Gamestop & “Stonks”: Explained

MTV Writer Josh Martin joins the legion of Gamestop explainers to make this meme financial crisis make sense.

Go anywhere on the internet right now, and two words that barely make sense are trending: "Gamestop" and "Stonks". The story behind it cuts to the heart of both ironic internet culture and the absurdity of capitalism.

Let's break it down to one sentence and go from there, shall we? In a dystopic nutshell: Reddit users are making the price of previously failing video game retailer Gamestop's stocks soar by buying it up using free trading platforms; making big hedge funds who had bet money on their stocks losing value, panic.

This stunning flip of the power dynamic between Wall Street and small-time investors has complicated origins. I am not Margot Robbie in a bubble bath – I am one man sitting at a laptop in a room in Melbourne – but I will try to channel my inner Big Short to explain how this happened.

Why did this happen to Gamestop?

Gamestop is a so-called "brick and mortar" video game retailer in the US – acronymized on the stock market as GME – and is the parent company of the ubiquitous EB Games in Australia. It hasn't been doing crash hot in recent years, because it's become far easier to download games on the consoles themselves than go out to buy a physical copy – particularly during the pandemic. In fact, they still plan to close 450 stores across America in 2021.

In April last year, Gamestop stocks were selling at the bargain bin price of $3.25 a pop. Big Wall Street hedge funds began to do what is called "shorting": betting that the price of a stock will fall, in order to profit. Short-selling specifically involves these big firms "borrowing" shares in that company from investors, selling it immediately, and hoping that the price does fall so that they can then buy it back at the cheaper price to sell back to the investor and pocket the difference.

But Gamestop shares actually started to go up around September when a guy named Ryan Cohen – who owns online pet food giant Chewy – bought a 13% stake and joined its board, believing it could be made a competitor to Amazon. Some Reddit users on the subreddit r/WallStreetBets saw Cohen's sudden involvement and believed it signalled a good opportunity to invest while it was still cheap. These were mostly individual investors who bought shares using apps that allowed them to invest money for free, one called Robinhood in particular, rather than spending money to invest through a traditional firm.

Since last December, Gamestop's shares have risen 1700%. The market value of the company over the last few days has risen by an almost unprecedented amount – from $2 billion to over $24 billion this week.

So, what are the short-sellers doing now?

When these short-sellers realise they've made a terrible mistake in shorting something, they rush to buy lots of the stocks back at the new, higher price – unfortunate for them, great for those investors because this drives up the price even more. This is called a "short squeeze"; the revenge of the little guy.

How are those hedge funds faring, then?

The dust is far from settled on what the real consequences of this market manipulation are, but some of the hedge funds that shorted Gamestop are already hurting. Melvin Capital had the largest bet on Gamestop failing, and has paid the price – losing 30% of its cash in the first few weeks of January, and needing to be bailed out by two bigger hedge funds, Citadel and Point 72. Now, The New York Times is reporting that Point 72 is also bleeding cash, losing 15% itself.

What does Elon Musk have to do with it? And who is in charge of this anyway?

Part of what tipped the Gamestop fiasco into a subversive investment frenzy are a couple of high-profile figures. Tesla head honcho and now the world's richest man Elon Musk gave a shoutout to r/WallStreetBets on Twitter, posting a link to the site. Many speculate that his tacit support for the craze is partially due to his own frustration with the whims of the stock market, as in 2018 he suffered huge losses after smoking weed live on The Joe Rogan Experience.

One Reddit user, known only as DeepFuckingValue, has become something of an icon for the movement with his investment foresight. He was the first to post about his investment in Gamestop on r/WallStreetBets last year, and he features heavily in the memes made by users of the subreddit about the current fiasco. Many, who have never had this much potential money before, are trying to contact him for advice on what to do next.

Is this doing anything to Australia?

As a matter of fact, yes. The Sydney Morning Herald reports that a small West Australian mining company listed as GME on the Australian stock market soared by 50% in market value, as members of WallStreetBets bought shares as a joke for their similarity to Gamestop's stock name. The company's director seemed good-humoured about the whole thing, telling the newspaper he couldn't be "unhappy" about it though he wished "it was more to do with our world-class nickel projects".

Why are people doing this?

Apart from making money (obviously), there are a couple of reasons why this has happened. The Global Financial Crisis of 2007 burned many working class people off the financial sector. A 27-year old in California described it to The New York Times as "catharsis to actually [make] money off their pain a little bit".

Others, like writer Dan Dixon for The Guardian, say it's derived from the anarchic in-jokes of 4-Chan and other ironic (and often toxic) internet message board spaces. Dixon argues legacy media organisations attempting to describe the social or political motivations of the Gamestop investors are wasting their time – the point is that it's pointless. It can really be understood as an elaborate joke, predicated on the rest of the world's inability to understand, rather than a socio-political philosophy.

Written by Josh Martin, a Melbourne-based freelance music and media writer with words in MTV Australia, NME, Junkee, Crikey, etc. Follow him on Twitter @joshmartjourn.

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