The current scoreboard on the Reddit meme stock war here. Reddit: 1, Hedge Fund Antagonists: 0. Citron Capital and Melvin Capital — the latter, the main loser in the massive inflation of GameStock prices, thanks to the subreddit WallStreetBets — have reportedly pulled out of their short positions in GameStock. Meaning that the hedge funds have accepted the losses and expect the stock to rise even higher in the near future. Rocket ships are soaring over a smouldering wasteland of loss porn, YOLO!!!
For a superficial totally unauthorised primer, shorting is borrowing a bundle of shares from a broker with the expectation that they’ll lose value. The investor sells them immediately, buys them back at a lower price, and returns them to the original shareholder, pocketing the difference. Theoretically, a massive covering (close out) of short positions could lead to more availability of the stock that Melvin and cohorts were holding and stabilise the price. Here’s a WallStreetBets user elaborating on the strategy.
What started as a tale of another “meme stock” like Hertz has turned into an insurrection by regular people who are tired of companies and hedge funds setting price ranges based on a collective assessment of a company’s value. A Redditor penned the manifesto last night:
For decades Wall Street was manipulating securities, getting away with it, and blaming it on others. Through the media, bullshit target prices, naked short selling, or other forms of manipulation mentioned here (Kenneth, this one’s for you). Citadel and many other MMs – don’t misinterpret with Market Makers, we’re talking about Market Manipulators here – got away with their dirty tactics to make shitload of money and screw people over. They finally got caught in their own game and tried everything to turn it around, but Shitron didn’t work, the media didn’t work, more aggressive selling didn’t work. Now they’re calling through some random crooks for regulations.
It doesn’t help that mainstream financial commentators have til now written off WallStreetBets as an unhinged band of amateurs, and they’ve noticed. Summarising the overall simmering mutual resentment against Wall Street, Reddit co-founder Alexis Ohanian tweeted, “I know they’re all ‘random people on the internet’ but there’s a lot more empathy and community there than people realise.” (Ohanian closed out by urging everyone not to gamble money we don’t have.)
A few WallStreetBets posters believe that the Melvin Capitol news is a ruse and plan to keep up. “Melvin capital have not closed their positions!!” user Yupthehoop declared. “The volume is too low for it to be even possible. The short interest has not changed!”
They added: “FUCK YOU MELVIN AND FUCK YOU CITRON. WERE COMING AFTER YOUR SHORTS????????????”
As a side effect, they have made a few rich guys wildly richer, which is a scary prospect because just a few people own a ton of GameStop. As CNBC noted on-air, Chewy founder Ryan Cohen, who owns nearly 13% of GameStop’s shares has made roughly $US6 ($8) million per hour over the past two weeks. Billionaire subprime auto lender Donald Foss now holds an $US800 ($1,041) million stake and GameStop CEO George Sherman, over $US500 ($650) million. Michael Burry, who was portrayed by Christian Bale in The Big Short, held 2.4% through the Reddit frenzy and told Bloomberg that he had pulled out, at an unknown time. Burry tagged the SEC in a tweet warning that “there should be legal and regulatory repercussions.”
On CNBC, venture capitalist Chamath Palihapitiya, who just flipped shares at a $US500 ($650),000 profit (which he claims to have donated to the Barstool Fund) argued that it’s disparaging for people like CNBC hosts to assume that WallStreetBets isn’t doing the same quality of research as analysts. He added that Wall Street’s “dirty secret” is that traders follow moves by hedge funds “at the top of the pecking order” like Melvin Capital. When financial institutions bet irresponsibly, as they did in 2008, regular people don’t get bailouts.
CNBC’s Scott Wapner pointed out that Palihapitiya himself is encouraging people to buy GameStop and dumping it, ultimately at the expense of someone. “Lots of $GME talk soooooo…. We bought Feb $US115 ($150) calls on $GME this morning,” he tweeted yesterday. “Let’s gooooooo!!!!!!!!”
We don’t know how much Melvin and Citron did or did not lose, but Melvin Capital recently got a nearly $US3 ($4) billion cash injection from other hedge fund companies. Citron Capital founder Andrew Left — a vocal analyst who advises on companies he believes are overvalued or shams — said in a YouTube video that Citron took a 100% loss on the short position.
Left, addressing the “wonderful meme creators” of WallStreetBets noted that less than a week ago, he believed that the GameStop siege would end and had no idea what world of pain this would cause. “I cannot answer one more phone call. How are you? Are you ok? Are you in business?”
He added that Citron Capital is just fine, and then offered WallStreetBets an olive branch. “I also have respect for the people on the WallStreetBets reddit message boards,” he said, aligning himself with their mission in that his own research company Citron Research was the original “voice of the individual investor against the institution.” (Citron has investigated over 150 companies, which has attracted numerous lawsuits.) “So obviously I support any opposing opinions. But what I never did was I never got personal, I never got nasty, and I never threatened a corporate executive, their family, or any shareholders.” Here Left is referring to alleged harassment by an “angry mob” who allegedly threatened his family and tried to hack his Twitter account, after which he temporarily went mute on the issue.
As of this writing, there is no sign of GameStop returning to earth, nor in other current stocks circulating on WallStreetBets like AMC and BlackBerry. Bloomberg reports that the ossified remains of BlockBuster, BB Liquidating Inc, was up 774% yesterday to nearly five cents. WallStreetBets has also blown past 2 million to 3 million members in just a few days.
Gizmodo has reached out to Citron Capital and the moderators of WallStreetBets (who are presumably very tied up at the moment) and will update the post if we hear back. In an email to Gizmodo yesterday, Melvin Capital declined to comment on its trading activities.