GameStop Corporation

Latest story

100 Shares129 Views

Fed Warns Meme Stocks Could Pose Some Risks

by

Stocks that experience major volatility as a result of social media attention — often called meme stocks — have not threatened broader financial stability so far but could open the door to vulnerabilities, the Federal Reserve said in a report on Monday.The Fed’s twice-yearly update on America’s financial system included a special section on the meme stock phenomenon. It attributed the trend, in which attention on Twitter, Reddit and other platforms encourages rapid inflows into or out of buzzy stocks, to new trading technologies including mobile apps and to changing demographics, as younger people enter the retail trading market.“Along with the rise in risk appetite and the growing share of younger retail investors, access to retail equity trading opportunities has expanded over the past decade,” the report said.Social media can pump up interest in stocks, and it can also create an echo chamber, one in which “investors find themselves communicating most frequently with others with similar interests and views, thereby reinforcing their views, even if these views are speculative or biased.”Still, internet-inspired pile-ons do not necessarily create conditions that will spur a broad market crash, the Fed’s report suggested.“To date, the broad financial stability implications of changes in retail equity investor characteristics and behaviors have been limited,” the Fed said. The central bank specifically assessed what happened to shares of AMC Entertainment and GameStop in January, noting that activity and volatility in those stocks came alongside high activity on Twitter.While the report concluded that “recent episodes of meme stock volatility did not leave a lasting imprint on broader markets,” the Fed said a few trends “should be monitored.”The report pointed out that young and debt-laden investors may be more vulnerable to stock price swings, especially since they are now using “options,” which allow traders to place bets on whether prices will rise or fall and which can magnify leverage and potential losses.The Fed also warned that “episodes of heightened risk appetite may continue to evolve with the interaction between social media and retail investors and may be difficult to predict,” and that financial firms may not have calibrated their risk-management systems to reflect the volatility and losses that meme stock episodes might trigger.“More frequent episodes of higher volatility may require further steps to ensure the resilience of the financial system,” it said.Looking across a broader range of asset classes and recent trading activity, the Fed’s financial stability analysis generally suggested that the vulnerabilities have moderated compared with earlier in the pandemic — but it did flag high asset prices and a number of lingering risks.Stock prices have increased “notably,” the report said, and prices relative to forecast earnings remain near historical highs. Home prices have climbed, it noted, though mortgage lending standards have not deteriorated too badly. When lenders start to lower their standards, that can make the market more vulnerable.The Fed noted that “corporate bond issuance remained robust, supported by low interest rates,” also pointing out that “across the ratings spectrum, the composition of newly issued corporate bonds has become riskier.”And while many markets show signs of investor optimism, some financial strains from the pandemic shock persist.Some commercial real estate sectors continue to face challenges because “office vacancies are elevated and hotel occupancy rates remain depressed,” the report noted. Plus, “structural vulnerabilities persist in some types of money market funds,” which could amplify a future shock to the system.Money market mutual funds melted down during the pandemic and required a Fed rescue for the second time in a dozen years, and regulators are now looking at how to make them more resilient.The report also warned that life insurers might struggle to raise cash in a pinch.And it delved into climate risks. The central bank is among regulators now trying to understand what risks climate change might pose to banks, insurers and the broader financial system.“The Federal Reserve is developing a program of climate-related scenario analysis,” the report noted. “The Federal Reserve considers an effective scenario analysis program, which is designed to be forward looking over a period of years or decades, to be separate from its existing regulatory stress-testing regime.” More

More stories

  • 125 Shares179 Views

    in Economy

    Meme Stocks and Archegos: Fed Calls Out Financial Weak Spots

    by

    The Federal Reserve painted a picture of a generally stable financial system, but one bubbling with risk-taking that merits attention.The Federal Reserve warned about financial stability risks emanating from frothy stocks and debt-laden hedge fund bets in its twice-annual report on potential vulnerabilities in the system, pointing to the rise of so-called meme stocks as one sign that risk-taking could be getting out of hand. More

