Why are Hedge Funds evil?
A Hedge Fund mounted a takeover of Cabella’s Sports with headquarters in central Nebraska employing over 6,000 people. The Hedge Fund gutted and liquidated the company and left everyone jobless. Cabella’s was thriving prior to this.
GameStop and Reddit / 4Chan
A week or so ago a Redditor noticed the following from FactSet:
Notice how 138% of GameStop shares have been shorted? That’s direct evidence of a naked short, which is illegal. Hedge funds attempted to short the stock, driving the price down so they could buy it all out, bankrupt the company and walk away with the equity. Hedge funds are learning the lesson feminists learned with Gamergate – don’t mess with gamers.
First Reddit/wallstreetbets started a rally in purchases, partly because gamers didn’t want their brick and mortar resource stolen by bankers (reminiscent of Gamergate). A few days later, 4Chan/biz caught on and started rallying their troops. In the past few days some institutional people as diverse as Social Capital’s Chamath Palihapitiya to Elon Musk have endorsed GameStop shares.
Short Squeeze
Melvin Capital is a Hedge Fund that has naked shorted up to 138% of the GameStop shares in an attempt to crater the stock. Redditors found out that the contracts expired and the shares had to be returned to the owners this Friday at 2pm, so anonymous, mostly strangers began buying huge amounts of GameStop shares, skyrocketing the share price from $17.50 a few weeks ago to $250 tonight. Melvin Capital needed the price to go down from around $20 and are apparently leveraged to 138% of the market capitalization which now totals 15 billion dollars and as the demand increases and the supply dwindles, the contracts will not be met. First, Melvin Capital will fall, but they are deeply intertwined and indebted to other hedge funds and banks. We all know the markets are irrational right now and this may be a way to force the collapse to cause injury to the villains of society rather than the plebians.
The intention is not to sell. At least not until the house of cards collapses as far as it can. Criminals will go to jail and some of the little guys will rake it in from Wall Street.
Reality
The sad reality is that Big Brother will probably step in to protect the poor bankers or somehow manipulate the markets so that the hedge funds win after all. Probably the SEC, but it could be the media or some other arm of Big Brother.
Update:
As predicted, the government and institutions are striking back. Janet Yellen is now looking into what can be done to protect the hedge funds from the masses and Ameritrade and others have halted trading of GME to protect their friends.