GameStop saga is about 'working class vs hedge funds': Reddit WSB user

A clash of the classes — “proletariat vs bourgeoisie” — is at the heart of the GameStop (GME) short squeeze saga, says one WallStreetBets participant.

“WSB feels like it’s the working class vs. the hedge funds. The poor vs. the rich,Twitter user @redditinvestors, who has been following Reddit’s WallStreetBets forum for years, told Yahoo Finance on Wednesday morning.

WSB user and YouTuber Louis Rossmann agrees.

“There's a lot of pent-up aggravation at the financial services industry that's been brewing for the last 13 years,” Rossmann told Yahoo Finance.

The “K-shaped recovery” which benefits the wealthy, is part of that aggravation, he added.

“When the pandemic occurred ... you had trillions of dollars injected into the stock market, while normal, regular people that were no longer allowed to work, went broke and bankrupt,” said Rossmann.

Retail traders on WSB have been pushing GameStop share prices higher — another 140% by mid-session on Wednesday — while institutional investors who bet against the stock have been losing big time. On Wednesday morning hedge fund Melvin Capital confirmed it closed its short position on GameStop. A spokesperson added, “The social media posts about Melvin Capital going bankrupt are categorically false.”

“There's no evil coordination. There's just a bunch of people who were buying GameStop. And that alone is destroying a multi-billion dollar hedge fund because they were that stupid,” said Rossmann who told us he bought shares at $104 on Monday, representing less than 1% of his portfolio.

“They [hedge funds] would have never failed to this extent, if they hadn’t shorted these stocks to this extent,” he added.

@redditinvestors said, “Everyone on WSB feels powerful now that they have destroyed a hedge fund and made a bunch of money. It is kinda like a community. I wouldn't be surprised for more targeted attacks on short selling hedge funds." (@redditinvestors says he bought GME shares at $4/each last year, and sold them at $10)

Shares of companies like AMC (AMC), up more than 200% on Wednesday, Bed Bath and Beyond (BBBY) and even Tootsie Roll (TR) have also been targets of retail investors, causing short squeezes on names which have underperformed for some time. A short squeeze forces investors who bet against the stock to buy or cover their positions in order to forestall bigger losses, causing a rise in share prices.

‘Democratization of investing’

The GameStop phenomena is related to two factors, according to one market strategist.

"First, it's really democratization of investing with lowering of fee commissions and investment sizes ... And it's also probably due to a lot of liquidity and time individual investors have,” Gabriela Santos of JPMorgan Asset Management told Yahoo Finance.

It’s clear though Wall Street was caught by surprise. One veteran money manager says he’s never seen anything ‘nearly as insane’ during his 20 plus years in the industry, urging the Securities and Exchange Commission to step in.

However retail investors say the SEC should investigate the short sellers — not the forums. The short interest on GameStop is currently hovering around 140% of its float. How does the SEC allow that?, Rossmann asks.

“They’re saying ‘shut down the forum’ rather than shut down their ability to make a short to this extent. That’s what I find disgusting,” said Rossmann.

Earlier this week an analyst on Yahoo Finance had this message for retail investors: “If you want to gamble, go to the casinos. This is not what the markets are for.”

One Twitter user responded, “The stock market is the biggest casino in the world.”

“There were already roulette tables but when the fruit machines come in it is suddenly a casino “ wrote another.

‘The one left holding the bag is a pig in a slaughterhouse’

When exactly the short squeeze will end is anyone’s guess. Both sides of this saga likely know at some point, the stock will come down to fair value. Watch out when it does.

“A lot of people will lose money. The one left holding the bag is a pig in a slaughterhouse,” said @redditinvestors.

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Ines covers the U.S. stock market. Follow her on Twitter at @ines_ferre

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