  • 150 Shares99 Views

    in Economy

    Do Fed Policies Fuel Bubbles? Some See GameStop as a Red Flag

    by

    #masthead-section-label, #masthead-bar-one { display: none }GameStop vs. Wall StreetGameStop Stock FallsYoung, Fearless and Shaking Up Wall StreetHow to Win the Stock MarketGameStop and Your TaxesAdvertisementContinue reading the main storySupported byContinue reading the main storyDo Fed Policies Fuel Bubbles? Some See GameStop as a Red FlagAnalysts warn that low-interest rates are promoting speculative bubbles. The Fed itself has downplayed the possibility that it’s behind asset prices.GameStop’s share price last month when a rush of retail traders coordinated to push up the company’s stock value.Credit…Tony Cenicola/The New York TimesJeanna Smialek and Feb. 9, 2021Updated 5:33 p.m. ETBefore it fueled the run-up in GameStop’s stock, WallStreetBets, the Reddit message board, had another claim to fame: It helped popularize a series of memes centered on the Federal Reserve chair, Jerome H. Powell, and his central bank’s policy of keeping interest rates near rock bottom while buying government bonds to bolster the economy.“Money printer go brrrrr,” many of them read, suggesting that the Fed chair was essentially printing money and propping up markets by pumping cash into them through its program to buy government-backed bonds.Reddit and Twitter made images playing on Mr. Powell’s persona — he’s referred to almost exclusively as “JPOW” on WallStreetBets — so ubiquitous that they’ve become paraphernalia. Amazon now sells sweatshirts (Prime eligible!) printed with an image of the Fed chair as a Christ figure ringed in a halo of golden light. In place of the Bible, the gospel he holds declares, “Recession canceled, stocks only go up.”The blind optimism embodied in that statement — one might call it irrational exuberance — runs the risk of inflating bubbles in markets. Some experts see the saga of GameStop as a cautionary example of problems that can develop when investors get swept up in market momentum, driven to some extent by the Fed’s attempts to keep the economy humming along with low rates and bond purchases.“We’re observing a market mania, and the cost of money has something to do with this,” said Peter Fisher, who teaches finance at Dartmouth’s Tuck School of Business and once served in the Treasury Department and Federal Reserve. “It’s just not credible to suggest that the momentum in equity markets has nothing to do with the Fed’s efforts to keep interest rates so low for so long.”To be clear, GameStop has been an unusual situation.Hedge funds had been betting against the retailer’s stock, or “shorting” it, assuming its share price would fall. A rush of retail traders coordinated to make that bet go bad by pushing up GameStop’s price. Because of the way short selling works, the hedge funds were forced to buy GameStop themselves to limit their losses. The stock price skyrocketed, jumping more than 600 percent in days.A mass of newly minted retail investors has poured into the stock market over the last year, thanks to a confluence of factors including fewer social opportunities and work-from-home arrangements, temporary disruption of sports betting and the rise of trading that is billed as “commission free.” Retail trading of individual stocks now represents roughly 25 percent of overall stock market volume compared with just 10 percent in 2019, according to Goldman Sachs.But a shared belief that this is a good time to buy stocks is also fueling that trend.Leaving aside the surge — and then the crash — in so-called meme stocks, the market appears to be flirting with euphoria. Price-to-earnings ratios and other market barometers are at heights not seen in two decades, since the tail end of the dot-com boom.Much as they did in the tech stock frenzy of the 1990s, individuals are pushing levels of trading activity sharply higher, traders are borrowing on margin to buy stock, and investors are snapping up public offerings from unprofitable or unproven companies.Analysts across Wall Street say the traditional drivers of stock price movements — changing expectations for corporate profits and revenues — have in many cases become less relevant.In fact, the surge has come when the American economy remains damaged by the coronavirus pandemic. Fresh data released on Friday showed the economy in January was still nearly 10 million jobs short of employment levels that prevailed before the virus struck.Some of the bump has come because investors are placing their bets based on expectations about corporate prospects once demand has snapped back and the job market has healed. But analysts said a combination of fiscal stimulus — including checks that put money into consumers’ pockets — and the Fed’s cheap money policies have also helped bolster stock prices.The timing checks out. When the Covid-19 crisis first gripped the United States last February and March, the market plunged. The S&P 500 — which had been at record highs — collapsed by nearly 34 percent in a matter of weeks. Conditions became so volatile that even typically stable markets, such as that for Treasury bonds, began to malfunction under the strain.To keep the panic from freezing the financial system and worsening the economic damage, the Fed cut interest rates nearly to zero on March 15 and announced a series of major actions on March 23. The central bank said that it was willing to buy unlimited quantities of government-backed debt, and that it would tiptoe into the corporate bond market for the first time ever to prevent the pandemic’s market fallout from turning into a full-blown financial crisis.Jerome H. Powell, the Federal Reserve chair, said in late January that monetary policy should not be the first line of defense in containing financial risks.Credit…Al Drago for The New York TimesMarkets rejoiced. Stocks bottomed out and then ricocheted higher, climbing a 9.4 percent the next day and ultimately staging the best three-day performance for the index since 1933.“When essentially your central bank has drawn a line in the sand, as they did last March, then people understand that it’s a one-way bet,” said Paul McCulley, former chief economist of Pimco, a giant asset management shop.The S&P 500 stock index has jumped more than 70 percent since then. To put the breakneck speed of that run-up into context, the S&P 500 has climbed about as much over the past 10 months than it had in the four years leading up to the pandemic.When it comes to the Fed’s influence on stock prices, some of it is purely mechanical. When companies can borrow for less, it allows for bigger profits and cheaper business expansion opportunities, which could elevate their worth in the eyes of stockholders. Some of the increase probably reflects the reality that super-low rates push investors out of bonds and into riskier assets like stocks as they seek better returns.But analysts warn that part of the run-up simply owes to sentiment: Investors believe stocks will go up, in some cases because they believe in the Fed, and so they keep buying.The downside is that people can lose faith in an ever-rising stock market. And when the music stops, an optimism-fueled bubble can become a pessimism-pricked burst.GameStop in particular “does illustrate some of the financial vulnerabilities that can stem from ultra-loose monetary and fiscal policies,” Neil Shearing at Capital Economics wrote in a research note last week, noting that super-low interest rates, government stimulus payments, lockdowns and platforms that democratize trading have all come against a backdrop of “longstanding societal strains and the perception of a widening schism between Wall Street and Main Street.”Still, Mr. Shearing said in an interview, the stock market as a whole does not yet look dramatically overextended, and the Fed needs to focus on righting a pandemic-damaged economy — which is the goal of its low-rate and bond buying policies.The Fed argues that it is not driving asset prices to the degree that many believe. While Mr. Powell, the Fed chair, declined to discuss GameStop specifically at a news conference in late January, he painted financial risks over all as “moderate.” “If you look at where it’s really been driving asset prices, really in the last couple of months, it isn’t monetary policy: It’s been expectations about vaccines, and it’s also fiscal policy,” Mr. Powell said. “I think that the connection between low interest rates and asset values is probably something that’s not as tight as people think because a lot of different factors are driving asset prices at any given time.”But if, as many believe, the Fed’s low rates are a substantial part of the story, it’s unclear that raising them slightly would stop a run-up in stock prices. While slowing bond purchases probably could take the shine off investors’ enthusiasm, that could come at a cost to the real economy.Regardless, Fed officials are unlikely to try to cool things off in the market any time soon.“If one group of speculators wants to have a battle of wills with another group of speculators over an individual stock, God bless them,” Neel Kashkari, the Minneapolis Fed president, said at a virtual town hall event last week. He added that he was not “at all thinking about modifying my views on monetary policy because of speculators in these individual stocks.”AdvertisementContinue reading the main story More

