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Business

The GameStop short squeeze was ‘the grand awakening’: expert

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It’s ironic that a trading platform whose motto is “Investing for Everyone” would find itself at the center of a retail investor revolt against the Wall Street glitterati. What happened this past week with GameStop (GME), Reddit and Robinhood is a classic tale of David and Goliath, but even the pros say this time is different.

“We’ve seen short squeezes in the past, but I call this one the grand awakening,” Kevin Simpson, portfolio manager at Capital Investment Management, told Yahoo Finance Live. “Seeing this mass chat room chatter do something that we’ve never seen before is a little bit reminiscent of the Yahoo chat boards from the 1990s. But this is something totally different.”

That’s because this time, the power of Reddit drove the revolt at lighting speed. An army of small investors sent shares of depressed companies like GameStop and AMC (AMC) up into the stratosphere, hurting the billionaire hedge funds that bet against those stocks.

The commission-free pioneer broker, Robinhood, then temporarily barred investors from buying GameStop and other heavily shorted stocks, leaving them no choice but to hold their position or sell. Meanwhile, hedge funds were free to trade those same stocks, without restrictions.

Robinhood’s decision to halt trading led to at least two class action lawsuits, claiming the trading platform rigged the market against them and in favor of the Wall Street bigwigs. Robinhood CEO Vlad Tenev told Yahoo Finance Live that the platform restricted trading to protect the firm and its customers.

Joshua Mitts, a Columbia law professor who has written extensively about securities law, said there’s little evidence such restrictions serve to protect retail investors. “This is but the latest iteration in a long string of frustrations that retail investors have encountered when they try to compete with the pros on Wall Street,” he told Yahoo Finance Live.

Mitts said retail investors have been getting systematically burned by hedge funds for years, to the tune of tens of billions of dollars.

“So, when Robinhood steps up and in effect restricts retail investors from doing the same thing that these shortsighted hedge funds can do through their prime brokerage accounts, it does raise profound questions of equity,” Mitts said, adding there needs to be policy reform to ensure a more level playing field for small investors.

In this Wednesday, Dec. 2, 2015, photo, Robinhood co-founders Vlad Tenev, left, and Baiju Bhatt pose at company headquarters in Palo Alto, Calif. Robinhood is a stock brokerage that does not charge any commissions for its more than 1 million customers to buy and sell shares. “During the next 10 years, we are going to create an international company that will be like nothing the financial services industry has ever seen,” says Bhatt. (AP Photo/Ben Margot)

“The question is whether the infrastructure treats them fairly. Whether the rules of the road that apply to retail apply equally to hedge funds. That’s what’s undermining retail confidence in companies like Robinhood,” he said.

Still, Mitts said the Robinhood lawsuits face an uphill battle.

“The customer agreement that every Robinhood customer agrees to when they install the app does allow Robinhood to suspend trading and deny trading at any time,” he said. “But Robinhood is subject to broader regulatory obligations.”

Mitts said the Securities and Exchange Commission (SEC) needs to “step up and scrutinize the level of risk taking and precautions that are in place when brokers offer apps like these to retail investors.”

Platforms like Robinhood have a fiduciary duty to their customers to execute trades at the best available price, he said.

Fintech is still a relatively new industry, and Simpson said last week’s frenzied trading is part of its growing pains.

“It’s still a new platform,” said Simpson. “I think it’s a platform that’s engaging lots of new investors, both of which are learning as they go. I think the regulation that can come from this will only be more healthy to make sure it doesn’t happen again in the future.”

Alexis Christoforous is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AlexisTVNews.

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Technology

Lulu Wang Short Film for Chinese New Year Shot on Apple iPhone 12 Pro

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Apple tapped director Lulu Wang to showcase the cinematic features of the tech company’s latest iPhone.

Wang, who wrote and directed 2019 feature film “The Farewell,” directed a new short for Apple in celebration of Chinese New Year, “Nian,” which puts a fresh twist on a well-known Chinese folktale. (Watch above or at this link.) The 11-minute film was directed by Wang and her team from “The Farewell” and shot on an iPhone 12 Pro Max.

