Reddit vs Wallstreet - GameStop, The Movie

this is not going to end well when it ends and the most important question is when will it end are those

reddit

ors heroes are villains are just people is uh is nothing short of remarkable hello welcome to another episode of cold fusion the world is indeed, it is a strange place These days, it seems like anything can happen in early 2021, a viral battle broke out in the most unlikely place: the stock market, it was publicized as a conflict between internet investors and large hedge funds, but what is the full story and which one? consequences we will see it all started in september 2019 when an armchair investor named keith gill noticed something interesting in the stock market, he sat down in front of his computer, logged into youtube and started talking about what he saw, keith also used

reddit

and would start posting about his observations, most people on the forum would laugh at him, but Keith believed the payoff would be huge.

No one at the time understood what he was doing, but his decision would set in motion one of the craziest moments in financial history. would bring multi-billion dollar hedge funds to their knees and spark a social uprising among the public and Wall Street. Sit back and relax as we uncover the story of how one Reddit user started a revolution that shook the financial world you're watching cold. Fusion TV In the year 2000, Bill Clinton signed the Commodity Futures Modernization Act and ushered in the era of financialization. Without much hesitation, the financial sector began to have an increasing influence on the overall economy.

Instead of producing goods or services, large sectors of the economy dedicated themselves to designing creative ways to make money with money. Bill Clinton later admitted that he had made a big mistake, but it was too late. The floodgates opened for market speculation. More and more exotic financial products were invented and sold to banks and financial actors were supposed to regulate themselves, but this did not happen, financial products would be traded privately without supervision, there was no connection to any underlying asset in the world However, the risks they created in the financial system were real, speculation finally got out of control in 2008, causing a crisis.

In the global financial system there were millions of bailouts for banks and hedge funds, while millions of ordinary people lost their jobs. Work became scarce and many struggled to support their families. As the dust settled, anger grew and in 2011 it erupted into a movement. called occupy wall street its purpose was to protest against the bankers and show that they couldn't get away with playing with other people's money but something strange happened within a year it seemed like everyone lost focus on the financial issue and instead of challenging to the banks and hold them accountable, society began to fight among themselves over their personal differences, while financial institutions could breathe a sigh of relief as the turn of events in 2020 and a global pandemic would trigger lockdowns around the world In the United States about 47 of the jobs come from small businesses, so naturally the shutdown of the economy meant economic devastation with people out of work and many becoming increasingly uneasy with their situation, they began to notice something as their Businesses were closing and their jobs were disappearing, it seemed like Amazon Walmart and other massive corporations were doing well, in fact they were thriving, not only this but the financial markets began to grow, the rich were getting richer once again as They lost everything, wealth was being extracted from the small to the financialized economy, with no jobs, nothing to do and only limited government support in the form of stimulus checks the stage was set for a revolution against the financial institutions in 2012 jamie rogozinski, 30 years old, he occasionally browsed a forum called Reddit.

He had earned some extra money at the time while working in Washington DC, so Jaime had the idea of ​​gathering a community around investing. He would start a subreddit called Wall Street Bets so he could do this. For the first few years, the Wall Street Bets forum only managed a few thousand users and then in 2019, some brokerage giants removed trading. Commissions for their apps made trading free and accessible at one point retail investing burst onto the scene the number of Wall Street betting subscribers quickly grew to over 500,000 and then to one million during the March 2020 crisis in By this time the community had made a decision for itself, Jaime, the creator of the original forum, expressed concern that it was getting out of control and removed some moderators when he saw fit, receiving backlash and being banned by other moderators. .

This was now bigger than Jaime in a statement to Wall Street. In his journal, he noted that Wall Street betting isn't what it used to be. While all this was going on, a user on the Wall Street betting forum named Keith Gill was closely studying something he had noticed on his YouTube channel. , the armchair investor. Keith Gill laid out his plan: buy some shares in a company called Gamestop, a simple store founded in 1984 and familiar to most people in the United States. Gamestop had a simple business model for selling video games and gaming equipment outside of its physical store.

Store locations, naturally, this model became less lucrative as more players shifted to online shopping. It seemed like Gamestop was on the brink of bankruptcy, so why did Keith want to buy such a company? He thought this opinion was exaggerated even though the company was closing stores. Looking at their 10,000 quarterly financial reports, they actually had a lot of cash and could pay off their debt and the company could recover only with good management on their YouTube channel. Keith would prove his points with evidence that he was reading blogs and press releases looking for alpha. articles, company notes and more, all to make the case that the stock was actually undervalued, for example, he knew that new game consoles would be coming out soon and this would be great for game sales.