  • 125 Shares119 Views

    in Economy

    How to Win at the Stock Market by Being Lazy

    by

    #masthead-section-label, #masthead-bar-one { display: none }GameStop vs. Wall StreetRobinhood’s C.E.O. Under the GunGameStop Investors Are TestedYour TaxesReader’s GuideAdvertisementContinue reading the main storyUpshotSupported byContinue reading the main storyHow to Win at the Stock Market by Being LazyThe drama of GameStop is misleading; the surer path to wealth is extremely boring.Feb. 4, 2021, 5:00 a.m. ETMany parts of the GameStop story — the wild swings over the last couple of weeks in shares of the video-game retailer and a few dozen other out-of-favor stocks — are not exactly new.Long before Reddit, the Yahoo message boards of the late 1990s democratized the expression of strong opinions about stocks (they didn’t call them “stonks” in those days).Short squeezes and market-cornering were maneuvers well before Randolph and Mortimer Duke — the fictional securities-fraud-committing villains of the 1983 comedy “Trading Places” — were greedy little boys.What has been weird to watch, if you’ve spent your life plodding away at building a retirement fund, reading books about personal finance, weighing fee structures and tax implications of various investment vehicles, is the mix of righteous anger and gleeful anarchism driving it all. Many of the traders driving the GameStop mania in recent days want to strike it rich and bring down what they view as a corrupt, rigged system along the way.Yes, there is abundant greed and venality on Wall Street. But the reality is that the stock market has also offered a path for ordinary people to build wealth — and more so in the last generation than ever before. You haven’t needed to burn down the system. All you’ve had to do is take the laziest, simplest approach to stock investing imaginable, and have a little patience.Ever since Vanguard introduced its S&P 500 index fund 45 years ago, ordinary investors have been able to invest in broad stock indexes in a tax-efficient manner, with extremely low fees. Any schlub on the street can put money to work harvesting a small share of the earnings of hundreds of leading companies, led by some of the sharpest corporate executives on earth and their millions of employees. You haven’t had to do much of anything![embedded content]Your returns would have been strong even if you had terrible timing. Suppose you had received a $10,000 windfall in March 2000, the peak of the dot-com bubble and a moment at which we can all agree stocks were overpriced. Yet even with such unfortunate timing, if you invested that money in a low-fee S&P 500 index fund and reinvested dividends for the last 20 years, your $10,000 would have turned into nearly $28,000 by the end of this past month — a 5 percent annual return when adjusted for inflation.And that was the single worst month in decades to begin investing. On average, if you were to select a month between 1990 and 2019 to begin investing, your annualized return through January 2021 would have been 9.8 percent after inflation. Simply for having the patience to sit on your hands.(Those returns would have been reduced by a few hundredths of a percentage point by mutual fund fees, and more by taxes if the money was not in a tax-advantaged account.)It gets better. Most people don’t receive and invest a single windfall, but rather chip in savings gradually.So suppose you had begun saving $100 a month at the start of the year 2000 — again, near the peak of a bubble — and had continued doing so ever since, increasing your savings along with inflation, putting the money into an S&P 500 index fund and reinvesting dividends. Over the last 21 years, you would have contributed about $32,500, yet your portfolio at the end of January would be worth more than $103,000.You achieved a 10.5 percent annualized rate of return, because while some of your savings was invested at market peaks, your slow-but-steady approach ensured you were also buying shares during periods when the market was depressed, as in 2002 and 2009.As recently as the 1970s, this strategy would have been hard to carry out. Modern index funds didn’t exist until John C. Bogle invented the concept for Vanguard in 1976. Mutual funds in the past had much higher fees than they do today. Buying lots of different individual stocks would have required high brokerage fees as well, making it all but impossible for people with modest savings.Moreover, the advantages of a “buy the index” approach were not as well understood until recent decades. Academic finance research in the second half of the 20th century had a series of findings about the efficiency of markets that, taken together, imply that the best long-term investing strategy for most people is simply to put money into the market as a whole and minimize fees and taxes. Personal finance advisers and commentators widely embraced this finding, with adjustments that depend on the investor’s risk preferences, particularly investing some slice of the portfolio in safer bonds.The result: In recent decades, following the most obvious conventional wisdom of how to invest has been possible even for small investors.If the market is rigged, it is rigged in a way that allows people to achieve a substantial return on their money by watching television or playing golf or taking a nap, rather than by spending their hours scouring message boards or developing elaborate theories of how to enact revenge on perfidious hedge funds or learning what the gamma of an option is.Think of Corporate America — the hundreds of large companies in which you are investing if you put your money into index funds — as a sports franchise.There are people who try to make money by betting for or against the franchise. They may put in lots of effort calculating proper odds, and once in a while may win big, turning a small wager into a big score. The very best at this — the sharps, in sports betting terminology — will even win more than they lose and be able to make a living out of it.But over all, the system is a zero-sum game, and most people who play are going to lose money once the sports books’ cut is accounted for. If you decide to try to make a fortune by betting on professional sports, you might even conclude that the system is rigged against you, because in a sense it is. The consistent winners are going to be highly skilled sports bettors who have been doing this a long time; and the casino, which takes a share of every pot.In this analogy, those fortune-hunting newcomers are the people who have taken to trading options on GameStop and other stocks in recent months.Then there are people who work hard to make that franchise operate: the team executives, the coaches, the players. They put in long hours to make the franchise a success, and while part of their pay is linked to the franchise’s success, the bulk of their compensation is cash in exchange for their labor. They can be well compensated, but theirs are rare talents and they have to work really hard.They are the equivalent of the executives and employees of the companies whose stock shares trade on public exchanges.Then there are the passive owners of the sports franchise. For instance, the owner of a minority share who doesn’t even have to help hire and fire team presidents. Other people do all the work of running the team. These owners just enjoy the benefits of earnings, year after year.It is not without risk: The franchise might sign an overpriced free agent, or ticket sales might collapse because of a pandemic. But if they are patient, they can expect that their investment will eventually pay off. And that is true even though they spend their time doing something other than examining point spreads and drawing up plays.There are no guarantees in life. Some people who are aggressively trading meme stocks will presumably walk away with significant profits. Index funds won’t generate the kind of overnight payoffs that buyers of GameStop options are evidently looking for. And the decades ahead may offer lower returns to stock investors than the decades just past.But the extraordinary payoffs of being a passive stock market investor are not something to overlook. When you are offered a free lunch — a reasonable expectation of good returns with zero effort and only moderate risk — it makes sense to eat it.Successful investing is not nearly as exciting and potentially painful as trading options on GameStop or sliding down the steps of Federal Hall on Wall Street. But then, it isn’t trying to be.Credit…Kena Betancur/Agence France-Presse — Getty ImagesAdvertisementContinue reading the main story More

