We are now firmly entrenched in my worst nightmare future
To say GameStop has been struggling as of late would be an understatement. The company wasn’t doing great before last year’s economic downturn caused by the Covid-19 pandemic, then things got so bad that the company declared itself essential by selling hand sanitizer. With more than a thousand store closings planned in the next few months, you would think this would mean the publicly traded company’s stock price would be in the gutter.
GameStop briefly posted its highest stock price ever this morning thanks to a Wallstreet trading subreddit having a giggle and we’re now gallivanting in Phillip K. Dick’s nightmare world.
The subreddit, r/wallstreetbets, is “a community for making money and being amused while doing it.” In-between the memes of losses, there are discussions of good bets across all the different trading platforms. Somewhere along the way, these Redditors got into a pissing match with establishment Wall Street investors and committed to a war of economic futures against the old guard. To explain how this all went down would take an exceedingly long time to type out and I’d probably get the finer details wrong, but I’ll try to summarize it.
Over the past two years, despite an increasing belief that GameStop was more than likely on its last legs of life, staunch believers in r/wallstreetbets pushed their case that the stock was undervalued and to invest then would have great returns if you’re patient enough. It started with the idea that the company was undervalued, then it evolved into making a case for an upcoming short squeeze.
A short squeeze is a rapid gain in price for something that is either on the brink of some world-changing discovery or was previously a left-for-dead company that has one last gasp of life. The phenomenon is compounded by the fact that buyers who had previously written the stock off for dead will try to jump on in the short-term to cut their potential losses, therefore driving the price up even higher. For a short squeeze to happen, there needs to be a big event or news development to drive interest in the stock.
In the case of GameStop, the catalyst for today’s meteoric rise came in August of last year when Chewy co-founder Ryan Cohen announced a 5.8 million share interest in GameStop, signaling that it had at least some future. The ball was now at the top of the hill and all it needed to do was gain momentum.
Momentum came in the form of the usual fall AAA game lineup releases along with the once-every-seven-years console launch. While gains weren’t monstrous, they were steady from September onward starting at $7.65 a share then and rising to $19.26 by the end of the year. This was used by investors on r/wallstreetbets to exemplify that there was still money to be made.
All through this period, Andrew Left, an establishment financial analyst, warned about the dangers of investing in the stock. Left reported that despite the short-term gains, the physical-based company had no future in the impending digital age. He’s not wrong, but to the denizens of r/wallstreetbets, the stock had become a hill to defend, and they weren’t going to go down without a fight.
Another bump in GameStop’s share price came when Cohen was named to the board of directors in early January of this year, doubling the stock price in a week from around $19 a share up to $39 a share. At this point to those watching the stock closely, the writing was on the wall for a potential short squeeze in the near future – all it needed was a spark.
The spark came late last week after Left announced that he would no longer criticize the stock publicly. The gates were now open for those who were hesitant to jump on, and jump on they did. At one point, the stock trading had to be halted because the stock rose so much over such a short period of time. When a stock rises or falls too much over a short period, a timed lock is placed on trading the stock to prevent rapid buying or selling. This was recently invoked in March of 2020 as the Covid-19 pandemic started a massive panic sell-off as the world economy took a nosedive. The stock ultimately closed at around $65 at the end of last week.
With no trading allowed on the weekend, interest grew on the internet and r/wallstreetbets. This morning, when the markets opened, a massive amount of people started buying into the share, thereby increasing its value. At 10:47 AM Eastern, the price reached $158.69 a share; the short squeeze was here. As of the writing of this article, that is the peak and since then, prices have begun to return to Earth. Long-term investors in the stock are already posting their wins with one user turning $53,566 into $11 million.
For those who want the fully gritty details, Bloomberg wrote up an excellent retrospective on the players and the battles of this economic war. While I still can’t see any future for GameStop even as it continues to pivot its strategy, it did make for an interesting and somewhat terrifying look into how the dark cyberpunk future imagined is here already and it’s much worse than anything we could have thought of.
How WallStreetBets Pushed GameStop Shares to the Moon [Bloomberg]
