Game-Changing GameStop Stock

Individuals Join 'Ride Up or Die' Buying
Short-Selling Hedge Funds Ultimately Liquidate Positions
Rumors of Market Crash Manipulation
White House "Monitoring" Concerns
Reddit, the Gathering Place for Individuals, Blocks Discussion Forums

GameStop store located in Manhattan, New York City. [Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Baek Jong-min] The battle between individual investors and professional investors armed with short selling has escalated beyond the stock market to become a major issue across American society. U.S. media outlets are analyzing the causes and future prospects of this unprecedented phenomenon in the capital markets, which could also spark debates about the overvaluation of the U.S. stock market. The controversy has even spread to the political arena. Progressive politicians demanding financial reform have launched an offensive, viewing this as a clear example of the urgent need for financial reform.

◇ The ‘GameStop’ surge that shook the U.S.= The Wall Street Journal (WSJ), a leading U.S. economic daily, launched a dedicated online page on the 27th (local time) focusing intensively on the abnormal surge in GameStop’s stock price. The fact that a major economic newspaper urgently covered the wild fluctuations of a small-cap stock signals the seriousness of the situation.

The surge in GameStop’s stock price was driven by a large number of individual investors who united in the Reddit online community discussion forum ‘WallStreetBets’ to buy the stock en masse. While activist investors had joined the company’s management and were buying shares, hedge funds sought to profit through short selling, which provoked the individual investors.

As individual investors rallied and continued buying daily, the situation reversed. Although short selling exceeded 144% of the stock’s circulating shares, individuals bought even more. They purchased not only the stock itself but also call options in the derivatives market, driving the price upward.

As the stock price kept rising endlessly, short sellers who could no longer hold their positions were forced to buy shares at high prices, causing the stock price to soar even further.

On that day, hedge fund Melvin Capital liquidated all its short positions. Melvin Capital is a hedge fund specializing in short selling with assets under management totaling $12.5 billion. The Financial Times (FT) described this as individual investors defeating the giants of Wall Street.

The AMC theater located in Manhattan, New York City, has remained closed since the outbreak of the COVID-19 pandemic. Facing the risk of closure, AMC's stock price surged by 300% on this day.
[Image source=Reuters Yonhap News]

Amid the COVID-19 pandemic, young people who have rapidly emerged as mainstream players in the capital markets through new investment platforms like Robinhood are enthusiastic about the current situation. Some investors joined the buying frenzy with the expression ‘ride or die.’

Investment firms such as TD Ameritrade and Vanguard temporarily halted trading of GameStop and AMC stocks, but they could not stop the enthusiasm of individual investors.

Individual investors expanded their purchases beyond GameStop to other heavily shorted low-priced stocks such as the theater chain AMC, the fallen smartphone companies BlackBerry and Nokia. On that day, AMC’s stock price surged by a record 300%. The stock price of Blockbuster, which is undergoing liquidation procedures, also fluctuated.

◇ White House "Monitoring stock market situation"= As the situation spread alarmingly, the U.S. Securities and Exchange Commission (SEC) announced it is "actively monitoring the situation" in cooperation with related agencies. Reddit, the gathering place for individual investors, announced it would block the WallStreetBets discussion forum. The messaging application Discord deleted the related server.

Earlier that day, White House Press Secretary Jen Psaki told reporters that Treasury Secretary Janet Yellen and the Biden administration’s economic team are monitoring stocks like GameStop showing abnormal price movements and the overall stock market situation.

This phenomenon has also reignited debates over the need for financial reform. Alexandria Ocasio-Cortez, a ‘rising star’ of the progressive wing within the Democratic Party, raised concerns on Twitter, saying, "Wall Street, which has treated the economy like a casino, is now complaining about online forum activists treating the market like a casino."

Elizabeth Warren, a leading advocate for financial reform and U.S. Senator, emphasized, "Regulatory agencies like the SEC have long forgotten their duties, but now that the Democrats control the administration and Congress, things must change."

Some experts view this situation as a populist uprising against mainstream institutional investors on Wall Street, while others suspect intentional market manipulation. Bloomberg reported that other experts consider it a risky investment that could ultimately cause significant losses to investors.