If you’ve spent any time online in the past few days, or seen any cable news, or if anyone in your immediate social orbit has done any of those things, you may have heard about something brewing related to the stock market and GameStop. If you’re not a finance bro or someone who has recently seen The Big Short, though, it might be difficult to figure out exactly what the deal is. There’s GameStop, but also AMC and Reddit? We are here to talk through what in tarnation is happening and what it has to do with [checks notes] the Mets and Elon Musk. And also the word stonks.
Kathryn VanArendonk: The most simple, basic, explain-it-to-a-child version I have been able to find for what is happening to GameStop stock actually comes from our co-worker Rachel Handler’s boyfriend.
GameStop, a company largely made of brick-and-mortar stores, has been in dire straits thanks to the pandemic and general trouble in the retail world. A bunch of hedge-fund guys, because of how the stock market works, were able to bet that GameStop will fail in a way that earns them money. A bunch of redditors in a group called WallStreetBets then bought a billion gazillion GameStop shares in order to screw over those hedge-fund guys, and they did it with apps like Robinhood that make it really easy to trade stocks. And now it’s bleeding over into other threatened companies, including AMC and BlackBerry. Buying them costs money, but it’s also like participating in a meme, which is why they’re getting called meme stocks. Is this right? Am I roughly in the right area?
Bilge Ebiri: Yeah, that’s about it. And AMC just announced that it has raised a bunch of new capital and is no longer in any danger of bankruptcy, which was a real possibility last year. So that’s good! (Does that mean AMC is completely fine now? No, not really. As any smart investor will tell you, a company’s fundamentals are a lot more important than any momentary stock-market surges or crazes. But then again, a lot of the short sellers weren’t necessarily looking at the company’s fundamentals either. Some of them were looking to take advantage of its current dire straits, with little concern for or interest in its long-term financial health.)
Maybe another helpful thing can be to explain how short selling works in a ridiculously simplified fashion. Let me give it a shot: Say your friend has a book worth $10. You ask to borrow that book and promise to give it back to them in ten days. You then sell that book to someone else for $10. You are betting that, in ten days, you will be able to buy that book for cheaper. So in ten days, you buy the book for $4 and return the book to your friend. You have made $6. Now imagine that book is actually the stock of a company. (This is a highly reductive and possibly inaccurate description of what short sellers do.) But if, in that span of ten days, that book’s value goes up to, say, $1,000, you will have to buy the book for $1,000 before you return it to your friend. What the redditors are doing is basically pumping the price of that book/stock to astronomical amounts so that the short sellers are, as the saying goes, “squeezed.†Only it’s not $10 we’re talking about but billions of dollars.
K.V.: Mmmm okay, yes. I am mostly capable of following that, but I’m also a learner who does better when math-related information comes in my ears versus my eyes, so this thread of short TikTok videos was also helpful to me.
One element that I find so fascinating about this, and why I think it’s created so much attention, is the whole extremely-online Reddit element. It’s not just that some weird stuff is happening with the stock market; it’s that this is being driven by a huge group of anonymous people who have all somehow coordinated enough financial activity to create a noticeable blip in the global financial world. There was this long-held idea about social media that it wasn’t “real life,†and this feels like just another form of proof that it is in fact real life — to the extent that any of the stock market is “real,†at least.
B.E.: Yeah, that part is fascinating: Is it that online reality has become “real,†or just that what we think of as reality has become more virtual? I would not be surprised if some of these redditors aren’t playing with any “real†money, except, of course, they are. (At some point, it will be, either in the form of cash or debt.) Conventional cultural wisdom — as expressed in movies, shows, books, etc. — has often held that the internet has made the levers of power accessible to lone-wolf types. (Yes, I am thinking, as I often do, of Blackhat, in which a rogue hacker sends up soy futures and sends the global economy into a tailspin.) But what the internet has proven over and over again is that, really, the swarm is what holds the real power.
