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The epic GameStop Short Squeeze continues to move global markets – even Bitcoin is off

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Good Morning. With the exception of the dollar, the screens are blurry red this morning. Bitcoin, crude oil, gold, global stocks, US futures – they have all stalled. Not even Reddit cops can muster the magic to expand that GameStop Rally.

At the end of yesterday’s trade, there were growing concerns that the GameStop Squeeze hit the broader markets. As the future falls this morning, that worry turns into legitimate fears.

In today’s essay, I’ll dig deeper into the phenomenon of viral stocks like GameStop and how it affects your portfolio.

But first we want to see what moves the markets.

Market update

Asia

  • The mayor Asia indices sink in the afternoon trade Hang Seng Low 2.6%.
  • The GameStop effect is Go international Retail investors from Sydney to Amsterdam are offering stocks to find short investors. A winner of the increased volatility this morning is the previously undervalued Japanese e-commerce giant Rakutenon 7.5% in Tokyo.
  • Could the once soaring fintech Ant group really transform into a cumbersome bank holding company? That is the plan floated to appease the Chinese authorities.

Europe

  • The European stock exchanges were deeper out of the gates with that Stoxx Europe 600 Low 0.8% outdoors before it falls further.
  • Shares in Volkswagen were down 1% in early trade after the German automaker slipped into the world’s second largest automobile manufacturer after Toyota, Handover of the crown after five years.
  • COVID vaccination shots are go out quickly in Europe put great pressure on Brussels to find a solution. It won’t come from AstraZeneca sometime soon. The EU tried and failed yesterday to force the drug maker to divert supplies from its UK factories across the English Channel. As a reminder, the EU has not even approved a single dose of the AZ vaccine.

US.

  • US futures point to another faint opening. That’s after S&P 500 and Dow yesterday suffered worst losses since October on mixed returns.
  • Shares in Apple are down 3.3% in pre-market trading after the iPhone maker made knock-out profits and set a series of records. Why is the stock falling? As capitalAaron Pressman explainedInvestors aren’t sure where the next big hits will come from.
  • What about the little fries when Big Tech disappoints? In the pre-market, GameStop is down 16% and AMC Entertainment fell 27% after monster rallies on Wednesday. Meanwhile, the amazing surge in these Reddit trades is has attracted attention Treasury Secretary Janet Yellen and the White House.
  • That exam is probably too late for Hedge Fund Kings like Steve Cohen, Gabe Plotkin and Dan Sundheim. you are Billions so far on the GameStop Short Squeeze.

Elsewhere

  • gold is down, trade is down $ 1,840 / ounce.
  • The dollar is up.
  • Raw sinks with Brent Trade around $ 55 / barrel.
  • From 10 a.m. in Rome Bitcoin was almost down 2% at the $ 31,000. It was a difficult two-day period that coincided with the collapse in big cap stocks.

***.

Viral stocks

What if YOLO FOMO leaves? You get tendies and 🚀🚀, Naturally.

Let me explain. There is a new type of stock that we need to become familiar with. We have often talked about value stocks and growth stocks here. Well, viral stocks now exist.

“Just like there are viral tweets, there are also viral stocks,” said Ivan Ćosović, founder of Breakout Point GmbH, based in Düsseldorf, a data analytics company that tracks private investors and activist shorts.

Breakout Point has tracked the growth of stocks over the past year, which are featured on investor message boards – forums like Reddits WallStreetBets. The most attractive interest grows from a few comments to a stream. Shortly afterwards, many of these talkative Minnows – names like GameStop and AMC Entertainment, but also penny stocks like OcuGen and Zomedica – make the leap to Robinhoods “100 most popular“List. From there the Army of Private Investors offered it, turning the occasional guppy into a Wall Street whale like GME.

Do not 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 subscribers over the past few days (they clocked more than 1 million new subscribers between Saturday and Wednesday afternoons, as the next graph below shows) is similar to the stock price chart for GME.

What’s so daunting for Wall Street professionals is that many of these stocks make the leap into the big days for no other reason than that they make a lot of buzz on message boards. Breakout Point describes this as a swarm. (As Ćosović described this, I went to this creepy Black Mirror episode with the runaway swarms of mechanical bees programmed by social media mobs.)

What Makes a Viral Stock Worth Retail Investor Attention? There is a bit of game art in the game. As we’ve seen from AMC and GameStop, having the stocks of shorts and hedge funds targeted as a target helps. But often these stocks burst for no other reason than to get a lot of buzz. That way, the narrative behind the stock matters more than the news flow or the basics.

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

It all sounds very blurry, but private investors are doing some serious banking in these deals – in Reddit parlance “trends”.

Before planning your next move, however, 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 big short sellers to ordinary retail investors. The longer the bubbles last, the less likely it is that this is true, ”writes Donovan. “Instead, wealth is being transferred from ordinary investors to bubble sellers. This transmission becomes permanent when the bubble bursts. “

Bubble sellers do well when investing manias. This is not a narrative. It is a fact.

***.

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

Bernhard Warner
@BernhardWarner
Bernhard.Warner@Fortune.com

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