Young Australians join GameStop war against Wall Street elite

The New York Stock Exchange. Wall Street is battered and bruised by the GameStop battle. Picture: AFP

Over the weekend we saw an unprecedented mobilisation of young investors from Australia, Europe and many other parts of the world joining forces with their American colleagues in hand-to-hand combat with the Wall Street elite.

There will be many more GameStop battles to come but this weekend was won by those uniting behind the Reddit social media banner. Wall Street was in deep shock; it is not used to losing badly. And, inspired by the victory, the Reddit and related social media opened new fronts attacking other Wall Street short positions.

But GameStop is the main front and in the week of my 80th birthday I have been learning parts of the new Reddit language that urges Australians and others to become so-called “diamond hands”--- strong hands that will not sell in a price dip.

The “diamond hands” believe they can “go to the moon” - taking GameStop shares to $US1000 by holding their nerve and not selling GameStop shares to the enemy.

Let me explain partly what’s motivating those buying GameStop shares and why Wall Street is suddenly jittery in case the raiders actually do “go to the moon”.

At this point I must emphasise that I can’t verify what is being said on social media, but we need to understand the language and the game because, at the weekend, they drove the price of GameStop shares up by $US131 to $US325 ---a rise of almost 68 per cent in one day. And remember this is a stock that in normal times would be worth between $US5 to $US10.

GameStop is now almost one third of the way “to the moon”, but the risks for all those involved are huge.

The conventional press estimated the short position in GameStop at around 50 million shares, down from a peak of 70 million. According to the company’s reports the group has about 65 million shares. There may be other securities but clearly this is an alarming situation and shows that the GameStop short positions are not simply conventional shorting (where share certificates are borrowed and then sold) but involve complex derivatives.

The Robinhood app is one of the tools used by day traders in the conflict against the Wall Street elite. Picture: AFP

In the US social media world those figures are described as baloney and that the real short position is at least 140 per cent of GameStock capital, and some correspondents take it higher.

Those that planned this conflict say the weekend rise shows that the Wall Street is trapped.

Those hedge funds in the frontline will be early casualties but if there is a substantial derivatives content in the shorting then those losses will spread through the entire securities industry ---particularly if GameStop goes “to the moon” or beyond.

When the Wall Street elites saw the social media troops coming at them the right move was to begin to wind down such a heavy shorting situation. But while some hedge funds lowered or eliminated their exposures, others replaced them.

The Wall Street elites reckoned there was no way the necessary capital to maintain such high capitalisations could be raised in America. What they didn’t realise was that GameStop has become a worldwide rallying point for all those that believe that capitalists have been ripping people off for decades.

But raising enough capital to support and increase current high prices will require enormous numbers of small buyers, unless there is a substantial reversal of Wall Street short positions. The deserters in the journey “to the moon” are called “paper hands”. They may have big profits but they let down the cause. Meanwhile the Wall Street elite are bruised but not beaten.

On a wider front the supporters of Reddit are particularly bitter that the combination of low interest rates and quantitative easing is making the differences between poor and rich greater and greater and they have their own language to describe this process. They believe it’s time to show the world the power that can be mobilised.

Watching the war very carefully is Senator Elizabeth Warren who, you will remember, blocked Bernie Sanders from the Democratic Party nomination and therefore gave Joe Biden the inside running.

She is bitter that in the 2008 crash Wall Street got off scot-free. She is already watching every turn of this battle and demanding that the market regulators play by the book and don’t change the rules to look after their mates. I suspect she believes that if the world social media can force substantial losses it will teach Wall Street a lesson that it will take a long while to forget.

Meanwhile in Australia those superannuation funds who are stupid enough to lend their members shares to shorters should get ready for backlash . The world is changing.

Meanwhile I’m learning some new words to add to my vocabulary such as

* “Money printer go brrrr” - anti-quantitative easing;

* “YOLO” - “you only live once” ie doing a stupid / risky trade with most of your capital;

* “Tendies” – profits.

Australians on the space ship to the moon are hoping it won’t crash.

But countless thousands of our people are not practising “YOLO” and are limiting their exposure to one or two GameStop shares. They want to be able to call themselves “diamond hands”.