  • 113 Shares109 Views

    in Economy

    Robinhood's C.E.O., Vlad Tenev, Is in the Hot Seat

    by

    #masthead-section-label, #masthead-bar-one { display: none }GameStop vs. Wall StreetCharting the Wild Stock SwingsWhat’s GameStop Really Worth?Your TaxesReader’s GuideAdvertisementContinue reading the main storySupported byContinue reading the main storyRobinhood’s C.E.O. Is in the Hot SeatVlad Tenev has incited the fury of the trading app’s fans amid a stock market frenzy. His lack of preparedness on nuts-and-bolts issues was part of a pattern, former employees and analysts said.Vlad Tenev, co-founder of Robinhood, at the company’s Silicon Valley headquarters in 2015.Credit…Winni Wintermeyer/ReduxNathaniel Popper, Kellen Browning and Feb. 2, 2021Updated 3:06 p.m. ETSAN FRANCISCO — Vlad Tenev, the chief executive of the online brokerage Robinhood, has had practice doing damage control.Last March, he told customers that “we owe it to you to do better” after Robinhood’s app suffered lengthy outages, leaving many people unable to trade.In June, he wrote in a blog post that he was “personally devastated” and wanted to improve the “customer experience” after a 20-year-old who had a negative $730,000 balance on the app killed himself.And in December, when federal regulators fined his company $65 million for misleading users about how it made money, he said the accusations “don’t reflect Robinhood today.”Mr. Tenev, 33, is now in the hot seat again after Robinhood abruptly curtailed its customers’ trading last week amid a frenzy in stocks such as GameStop, which were driven sky high by an army of online investors. The limits infuriated Robinhood’s users, who were locked out of the action, and the seven-year-old start-up was blasted by lawmakers and others, accused of acting unfairly toward ordinary investors.For days, Robinhood was slow to fully explain why it had curbed people from trading the stocks. Only later did Mr. Tenev disclose that Robinhood had put in restrictions because it did not have enough of a cash cushion to hedge against the risky trades. To increase that cushion and avoid further problems, Robinhood raised an emergency $1 billion last week, followed by an additional $2.4 billion this week.On Sunday, Mr. Tenev told Elon Musk in an impromptu interview on the online conversation app Clubhouse that he knew that Robinhood’s trading curbs were “a bad outcome for customers.” He said the entire experience had been challenging, “but we had no choice in this case.”It was no surprise that Robinhood got caught unawares over the past week, current and former Robinhood employees and analysts said. While Mr. Tenev has helped revolutionize online trading for a younger generation with an app that makes investing easy and fun, his start-up has repeatedly been ill prepared to deal with issues as commonplace as technology glitches and trading hiccups, they said.Many start-ups go through growing pains. But “there’s a consistent pattern which makes one question whether he knows what is going on inside his company,” Vijay Raghavan, an analyst at Forrester Research who covers Robinhood and other brokers, said of Mr. Tenev. Lawmakers and some of Robinhood’s users have been even harsher on the chief executive. Representative Alexandria Ocasio-Cortez, Democrat of New York, and Senator Ted Cruz, Republican of Texas, have slammed Robinhood for freezing users’ ability to buy GameStop stock. Mr. Tenev has agreed to testify about the issue in Congress on Feb. 18.Even some of Robinhood’s biggest promoters have turned against Mr. Tenev. Dave Portnoy, the founder of Barstool Sports and a high-profile Robinhood supporter, wrote over a picture of Mr. Tenev on Twitter last week: “Fraud, liar, Scumbag.”Robinhood, a privately held company in Menlo Park, Calif., declined to make Mr. Tenev available for an interview. But Jason Warnick, the chief financial officer, said Mr. Tenev had widespread support internally.“When I watched Vlad, there is absolutely no one else I would want to be with,” Mr. Warnick said about the events of the last week. “He mobilized us in an incredibly effective way.”Venture capitalists who have backed Robinhood, which is valued at nearly $12 billion and is likely to go public this year, also said they had confidence in Mr. Tenev. Rahul Mehta, a partner at the venture firm DST Global, said the speed with which Mr. Tenev had raised the emergency $3.4 billion over the past few days “shows you the support around the table and the belief people have, in particular, for Vlad.”Mr. Tenev, who moved to the United States from Bulgaria when he was 5 and grew up in the Washington, D.C., area, founded Robinhood with Baiju Bhatt in 2013. The two met while studying math at Stanford University.After graduating from Stanford in 2008, Mr. Tenev attended the University of California, Los Angeles, to pursue a Ph.D. in math but dropped out to work with Mr. Bhatt. The pair initially had two other business ventures, including a Wall Street trading firm.But those were short-lived. Instead, inspired by the Occupy Wall Street movement in 2011 — which took aim at the power of the big banks — they began talking about how to “democratize finance” for everyone by ending the fees that most brokerages charged to trade stocks. They named Robinhood after the English outlaw of legend who stole from the rich and gave to the poor.In particular, Mr. Tenev and Mr. Bhatt wanted an app that a younger generation could easily use. “People in my age group, the millennials, weren’t getting into the markets and were openly distrustful of the institutions that were providing financial services,” Mr. Tenev said on CNBC in 2015.Mr. Tenev with his Robinhood co-founder, Baiju Bhatt.Credit…Aaron Wojack for The New York TimesMr. Tenev and Mr. Bhatt, who were co-chief executives, made Robinhood simple. Users were able to begin trading stocks with nothing more than an iPhone app and with no fees. The app also made trading feel like a game. New customers were given a free share of stock after scratching off what looked like a digital version of a lottery ticket.The men sought out celebrity investors like the actor Jared Leto and the rapper Snoop Dogg. The co-C.E.O.s often showed up at the office with matching Tesla sport utility vehicles, one black and one white, two former employees said.Inside Robinhood, Mr. Tenev was known as the cerebral coder in charge of operations, said six current and former employees, who spoke on the condition of anonymity. He was known for sitting down at lunch with employees to talk about books or his latest theories from science fiction. Mr. Bhatt was more fun-loving and handled design, they said.Both were active on social media, with Mr. Tenev tweeting emoji-filled, jokey replies to Mr. Musk. Mr. Bhatt broadcast pictures of themselves from floor seats at Golden State Warriors basketball games.As Robinhood grew quickly, though, so did the blunders. In 2018, the company announced that it would begin offering bank accounts. But it had not secured approval from financial regulators, which is standard practice, earning the start-up a swift rebuke.That same week, Robinhood released software that erroneously reversed the direction of customer trades, which meant that a bet on a stock going up was turned into a bet that it would go down. Mr. Tenev oversaw technology.Technological issues continued piling up. In 2019, customers discovered that Robinhood’s software accidentally allowed them to borrow almost infinite amounts of money to multiply their stock bets. Last March, as the pandemic hit the United States and the stock market gyrated wildly, Robinhood’s app seized up for almost two days, leading some customers to lose more than $1 million.That was when Mr. Tenev said in a blog post that “we owe it to you to do better.” By then, Robinhood had more than 13 million customers.Mr. Warnick and other employees said Mr. Tenev had a knack for staying calm during difficult situations. “He doesn’t get emotional,” Mr. Warnick said.But five current and former Robinhood employees said Mr. Tenev moved quickly to new projects without fixing the previous problems. After the March outages, they said, Mr. Tenev told the company that it would significantly ramp up its infrastructure and customer support. Yet almost a year later, the start-up does not offer a customer service phone number, unlike its competitors.Robinhood did not respond to a request for comment on the customer service issues.Last year, Mr. Bhatt stepped down as co-chief executive after returning from paternity leave, leaving Mr. Tenev in charge. Mr. Bhatt remains an executive and is on the company’s board of directors.Robinhood’s technical outages have continued. Last month, the site went down 19 times, more than twice as often as Charles Schwab or Fidelity, according to data from the web tracking company DownDetector. Mr. Tenev has recently kept a low profile. Last year, he said in a podcast interview that he keeps his phone out of his bedroom at night to avoid being tempted to check social media.But over the last week, as the mania over GameStop stock grew and Robinhood was forced to react, Mr. Tenev had little choice but to step out more. He has appeared on television at least eight times from the sparsely decorated living room of the home where he lives with his wife and children.In most of the appearances, Mr. Tenev used technical language and shifted quickly to talk about Robinhood’s moving forward to another stage of expansion.“This is just a standard part of practices in the brokerage industry,” he told Yahoo Finance last Friday, referring to the decision to temporarily halt some purchases. “We’re very confident about our future.”Kitty Bennett contributed research.AdvertisementContinue reading the main story More

