RUBY:

From Schwartz Media, I’m Ruby Jones. This is 7am.

Archival Tape -- Unidentified Man 1

“I see the whole thing is like I'm watching a giant National Geographic nature film.”

RUBY:

Over the past week financial analysts and investors have been trying to make sense of one of the most confusing stock market shifts in recent history.

Archival Tape -- Unidentified Man 1

“First, there were these people called lions. They're long sellers. And they noticed a wildebeest that seemed to be hobbling. It was called GME stock, and they ate it.”

RUBY:

One company, GameStop, and a highly motivated online community have combined to completely reshape everything we thought we knew about how the world of finance is supposed to work.

Archival Tape -- Unidentified Man 1

“Then along came the hyenas. They're called Short Sellers and they fed off the carcass of GME”

RUBY:

But as investors, regulators and even politicians scramble to understand what is actually going on… there’s another question that hasn’t yet been answered. In this battle between the internet and Wall Street, who are the good guys?

Archival Tape -- Unidentified Man 1

“Then along came a group called Short Squeezers, a whole new group, OK? And they were vultures who ate the hyenas basically. “

RUBY:

Today - journalist and analyst Ariel Bogle on what happened to GameStop, and what all this could tell us about the future of our economy.

Archival Tape -- Unidentified Man 1

“And in the end the lions will come along and eat them, it's the circle of life. Akuna Matata, baby.”

RUBY:

Ariel, right now the biggest news story around, involves this company GameStop and some pretty wild movements in its share price, which has caused chaos and confusion in the world of finance. Maybe we should start on what exactly GameStop is, and why this company is at the centre of this story?

ARIEL:

Well, GameStop is a bricks and mortar store in the U.S. It sells video games, video game consoles. I actually spoke to a friend in the U.S. recently who told me about driving her little brother to the mall to buy new game cartridges, you know, maybe more than a decade ago. But I guess it's not really the fundamentals of GameStop that is central here. And the reason this has gotten so much attention from the press, from Wall Street is because of a place called WallStreetBets.

Archival Tape -- Newsreader 1

“Think WallStreetBets on Reddit, the popular online information site. Right now if you go to those sites, and I encourage you to take a look at this, they’re populated mostly by younger readers and participants…”

ARIEL:

So this is a message board on this site, Reddit, where people have for a long time now shared tips and memes about trading and Wall Street.

Archival Tape -- Keith Gill, Redditor behind WallStreetBet

“Yo! what up everybody? This is going to be the first video of the Kitty Corner and the market has kind of forced my hand on this one…”

ARIEL:

And that actually been some chatter about GameStop in this message board for a while.

Archival Tape -- Keith Gill, Redditor behind WallStreetBet

“The first stock that I’m gonna talk about is GameStop, and I know that it’s a polarizing stock, some people probably won’t even tune into the stream right now when they hear that I’m bullish on GameStop…”

ARIEL:

The company had, you know, some new leadership. They were moving into online sales. But in recent weeks, its stock surge really thanks to collective action from thousands of thousands of small individual investors who drove up the price.

Archival Tape -- Keith Gill, Redditor behind WallStreetBet

“But this GameStop one, it’s going to be a bit longer because I have a lot to say about it, I could talk about it for weeks…”

RUBY:

Ok, so this group of people on Reddit got together to try and drive up the price of a company’s shares. But why did they pick GameStop?

ARIEL:

I mean, some people call things like GameStop, meme stocks. So these are stocks that are basically driven by collective interest rather than the fundamentals of the company. Stocks that groups on places like Reddit take a big fancy to, you know. The narrative is often a beaten down firm that Wall Street dislikes for some reason. And importantly, the stocks are cheap to buy, at least at the beginning.

And in this case the narrative really centered around hedge funds that had shorted GameStop, or essentially bet against it, and there was a big narrative that developed on this subreddit that people were supporting an unlikely company, you know the little guy against Wall St evil. So basically, a group of people decided it would be kind of funny, maybe profitable, maybe a bit righteous as well, to execute a short squeeze by pushing up the price of GameStop stock and basically trapping the big money hedge funds that have bet against it.

RUBY:

Mm, so the situation is that big hedge funds, who control billions of dollars worth of investments, were planning on shorting GameStop shares and that’s what the WallStreetBets community was reacting to… Can you explain what it actually means to short a stock?

ARIEL:

In the most simple terms, I think typically when people buy a stock, they do it because they expect it to go up in value and so they can make some money. Short selling is when you expect a stock to go down and maybe you think it's overvalued and you want to bet that it's going to… that the price will collapse. So if you look at GameStop, you know, it's a company with physical stores during a pandemic. It's selling things that people increasingly buy online. So it looks a little unlikely. So when somebody's shorts a company like that, the investor borrows shares of the company from a broker typically, and then the short seller sells the borrowed shares into the market and hopes that the shares fall in price.