He also theorized that the move to digital was actually much slower than people were thinking and this would be important for the company for years to come. He obtained articles and videos from people talking about physical game discs versus digital downloads. He realized there was still a lot of demand for physical games, which meant even more. income for

gamestop

was diligent and left no stone unturned to plead his case he invested 53,000 in

gamestop

in September this was 2018 2019 it's 2020 right now and the trend is clearly going towards digital but here's my point is you're still Watching some countries that are still very skewed too physical and I don't think that a year later all of a sudden everyone is going to buy digital, I just need to make sure that Gamestop doesn't go bankrupt because people are still buying discs and that there are still Demands for Gamestop for only a couple of years because if that's the case, Gamestop is probably undervalued.

A small number of redditors also agreed with Keith, but then noticed something even more peculiar: 84 gamestop shares were being held as short positions, ie. betting that the price would fall, this was very unusual, it turned out that the hedge funds had colluded to short the stock by publicly declaring that the price would fall, so the millions who sold more than 130 percent of the shares of gamestop shorted right now, redditors said. had a unique opportunity in financial history, a populist financial movement could be devised if played right, but first, to fully understand the game plan, we must first describe what short selling is, let's say you borrow some trading cards. old baseball cards to a friend for about 400, but you promise to return the cards to him next week after he agrees to give you the baseball cards.

You sell those same cards to a dealer for 400 because that is the market price of the cards. You do this because you expect the price to drop in, say, a week. the market price of baseball cards drops to 300, you buy the baseball cards from the dealer at the new price of 300. Since you originally sold them to the dealer for 400, you now have one hundred dollars left over, after which you return the cards. For your friend, that's basically short selling, except you have to pay your friend interest for borrowing the cards. Here's the clincher, if after a week the market price of the cards increased to five hundred dollars, then you would be out of money. a hundred dollars by the time you give the cards back to your friend, but the thing is, if the price of the cards keeps going up and you say there are a lot of people who are in the same situation as you, everyone will want to buy their cars again. from your dealers and sell them back to your friends to limit your losses, but the action of a massive purchase of cards actually raises the market price of the cards, this is called a short squeeze; that last scenario is what happened to these hedge funds in essence with short selling the losses are almost unlimited I think hedge funds are dumb money right every experienced hedge fund manager knows you can't sell a stock shorted with a short interest of 138 CU in terms of risk and reward, which is what you invest in.

So the hedge funds overstayed their welcome with these shorts, so back to Gamestop, the fatal mistake the hedge funds made is that they were greedy. They could have dropped Gamestop shares from fifty dollars and bought them back to five dollars, but they held on without selling apparently because they wanted every penny of their bet, it seems they were simply waiting for gamestop to declare bankruptcy, unfortunately for the funds of hedging, this left them exposed and open to attack, their expectation was that it would go down to zero and they never had to buy back the shares, they got greedy even though it went down to four or three two dollars, I think 250 or something like that, at one point they just kept holding their position instead of buying it back, closing the position and not risking the extra couple of dollars per share and it backfired while Keith was posting about his findings, another Reddit forum user posted A seven-point document titled institutional investor bankruptcy quote for suckers with gametop, the user noted that hedge funds were fatally exposed on the Wall Street betting forum.

I loved the idea, it was brilliant, the risk for redditors was limited, the worst that could happen is the stock goes to zero and they lose all their money, on the other hand, the risk for hedge funds was immense, the funds coverage could lose more money. than they put in and, worse yet, had borrowed money to short sell, the plan was for the Reddit army to keep buying Gamestop stock, driving up the price and causing the hedge funds to lose more and more money, the funds hedgers would be forced to abandon their positions. and cover their losses by buying shares in the market to return them to their lenders and, as in our previous baseball card example, this same act drives prices up even further, it was a cascading event that led to a dramatic increase in the share price in a very short time. period, it was almost like a bug in a video game being exploited while stocks continued to rise and hedge funds continued to lose money.

Reddit realized they could bring the hedge fund to its knees. It was a digital form of protest. The masses were playing with the banks. and hedge funds play against them on January 26. gamestop was the most traded stock on the US stock market with volumes matching those of the five largest tech giants combined. gamestop saw its share price rise from just a few dollars in 2020 to a high of More than 490 transformations from a company valued at less than 200 million in April 2020 into a company worth more than 28 billion began to generated rumors around the story and the media published the narrative of people regaining control by playing the bankers game against them, but as you will soon see, there may be more to the story, the Reddit rebellion continues today, games stop coming up again after hours, it's amazing that the average person can now get a fair shake from against hedge funds.

