Kim Hyun-seok’s Wall Street Now Game Stop may call for a large-scale adjustment

The likelihood that the GameStop event will call for a large-scale adjustment is gradually increasing.

Last Friday, 29th (local time) the New York Stock Exchange was really interesting. The previous day, as securities companies such as Robin Hood prevented additional purchases of individual investors, which were centered on the online community Reddit’s’Wall Streetsbets’, Gamestop’s stock price plunged -44.3%, while the overall market rebounded slightly.

However, as securities firms again allowed private purchases to be limited on that day, GameStop stock prices soared 67.9% and the market plunged again amid uncertainty. The Dow fell by 620.74 points and 2.03% to close at 29,9982.62. Since December 14, last year, the transaction has been closed below the 30,000 line. The S&P 500 fell 1.93% and the NASDAQ 2.0%.

GameStop has soared more than 1,600% by this day, and AMC Entertainment, another target of ants’ intensive buying, soared more than 500%.

The workshops surrounding stocks with a lot of short selling, such as Gamestop and AMC Entertainment, do not sink as time goes by, but rather a heated atmosphere. From the 28th to the anger of Robin Hood, who blocked personal purchases, the Wall Street Betz ants are appearing to gather stronger.

They started a campaign to delete Robin Hood App. The Google Play Store poured out negative evaluations on the Robin Hood app and dropped the evaluation score to 1. As a result, Google deleted more than 100,000 negative ratings, which caused even greater resentment.

One ant bought a billboard advertisement in New York Times Square and displayed the phrase “$GME go brrr”. It means’gamestock stocks will continue to rise’ (go brrr is the sound of the US central bank, the Fed taking money). Similar signs are appearing not only in New York, but also in Denver and Orlando.

Some people are trying to punish Wall Street, the main culprit of the 2008 global financial crisis, this time. One ant said, “At the time, even my family and uncle were taken away and fell into the hell overnight, and hedge funds drank champagne and looked down at the’Occupy Wall Street’ protesters. I burned all my money to cause them pain. I will.”

So, why did Robin Hood prevent individuals from buying more?

The securities accounts most customers have are margin accounts. You don’t trade with 100% margin left behind. So, during the two days of T+2, or liquidation, the broker, or a brokerage company like Robin Hood, is responsible. In fact, when customers place an order through a stock account, what they buy until the settlement is complete is a promise to the broker (to complete the transaction). Robin Hood takes the spell to a’clearing house’ like DCTT to complete it.

However, when trading stocks or options with high volatility like this time, the’Clearing House’ asks the broker to have more margin in order to prevent any possible defaults between trading partners. Robin Hood suddenly announced that he had limited his purchase because he didn’t have such money. In fact, on the morning of the 29th, after urgently raising $1.5 billion, they allowed the purchase that day. However, even on this day, the number of purchases allowed was very limited and kept changing. I could only buy 1 share of GameStop stock.

If you prevent ants from buying more of GameStop stock, the stock price will have to go down. When the stock price falls, hedge funds that sell short will earn money, and ants who buy GameStop stock lose money.

In Wall Street Bethes, there is a conspiracy theory that’Robin Hood collides with Wall Street’. Robin Hood makes money by selling ants’ transaction information to a hedge fund Citadel (strictly a subsidiary Citadel Securities). However, the Citadel provided an emergency fund of $2 billion to Melvin Capital, one of the leading players in the short sale of GameStop.

Melvin Capital, which lost 53% of its assets of $12.5 billion, was not the only place that lost money from short selling this time. On Wall Street, famous hedge funds such as Citadel 15%, Point 72 10-15%, D1 30%, Viking 20%, and other famous hedge fund names and loss rates are listed. If these hedge funds go bankrupt one after another, the liquidation settlement system could be hurt. In addition, hedge funds take a long-short strategy (to make a profit by buying or short selling stocks), and if you lose a lot from short selling, you have no choice but to make up for the loss by selling the stocks bought in the long strategy.

In fact, the head funds traded by Goldman Sachs have performed the most de-grossing (de-grossing) since January and February 2009. All funds have reduced their long positions and covered their short positions with that money.

As of the end of the third quarter of last year, the stocks held by hedge funds are △Amazon △Facebook △Microsoft △Alphabet △Alibaba △Fidelity △Salesforce. Most of them are technology stocks with the top market cap, which means that the entire stock market could be shaken. On the 29th, the stock prices of Apple, Amazon, and Microsoft (MS) fell 3.74%, 0.97%, and 2.92%, respectively, and Facebook, Netflix, and Alphabet also fell 2.52%, 1.15%, and 1.39%.

The ants also made a lot of money with the GameStop option. It’s all the big Wall Street financial companies that have suffered big losses from selling options. The higher the stock price rises, the more snowballing the losses.

So, the ants claim that’these Wall Street institutions united together to prevent ants from buying and plunge the gamestop stock on the 28th.’ Wall Street Betsen’s’Robin Hood whistleblower’ accused the founder, “Founder Vladimir Tenef received calls from investors Sequoia Capital and the White House and blocked the purchase.” Venture Capital Sequoia, which is investing in numerous startups, has no choice but to maintain a good relationship with Wall Street to recover funds through IPO.

