I had been thinking about upgrading to a new slim with a larger harddrive for some time, so this seemed like the right opportunity. Slowing profits from the giants of America’s stockmarket would really give investors something to panic about.Like 2 or 3 weeks ago, they were running a trade-in promotion where they give you $150 for your old PS3. But high supply-chain costs dented profits at Tesla and Facebook warned of headwinds to its ad business.
Apple fared well in 2020, helped by pandemic spending on electronics (see article). Jumpy professional investors will now have to keep one eye on the mob-and the other on the more conventional risks of an inflation scare or faltering corporate earnings. The S& P 500, an index of American shares, fell by 2.6%. Mr Powell was calmer, noting that financial-stability vulnerabilities overall were moderate. In an op-ed for Bloomberg, Mohamed El-Erian, the former boss of PIMCO, a bond fund, warned that the GameStop frenzy is a prelude to possible “large-scale financial volatility and market dysfunction”. The exuberance displayed by retail investors is yet another reason to fret. Instead the reaction-a wave of bafflement, even panic, that has washed over Wall Street and drawn in those running the country-speaks to a larger disquiet about American stocks.įor months investors have fretted about a potential stockmarket bubble, their concerns reflected in the fat valuations of tech stocks and the dizzying heights to which shares in Tesla, an electric-vehicle maker, have soared. But most investors’ portfolios are probably unaffected by the price action. For the shorts that lost their shirts the spike in GameStop is hugely important. In many ways the furore seems almost as remarkable as the move itself. Share prices for AMC, a chain of cinemas, and Nokia and Blackberry, which once made popular mobile phones, have also spiked. The masses are coming for other heavily shorted stocks too. The share price more than doubled the next day. GameStop was the single most traded stock in America on January 26th volumes matched that in the five biggest tech giants combined (see chart). The wall-to-wall coverage of the stock has prompted yet more investors to pile in. Short-sellers were also forced to buy shares after incurring losses worth several billion dollars. Bullish retail traders were ginned up when the marketmakers who sold them their bets were forced to hedge against rising prices by buying shares. Retail investors wanted the shorts to lose money.Īnd they did. It was a popular trade: the total value of short positions in GameStop was more than the company’s market capitalisation in late January. The retailer had become a target of short-sellers, who borrow shares, sell them, and later buy them back, ideally at a cheaper price. But most express a vigilante-style desire to stick it to establishment investors, who had spurned GameStop. Some forum-dwellers point to fundamental reasons, such as Mr Cohen’s involvement, to justify their bets. These retail investors have hoovered up shares and placed leveraged bets that GameStop’s price will rise. The frenzy has been fuelled, seemingly, by users of r/wallstreetbets, a forum on Reddit that now has more than 4m followers. The rest-which has turned him into an overnight billionaire-is fuzzier. By January 11th, his first day as board member, the 12.9% stake that he had paid about $76m for had doubled in value. The board liked his plan and offered him and his former colleagues seats. In November he turned activist, writing to the board to urge it to invest in e-commerce. In August Ryan Cohen, the former boss of Chewy, an online pet-food store, began amassing a large stake. There is a tiny nugget of sense in GameStop being worth more now than it was last year. Why such a fuss? Perhaps because the story itself is staggering.
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