GameStop, ‘day traders’ have plundered high finance. But this story does not have a happy ending

Who would have said two years ago that the pandemic and monetary aid from the state would lead to the assault on Wall Street? And who would have predicted that the looting of high finance coffers would redistribute – at least for now – a portion of the money printed in the last thirteen years, thousands and trillions of dollars never arrived in the real economy but pocketed by the big names in Piazza Affari?

Only those who frequent platforms like Reddit, Robinhood, r / WallStreetBets could have foreseen it. For at least a year the posts of the day traders, the millions of young people who are stranded at home due to the pandemic have learned to play on the stock market, where there is talk of ‘assault on Wall Street’, ‘annihilation of hedge funds‘,’ destruction of financial Olympus’. There are even those who like Anthony Scaramucci, who was part of the Trump administration for 9 days, speaks of a kind of French financial revolution. One thing is certain, it is the day traders who have created this revolution in the market and who have pocketed the money from Wall Street losses.

A head-on clash has been going on for just under a year between very small individual market operators and the giants of Piazza Affari, however this conflict landed in the front pages of the financial giants only at the end of January, when the multitude of day traders made it skyrocket the actions of GameStop, American chain of electronic games and playstations, in deep crisis due to the pandemic and online competition. Most day traders have grown up buying or exchanging video games in GameStop stores: the idea of ​​stopping its decline and spinning the wheel of fortune in favor of this venture, therefore, thrilled them making them feel like the Robin Hoods of finance. And here is how events unfolded.

Even before the pandemic GameStop was in crisis, Covid was a bit of a coup de grace. Bankruptcy was avoided thanks to the arrival of Ryan Cohen, the billionaire who created the pet products chain chewy.com. In September, Cohen bought 10 percent of GameStop and announced his plan: transform society in a competitor of Amazon starting with a downloadable app on your mobile for video games.

The idea has attracted the attention of groups of day traders who know the video game market well, as its users since childhood. At that point it was realized that GameStop was the subject of major speculations to the downside by hedge funds, people specialized in this technique (you bet that the stock will go down without buying it, you take a position by buying only one option). The betting volume was high, a sign that the traditional market He was convinced that GameStop shares would continue to decline. Perfect situation for the mass onslaught of day traders.

It was enough to post the strategy on the platforms and on social media: buy the GameShop shares. And here’s the logic: let’s save the video game chain from when we were children, destroy the fat cows who bet against it and, at the same time, make a lot of money. The market moved immediately because when options are at stake, everything is multiplied following a geometric progression.

In the first three weeks of January, GameStop shares were up 1200 percent, some hedge funds such as Melvin Capital lost $ 2.3 billion that day traders earned. A redistribution of wealth from large to very small never seen on the market. But that’s not enough, the race to fill the positions forced him short sellers to buy GameStop shares and in doing so contributed to the growth in demand and the consequent increase in the value of the stock.

But this is not a fairy tale with a happy ending. There finance, the real one, is the scaffolding on which the world economy rests, the lifeblood of the economic system. For every hedge fund that licks its wounds, there are hundreds of thousands of honest financial traders who manage savings families, the money set aside for our children’s school, our pensions: they will come too swept up from the explosion of the bubble that is forming on the market.

Because the bubble exists, just take a look at the percentage of market capitalization relative to GDP on the inauguration day of the last American presidents: Ford 40%; Carter 47% or; Reagan 43%; Bush father 53%; Clinton 64%, Bush son 117%; Obama 60%; Trump 125%; Biden 190%.

The danger is that day traders become similar to their enemies and end up playing with the money of our lives. Without new legislation this redistribution of wealth it will not be enough to revive the real economy, tried by 13 years of deflation and Covid. It has not been played there for years.

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