Upcoming Stock Week: The Year Reddit Stocks and Memes Changed Wall Street Forever

Around mid-January, the actions of GameStop (GME) – a physical retailer that most analysts expected to follow in the direction of Blockbuster – has started to rise, fueled by a bunch of day traders from the WallStreetBets forum on Reddit. They doubled, tripled their positions from day to day, chanting “diamond hands” and “to the moon”, rallying cries to keep their shares rather than cash. The term “memes stock” has caught on in the mainstream.

Better yet, those amateur traders, who winked at each other as “Monkeys,” stuck with the big cats on Wall Street who had bypassed GameStop heavily. The more people tried to dismiss the Reddit crowd – Citron Research called them “the suckers at this poker game” – the more they pushed up the stock, crushing the short sellers.

In the end, the GameStop rally pushed the title up 1,600% before coming back down to Earth. Lemon, meanwhile, shut down its short-selling business after the episode. Melvin Capital, one of Wall Street’s elite hedge funds, was so bankrupted it had to be bailed out by two other companies. The monkeys rejoiced. Who is the sucker now?

It seemed, at the time, that David had shot Goliath. But the giant was simply caught off guard.

The GameStop saga, however brief, marked a turning point for Wall Street. Did the monkeys overthrow the establishment? Not far from here. But the spectacle of the uprising was just as important as the result. Once GameStop caught the public imagination, Wall Street could no longer afford to reject social media or the investors who flock to it.

“Most people saw this revolution there,” says Spencer Jakab, Wall Street Journal columnist and author of an upcoming book on the GameStop rally. “And a lot of young people are still convinced that they are leading some sort of virtuous fight against evil hedge funds … but, deep down, the story is the same: if you think you have found something to beat Wall Street, you probably haven’t. ”

The Reddit Army moment failed in early February when GameStop hit around $ 45. Those who joined late, buying the stock at its peak of around $ 480, ended up with huge losses. These days, GME is trading around $ 145, up almost 700% for the year, but far from January highs.

Jaime Rogozinski, the founder of WallStreetBets, acknowledges that what happened with GameStop was not a revolution in itself, but that doesn’t mean that the community or the ethics that guided it – detecting inefficiencies in the game. market and exploit them for profit – is dead.

“These are small accounts, but now they’ve figured out how to drive up the stock price, even with their insignificant size,” Rogozinski told CNN Business. “They’re not going to stop looking for these things.”

The original WallStreetBets page has more than doubled since the GME rally, from around 5 million at the end of January to over 11 million now – an explosion in popularity that has put off some of the early members who split to form new ones, more specialist investment groups on Reddit and elsewhere.

So who won, David or Goliath? Maybe both.

The force of January’s squeeze was strong enough that even the heaviest of Wall Street’s elite would sit up and take notice. US regulators are also paying close attention to this.

“You’ll be hard pressed to find a business that has more than 100% short float now, right? Said Rogozinski. In other words, no sane Wall Street company wants to end up like Melvin, a titan who was pressed so hard by the GameStop push that he lost 53% of its funds in less than a month. If you sell a stock massively short and increase your exposure, you are putting a target on yourself.

WallStreetBets, with all its crass jargon and machismo, has become a drag on institutional investors who may have gotten too comfortable. Not wanting to be wrong twice, companies have hired social media managers and subscribed to services that monitor social conversations. JPMorgan, for its part, is currently testing a new tool to protect clients against meme-related losses, Bloomberg reported earlier this month.

“If you don’t have a clear vision of what retail does, it feels like you’re driving partially blind,” Chris Berthe, global co-head of equity trading at the UK, told Bloomberg. cash at JPMorgan.

For better or worse, says Jakab, all of this has made Wall Street even better at making money.

“I think what has changed is that Wall Street is fully aware of what’s going on,” Jakab says. “And they’re not going to get caught the same way anymore. They’re monitoring social media, they’re going to be smarter about being exposed.”

For all the so-called accomplished monkeys, Jakab claims, this is ultimately the little guy who got hosed down in the GameStop saga. In his book, “The Revolution That Wasn’t: GameStop, Reddit, and the Fleecing of Small Investors,” Jakab argues that despite all the talk about sticking to humans, the rally did not. that tip the odds more in favor of Wall Street. .

“Wall Street likes it,” he told CNN Business. “Wall Street loves millions of young people who hate Wall Street putting their money on Wall Street – they don’t care if they’re hated.”

Perhaps the most important legacy of WallStreetBets and the GME saga is cultural. Spend half a minute on the site and you will quickly understand that this is not a convention of baby boomers in costume but rather a group of young Millennials and Gen Zers (still predominantly male) talking about complicated option trading via memes and emoji.

“The best analogy I can find is that you have some seasoned professional poker players who have been playing this game for decades, and now they’ve all had to rush to make room for this new player who doesn’t use the game. same rules, “says Rogozinski.” You have a sort of reckless individual who has a different conception of risk and a different goal. And so these players now have to adjust their strategy. ”

Following

Monday: Nike and Micron results

Tuesday: Gains from General Mills, Rite Aid and BlackBerry

Wednesday: US consumer confidence and sales of existing homes; CarMax earnings

Thusday: United States Personal Income Data and PCE Price Index

Friday: Closed American markets and half-day trading in London


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