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Topline
After taking a big loss on its short selling of GameStop stock, Citron Research criticized the Biden administration Wednesday for saying that Treasury Secretary Janet Yellen was “monitoring” the dramatic change in the stock due to day traders who have piled onto it in online chatrooms, with Citron saying the “White House should have more pressing issues than to investigate stock forums on Reddit.”
NEW YORK, NEW YORK – JANUARY 27: GameStop store signage is seen on January 27, 2021 in New York … [+]
Key Facts
After GameStop’s stock surged more than 1640% in two weeks due largely to online trading communities hyping stocks that were being shorted by Wall Street hedge funds, White House press secretary Jen Psaki said Wednesday that Secretary Janet Yellen and other economic advisers are “monitoring the situation.”
Hedge funds like Citron, which have held large short positions in GameStop — meaning they expect the stock to sharply drop in price — have been bloodied as the shares have skyrocketed.
Psaki added that the unusual trading activity in GameStop served as “a good reminder” that the stock market “isn’t the only measure of the health of our economy. It doesn’t reflect how middle and working-class families are doing.”
Melvin Capital has closed out of its short position in GameStop, incurring billions of dollars in losses.Citron said by video it has closed out of most of its GameStop short position at a 100% loss.
Business Insider reported that online brokerages Vanguard, TD Ameritrade and Charles Schwab experienced trading interruptions on Wednesday due to heavy trading volume in GameStop shares.Citron Research is an investment newsletter owned by Left who also runs the Citron hedge fund.
Crucial Quote
“The [White House] should have more pressing issues than to investigate stock forums on Reddit,” Citron tweeted. “We are a nation based on free speech and capitalism. Citron has fought globally for 20 years for that right and no one trading phenomenon should eliminate it. Our first political tweet ever.”
Key Background
GameStop stock jumped on Tuesday after investor Chamath Palihapitiya tweeted he purchased call options on shares with a February 19 expiration date. The stock was also recently buoyed by a tweet mention from Tesla boss Elon Musk. Andrew Left, who runs the Citron hedge fund, said he originally shorted GameStop, which has been bleeding red ink for years, because he expected it would have fallen in price much like another stock he shorted, Canadian pharmaceutical company Tilray which saw its shares fall from as high as $148 in late 2018 to less than $19 currently. Left said nothing has changed at GameStop except the stock price – which appears to have become the beneficiary of a small army of investors on Reddit and elsewhere who seek to thwart Wall Street institutions like Citron.
Big Number
1640% — that’s how much GameStop shares have gained since Jan. 12.
What To Watch For
Sen. Elizabeth Warren (D-Ma.) warned in a tweet: “It’s long past time for the SEC and other financial regulators to wake up and do their jobs – and with a new administration and Democrats running Congress, I intend to make sure they do.”
Warren has the power to make good on her threat as she sits on the Senate banking committee which oversees financial services and federal regulatory agencies and which could order investigations in trading activities at GameStop and other stocks. The SEC said that it was monitoring the situation.
Further Reading
GameStop’s Massive Surge Creates A New Billionaire As Reddit Traders Bet Against Wall Street
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