  • 150 Shares169 Views

    in Economy

    Why Tackling Gamestop's Wild Stock Rise Will be a Challenge for Gensler

    by

    #masthead-section-label, #masthead-bar-one { display: none }GameStop vs. Wall StreetCharting the Wild Stock SwingsWhat’s GameStop Really Worth?Your TaxesReader’s GuideAdvertisementContinue reading the main storySupported byContinue reading the main storyGensler Faces Big Challenge in Tackling GameStop’s Wild RideThere is broad agreement that the capital markets have been distorted but less consensus on what, if anything, the S.E.C. should do about it.Unlike the fraud or manipulation that regulators like Gary Gensler are used to pursuing, the GameStop frenzy involves investors who have publicly acknowledged the risks they are taking.Credit…Kayana Szymczak for The New York TimesFeb. 1, 2021Updated 4:13 p.m. ETWASHINGTON — During his last regulatory stint in Washington, Gary Gensler focused on reining in big Wall Street players that he believed were manipulating markets and assuming huge financial positions to the detriment of other investors.If confirmed to lead the Securities and Exchange Commission, Mr. Gensler will have to confront an entirely new spin on that same game: Thousands of small investors who have banded together to amass giant stakes in GameStop and other companies with the aim of toppling big Wall Street players.The frenzy around GameStop, whose stock has soared 1,700 percent in the last month, presents a huge challenge for Mr. Gensler and the S.E.C., which will have to reckon with a fundamental shift in the capital markets as a new breed of investor begins trading stocks in unconventional ways and for unconventional reasons.Rather than snapping up a company’s shares because of a belief in that firm’s growth potential, the investors who piled into GameStop, AMC, BlackBerry and others did so largely to see how far they could drive up the price. Their motivation in many cases had less to do with making money than with causing steep financial losses for big hedge funds that were on the other side of that trade and had bet that the price of GameStop and other firms would fall.Their ability to cause such wild market volatility was enabled by new financial apps — like Robinhood — that encourage investors to trade frequently and allow them to buy risky financial products like options as easily as they purchase a latte. Options — which are essentially contracts that give the investor the option to buy a stock at a certain price in the future — were what helped put the “short squeeze” on the hedge funds that had shorted the company’s stock.“What’s going on with GameStop has almost nothing to do with GameStop as a company,” said Barbara Roper, director of investor protection for the Consumer Federation of America. “When you see the markets essentially turned into a video game or turned into a casino, that actually has some pretty serious repercussions for the way we use the markets to fund our economy.”The question for Mr. Gensler and the S.E.C. will be what they can — or should — do about it.In a statement on Friday, the S.E.C. said that it was “closely monitoring” the situation and that it would “act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws.”But unlike the typical type of fraud or manipulation that regulators like Mr. Gensler are used to pursuing, the current frenzy involves investors who have publicly acknowledged the risks they are taking and even boasted about losses. Forums like Reddit’s WallStreetBets have entire threads devoted to “loss porn,” where traders post screenshots showing their portfolios in the red, to applause from other investors. (“I’m proud of you” and “Respect” are among the typical responses.)That dynamic poses a challenge for an agency whose primary mission is to protect investors by ensuring they have enough information when deciding whether to trade and to enforce securities laws that were written before many of the GameStop investors were even born.“The S.E.C. has for years worried about hedge funds coordinating their positions and coordinating bear raids and otherwise engaging in activities to move around a stock,” said Tyler Gellasch, a former S.E.C. lawyer who heads the Healthy Markets Association, an investor group. “There are reporting requirements around that. But we’ve never really thought about that being done en masse and in public. The S.E.C.’s rules haven’t thought about what happens when it’s 100,000 people coordinating via Reddit versus three people coordinating via email.”Those who know Mr. Gensler say his first move will probably be determining what actually caused the momentum and who benefited. While many big hedge funds got crushed by the trades, there is speculation among market participants and securities lawyers that other big funds may have been fueling — and making money off — some of the volatility.“First of all, the S.E.C. has got to figure out what the hell was going on,” said James Cox, a securities professor at Duke University School of Law. “The first question is going to be an empirical one — how much of this momentum was created by the hedge funds having to cover their short position and how much of the rest was the impact of the options trading — either buying the options or just executing on the options.”A bigger issue for Mr. Gensler will be figuring out corrective actions. While the stock market has always been something of a game, Mr. Cox and others say the recent events have perverted their original purpose, which is to provide a place for companies to raise capital by giving investors the information they need to determine where to put their money.“When you see what’s happening with GameStop, you ask yourself, is this manipulation, is this mass psychosis or is there something wrong in our market structure that is causing this to happen,” said James Angel, a finance professor at Georgetown University’s McDonough School of Business. “This does illustrate some of the imperfections in our market structure and the real question is what, if anything, should be done about it.”Mr. Gensler has spent the past several years teaching at the Massachusetts Institute of Technology, focusing on financial technology, cryptocurrencies and blockchain technology. His classes have addressed some of the knotty issues he will have to face if confirmed to the S.E.C., including the rise of new financial technology companies like Robinhood and the so-called roboadviser Betterment.In a 2019 discussion at M.I.T., Mr. Gensler said it would be “best to show some flexibility” when considering whether to regulate fintech companies since heavy-handed rules could snuff out innovation. Mr. Gensler declined to be interviewed for this article.If confirmed to the job, Mr. Gensler will have to tread carefully. The motivation behind the GameStop squeeze has been embraced by lawmakers and others, who see the trades as a welcome rebellion against the power of big Wall Street players and persistent inequities in the economy. Last week, Representative Alexandria Ocasio-Cortez of New York, a progressive Democrat, and Senator Ted Cruz, a conservative Texas Republican, both condemned efforts by Robinhood to restrict trading in GameStop and other companies, saying the firm was putting the interests of hedge funds above small investors.Other lawmakers are warning against overreacting with more regulation. “When examining this episode, regulators and Congress should tread with extreme caution and avoid needlessly inserting themselves into equity markets,” Senator Patrick J. Toomey, Republican of Pennsylvania, said in a statement.Representative Ro Khanna, a California Democrat, said in an interview that simply blocking retail investors from certain stocks was the wrong decision and that Mr. Gensler should look to the bigger fish — namely lightly regulated hedge funds — when looking for areas to regulate.“We probably need to increase the capital requirements on short-selling for hedge funds, to make it more difficult,” Mr. Khanna said.That is an area that will be more familiar to Mr. Gensler, who spent his tenure as chairman of the Commodity Futures Trading Commission trying to stop big Wall Street firms from manipulating markets. That included bringing dozens of enforcement cases against big banks, which were accused of manipulating key rates that help determine certain prices across the financial system, including benchmark interest rates and foreign exchange rates.Dan Berkovitz, a C.F.T.C. commissioner who served as general counsel under Mr. Gensler, said breaking up “the old boy network” was a major focus during their time at the agency.“He wanted to break that whole culture up and introduce a culture of competition instead of a cozy coexistence,” Mr. Berkovitz said. “That was his philosophy, and coming from Goldman he saw from the inside how that worked.”Mr. Gensler, whose confirmation hearing has not yet been scheduled, will face pressure to bring a similar focus to the S.E.C. On Sunday, Senator Elizabeth Warren, Democrat of Massachusetts, said the GameStop episode underlined that S.E.C. regulators needed to “get off their duffs” and work to make the market more transparent. Among other things, she said new regulations should halt company stock buybacks for the purpose of pushing up share prices.“In the long run, if we have a market that is transparent, that’s level, that helps individual investors come into that market and, frankly, helps make that market more efficient,” she said on CNN’s State of the Union. “The hedge funds, many of the giant corporations, they love the fact that the markets are not efficient.”“GameStop is just the latest ringing of the bell that we have a real problem on Wall Street,” Ms. Warren said. “It’s time to fix it.”Jeanna Smialek contributed reporting.AdvertisementContinue reading the main story More

