Trading On margin

Opinion: Meme shares soar on bad news for Melvin Capital and Russia’s invasion of Ukraine

Actions in GameStop GME,
closed up 8.5% on Thursday, while shares of AMC Entertainment AMC,
climbed 12.4% as retail investors digest global turmoil and some trouble for one – or maybe two – naysayers on Wall Street.

The news that Ken Griffin’s Citadel LLC hedge fund is further cutting its $2 billion investment in Gabriel Plotkin’s short-selling fund Melvin Capital has been an explosive Schadenfodder for the army of social media ‘monkeys’ .

Griffin infused Plotkin with the cash at the height of the January 2021 short squeeze on meme stocks, a move Apes saw as one Wall Street fat cat bailing out another.

The details of this deal further infuriated retailers when they considered that Griffin was also the founder of Citadel Securities, which is the largest retail trade executor on apps like Robinhood HOOD,
[which you might remember played a key role in shutting down the hectic short squeeze].

Griffin denied any deeper connection to Robinhood or that he was bailing out Plotkin, but that didn’t stop the apes from beating their chests on social media Thursday as they reacted to news that their version of the Emperor Palpatine was getting $500 million back from their version of Darth Vader.

And while Plotkin’s losses were large and public, some have even speculated that it was more Citadel’s problems than Melvin’s.

“Citadel seems scared of incoming margin call defaults,” popular retail investing influencer @BossBlunts1 tweeted.

Although there is little evidence of a liquidity problem within the $230 billion hedge fund, Griffin’s Citadel empire appears to be off to a less than comfortable start to 2022 with a series of regulatory investigations into short sales and bulk trades that arrive at his doorstep. and one of its hedge fund executives was even named in one of the investigations.

Whether that affected the sometimes pugnacious billionaire who has trolled his retail critics a few times over the past few months, it’s definitely hard to call the latest investigations “a comedic bad joke” as he did with a SEC investigation for the month of January. Compression 2021.

But the Griffin/Plotikin drama was just one element of a turbulent day, as retail also appeared to be heeding Russian President Vladimir Putin’s military strikes on Ukraine as another sign they could benefit from a boost. a major pullback in equity markets and a potentially delayed interest rate hike from Federal Reserve Chairman Jerome Powell.

“We know that a massive market downturn is a catalyst for MOASS [mother of all short squeezes]read a post from user jdrukis on subreddit r/amcstock. “No monkey wants such an event to take place at the cost of real lives. For us, seeing a little red in our wallets is nothing new and it will pass quickly. For those who woke up this morning to a conflict , seeing red in the streets is going to be something they can’t count on.

But the uncertainty created by Putin’s military action is a perceived gift to the monkeys, who have indeed long believed that the shrinking market would dry up a deep reservoir of synthetic shorts that they believe have artificially held back meme stocks. .

This theory seems to have been hinted at in a recent tweet from GameStop President/Activist Investor/Remembrance Supreme Ryan Cohen:

It also plays into the hope that more market pain from Russia’s invasion – even without Western sanctions on the all-important SWIFT payment system – will keep Powell off his aggressive rate hike schedule in 2022 and will keep the cheap money bandwagon going for retail. investors to continue to HODL their favorite names.

Even Goldman Sachs seemed to breathe some life into that hope on Thursday, lowering its odds of a Fed hike by 50 basis points in March.

Either way, Thursday was a good day for meme stocks even though it was a bad day for humanity, a fact that was reflected in jdrukis’ conclusion to his Reddit post.

“Ukraine, I’m sorry this is happening. Hedgie, I am not sorry for what is about to happen to your business model,” they wrote. “Hold the line, we moon soon.”