At this point, like I said, I don't care what my financial performance is, now it's about sticking to Wall Street speculation and these hedge fund guys, they've been manipulating the stock market in a very similar way forever until on the 28th. In January, hedge funds and short sellersThey had lost 70 billion dollars and 5,000 American companies had been affected. Everything was at war. News about the Stop Rebellion game spread around the world. Billboards began to appear telling the public what to do to buy Gamestop stock. The first billboard was in New York, but soon more billboards appeared in San Diego, Salt Lake City, Dallas, Orlando, and more.

A small physical protest occurred on Wall Street on January 28 as online redditors encouraged each other to stay strong and not sell anything. no matter what term they called diamond hands, the plan was that the longer the redditors held out, the more damage they would do to the hedge funds, this would be on the order of millions and possibly billions of dollars due to the large amounts of interest They had. To pay, the news soon reached the White House. I was concerned about the stock market activity we are seeing around gaming. Stop and if there has been any discussion with the Secretary about how to proceed.

I'm also happy to repeat that We have the first Secretary of the Treasury and a team around her and we often send them questions about the market. Secretary Yellen and others are monitoring the situation. However, it is a good reminder that the stock market is not the only measure of the health of our economy, our economy, while this was happening, the big sharks sensed an opportunity. The biggest business professionals joined the fight, but only for their own benefit. Blackrock and eight other Wall Street titans made a combined $16 billion in gaming stocks in a matter of days.

It's not just redditors who made money and that's a key point in the history of Wall Street. They always find a way to win, there have definitely been bigger players participating and by being silent you know there's no reason for them not to necessarily join in. , it benefits them, they make a good exchange and they also eliminate one of their rivals, other publishers. He noticed that more companies in bad shape were also suffering from large short selling, this included Nokia AMC

movie

theaters and more coordinated attacks were made to increase these prices as well and it seemed to be working.

Melvin Capital, a big short seller was a big casualty they had to take. Citadel, another hedge fund, will bail out $2.7 billion, according to Bloomberg, while three of Gamestop's biggest investors gained more than $2 billion in personal wealth thanks to the rush that other small traders were now able to pay off their student loans. Another subreddit The so-called Wall Street bets return their profits to charities and organizations. For our armchair investor Keith Gill, who had only invested around 53,000 in 2019, his Gamestop bet had now become a $48 million fortune at the stock's peak. rally, but it would not be an easy road for him and many others, battle lines soon began to be drawn.

Discord intervened and banned communication between redditors on their platform citing hate speech, but it only fueled the fire that Reddit's Wall Street betting forum would do. grew from 5 million subscribers to 8 million in a couple of days Facebook was next to step in and banned the Robin Hood trading group with over 157,000 members. Popular trading app Robinhood became number one on the App Store before banning retailers from buying Gamestop. Nokia AMC shares and other stocks are also included in the ban, only sales were allowed. Robin Hood's actions angered the general public, who were already fully aware of the situation.

Multiple class action lawsuits were filed and politicians and celebrities alike got involved blocking people. Buying shares and just letting them sell would be artificially driving the price down. This could have been perceived as a form of market manipulation. The perception was that Robin Hood was on the side of the big hedge funds, as they receive funding from Citadel and others in return. Hedge funds obtain massive amounts of data from small investors and from there they can figure out how to make money. In fact, Robin Hood made $700 million selling user data to hedge funds. During all of this, a second investigation was also launched into his defense of the company according to CEO Vlad Tanev due to unprecedented market conditions Robinhood was forced to raise $1 billion to keep things running Elon Musk would appear on the headlines when he questioned vlad in an interview and so on thursday morning so i'm sleeping but at 3 30 a.m.

Pacific, our operations team receives a file from the nscc, which is the national securities clearing corporations. They give us a file with a deposit and the request was around three billion dollars. It seems strange that you suddenly receive 10 billion dollars. demand, you know, three, three billion, okay, three billion around, you know, all of a sudden, out of nowhere, um and um, but we had no choice in this case, we had to meet our regulatory capital requirements. , who controls this organization, this clearinghouse, basically what people are wondering is. Did you sell your customers down the river or do you have no other option?

If you didn't have a choice, that's understandable, but then you know we have to figure out why you didn't have a choice and who are these people who say you don't have a choice in all of this. raises questions if this chaos hit Robin Hood with just a few shares, what if there was widespread volatility across the market as February progressed, sentiment changed, the game's stock price began to fall and fear spread through the Reddit message boards that some users had? lost hundreds of thousands and a few millions Keith Gill had now lost over 14 million but everyone held their positions.