And in this current situation, there’s some satisfaction in seeing the swarm come rushing to the “aid†of brick-and-mortar companies, like GameStop and AMC, that have been pummeled by the pandemic. It seems wrong for people to be profiting off the decline of these companies during a global calamity, and the idea of a huge raucous group of extremely online kids fighting back against the short sellers is certainly appealing. (We can compare it to the TikTokers who upended Trump rallies during the election.) And it’s also worth noting that companies like GameStop may well hold some nostalgic value to these folks — it’s easy to imagine that they might be fueled by a desire to “save†GameStop. Another of the companies they’ve rallied to is BB Liquidating, Inc., the penny stock for what remains of the company once known as Blockbuster Video, but this effort isn’t going to “save†Blockbuster, which is long gone. And we’ve also seen how the swarm can do lots of damage, hounding people off social media, doxing people. The QAnon thing is also kind of a swarm. We need to be careful about lionizing this sort of thing.
That said, I am happy to see the people who want movie theaters to die suffer a little. They are my mortal enemies. AMC is my GameStop. (Not really, but in the movie version of this, that will be a line my character says.)
K.V.: Yes, just browsing around in r/wallstreetbets has been a really strange, enlightening experience, prompting the kind of disorientation you get when you parachute feet first into a fully developed online culture that you know nothing at all about. They call stocks stonks. They litter the forums with rocket-ship emoji. They post “TO THE MOON!†in all caps and chide each other about holding rather than selling. One thing that struck me quickly, though, was that many of them are much more invested in the memelord possibility of damning the man than they are in their own personal profit.
It’s not that they’re uninterested in personal profit — many of them are posting screenshots of what would be massive, massive earnings if everything breaks their way — but that they are claiming to be dedicated to the cause, regardless of their own potential losses. They have a particular enemy, too, the hedge fund Melvin Capital, which they’re especially hoping to screw over in a short squeeze. This, by the way, is where the Mets come in! Steve Cohen, the recent owner of the Mets, was called in to bail out Melvin to the tune of nearly $3 billion. Again, it’s the combination of the absurd Reddit-ese of stonks and the Schadenfreude of one rich man finally getting pinched that makes this story so weird and appealing.
B.E.: Yeah, it definitely has a people-versus-the-profiteers quality to it. And you can find all sorts of comparisons/analogies/etc., depending on your interests. To wit:
But one of the things I’ve been charmed by has been the sheer number of people apparently sending this story to the Billions writers, so much so that co-creator Brian Koppelman had to ask them to stop:
(He is now just quote-tweeting everybody’s story recommendations with notes like “Hadn’t occurred to us beforeâ€Â and “Fair q. Lemme get caught up on this new wild story.†It hasn’t stopped. The swarm knows no bounds!)
Obviously, this is a rapidly changing situation — trading of AMC shares was halted several times on Wednesday morning, some brokerages are crashing, and it seems unlikely to continue without someone somewhere taking some kind of serious action. (And oh look, Robinhood and other online brokers are now restricting trading in GameStop, AMC, and other stocks targeted by r/wallstreetbets. That will surely go over well.) I suspect we will also eventually learn a bit more about the individuals involved on both sides. Part of the reason this is of such interest to people is of course because the common image of “Wall Street trader†is basically some Donald Trump Jr. clone, and it’s fun for people to imagine someone like that being taken down by a bunch of Krazy Internet Kidz. But I suspect the reality might be a bit different. Especially since a lot of these people seem to be Elon Musk admirers, too. (Musk got in on the GameStop action and tweeted out a link to r/wallstreetbets, and there was much excitement over there.) And creating short squeezes is the kind of thing Martin Shkreli used to do. Which is all to say: This may not exactly turn out to be a gang of unruly kids from the neighborhood.
K.V.: Absolutely. It’s a story with so many delicious 2021 layers to it: flailing pandemic companies, powerful and baffling online communities, yawning economic inequality, memes, and the looming sense that this one odd event could become a new paradigm that destabilizes the entire system. Plus, Elon Musk somehow shows up. It’s got everything.
Because this is all still in process, it’s tough to say what this saga will look like in a week or in a year. The immediate risks of it look pretty localized right now. A few hedge funds might be gutted, and it’s especially chancy for all the redditors who are neck-deep in a stock that could earn them a lot of money but could just as easily cost them everything. If GameStop is just a one-off meme, then maybe that’s all this will be: a wild, risky ride for a relatively small subset of people. The real question is what happens if it’s not just a onetime stunt for the LOLz. What if, instead, it’s something much, much bigger that becomes a total rewriting of the stock-market rules? If that’s the case, then it could well be the kind of disruption that has huge ripple effects in the economy. But it’s hard to say right now, beyond the basic rule that stonks that go up must eventually come down.
This piece has been updated with new information regarding the stonks.