The faint heartbeat of this week’s jobs report did not keep the stock market from trying to scramble back up to its record heights. The surging and plunging and scrambling for cash and closing of gates at Robinhood did not stop the rise either.
Robinhood became a broken arrow
Let’s just say market mania rose to such heights that stress fractures started to appear even in the most successful parts of the market of late. Robinhood became a victim of its own rapid success just over a week ago and had to limit stock trading due to a cash crisis:
Hours after saying there was “no liquidity problem,” Robinhood (RBNHD) drew on credit lines of $500M-$600M to meet lending requirements and separately raised $1B in emergency funding to avoid having to place further limits on trades, NYT reports … as users take their money elsewhere…. Other brokerages appear to be giving similar reasons for the Thursday halt, attributing growing financial pressure as opposed to the shadowy motivations claimed by the retail bros…. Webull CEO Anthony Denier told Yahoo Finance. “It wasn’t our choice. Our clearing firm gave us a call and said we’re going to have to stop allowing you from opening positions due to high volatility.”
Gamestop stopped up
Much of Robinhood’s market fever heated up around the trading of a little company called Gamestop. The nueveau riche retail speculator crowd on a Reddit trading conversation decided to gang up on the big boys who were shorting the stock and spike the value of little Gametstop’s stock solely because so many big-name investors were shorting it. It was a case of T-Rex facing death by a thousand velociraptors.
The retailers learned they had enough power in numbers to game Gamestock and force a short squeeze upon the mammoth institutional investors who were shorting the stock, forcing them to keep buying more of it to keep their positions open, causing the price to rise more quickly, causing themselves to have to buy even more in a feedback loop until they ran themselves out of ability to run.
The Robinhooders and Reddit vigilantes enjoyed a feeding frenzy.
Read the rest here: https://thegreatrecession.info/blog/dont-stop-game-stocks/