Culture

Here’s How A Sub-Reddit Is Using A Failing Video Game Retailer To Fuck Wall Street

Stonks.

by Joseph Earp  28 January 2021
Stocks

Want more Junkee in your life? Sign up to our newsletter, and follow us on Instagram and Facebook so you always know where to find us.

Early yesterday afternoon, you might have noticed, with a growing sense of panic, that Twitter was talking about stocks, Elon Musk, the American video game retailer GameStop, and — shudder — economics.

And so there you were, doomscrolling through the timeline, desperately searching for context that eluded you. You gave up paying attention to Wall Street over 15 years ago. Hell, you never even liked maths in high school; you might have as well been gazing at reams of memes about ancient Sumerian cuneiform.

None of the jokes made any sense. None of the explainers made any sense. And so you drank a glass of water, lay down, and submitted to an overwhelming sense of FOMO.

But worry not. For reasons that can only be described as being caused by a terminal case of brainworms, I have spent far too much of my life tracking the ins and outs of stocks (long story short: I used to be interested in the philosophy of biology, and predicting the behaviour of groups of non-human animals is very much like predicting the behaviour of economic markets). And so I am here to make this very complicated, very stupid story a little less complicated, and possibly even more stupid.

Let’s dive in, blow by blow.

What The Fuck Is GameStop?

GameStop is an American chain of video game stores — for those Australian readers, it’s a little like EB Games. It’s where you go to trade in old titles, buy new consoles, and load up on Franz Kafka Funko Pops (NB: I know nothing about Funko Pops.)

Like many high street stores, GameStop has been struggling over the last year due to the coronavirus pandemic, and to the fact that gamers are increasingly purchasing titles virtually rather than physically. As a result, GameStop stock has been steadily going down.

Slower Please: Why Do Stocks Go Down?

Stock prices are changed by demand. If lots of people want to buy a company’s stock and don’t want to sell it, then demand increases, and the price goes up. If more people want to sell a company’s stock than buy it, then demand decreases, and the price goes down. The more GameStop’s future looked bleak, the more people sold their GameStop stock, decreasing demand.

In turn, the decrease in demand resulted in attention from hedge fund managers trying to “short” the GameStop stock.

Hang On, What Is Shorting A Stock?

Shorting a stock, or short selling, is the practice of borrowing stocks that you don’t own, selling them onto another investor at market price, and then buying them back. Unlike a lot of other trading moves, short stocking is lucrative when the price of a stock falls — hedge fund managers will keep the difference when a stock decreases in value. Basically, you sell high, the stock price falls, and then you buy back cheap, and pocket the amount that the stock has fallen for yourself.

Shorting a stock is therefore a risky move — you have to be fairly certain that the stock you are borrowing will decrease in price. If it doesn’t decrease in price, then you’re out of pocket. If it does, then you’re smiling.

Thus, hedge fund managers will short the stock of a company that is generally expected to be going downhill. Like GameStop.

What Happens If A Stock That Is Expected To Drop Actually Rises?

Wonderful question, hypothetical reader, because that’s exactly what has happened in the case of GameStop.

As far as anyone can tell, Reddit users from the WallStreetBets sub-reddit banded together to buy up GameStop stock, some believe explicitly in order to fuck over hedge fund managers. The more Reddit users bought the GameStop stock, the more that the demand for GameStop stock increased. The more demand increased, the more that the price rose. The more that the price rose, the more out of pocket those hedge fund managers that had bought the stock became.

In turn, hedge fund managers began freaking out, and buying their GameStop stock in order to stop the rising price. Which only drove the price up higher.

This is called a short squeeze. It’s one of those trends in economics that becomes self-fulfilling; the more people freak out, the more they act in ways that causes other people to freak out, which causes more things to be freaked out about.

What Does Elon Musk Have To Do With This?

Elon Musk is a very annoying man who thinks that he is an avant-garde troll, when actually he is a capitalistic nightmare. Wading into the fray, Musk tweeted “Gamestonk” with a link to the sub-reddit. That drew more attention to the practice of driving up GameStop stock, which kept the ball rolling even more.

Is That Everything I Need To Know?

Basically. In short: a sub-reddit fucked a bunch of hedge fund managers by making a stock that was predicted to decrease in value increase in value.

Now I’ve Done All This Reading, Please Reward Me With Memes About Stocks

Of course.

What’s The Takeaway Of All This?

The stock market is not real, it does not have independent whims, it is made up the whims of fallible and unpredictable human beings, you can do whatever the fuck you want whenever you want to, existence is not stable, neither is economics. Thanks for joining me.