The Silver Squeeze vs Wall Street Corruption

By Roman Manly – Feb. 2, 2021

What started in mid-January as a coordinated reaction against GameStop short sellers by a group of Reddit discussion forum day traders, has now turned into something entirely larger.

By now you will probably be aware of the recent meteoric rise in the share price of US company GameStop (GME) in late January after Reddit board r/WallStreetBets (WSB) organized to buy and push up the stock price of GME following its heavy shorting by Wall Street hedge funds.

Short Squeeze

Shorting is a strategy by which a listed company’s shares are borrowed and sold so as to drive the share price lower, with the intention of buying back at a lower price and profiting on the difference. However, the worst outcome for a short seller is when the share price rises and shares have to be bought back at a loss. Hence, when the share price turns and rises, this can often lead to a ‘short squeeze’ where panicked short sellers scramble to buy the shares in fear of further losses, in the process helping to drive the price even higher.

— Citron Research (@CitronResearch) January 19, 2021

 

In GameStop’s case, the strategy of the Reddit / WSB horde was to buy – and promote the buying of – shares of GameStop so as to create a short squeeze trap for the hedge fund shorts, and in doing so also profit. Such was the intensity and power of this coordinated buying that GameStop shares rose at one point by more than 2500% in January from the January low of $18 to an intraday high of over $480.

Main Street vs Wall Street

As GameStop’s share price rose and rose, this loosely arranged throng of day traders and retail investors under the Reddit / WSB banner then extended their attention to additional heavily shorted shares, in the process sending share prices of names such as AMC Entertainment (AMC) and Blackberry (BB) multiples higher. This in turn triggered the large US retail brokerage platforms such as Robinhood, Webull and TD Ameritrade to restrict and limit their retail customers buy orders, subduing trading volume in these shares and causes their prices to fall, which in the process is creating even further anger against Wall Street and accusations of collusion between brokerages and hedge funds.

The phenomenon (of retail investors taking the opposite side of Wall Street hedge funds) did not go unnoticed by the SEC and US Treasury, so whatever about the level of share prices, this in itself is a coup for small traders and investors.

But as well as a gutsy attack against Wall Street’s hedge funds, the emergence of this WallStreetBets phenomenon is also the emergence of an entirely new movement, a movement frustrated over the rigged casino that is Wall Street, a movement with animosity towards hedge funds and investment banks, and a movement that has anger towards the financial status quo and the multi-billion dollar bailouts of Wall Street banks. In short, it is a philosophical attack against Wall Street by Main Street, a movement that Wall Street did not see coming, and a movement that despite the gyrations of the GameStop and AMC share prices, has been a spark that has triggered something far larger.

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