Monday, May 10, 2021

GameStop’s epic short squeeze continues to rock global markets – even Bitcoin is turned off

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This is the web version of the Bull Sheet, Fortune’s daily no BS in the markets newsletter. Sign up to receive it in your inbox here.

Hello. With the exception of the dollar, screens are a blur of red this morning. Bitcoin, crude, gold, global stocks, US futures – it’s all wavering. Even Reddit bulls can’t muster the magic to prolong the GameStop rally.

Yesterday, when the markets closed, we feared more and more GameStop squeeze was hitting wider markets. As the future plunges this morning, that concern turns into legitimate fears.

In today’s essay, I dig deeper into the phenomenon of viral stocks like GameStop and what it means for your wallet.

But first, let’s see what is moving the markets.

Market update

Asia

  • The main Asia Index are down in afternoon trading, with Hang Seng down 2.6%.
  • the GameStop effect East become global with retail investors from Sydney to Amsterdam making offers to catch short investors. One of the winners of increased volatility this morning is the previously undervalued Japanese e-commerce giant. Rakuten, high 7.5% in Tokyo.
  • Could the once high-flying fintech Group of ants really turn into an outdated bank holding company? This is the plan be floated to appease the Chinese authorities.

Europe

  • the European scholarships were lower outside the doors with the Stoxx Europe 600 down 0.8% in the open air, before going back down.
  • Shares in Volkswagen were down 1% at the start of negotiations after the German automaker moved to the world’s second-largest automaker behind Toyota handing over the crown after a five-year race.
  • COVID vaccine shots are run out quickly in Europe, putting enormous pressure on Brussels to find a solution. It won’t come from AstraZeneca anytime soon. EU tried and failed yesterday to force the drugmaker to divert supplies from its UK factories across the Channel. Reminder: the EU has not yet granted regulatory approval for even a single dose of the AZ vaccine.

WE

  • American Futures point to another low open. It is after the S&P 500 and Dow yesterday suffered their worst losses since October on a batch of mixed profits.
  • Shares in Apple are down 3.3% in pre-market trading after the iPhone maker posted playoff profits and hit a series of records. Why is the stock collapsing? As Fortuneby Aaron Pressman Explain, investors do not know where his next big hits will come from.
  • With Big Tech disappointing, what about small fries? In the pre-market, GameStop is off 16% and AMC Entertainment took the plunge 27% after monster gatherings on Wednesday. Meanwhile, the surprising rise in these Reddit-fueled trades attracted attention from US Treasury Secretary Janet Yellen and the White House.
  • This review is probably too late to hedge fund kings like Steve Cohen, Gabe Plotkin and Dan Sundheim. They are Billions so far on the short press GameStop.

Somewhere else

  • Goldis falling, trades below $ 1,840 / ounce.
  • thedollar is in place.
  • Grosscollapses, with Brent to negotiate $ 55 / barrel.
  • From 10 a.m. Rome time Bitcoinwas almost down 2% at $ 31,000. This lasted for two days, coinciding with the drop in large cap stocks.

***

Viral stocks

What happens when YOLO becomes FOMO? You have tenderness and 🚀🚀, of course.

Let me explain. There is a new type of stock that we need to familiarize ourselves with. We have often spoken here about value stocks and growth stocks. Well, there are viral stocks now.

“Just like there are viral tweets, there are viral actions,” Ivan Ćosović, founder of Breakout Point GmbH, a data analytics company that tracks retail investors and activist short films told me yesterday.

Breakout Point has followed the growth over the past year in stocks which are discussed on investor bulletin boards – forums such as Reddit’s WallStreetBets. The most attractive arouse the interest of a few comments to a torrent. Soon after, many of those chatty minnows – names like GameStop and AMC Entertainment, but also penny stocks like OcuGen and Zomedica – make the jump to Robinhood.100 most popularlist. From there, the army of private investors offered them an offer, turning the occasional guppy into a Wall Street whale like GME.

Don’t be fooled. WallStreetBets is not an amateur chat room. It has become a force in the markets. And it’s growing like gangbusters. The parabolic surge in subscriber numbers in recent days (they recorded over a million new subs between Saturday and Wednesday afternoon, as shown in the following graph below) looks like the price chart of the ‘action for, ahem, GME.

What’s so disheartening for Wall Street professionals is that many of these stocks are taking the plunge for no other reason than to generate a lot of buzz on message boards. Breakout Point describes this as a swarm. (As Ćosović described it, my mind went that scary episode of Black Mirror featuring the uncontrollable swarms of mechanical bees programmed by social media crowds.)

What makes a viral action worthy of the attention of retail investors? There is a bit of a sense of play in play. As we’ve seen in AMC and GameStop, it helps if stocks have been targeted by shorts and hedge funds. But often these actions appear for no other reason than the buzz. This way, the narrative behind the action matters more than the news feed or the fundamentals.

What’s the story? “Today the story is AMC. Tomorrow is something else, “Ćosović told me yesterday, before adding,” and no story is too small.

It all sounds very fuzzy, but retail investors are making serious banking – “trends” in Reddit parlance – on these trades.

But before planning your next step, consider what UBS Chief Economist Paul Donovan said in a sobering investor note this morning.

“The story told about the Reddit-inspired bubbles is that wealth is transferred from the big short sellers to ordinary retail investors. The longer the bubbles last, the less likely it is, ”writes Donovan. “Instead, wealth is transferred from ordinary investors to bubble sellers. This transfer becomes permanent when the bubble bursts. “

Bubble sellers do well during investment manias. It is not a story. It is done.

***

Have a very good day everyone. I’ll see you here tomorrow… Until then, there’s more news below.

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

As always, you can write tobullsheet@fortune.comor reply to this email with suggestions and comments.



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