Apple, which just reported a blowout holiday 2020 quarter with a record $65.6 billion in iPhone sales, has touted the iPhone 12 Pro models as the best smartphone it’s ever made for filmmakers. They’re the first iPhones that can record HDR video in Dolby Vision, as well as provide the ability to edit 4K video at up to 60 frames per second directly on the phone. During the launch event last fall, Apple showed a 60-second film shot in HDR video with Dolby Vision on an iPhone 12 Pro by Oscar-winning cinematographer Emmanuel “Chivo” Lubezki (watch at this link.)

With the release of the iPhone 12, Apple sales in Greater China soared to an all-time high of $21.3 billion for December 2020 quarter — and with the promotional short “Nian,” Apple’s fourth annual Chinese New York film, the tech giant wants to keep the momentum going.

Wang and her crew worked on “Nian” remotely in the U.S. with a mirror crew on the ground in China because of COVID travel restrictions. The team used the iPhone 12 Pro Max’s Dolby Vision, low-light, ultra-wide lens, telephoto lens, stabilization and time-lapse features. The production featured hard-to-shoot night scenes and scenes set inside a cave, where space and lighting were limited.

“Nian” tells the story of a brave young girl’s determination to find — and confront — the widely feared Nian beast. When she comes face to face with him, she discovers that Nian is not at all terrifying and the two strike up a beautiful friendship based on acceptance.

“It’s really exciting that we have this opportunity to retell this ancient story, to capture these incredibly cinematic images with the iPhone, this very versatile device,” Wang said in a behind-the-scenes feature accompanying the film. She said the “Nian” team had “a lot of fun just trying to figure out where else can we stick the phone so we can get angles and perspectives that are just a little bit more unique.”

“We thought, ‘Oh, why don’t we just put the phone inside of the Nian’s mouth?’ I think the size of it allows us to get all kinds of cool, specialty shots that would be much harder to get with the traditional camera,” Wang said.

Wang, whose parents emigrated from China to the U.S. when she was 6, added, “As a child, my parents wanted me to go further than they have ever gone. And yet there’s also this fear that I was going into the unknown, and so I wanted to bring that theme into this film.”

“Nian” was produced by Iconoclast in association with Apple ad agency TBWAMedia Arts Lab (Shanghai). The film features an original score by Alex Weston.

Apple’s previous films marking the Chinese New Year are “Daughter” (2020), “The Bucket” (2019) and “Three Minutes” (2018).

Watch the behind-the-scenes clip of the making of Wang’s “Nian”:



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Business

Melvin Capital, hedge fund targeted by Reddit board, closed out of GameStop short position Tuesday

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Melvin Capital closed out its short position in GameStop on Tuesday afternoon after taking a huge loss, manager of the fund Gabe Plotkin told CNBC’s Andrew Ross Sorkin.

The brick-and-mortar videogame retailer, hedge funds’ most-hated stock, was targeted by an army of retail investors who marshaled against short sellers in online chat rooms. In the Reddit forum “wallstreetbets” with more than two million subscribers, rookie investors encouraged each other to pile into GameStop’s equity and call options, creating massive short squeezes in the name.

CNBC could not confirm the amount of losses the firm took on the short position. Citadel and Point72 have infused close to $3 billion into Melvin Capital to shore up the fund’s finances. Plotkin told Sorkin that the speculation that the firm would file for bankruptcy is false.

GameStop shares have more than doubled this week alone to nearly $150 apiece, driving its January gains to 685%. The stock was worth just $6 four months ago.

GameStop shares gained about 60% in premarket trading Wednesday, after popping more than 100% earlier in the session.

Amid GameStop’s explosive rally, short sellers have accumulated losses of more than $5 billion year to date in the stock, including a loss of $917 million on Monday and $1.6 billion on Friday, according to data from S3 Partners.

Short seller Andrew Left of Citron Research said Wednesday that he has covered the majority of his short position in GameStop at a loss. He previously said GameStop will fall back to $20 a share “fast” and called out attacks from the “angry mob” that owns the stock.

Investor Michael Burry said in a now-deleted tweet Tuesday that trading in GameStop is “unnatural, insane, and dangerous” and there should be “legal and regulatory repercussions.” Burry shot to fame by betting against the housing bubble and was featured in Michael Lewis’ book “The Big Short.”

