Over the last few weeks, we have witnessed one of the wildest rides of an American Stock to date, and also a glaring light on of the darkest practices within these markets. Recently, a short squeeze of the stock for GameStop and a few other securities took place, causing major financial consequences for particular hedge funds and large losses for short sellers. Approximately 140 percent of GameStop’s public float had been sold short, and the rush to buy shares to cover those positions as the price rose caused it to rise even further. The short squeeze was initially and primarily triggered by users of the subreddit r/wallstreetbets, an Internet forum on the social news website Reddit. At its height, on January 28, the short squeeze caused the retailer’s stock price to reach a pre-market value of over US$500 per share, nearly 30 times the $17.25 valuation at the beginning of the month. The price of many other heavily shorted securities also increased. A number of major brokerages including Robinhood, halted the buying of GameStop and other securities, later citing their inability to post sufficient collateral at clearing houses to execute their clients’ orders. This decision attracted criticism and accusations of market manipulation from prominent politicians and businesspeople from across the political spectrum. Dozens of class action lawsuits were filed against Robinhood in U.S. courts, and U.S. House Committee on Financial Services chair Maxine Waters announced a congressional hearing on the incident set for February 18. In reaction to brokerages halting the buying of GameStop and other securities, the total market capitalization of cryptocurrencies and metal futures increased as well.
It is the monthly open phone lines event this week on The Malliard Report, and I’m sure by now you can guess what one of the primary topics of discussion is. Receiving calls from former guests that are experts in the field, and the thoughts and opinions from the “man on the street”, there is a lot to be said about what has happened over the last few weeks. This is a great show (as all call-in episodes are) and it helps clear up a little as to what exactly happened. It certainly can be confusing. Remember to join in on the excitement for the live calls every first Tuesday of the month over at malliard.com where you can also subscribe to the newsletter, catch up on past shows and more. Connect with Jim on all social media outlets @malliard and don’t forget to rate and subscribe through your favorite podcasting/streaming service.