  • 113 Shares189 Views

    in Economy

    Gensler Faces Big Challenge in Tackling GameStop’s Wild Ride

    by

    #masthead-section-label, #masthead-bar-one { display: none }GameStop vs. Wall StreetCharting the Wild Stock SwingsThe Man Behind the Frenzy4 Things to KnowYour TaxesAdvertisementContinue reading the main storySupported byContinue reading the main storyGensler Faces Big Challenge in Tackling GameStop’s Wild RideThere is broad agreement that the capital markets have been distorted but less consensus on what, if anything, the S.E.C. should do about it.Unlike the fraud or manipulation that regulators like Gary Gensler are used to pursuing, the GameStop frenzy involves investors who have publicly acknowledged the risks they are taking.Credit…Kayana Szymczak for The New York TimesFeb. 1, 2021, 3:00 a.m. ETWASHINGTON — During his last regulatory stint in Washington, Gary Gensler focused on reining in big Wall Street players that he believed were manipulating markets and assuming huge financial positions to the detriment of other investors.If confirmed to lead the Securities and Exchange Commission, Mr. Gensler will have to confront an entirely new spin on that same game: Thousands of small investors who have banded together to amass giant stakes in GameStop and other companies with the aim of toppling big Wall Street players.The frenzy around GameStop, whose stock has soared 1,700 percent in the last month, presents a huge challenge for Mr. Gensler and the S.E.C., which will have to reckon with a fundamental shift in the capital markets as a new breed of investor begins trading stocks in unconventional ways and for unconventional reasons.Rather than snapping up a company’s shares because of a belief in that firm’s growth potential, the investors who piled into GameStop, AMC, BlackBerry and others did so largely to see how far they could drive up the price. Their motivation in many cases had less to do with making money than with causing steep financial losses for big hedge funds that were on the other side of that trade and had bet that the price of GameStop and other firms would fall.Their ability to cause such wild market volatility was enabled by new financial apps — like Robinhood — that encourage investors to trade frequently and allow them to buy risky financial products like options as easily as they purchase a latte. Options — which are essentially contracts that give the investor the option to buy a stock at a certain price in the future — were what helped put the “short squeeze” on the hedge funds that had shorted the company’s stock.“What’s going on with GameStop has almost nothing to do with GameStop as a company,” said Barbara Roper, director of investor protection for the Consumer Federation of America. “When you see the markets essentially turned into a video game or turned into a casino, that actually has some pretty serious repercussions for the way we use the markets to fund our economy.”The question for Mr. Gensler and the S.E.C. will be what they can — or should — do about it.In a statement on Friday, the S.E.C. said that it was “closely monitoring” the situation and that it would “act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws.”But unlike the typical type of fraud or manipulation that regulators like Mr. Gensler are used to pursuing, the current frenzy involves investors who have publicly acknowledged the risks they are taking and even boasted about losses. Forums like Reddit’s WallStreetBets have entire threads devoted to “loss porn,” where traders post screenshots showing their portfolios in the red, to applause from other investors. (“I’m proud of you” and “Respect” are among the typical responses.)That dynamic poses a challenge for an agency whose primary mission is to protect investors by ensuring they have enough information when deciding whether to trade and to enforce securities laws that were written before many of the GameStop investors were even born.“The S.E.C. has for years worried about hedge funds coordinating their positions and coordinating bear raids and otherwise engaging in activities to move around a stock,” said Tyler Gellasch, a former S.E.C. lawyer who heads the Healthy Markets Association, an investor group. “There are reporting requirements around that. But we’ve never really thought about that being done en masse and in public. The S.E.C.’s rules haven’t thought about what happens when it’s 100,000 people coordinating via Reddit versus three people coordinating via email.”Those who know Mr. Gensler say his first move will probably be determining what actually caused the momentum and who benefited. While many big hedge funds got crushed by the trades, there is speculation among market participants and securities lawyers that other big funds may have been fueling — and making money off — some of the volatility.“First of all, the S.E.C. has got to figure out what the hell was going on,” said James Cox, a securities professor at Duke University School of Law. “The first question is going to be an empirical one — how much of this momentum was created by the hedge funds having to cover their short position and how much of the rest was the impact of the options trading — either buying the options or just executing on the options.”A bigger issue for Mr. Gensler will be figuring out corrective actions. While the stock market has always been something of a game, Mr. Cox and others say the recent events have perverted their original purpose, which is to provide a place for companies to raise capital by giving investors the information they need to determine where to put their money.“When you see what’s happening with GameStop, you ask yourself, is this manipulation, is this mass psychosis or is there something wrong in our market structure that is causing this to happen,” said James Angel, a finance professor at Georgetown University’s McDonough School of Business. “This does illustrate some of the imperfections in our market structure and the real question is what, if anything, should be done about it.”Mr. Gensler has spent the past several years teaching at the Massachusetts Institute of Technology, focusing on financial technology, cryptocurrencies and blockchain technology. His classes have addressed some of the knotty issues he will have to face if confirmed to the S.E.C., including the rise of new financial technology companies like Robinhood and the so-called roboadviser Betterment.In a 2019 discussion at M.I.T., Mr. Gensler said it would be “best to show some flexibility” when considering whether to regulate fintech companies since heavy-handed rules could snuff out innovation. Mr. Gensler declined to be interviewed for this article.If confirmed to the job, Mr. Gensler will have to tread carefully. The motivation behind the GameStop squeeze has been embraced by lawmakers and others, who see the trades as a welcome rebellion against the power of big Wall Street players and persistent inequities in the economy. Last week, Representative Alexandria Ocasio-Cortez of New York, a progressive Democrat, and Senator Ted Cruz, a conservative Texas Republican, both condemned efforts by Robinhood to restrict trading in GameStop and other companies, saying the firm was putting the interests of hedge funds above small investors.Other lawmakers are warning against overreacting with more regulation. “When examining this episode, regulators and Congress should tread with extreme caution and avoid needlessly inserting themselves into equity markets,” Senator Patrick J. Toomey, Republican of Pennsylvania, said in a statement.Representative Ro Khanna, a California Democrat, said in an interview that simply blocking retail investors from certain stocks was the wrong decision and that Mr. Gensler should look to the bigger fish — namely lightly regulated hedge funds — when looking for areas to regulate.“We probably need to increase the capital requirements on short-selling for hedge funds, to make it more difficult,” Mr. Khanna said.That is an area that will be more familiar to Mr. Gensler, who spent his tenure as chairman of the Commodity Futures Trading Commission trying to stop big Wall Street firms from manipulating markets. That included bringing dozens of enforcement cases against big banks, which were accused of manipulating key rates that help determine certain prices across the financial system, including benchmark interest rates and foreign exchange rates.Dan Berkovitz, a C.F.T.C. commissioner who served as general counsel under Mr. Gensler, said breaking up “the old boy network” was a major focus during their time at the agency.“He wanted to break that whole culture up and introduce a culture of competition instead of a cozy coexistence,” Mr. Berkovitz said. “That was his philosophy, and coming from Goldman he saw from the inside how that worked.”Mr. Gensler, whose confirmation hearing has not yet been scheduled, will face pressure to bring a similar focus to the S.E.C. On Sunday, Senator Elizabeth Warren, Democrat of Massachusetts, said the GameStop episode underlined that S.E.C. regulators needed to “get off their duffs” and work to make the market more transparent. Among other things, she said new regulations should halt company stock buybacks for the purpose of pushing up share prices.“In the long run, if we have a market that is transparent, that’s level, that helps individual investors come into that market and, frankly, helps make that market more efficient,” she said on CNN’s State of the Union. “The hedge funds, many of the giant corporations, they love the fact that the markets are not efficient.”“GameStop is just the latest ringing of the bell that we have a real problem on Wall Street,” Ms. Warren said. “It’s time to fix it.”Jeanna Smialek contributed reporting.AdvertisementContinue reading the main story More

