THE RISE OF THE


FINANCIAL FLASH MOB


While discussing the meme stock story that started to unfold in January it is perhaps tempting to ask why all the fuss and furore? After all, some on Wall Street won, some lost. A few on main street won but most would have lost. What’s new with any of that? However the scrutiny and coverage of this story has been as remarkable as some of the moves in the stocks concerned. This concerted examination suggests that the outcome of the saga will be profound for many areas of the market.


This is perhaps a watershed moment for how individual investors and the companies that now serve them are regulated or for some ground- breaking reform of the settlement process in equity markets. Prepare for disappointment on all these levels. That’s not to say that this is not an important event but above all this is story about industry disruption and the power of social media and what that could mean for markets in the future.


Before we get in to the consequences it is perhaps worth identifying what actually occurred back in January. While other stocks are involved I will concentrate on GAMESTOP (GME US), it seems to perfectly illustrate the power of social finance. GME US is a company on its way to bankruptcy, a dead business model selling physical video games in physical premises even before the pandemic hit. Sales and revenue are sinking and they report negative earnings per share. The stock is heavily shorted, on Jan 15 2020 the total value of shorts was 130% of the market capitalisation. Hedge funds Melvin Capital and Citron are cited as the main players. The low in the stock was $2.57 in April 2020. A lot of commentators would have you believe that the short squeeze in GME started on Jan 13 this year. However the genesis of this remarkable story dates from a couple of years ago. In August 2019 Michael Burry, immortalised in the film The Big Short, writes to the board


GME US IS A COMPANY ON ITS WAY TO BANKRUPTCY, A DEAD BUSINESS MODEL SELLING PHYSICAL VIDEO GAMES IN PHYSICAL PREMISES EVEN BEFORE THE PANDEMIC HIT.


23 | ADMISI - The Ghost In The Machine | Q1 Edition 2021


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