And if they do fall, then the investor can buy back those shares at a lower price and then they return the shares to the lender, and make a profit basically by pocketing the difference. So in the context of GameStop, a hedge fund might see GameStop trading at 20 bucks and they think it's actually worth much less and that maybe it will go down to ten dollars. So they borrow some amount of GameStop shares hoping to buy them back at ten dollars and then pocket the difference. But if GameStop instead goes up, these hedge funds - or anyone shorting GameStop - has a lot to lose because instead of getting the difference as a payment to them, they now have to pay back way more to return the shares they borrowed.

RUBY:

Right so Ariel, so just so I’m clear, these Reddit users they want to push the price of GameStop’s stock back up again, because that would cost the hedge funds who were expecting the price to go down a lot of money, and the way they do that, the way they push that price up is just by buying a lot of their shares?

ARIEL:

And holding onto them, yeah.

RUBY:

So did it work?

ARIEL:

Well, over the past week or so, GameStop shares just soared. They went into the stratosphere.

Archival Tape -- Newsreader 1

“GameStop, GME has a big investor, has really been pushed…”

Archival Tape -- Newsreader 2

“Check out shares of GameStop surging another fifty one percent today. The record move driven by a retail rebellion…”

Archival Tape -- Newsreader 3

“GameStop’s wild ride continues up again, more than doubling from a week ago."

ARIEL:

I mean, at the beginning of the year, it was about $20. And now I'm talking to you, It's about $320. And that's not even the highest it’s reached.

Archival Tape -- Newsreader 1

“GameStop now 123 in change, another record high, up more than 450 percent…”

Archival Tape -- Newsreader 2

“The price is $248 per share, up 68 percent from yesterday's close. Earlier, it was above three hundred..”

Archival Tape -- Newsreader 3

“Now, GameStop is worth over ten billion dollars at last count. That's more than Under Armour, more than American Airlines…”

ARIEL:

And it was quite weird, I think, for onlookers because the business's fundamentals hadn't really changed all that much and not dramatically. But it still kept going up. And I think it's left a lot of people just trying to wade through and find meaning in all this madness.

RUBY:

OK, so Ariel as this all started to happen and the share price started rocketing up, what was the response like, particularly from the people who were standing to lose a lot of money?

ARIEL:

Well, I think this is where a lot of the schadenfreude comes in, because a lot of Wall Street people, people that have executed shorts themselves in the past were decrying all this, you know, really talking about moral disgust with what was happening on Reddit.

Archival Tape -- Online Personality 1

“I'm not sure whether we differ on this, but I'm calling it a casino and I don't like it. And I think it's going to change the nature of investing and I don’t know what the fallout’s going to be..”

ARIEL:

Even though this is the kind of activity, you know, driving prices up, trading in information is really what Wall Street has been doing for the longest time.

Archival Tape -- Hedge Fund Billionaire, Leon Cooperman

“You’re telling me that analysts don’t manipulate stock prices and drive ‘em up and down to create buying opportunities and selling opportunities…”

ARIEL:

I guess there's a sentiment that only they're allowed to do it or, you know, do it, but not like that.

Archival Tape -- Hedge Fund Billionaire, Leon Cooperman

“It's just a way of attacking wealthy people. And, you know, I think it's inappropriate. We've all gotta work together and pull together.”

ARIEL:

It's been interesting to watch that play out. And I don't think there's a lot of people there with a great deal of sympathy, but all kinds of people weighed in. You know, Elon Musk weighed in. He tweeted “gamestonk” you know, kind of a joke meme from that subreddit. But there was also plenty of political interest.

Archival Tape -- Alexandra Ocasio Cortez

“There’s a lot of policy questions that come up. Policy questions about shorting stock. Policy questions about some of this advanced information…”

ARIEL:

Alexandra Ocasio Cortez weighed in on the side of the WallStreetBet kind of crowd because this app where people had been trading GameStop and other stocks stopped people from being able to trade some of those stocks that were in question, which set off some alarms for her. And also, Elizabeth Warren too, interestingly, she really used it as an opportunity to point out her view of Wall Street to you know, she tweeted that “with stocks soaring while millions are out of work and struggling to pay bills, it's not news that the stock market doesn't reflect our actual economy”.

And for the same hedge funds, private equity firms and wealthy investors dismayed by the GameStop trades, they've traded the stock market like their own personal casino while everybody else pays the price. So that's kind of the temperature for some of that rhetoric. So clearly, there's a real narrative developing that this is a win for the people. But it does really seem like everybody wants to co-opt this story for their own particular narrative. You know, there's David versus Goliath there. There's bad Reddit guys versus a properly operating financial system there, too. But the culture of these message boards has a pretty complicated history. And when we look at the motivations behind the people congregating on WallStreetBets, it's pretty opaque there too.

RUBY:

We'll be back in a moment.

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RUBY:

Ariel, I want to ask you about the people who started this, who kicked off this pretty unique campaign... the people who are on the subreddit WallStreetBets. Who exactly are they?

ARIEL:

Sure. Well, I think it is kind of hard to get a complete picture of who is hanging out on WallStreetBets. You know, these are anonymous accounts typically, so we don't really know. There is a, you know, a bit of a stereotype about them: young men, maybe interested in gaming as well who are using apps like Robinhood, which is sort of a new phenomenon, which really allows all kinds of people to start trading in ways they couldn't have before because they offer some level of free trades. So that's kind of the stereotype. But it is interesting, though, the ability of sites like Reddit to allow like minded people to meet, chat, organise, act collectively.