They believed that hedge funds would have to buy back their positions to cover their short positions sooner or later and this would cause the price to rise once. Again, although it is possible that, although the redditors maintained that the big sharks had already been sold, I can commend the redditors for their strong conviction to do what they believe was right, but many have broken the number one rule of investing only invest whatever you're willing to lose, although some may see it as a donation to a good cause rather than an investment as the stock price began to decline, a new cycle began to emerge, redditors had moved on from gamestop To silver, many physical silver traders saw a massive increase in demand and the price of silver skyrocketed, but this result was not possible with Reddit alone.

The silver market is too big and even the redditors knew it. There were many forum posts saying that staying away from silver is just a distraction from Gamestop. The consensus on the forum was that the media was lying and that they were the ones who caused the silver rush, this broke trust and the media for many who understood what was happening at this stage of the betting forums. Wall Street were on fire. There are reports of large institutions defaulting on borrowed money to stop stocks and hedge funds using a technique called a short ladder attack. This is where hedge funds sell hundreds of shares of stock to each other to lower the price. rumors were swirling and it became almost impossible to really determine what was happening, there will no doubt be more calls for regulation In an interview with CNBC, Nasdaq CEO Adena Friedman called for social media chatter to be monitored to root out the coordinated movements of actions.

I think generally when we evaluate how we would handle a situation where If we see a significant rise in a stock that is not based on news that is not based on fundamentals, what we do is we have technology that evaluates the conversations on the networks. social media and if we see a significant increase in conversations on social media channels, then we also compare that to unusual business activity. We will potentially stop those actions. Robin Hood would slowly open up the purchase of the target stock, but not before Vlad was ordered to testify before Congress. Janet Yellen, former chair of the Federal Reserve and current Secretary of the Treasury. is going to convene a regulatory meeting on the gamestop rebellion yellen has formally received over 700,000 in speaking fees from it, making it a conflict of interest is currently seeking a waiver to hold the hearing on the gamestop rebellion gamestop has set a precedent this is the very first example of the intersection between social media and the financial system the idea has gone global since then Bloomberg has reported that short stocks have headed to short stocks from Amsterdam to Sydney in Europe, some of the most shorted stocks are up 20 or more and in Tokyo stocks sold short are up around seven percent or more, on the other hand, there could be implications for the broader market in the future, if organized Another brief contraction and a big company goes bust, the government could end up deeming it too big to fail and, once again, another taxpayer-funded bailout could happen.

This is not to mention the systemic risks. The financial system is completely tangled, complex and fragile already. that hedge funds need capital to cover their short positions this could cause some selling elsewhere our confidence in the financial system is at an all-time high More than 23 percent of all US dollars in existence were printed last year, while 40 of Americans don't have 400 in the bank for emergency expenses. This comes from the country that is the world's reserve currency, so it has global implications. This story has revealed how volatile and unrealistic stocks can be these days. A stimulus from low interest rates, excessive financialization and quantitative easing have transformed the global economy from an innovative, profit-focused productive economy to a decadent shell of speculation and financial engineering for years companies were buying back their own shares so the price would go up and look good on paper when the cost of borrowing money is cheap no one cares about the risk the gamestop rebellion was a wake up call the average people are not happy about this they say you can't keep doing this for us there is a great quote from Warren Buffett.

Price is what you pay, but value is what you get. Wall Street's betting crowd destroyed that relationship, but the twist is that one could argue that the relationship between price and value has been destroyed and manipulated all along. Since the days of Clinton, when it ushered in the era of financialization, January 2021 marked a cultural shift in the way the financial market is viewed by Reddit users who were fed up and just wanted change to happen, that is Their goal may have already been People are once again talking about the unfairness of the financial system, but it remains to be seen whether the new regulations that arise from this will shut the little guy down.

But anyway, someday this story will be taught in business schools around the world, no matter the outcome. And that, my friends, is the story of how one guy on Reddit started a financial revolution, a story that still is unfolding, thanks for watching, if you enjoyed this episode and want a reminder of this crazy time in financial history. I have some. merch to do just that is a gamestonk logo in the middle of the cold fusion logo with the text infinite money glitch written on it, it's a funny take on the situation and a reminder to laugh, sometimes the links will be below if you want get them. one, I'm looking to create better content and more content for you guys, so this product helps with that special thanks to John Gross, a redditor who has been following the story and was willing to talk about the situation as he saw it on the forums.

If you want to watch something about science, technology, business, or history, consider subscribing to Cold Fusion. I post videos every week, so I'll see you next week for the next episode, which will be the second part of the real Intel story, this time. My name is Tagogo and you have been watching Cold Fusion, greetings guys, have a good time. Cold Fusion, it's new thinking of you.