Thursday, January 28, 2021
Joe Biden is president. Democrats control the House and Senate. Tech overlords are quashing dissent. We’re in the middle of what our betters call the “Great Reset,” when the power of big institutions and the Really Smart People™ is supposed to be re-established after the unfortunate deviation of the Trump years. The hoi polloi are supposed to know their place now, especially those annoying loudmouths on the Internet.
How’s that working out? Just ask Melvin Capital. Melvin was a short-seller that made a big bet that GameStop would go down. Nothing unusual about that, as making negative bets is what short-sellers do, and GameStop, a tired franchise with a poor outlook, was a plausible candidate for a stock decline.
This position came to attention of the r/wallstreetbets group on Reddit, and some of its members decided to give Melvin a hotfoot. Members of the group, who often invest via the youth-oriented platform Robinhood, started buying shares in GameStop. As individuals, they weren’t buying huge amounts; Warren Buffet, they aren’t. But as a group, they did manage to bid the price up. And up. And up. (Many also instructed their broker not to allow their shares to be “loaned” to short-sellers needing to make up their stocks, further reducing the supply).
The result was that GameStop, which had been trading between $3 and $10 a share, rocketed north of $300. This was disastrous for Melvin and other short-sellers, who would have to pay a stiff premium to buy stock to cover their positions, and then sell that stock at a steep loss. (This is why short-selling can be so dangerous.) Melvin was reportedly forced to seek loans from other funds and closed its position at a loss, as did other speculators.
Will silver be next? I hope so.