There is, of course, some history here which can go in some pretty negative directions.
So the culture on Reddit has historically been steeped in trolling. You know, the tag line on WallStreetBets is “like 4chan found a Bloomberg terminal”. And so 4chan, that's a reference to a pretty toxic message board where there had been a lot of sort of alt-right movements, formulated a lot of anti-Semitism, a lot of sexism. And of course, GamerGate emerged partially from Reddit as well. If you might remember, that was a movement that began ostensibly about video games, quote unquote, but became a really significant online harassment campaign that went after plenty of different types of women associated with the video game industry. So there is a culture in these communities where edginess or rebellious energy can build into something positive and negative. So I guess we'll see how it plays out.

RUBY:

Mm there is obviously an element of trolling to this, but as you've also alluded to, there is this other side, this kind of pushback from people who may have been marginalised in the economy, particularly during the pandemic. And they're seeing this as an opportunity to, I guess, strike back at Wall Street and make some money for themselves.

ARIEL:

Definitely, there’s a lot to like about this narrative. But I do think it's a bit complicated, you know?

Archival Tape -- Interviewee 1

“I’m 22 years old, and I’m currently a graduate student. I have $37,000 worth of debt from my undergrad…”

ARIEL:

There have been plenty of stories about people who have been able to pay off debts and buy a car and all kinds of things, thanks to this short squeeze on GameStop.

Archival Tape -- Interviewee 1

“I profited $47,000 in GameStop, cashed out of it completely, I currently have an ACH transfer on my way to my bank, and I’d love to wipe out that $37,000 worth of debt.”

ARIEL:

And there's a lot of schadenfreude, obviously, in seeing these hedge funds get punished, you know, particularly in the wake of the 2008 Financial Crisis, when a lot of people think these kinds of places got off too scot free.

Archival Tape -- Unidentified Interviewer

“How much did you invest to make 46 on gamestop?"

Archival Tape -- Interviewee 1

“It was about $5000.”

Archival Tape -- Unidentified Interviewer

“I'm so glad for you, and glad you got out…”

ARIEL:

But I would be wary of reading too much into it. I think it's often when reporting on these communities that reporters fall into kinds of traps. I mean, these are spaces steeped in irony, in jokes, and it doesn't always reward us to try and stick them into convenient narratives. So I can't, you know, reduce it to one single motivation. Apart from, it's all a bit funny. Some people are making money. There's a nice narrative there about sticking it to Wall Street and we'll see what happens in the end.

RUBY:

Ariel, already we’ve seen proposals from politicians in the US to overhaul the way financial markets are regulated in response to the GameStop situation… and there seems to be a war brewing between small-time investors like those on Wall StreetBets and bigger, institutional players. It doesn’t really feel like this is ending anytime soon, in fact it feels like the start of something. So what do you think happens next?

ARIEL:

So in recent days, people have also been bidding up the prices of other struggling stock like the movie theatre chain AMC Entertainment. So obviously, during a pandemic, when most people are staying home, you wouldn't think a movie theatre chain would be the best bet. But there we are. And it really shows that a self organised community of small investors and maybe some big ones, too, can make stocks rise almost just by collective will and by encouraging each other to hold the line. Better financial minds than my own can predict what's going to happen after this or what it really means for the stock market long term. I'm sure these hedge funds will be now sitting on Reddit, Telegram or wherever these people are gathering. And if they weren't doing that already and you know, other people have predicted this, too, but this is far from the last meme stock. There's going to be all kinds of stocks in the future where a collective group can push it up for no other reason than there's a narrative that they like about the company.

But there's all kinds of interesting implications here. I mean, I'm quite interested in something that Alex Stamos raised, and he is a former Facebook employee who now works for the Stanford Internet Observatory and researching disinformation. And he pointed out the implications for influence operations long term. I mean, he said that Reddit has a problem. It's now home for a community of hundreds of thousands of people who have demonstrated the ability to move billions of dollars based upon the urging of, at most a couple of dozen anonymous accounts. So who will this couple of dozen anonymous accounts be in the future? And who will have motivation to move stocks like this in the future? But there's a lot of questions and really it is a fascinating story.

RUBY:

Ariel, thank you so much for your time today.

ARIEL:

Thank you.

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RUBY:

Also in the news today - Western Australia recorded no new cases of Covid-19 yesterday, for the second day in a row. Parts of WA, including Perth went into a five-day lockdown on Sunday after a hotel security guard tested positive to the UK strain of COVID-19.

And the head of the AFL, Gillon McLachlan has responded to a leaked report outlining systemic racism at Collingwood Football Club, calling it ‘sobering and confronting’. McLachlan also stood by Collingwood President Eddie McGuire - who has faced calls to step down in the wake of the report - saying he supported McGuire's commitment to enacting change.

I’m Ruby Jones, this is 7am, see you tomorrow.