The U.S. Securities and Exchange Commission declined to comment.

Social Capital’s Chamath Palihapitiya jumped into the controversial name, saying in a Tuesday tweet that he bought GameStop call options betting the stock will go higher. His tweet seemed to intensify the rally in the previous session. The stock ended the day 92% higher at $147.98.

Elon Musk after the bell Tuesday commented on the mania on Twitter and linked to the “wallstreetbets” Reddit chat room. The Tesla CEO tweeted to his 42 million followers “Gamestonk!!” The comment appeared to help send GameStop shares soaring in extended trading Tuesday.

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Business

GameStop stock hits record high when short sellers clash with Redditors

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GameStop’s stock price, which had dropped steadily over the previous five years before beginning a climb last fall, closed at an all-time high on Friday following a tremendously volatile week in which Reddit-organized day traders made a lot of trouble for investment firms short-selling the stock.

Trading of GameStop stock on the New York Stock Exchange was halted twice Friday, but not before the price peaked at $73.09. It closed at $65.01, beating the previous record of $63.30 set on Dec. 24, 2007. GameStop closed on Thursday at $43.03, and when the surge began last week, it was around $20 a share.

What’s going on? Well, at the beginning of September, the stock started rallying out of the $5 doldrums where it had been for a little over a year. That’s because dog food tycoon Ryan Cohen (the founder of Chewy, which he sold for $3.35 billion in 2017) had just purchased a 10% stake in the beleaguered video game retailer. He and two allies have since joined GameStop’s board of directors, and those positions could help Cohen act on his tough talk about where GameStop’s priorities should be. Cohen says the Texas-based company needs to give up its continued brick-and-mortar retail focus altogether and move to “a technology-driven vision.”

What’s behind the eye-popping stock price surge this week, reports Ars Technica, is “a massive short squeeze bubble.” In the investing practice known as short selling, a party borrows shares of a stock and immediately sells them at the current market price; when the price later drops (as a short seller is betting it will), the short seller buys back the same number of shares to return them to the lender — and makes money by having to pay back less than what the shares were worth at the time of borrowing.

In this case, GameStop’s stock price is rising, forcing these short sellers to buy more shares at a higher price to cover their positions. That has put GameStop’s stock price in an upward spiral, one that analysts like Wedbush Securities’ Michael Pachter think will quickly come to an end.

“The smart money already got in and probably got out,” Pachter told Ars.

The smart money got in more than a year ago, reports Motherboard. Some of it came in from investors on the subreddit WallStreetBets, a community that styles itself as “Like 4Chan found a Bloomberg Terminal.” A Redditor there posted screenshots from 2019 of a $50,000 purchase of GameStop shares, when the stock price was below $1.

That’s because WallStreetBets (and others) reasoned that if they bought in to GameStop, short sellers would eventually have to cover their positions together, driving the price way up. “There is likely not an original GameStop-issued share left on the market,” noted one Redditor. In other words, GameStop has issued more shares than are actually available to buy. Higher demand plus scarce supply equals a higher price, of course, and short sellers buying up stock to cover their debts — along with, of course, interest from new investors looking to short the stock — is what’s driving the demand.

Citron Research is one of those short sellers, and on Friday the firm said it was no longer commenting on GameStop’s stock because “an angry mob” had made it a dangerously volatile stock, Bloomberg reported. Citron also alleges that these miscreants had tried to hack the company’s Twitter account, after the company criticized the stock on Tuesday and then made plans for a livestream on social media to discuss that.

GameStop’s closing price on Friday gave it a market capitalization of $4.5 billion, almost 20 times higher than what the company was worth as of late July. But none of this means GameStop has actually recovered or saved itself as a business. Indeed, its last quarterly earnings report, in December, showed revenues still declining and losses per share increasing over the same figures a year before.

In the past two years, the company has closed more than 750 stores out of the 5,700 locations it had as of 2019. The same year, the company got rid of top executives and fired more than 100 corporate staffers, in a round of layoffs that also gutted the staff of GameStop-owned Game Informer magazine.



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