Meme Actions or How ‘Dumb Money’ Shook Wall Street Again | Economy

The founder of a $12.5 billion investment fund is very angry when he calls the developer he hired to tear down the sea view home he just bought. It’s next to his other mansion, and he wants to build a tennis court there so he can play with his family because it’s early 2021, in the middle of a pandemic, and you can’t really go outside. Midway through the fight, he receives another call that sends him running across the garden separating his two houses to his desk:

— It seems there is a guy who moves all the purchases.

-Which guy?

— A certain Roaring Kitty (a kitten that growls, in English).

The man staring blankly at the huge rising line on the chart is bearish investor Gabe Plotkin, and the scene is fictional, but it belongs in the movie. (Dumb money2023), telling the true story: history rally Reddit as 2021’s army of investors led funds like Plotkin’s to lose billions investing in stocks that seemed doomed. In these weeks, the movement that managed to bend Wall Street’s hand saw a brief resurgence.

stupid money (“stupid money” in Spanish) is, in addition to the film’s title, how Wall Street bankers address retail investors. And Roaring Kitty is Kit Gill, streamer And youtuber who in 2021 began defending himself on a Reddit forum that shares of the video game store chain Gamestop were undervalued. At the height of the pandemic, he was convinced that a physical sales business whose core product could be purchased from the comfort of your couch had great potential. He was right.

Gill managed to convince a legion of small investors to use their pandemic savings to invest in Gamestop through free platforms. That euphoria has spilled over into other chastened stocks like BlackBerry and the AMC movie theater chain, which have become the focus of funds betting on them to fall. This movement has evolved from an investment trend motivated by a dedicated forum participant into a social crusade: stupid money against connections to Wall Street.

So, from his basement, a man armed with a webcam caused Gamestop shares to rise from five to more than $120 and forced funds to close out more than $10 billion of bearish positions. And in the process, he managed to momentarily increase his $50,000 investment to nearly $50 million. In June of that year, after testifying before Congress to investigate stock manipulation, Gill disappeared from public life with approximately $30 million in his pocket. Until last Monday.

Three years later, he uploads an image that shows a seated man playing on a console. A meme that says things are getting serious. Euphoria ensues as small investors see this tweet as the return of their particular messiah and begin buying Gamestop stock and other meme stocks like AMC. The seller of video games skyrockets, but the price of them hangs dozens of times. It surged 170% in two days and once again put bearish funds, which seem to have forgotten the lessons of the pandemic, in trouble.

The bears’ tool is to take a short position: they borrow shares and dump them on the market. When it falls, they buy it back and return it to the lender. The difference between what you paid and the buyback is your profit. It’s riskier than regular investing: securities can only fall as far as their value goes to zero (a dam), but they can rise indefinitely. And with every penny they raise, the bears lose even more. Moreover, when they see that they are rising, they usually close their positions, compensating for them with purchases. And so they, like a snowball, help the stock continue to rise.

Networks and the “unreasonable sense of control”

That a meme moves millions seems irrational. This is what Juan José del Valle, head of research at Activotrade AV, advocates. It also appears as if hundreds of users are analyzing each of the unrelated movie clips Gill uploaded this week, like someone reading palms. “The use of technology through networks in recent years has led to small investors having an overconfidence or an unwarranted sense of control,” says Del Valle, who elaborates: “It is the big investors who are once again taking the bigger and better part.” Pie.”

But as Gill defended in 2021, other analysts believe there are reasons to justify the increase. Chief among them may be the most basic: the law of supply and demand. Well-bought stocks are rising. And, as in the case of Elon Musk, there are voices that manage to interest investors. If Gill returns, someone astute might be able to predict that the stocks he’s associated with will rise. This is the rationality of the irrational. “Ad hoc analysis is a complex task,” emphasizes Oskar Bernhardzen, investment strategist at Saxo Bank. “If you intervene, you risk losing, but these trends can also continue to grow.”

This new one rally However, it did not reach the scale of 2021. The huge savings from restrictions and the platform boom were the ideal environment, and both have been surpassed. The move is fading: Gamestop peaked at $64 per share last Tuesday and is now trading around $20. AMC, for its part, continues to have strong ups and downs, but is still far from the peak it reached the day it doubled. its value. Of course, its administrators took advantage of the unexpected investment bounty to reduce their debt through a private agreement.

Now that the euphoria has dissipated, it remains to be seen what the scale of this attempt was. Although they lost more than $1.2 billion, the bears fared better than three years ago: Plotkin, the disgruntled investor with whom he started Dumb Money, eventually closed his fund due to losses caused by rally from Reddit. The new small revolution found bankers more prepared. And it is likely that new short positions have now been opened on the company, since its value is artificially inflated. Renamed rally from Reddit, now from X, although perhaps not as expected, confirms the credits ending the film: “Wall Street Can No Longer Ignore the Call stupid money“

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