Populism investing is here in a very big way, and Wall Street is not happy about it.
Gaming GameStop
Hedge funds have been heavily shorting GameStop (GME) stock this month. That means that they believed GME would fall in price. Savvy hedge fund managers at Melvin Capital and other Wall Street money managers just knew that the stock was over-valued.Instead, GME rose by over 1,600 percent since early January, driven by retail investors’ rampant buying of the popular gaming app security. Evidently, small investors realized that GME was actually under-valued.
And why wouldn’t they? What else has there been to do month after month of lockdowns and work-from-home orders but binge watch Netflix and play video games?
Granted, not everyone did so, but millions of Americans have and continue to do so.
Saved From the Short Squeeze
Suddenly, Melvin Capital hedge fund (and perhaps others) was forced to cover their massive short positions by buying GME stock at prices several hundred times higher than just a few days earlier. Melvin was under huge pressure from the short squeeze.And it wasn’t just the Robinhood trading platform that prevented retail investors from buying GME stock. TD Ameritrade did too, as did Interactive Brokers. And it wasn’t just GME stock that was suddenly and inexplicably restricted to account holders.
Imagine, retail investors were suddenly barred from buying stock in Blackberry (BB), Bed, Bath & Beyond (BBBY), and other rapidly appreciating equities.
But not Wall Street firms. No, they were allowed to buy those restricted equities in sufficient quantities to make up for some of their losses.
Alleged Corruption
Whether the White House told Robinhood to stop GME trading or not, as a viral Reddit post alleges, investors were denied their right to participate in the stock market. That did happen.We and the world saw what looked like the elite playing their power card against the average Americans out there who are just trying to make a buck.
As you might expect, the fallout is already in play. The first of many lawsuits has already been filed against Robinhood. More will certainly come against other brokerages as well.
But that’s not all. Congress may be getting involved. Democrat Rep. Alexandria Ocasio-Cortez of New York and Republican Sen. Ted Cruz of Texas have spoken out against Robinhood for its behavior.
What happens next from Congress is unclear and remains to be seen.
The Takeaway
What’s the takeaway for Americans?There are at least two, but maybe three.
First, once again, Wall Street hedge funds are bailed out of a financial crisis of their own making at the expense of the little guy. That’s undeniable.
Second, the stock market just showed the entire world that it’s anything but a market. It’s a fixed game, an asset mainly for Wall Street and the politically connected.
Three, the message couldn’t be clearer: Middle America has no business getting rich in the stock market—that money belongs to the elite. Many Americans who have their lost jobs and even perhaps their houses, are looking to make it up in the market.
And if nothing happens, if no one is punished, if none of the retail investors are made whole for their losses, then the fourth takeaway is that corruption and graft now unashamedly occupy the highest places in the nation.