  • 138 Shares149 Views

    in Economy

    Robinhood, in Need of Cash, Raises $1 Billion From Its Investors

    by

    #masthead-section-label, #masthead-bar-one { display: none }GameStop vs. Wall StreetBeating Wall Street4 Things to KnowUnderstanding Stock OptionsA Long Time ComingAdvertisementContinue reading the main storySupported byContinue reading the main storyRobinhood, in Need of Cash, Raises $1 Billion From Its InvestorsThe no-fee trading app, which is popular with young investors, has been strained by the high volume of trading this week in stocks such as GameStop.Increased trading has forced Robinhood to seek additional funding.Credit…Amy Lombard for The New York TimesøKate Kelly, Erin Griffith, Andrew Ross Sorkin and Jan. 29, 2021Updated 6:07 a.m. ETFacing an onslaught of demands on its cash amid a stock market frenzy, Robinhood, the online trading app, said on Thursday that it was raising an infusion of more than $1 billion from its existing investors.Robinhood, one of the largest online brokerages, has grappled with an extraordinarily high volume of trading this week as individual investors have piled into stocks like GameStop. That activity has put a strain on Robinhood, which has to pay customers who are owed money from trades while posting additional cash to its clearing facility to insulate its trading partners from potential losses.On Thursday, Robinhood was forced to stop customers from buying a number of stocks like GameStop that were heavily traded this week. To continue operating, it drew on a line of credit from six banks amounting to between $500 million and $600 million to meet higher margin, or lending, requirements from its central clearing facility for stock trades, known as the Depository Trust & Clearing Corporation.Robinhood still needed more cash quickly to ensure that it didn’t have to place further limits on customer trading, said two people briefed on the situation who insisted on remaining anonymous because the negotiations were confidential.Robinhood, which is privately held, contacted several of its investors, including the venture capital firms Sequoia Capital and Ribbit Capital, who came together on Thursday night to offer the emergency funding, five people involved in the negotiations said.“This is a strong sign of confidence from investors that will help us continue to further serve our customers,” Josh Drobnyk, a Robinhood spokesman, said in an email. Sequoia and Ribbit declined to comment.Investors who provide new financing to Robinhood will receive additional equity in the company. The investors will get that equity at a discounted valuation tied to the price of Robinhood shares when the company goes public, said two of the people. Robinhood plans to hold an initial public offering later this year, two people briefed on the plans said.Robinhood’s emergency fund-raising is the latest sign of how trading in the stock market has been upended this week.An online army of investors, who have been on a mission to challenge the dominance of Wall Street, rapidly bid up the price of stocks like GameStop, entrapping the big-money hedge funds that had bet against the stocks. Some of these individual investors have reaped huge profits, while at least one major hedge fund had to be bailed out after facing huge losses.Robinhood, which is based in Silicon Valley, has been key to empowering the online investors. Adoption of the app has soared in the pandemic as the stock market surged and people took up day trading in the void of other pastimes. The company has drawn in millions of young investors who have never traded before by offering no-fee trading and an app that critics have said makes buying stocks feel like an online game.Without fees, Robinhood makes money by passing its customer trades along to bigger brokerage firms, like Citadel, who pay Robinhood for the chance to fulfill its customer stock orders.In May, Robinhood said it had 13 million users. This week, it became the most-downloaded free app in Apple’s App Store, according to Apptopia, a data provider.Critics have accused the company of encouraging people to gamble on stock market movements and risk big losses. Brokerages including T. Rowe Price, Schwab and Fidelity have imitated Robinhood by lowering their trading fees to zero. Many of them were also hit by the crush of trading this week.Robinhood has had no trouble raising money over the last year, drawing $1.3 billion in venture capital backing and boosting its valuation to nearly $12 billion. Its other investors include the venture capital firm DST Capital, New Enterprise Associates, Index Ventures and Andreessen Horowitz.Yet the company has faced many issues, including fines from regulators for misleading customers. Last March, it raised more money after its app went down and left customers stranded and nursing big losses, leading to a still ongoing lawsuit.In recent weeks, many online investors have used Robinhood to make bets that pushed up the price of GameStop, AMC Entertainment and other stocks that had been widely shorted — or bet against — by hedge funds. That changed on Thursday after the company curbed customer trading in the most popular stocks. “As a brokerage firm, we have many financial requirements,” Robinhood said in a blog post Thursday. “Some of these requirements fluctuate based on volatility in the markets and can be substantial in the current environment.”In protest, hundreds of thousands of users joined a campaign to give Robinhood’s app the lowest one-star review and drive the company’s rating down. Some investors also sued Robinhood for the losses they sustained after the company cut off trading in certain stocks and several lawmakers urged regulators to exercise more scrutiny of the company.AdvertisementContinue reading the main story More

