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VOL. 45 | NO. 9 | Friday, February 26, 2021

Game on, again: GameStop surges and no one truly knows why

The Associated Press

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NEW YORK (AP) — Wall Street's GameStop saga can't stop. At the very least, it won't stop.

After weeks of going dormant, shares of GameStop have suddenly shot higher again, jumping 75% in the last hour of trading Wednesday and another 60% so far Thursday. It's reminiscent of the shocking 1,625% surge for GameStop in January, when bands of smaller and novice investors communicating on Reddit and other social media helped launch the struggling video game retailer's stock.

That initial supernova heightened questions about whether the broader market was in a bubble and whether a new generation of traders should be able to take full advantage of the free trades available on their phones. Global markets swooned momentarily; Congress held a hearing.

No clear reason seems to be behind this most recent move, leaving market observers to grasp at what little news is out there but it does demonstrate the increased power that regular investors suddenly have.

Here's what we know:

KITTY ROARS AGAIN — The most influential GameStop-backer may be Keith Gill, a colorful personality known for wearing a red headband and cat-themed T-shirts. He's given regular updates of his GameStop holdings on Reddit's WallStreetBets forum, going back to when a share cost just 85 cents in 2019. A day after testifying in a Congressional hearing about GameStop last week, he indicated he added another 50,000 shares after Feb. 3, doubling his GameStop stock position. By Feb. 3, GameStop had dropped toward $90 after touching a momentary peak of $483 in late January.

Reddit users roared in approval for the continued faith from Gill, who's also known as Roaring Kitty and by another moniker that can't be printed in a newspaper. Still, the stock remained in the $40 range before exploding higher at the end of Wednesday's trading.

CFO EXIT — This is one of the few actual pieces of news. Late Tuesday, GameStop said its chief financial officer had agreed to leave the company and that he was entitled to the benefits due to him under his employment contract for a "good reason" resignation. Speculation rose that the departure was part of the company's accelerating transformation from a struggling brick-and-mortar retailer to a digital seller better able to compete in an increasingly online business. But this information was known when trading began on Wednesday, and the stock didn't surge until hours later.

THE ICE CREAM CONE — Ryan Cohen is a co-founder of the Chewy online pet-supplies company. He is also a big shareholder of GameStop and on its board of directors. GameStop backers see his involvement as a key reason to bet on a successful transformation for the company into a successful digital powerhouse.

On Wednesday, an hour or so before GameStop shares spiked, Cohen tweeted a photo of an ice cream cone from McDonald's, along with an emoji of a frog. Sounds fairly mundane, but nothing is normal in the GameStop saga.

Market watchers and Reddit users tried to parse the cryptic image. Some focused on how the original photo seems to have accompanied an article about a person who created a website tracking whether McDonald's ice cream machines are working ... a person whose past tweets indicate he may be a holder of GameStop stock.

LEAVE THE KIDS ALONE — Some market watchers speculated that GameStop's surprise reanimation was a reaction to critical comments from Charlie Munger, the vice chairman of Warren Buffett's Berkshire Hathaway.

"That's the kind of thing that can happen when you get a whole lot of people who are using liquid stock markets to gamble the way they would in betting on race horses," Munger said on Wednesday while speaking at the annual meeting of Los Angeles Daily Journal

The remarks didn't win Munger many admirers on Reddit's WallStreetBets, where traders often see themselves in opposition to Baby Boomers, hedge funds and others. One Redditor posted a chart in the forum showing the spike in GameStop's shares, adding: "TAKE THAT CHARLIE MUNGER."

TRADING ITSELF — The stock's movement were so wild that trading was temporarily halted at least four times Thursday morning for volatility. Even though some novice investors suspected something nefarious, such halts are normal. There are rules that mandate a halt in trading when a stock rises or falls by a certain percentage within a certain time. Even so, GameStop shares changed hands more times by midday Thursday than for Apple, a company with a market value nearly 180 times the size of GameStop.

REGULATORS REACT — The Securities and Exchange Commission and Commodity Futures Trading Commission are reviewing whether trading practices were consistent with "investor protection and fair and efficient markets."

At a hearing last week by the House Financial Services Committee, some lawmakers floated the possibility of crafting new rules requiring market players to disclose short-selling positions and restricting arrangements of payment for order flow, a common practice in the securities markets in which Wall Street trading firms such as Citadel pay companies like Robinhood to send them their customers' orders for execution.

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