trade. They are not betting on the quality of the companies, or the possibility that they might execute a successful turnaround strategy, but openly “rushing” the market to squeeze shorts, and using options to create an upward spiral in the price.)

Robert Kiyosaki tweeted “GAMESTOP. I love it. Robin Hood and Reddit traders kicking the butts of institutional investors. Keep it up. Love it.”

Grant Williams, he of the fantastic podcasts, wrote, “Wait until the ‘crowd’ really understands what central banks have facilitated for the last 30+ years… Right now it’s about ‘evil short sellers’ but, at some point, destiny will bring the mob with the pitchforks and the appropriate targets for their righteous anger together.”

Chris Cole, of volatility expertise, had this to say, “Massive HFs tapped Fed for unlimited liquidity on leveraged basis/credit/short vol trades in March… Yet a bunch of kids on r/wsb are “manipulating” the mkt by recommending stocks with >100% short interest/float… So regulators ‘must’ intervene to ‘protect’… those same HFs? Hmm..”

“The biggest crime committed by r/wallstreetbets is that it is not too big to fail”.

The popular rage reached a fever pitch on Thursday afternoon.

The now poorly named trading app Robinhood, long favoured by young, new-to-investing traders, decided to shut down trading on a number of stocks, such as AMC and GameStop.

Outrage oozed from every corner of the internet.

To make it worse, it only banned buying. Users could still sell. So the stock tanked. Obviously.

To those in the rioting masses who were inspired by feelings of revenge and hatred for 2008 and Wall Street, this was a clear case of the “suits” forming a Danish “shield wall” to repel the common man.

The one time they were finally, and probably legally, getting one up on Wall Street, they were simply ejected.

It’s like the people who got good at card counting so beat the casinos at blackjack just getting… kicked out.

You’re only allowed in if you lose money. That’s how it seems at least. In reality there are plenty of boring, structural reasons around margin, exposure, clearing and settlement which mean that hugely popular stocks swinging by hundreds of per cent could lead to massive losses for a broker. To put it another way, Robinhood got all the hate, but almost every broker has done something similar.

The rage was swiftly expressed nonetheless.

Dave Portnoy said the only two options for Robinhood employees was bankruptcy or jail. If you survive, every client will leave to a broker that doesn’t screw them over and the company will go bust. Or, what you did was illegal, and you move straight to jail. (You do not pass go.)

The Google app store saw 100,000 one-star reviews for Robinhood within an hour, taking its star rating from 4.7 to 1.1. Google has now banned these and restored its original rating.

It’s like they’re not even hiding the fact that they are in control, and aren’t embarrassed to change the rules if they don’t like how things are going.

People are angry. Righteous anger through the medium of social media is something to “behodl”.

But the whole thing is super chaotic. Everything goes out of date so quickly. One minute it’s trading at 450, the next at 150.

Brokers were literally reporting spreads that wide – where you could buy shares for $450 each but only sell them for $150 each.

But there’s confusion everywhere. One person with the double-barreled surname “Hedges-Stocks” had to issue a statement that she was not a trader and could not provide any financial advice.

Or, how about this for a BBC News headline:

“Confused GameStop investors inundate Robin Hood society in Nottingham”.

Then, on Friday morning, Elon Musk put #bitcoin as his Twitter bio and the largest cryptocurrency in the world jumped 20% on cue.

The power of influencers and social media to affect markets has never been clearer. I don’t know if that’s a good or a bad thing.

But one thing’s for sure.

Markets are frothy, and liquidity is swilling around with ever-smaller holes to pour through. No, you can’t go on holiday, no, you may not eat out, but yes, fine, you can trade stocks. Must we be shocked that these crazy things are happening?

In any case, there is a debate to be had.

To anyone with strong views on this, I would urge caution.

This is a super complex issue which ties into some huge structural forces.

To me, it’s so many things.

It’s the power of the internet. It’s an expression of greed, of rage, of nihilism, of revenge and also of joy and brotherhood. It’s a revolt, and a damn good one too.

Hedge funds lost an average of 7% last week. (“Victory is ours!”)

Melvin Capital, an early hedge fund target of the Reddit horde, lost over 50% last week and had to have a multi-billion-dollar bailout from other hedge funds.

According to the Market Ear, the de-risking event last week for hedge funds reached the same level as the de-risking panic (selling down positions, covering, hedging) from the “corona crash”.

The traders of Reddit and the silver horde have made their voices heard.

Speaking of silver… it seems that it’s their next target.

Good for those of us who are already precious metals bulls, for all the right reasons.

These are exciting times to be a market-watcher.

Stay safe, and enjoy!

All the best,

Kit Winder
Editor, UK Uncensored

PS If you want to profit from things like this, it’s all about spotting trends early.

For that, you need this man.

1 Comment
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