  • 175 Shares189 Views

    in Economy

    The ‘Roaring Kitty’ Rally: How a Reddit User and His Friends Roiled the Markets

    by

    #masthead-section-label, #masthead-bar-one { display: none }GameStop vs. Wall StreetBeating Wall Street4 Things to KnowUnderstanding Stock OptionsA Long Time ComingAdvertisementContinue reading the main storySupported byContinue reading the main storyThe ‘Roaring Kitty’ Rally: How a Reddit User and His Friends Roiled the MarketsA Massachusetts man who goes by ‘Roaring Kitty’ on social media helped fuel the frenzy around GameStop. His $53,000 investment in the company briefly reached $48 million in value.Credit…Max-o-maticNathaniel Popper and Jan. 29, 2021, 5:00 a.m. ETIn mid-2019, a Reddit user — known as “Roaring Kitty” on some social media accounts — posted a picture on an online forum depicting a single $53,000 investment in the video-game retailer GameStop.The post attracted little attention, except from a few people who mocked the bet on the struggling company. “This dude should sell now,” a Reddit user named cmcewen wrote at the time.But Roaring Kitty was not deterred. Over the next year, he began tweeting frequently about GameStop and making YouTube and TikTok videos about his investment. He also started livestreaming his financial ideas. Other Reddit users with monikers like Ackilles and Bowlerguy92 began following his every move and piling into GameStop.“IF HE IS IN WE ARE IN💎💎💎,” one user wrote on a Reddit board called WallStreetBets on Tuesday.Roaring Kitty — who is Keith Gill, 34, a former financial educator for an insurance firm in Massachusetts — has now become a central figure in this week’s stock market frenzy. Inspired by him and a small crew of individual investors who gathered around him, hordes of young online traders took GameStop’s stock on a wild ride, pitting themselves against sophisticated hedge funds and upending Wall Street’s norms in the process.Their actions — pushing up GameStop’s price by buying so-called options contracts that offer a cheap way to bet on a stock’s direction — have shocked established investors because Mr. Gill and his online comrades are the antithesis of the Wall Street titans who have long ruled the stock market.A screenshot of Keith Gill from his Roaring Kitty’s YouTube channel.Credit…via YoutubeWorking far from well-heeled financial offices, Mr. Gill and his fans socialized on Reddit and YouTube and used no-fee online trading platforms like Robinhood and WeBull. Many were so devoted to their GameStop investment that they spent hours each week chatting in the comments section of Mr. Gill’s videos, delving into the company’s financial filings and arcane details about free-cash flow and video game consoles.Their show of force this week underlines how the financial markets have changed by merging with the world of social media and a younger generation of traders who have been empowered by online platforms. It has also made some in this new generation wildly wealthy.On Tuesday, Mr. Gill posted a picture on Reddit that showed his $53,000 bet on GameStop had soared in value to $48 million. (His holdings could not be independently verified.) The post was “upvoted” — the equivalent of being liked — more than 140,000 times by other users. GameStop, which traded at $4 a year ago, closed on Thursday at $193 after reaching more than $480 earlier in the day.“Your example has literally changed the lives of thousands of ordinary normal people,” a Reddit user named reality_czech wrote this week to Mr. Gill. “Seriously thank you.”Larry Tabb, the head of market structure research at Bloomberg Intelligence, said the rise of traders like Mr. Gill “would have been impossible even a few years ago” because every trade came with a fee and there was less focus on the markets on social media. But with people now stuck at home in the pandemic with easy access to free trading at online brokerages, “these guys saw an opportunity and they took it,” he said.Mr. Gill did not respond to requests for comment. His online accounts and email addresses were tied to his old office in New Hampshire and his Massachusetts home. Mr. Gill’s mother, Elaine, confirmed in a brief phone call that her son was Roaring Kitty.“I’m proud,” she said, before hanging up.Mr. Gill’s life as Roaring Kitty began in 2014 when he started a limited liability company with that name. Before that, he was an All American runner in college who could cover a mile in 4 minutes 3 seconds, according to local newspapers. After graduating, he worked as a chartered financial accountant and a financial wellness educator, a recently deleted LinkedIn profile showed.In August 2019, he began posting on Reddit. Like many other Reddit users, he showed familiarity with memes and internet expressions like YOLO (you only live once) and exhibited a love for profanity. The middle letter of the acronym of his Reddit username, DFV, refers to an expletive. On YouTube, TikTok and Twitter, he went by Roaring Kitty.Mr. Gill’s first posts on WallStreetBets showed the screenshot of his E-Trade portfolio with the options trades he had made on GameStop, all of them betting the stock would go up. In the comments, he explained that Wall Street did not appreciate how much GameStop would benefit as new video game consoles were released.Shortly after Mr. Gill placed his trades, Michael Burry, an investor made famous by the Michael Lewis book “The Big Short,” also expressed interest in GameStop. On Reddit, Mr. Gill pointed to Mr. Burry’s post as validation. When others questioned the investment, Mr. Gill held firm.“Dude everyone thinks I’m crazy, and I think everyone else is crazy,” he responded to a commenter when GameStop announced sales had dropped 30 percent in late 2019.Last summer, Mr. Gill started a Roaring Kitty channel on YouTube where he talked for hours about GameStop. He had 418 YouTube subscribers through last November, according to the web tracking firm SocialBlade.In one of his first YouTube videos, he wondered aloud, “Maybe there’s going to be no one tuning in, so this is silly.”He explained that to avoid disturbing his 2-year-old daughter, he was filming in a basement room called the “Kitty Corner,” with a stuffed animal cat on the doorknob.Fast-talking and cracking jokes in between analyzing stocks, Mr. Gill sipped beer, brandished cigars and told viewers he sometimes used a Magic 8-Ball to guide his investments. He often wore a baseball cap over his long hair and a T-shirt with a cat in sunglasses.The comments section of his videos soon became a gathering place for a small group of other GameStop fans. One YouTube follower, Joe Fonicello, known as Toast on Twitter, said he tuned in from an old van that he was traveling across the country in with his girlfriend.Mr. Gill often posted pictures of his GameStop investment.Credit…via Youtube“She thought I was crazy until she heard the thesis” for what GameStop could be worth, said Mr. Fonicello, 21, who said he and his girlfriend’s investment in the stock has grown to over $250,000 this week from less than $10,000 originally.Mr. Fonicello said chatting with Mr. Gill and others online was not just about money. “What went from a great few hours of stock analysis turned into a few hours of just spreading positivity,” he said.Last August, Ryan Cohen, the founder of the pet food site Chewy.com, announced that he had taken a big stake in GameStop. A few weeks later, Mr. Gill’s investment hit $1 million, according to pictures he posted of his portfolio.Through financial filings, Mr. Gill’s crew also discovered that hedge funds such as Point72 and Citron Capital were betting that GameStop’s price would fall, in a maneuver known as short-selling. That angered them.“That’s your ignition switch. A common enemy, so to speak,” said Rod Alzmann, 31, a corporate strategist in Florida who has bet on GameStop for even longer than Mr. Gill and posted online as Uberkikz11. “The speculation is a rush, plus fighting the man.”In December, Mr. Gill’s wife made a cameo on YouTube when her hand appeared on a livestream to clink glasses with him to celebrate GameStop’s stock reaching $20. Mr. Gill wore a pink party hat and sunglasses and sipped what appeared to be champagne.“I certainly do not drive a Lambo,” he said in the video, referring to a Lamborghini. “We rent this house that you see, so it’s been a wild ride for us as a family.”Earlier this month, Mr. Cohen joined GameStop’s board. That caused the company’s stock to rise, enriching Mr. Gill and others. When Mr. Gill showed another picture of his investment on Jan. 13, some of the 44,200 people who looked at the post said his decision not to cash out even a penny of GameStop kept them going.“Daddy’s still in!” said a Reddit user named freehouse_throwaway. “Feels so good.”Late last week, 190,000 viewers tuned in to the Roaring Kitty YouTube channel, which now has more than 74,000 subscribers, as Mr. Gill, in a red bandanna and sunglasses, said he would be stepping away “for a bit.” That day, he livestreamed for seven hours while watching a chart of GameStop’s surging stock, laughing and calling out to longtime comrades in the comments.On Thursday, several online brokerages shut down trading in GameStop, causing the company’s price to plunge by almost two-thirds before steadying. Even ardent supporters wondered if Mr. Gill had finally caved and sold.Mr. Gill then posted another picture on Reddit showing he had stayed firm — and had lost $15 million. His fans cheered.“IF HE’S STILL IN, I’M STILL IN,” over 100 different followers responded in quick succession.Kitty Bennett contributed research.AdvertisementContinue reading the main story More