As GameStop becomes a hot topic, foreign ants such as Korea are also joining. The number of Wall Streetbetts subscribers was 2 million at the beginning of last week, and 7.3 million on the 30th. It is a tremendous scale that can purchase all 6.9 million shares of the total issued stocks with only one share per person by calculation. It is much more than 4.65 million shares in circulation.

As the stock price has soared, there is an expectation that the stock price will collapse as ants sell out. However, the ants clustered around the Wall Street Betz are not as smooth as in the past.

They are packed with IT skills and information comparable to Wall Street. That ability is what triggered a’short squeeze’ by intensive buying by targeting game stops that have more short selling stocks than the number of shares in circulation. They have consistently surpassed Wall Street in profitability since last year, earning enormous money by buying Warren Buffett when he sold all of its airline stocks, including Delta Air Lines, in April of last year. It means that you have financial power.

Hedge funds are also not retreating easily. As GameStop’s corporate fundamentals do not support the stock price, it is expected that the stock price will eventually fall if the ants persist until they disperse, and most of them do not change their short selling position. According to market analyst S3 Partners, Gamestop’s total short-selling shares amounted to $11.2 billion as of the 29th. Over the past seven days, short selling of GameStop stocks declined by only 8% ($5 million).

The estimated loss from short selling so far has reached $19.7 billion, and Melvin Capital and Citron Research have raised their hands, but most of them are still holding on. It is also known that hedge funds, which are taking a short short position, are also significant. “Most of the short selling agencies have not changed their position despite the GameStop,” said S3 Director Iho Dusaniski in a US media interview.

GameStop, which has more than 5500 offline stores in the United States and Canada, has continued to suffer from poor performance since 2018. Bank of America also offered a target price of $10 for GameStop in its report last week.

As both sides hold up like this, the plate is growing. A Wall Street official said, “Eventually, if one side completely collapses, problems could arise for the entire market.” If the ants are defeated, the Democrat-led administration could come up with all sorts of regulations and remedies. He also pointed out that if hedge funds undergo large-scale liquidation, this could negatively affect not only related derivatives but also ETFs that dominate the market.

Goldman Sachs, Bank of America, etc. are places that are concerned about the possibility of this outbreak. “Despite aggressive deleveraging by hedge funds last week, market-to-market exposure remains at the highest level,” Goldman Sachs said. “This means there is a high risk in the event of a sell-off.”

Goldman Sachs’ David Costin stock strategist said, “Over the past three months, 50 stocks that had a market capitalization of more than $1 billion in the Russell 3000 index and had a lot of short selling reached 98%.” (72%), much higher than the mid-2009 (56%) and the second quarter of 2020 (77%), which has not been seen in the last 25 years.” On the other hand, US hedge funds, taking the long-short strategy, lost 7% last week, and this year’s return fell to -6%.

“Last week’s events have shown that an unsustainable excess of a corner of the market can destroy a domino and cause widespread chaos.” “There is a huge crowd in the market, especially in recent years, and it is focused on certain popular trades,” he said. “If a large short squeeze occurs, other investors (not hedge funds) will also reduce their stock exposure. This will also reduce the stock exposure of some funds. Rolls like a snowball, creating a risk that can spread throughout the market.”

On February 5, 2018, the S&P 500 index plunged 4.27% without any bad news. And on the 8th, three days later, it plunged an additional 3.9%. Wall Street calls the situation’Volmageddon’ (Volmageddon caused by volatility). This is because derivatives linked to the VIX (Volability Index), which is called the’horror index’, not the market, ie, the tail shook the head (the whole market) and plunged. It was a so-called wander dog phenomenon.

At that time, large amounts of money continued to flow into VIX-related ETFs (listed index funds) and ETNs (listed index bonds). These derivatives following the VIX accelerate the trend of the last day, so the decline is deeper on the day of the downtrend, and the uptrend on the day of the rise is greater. As the amount of that investment surged, the volatility was greatly increased.

Even now, options trading reaches an all-time high of 60 million per day. No one knows what effect these derivatives trade will have if this volatility increases.

Bank of America also warned that a correction may be approaching on the 29th, saying, “The ‘3R’, such as rates, regulation redistribution, was a historic catalyst to end bull markets and bubbles.” In other words, there is a possibility of austerity, such as an increase in interest rates, and the war between the hedge fund and the Wall Street Betz ants will call for regulation, and eventually these conflicts will have to be resolved through taxation of wealth taxes and higher wages for the poor. It is observed that these factors will adversely affect the stock market.

Some analysts say that the hedge fund’s short position is not large enough to impact the market as a whole. It is a view that the market is overreacting, and the confusion may soon be resolved.

According to Barclays, the total market capitalization of stocks with short selling of more than 20% of the circulating stock is about $400 billion. That’s just 1% of the $40 trillion US stock market. In addition, even if the market caps of all short-selling stocks are added together, it is about $900 billion, slightly over 2%. “Short squeezes” in some stocks raised concerns about the overall (market) contagion, Barclays said in an investment note. We believe there will be additional pain, but we are optimistic that it will only be side effects.

Reporter Kim Hyun-seok [email protected]