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Di Muzio, Tim

Working Paper
GameStop Capitalism. Wall Street vs. The Reddit
Rally (Part I)

Provided in Cooperation with:

The Bichler & Nitzan Archives

Suggested Citation: Di Muzio, Tim (2021) : GameStop Capitalism. Wall Street vs. The Reddit
Rally (Part I), The Bichler and Nitzan Archives, Toronto,
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 GameStop Capitalism
Wall Street vs. The Reddit Rally1
PART I
Commentary
Tim Di Muzio
Associate Professor of International Relations and Political Economy
University of Wollongong
tdimuzio@[Link]
2021

The phrase, ‘there’s a sucker born every minute’ is typically attributed to the American
showman, P.T. Barnum and was made infamous since the mid-19th century by gamblers,
hucksters and confidence artists (con men). On Wall Street, the ‘sucker’ is supposed to
be the ‘dumb money’ retail traders who populate Main Street as evidenced by a long
string of capitalist crashes, crises and public money bailouts to the big boys, not to
mention the recurrent fraudsters in three piece suits ripping people off like Bernie
Madoff. The latter is said to have ‘made-off’ with US$65 billion through a long-running
Ponzi scheme – most of it the life savings of his victims (granted they were also wealthy). 2
So the saying goes: ‘There’s a sucker born every minute.’

But while some claim that there is nothing new under the sun, in an interesting turn of
events over the last few day of January 2021, some hedge fund managers on Wall Street
became the ‘unusual suckers’, losing billions of dollars from shorting GameStop (stock

1I’d like to thank Frances Cowell for her thoughtful comments and suggestions on this piece.
2Email correspondence with Frances Cowell recounting informal audience discussion of a presentation by
Dan DiBartolomeo of Northfield Information Services at a London Quant Spring Seminar in London in May
2009. “The biggest turkey was of course the SEC, which had, for at least ten years, ignored warnings by
other market participants that the profits he boasted were infeasible, given prevailing market prices and
the strategy he said he was pursuing. Informed sources also have it that, when as much money as possible
could be received wreckage, less than half of the investors in the fund came forward to claim their share,
suggesting that many decided that recovering their money would not be worth forfeiting their anonymity.....
We note also that Madoff surrendered himself to the police, clearly figuring that he would be safer in their
hands than anywhere else.” More details on Frances Cowell can be found here:
[Link]

1
ticker GME). 3 For those not in the know, a hedge fund is an investment fund for the very
wealthy (or the 1%) and its managers and analysts typically trade relatively liquid assets
and take advantage of leverage (borrowing money) and risk management techniques
such as short selling (betting that the price of company stock will go down rather than
up). Short selling typically involves a hedge fund manager borrowing shares in a
company from a broker and then selling them on the market to realize the money. This
is done in the hope that the share price will plummet (for whatever reason, e.g. bad
financial reports, costly lawsuits, new regulations, outdated business model). As the
shares decrease in value, the hedge fund can repurchase the amount of shares borrowed
from the broker at a lower monetary value and return them to the broker, thus making a
profit. See Box 1 for an example (I use small numbers to keep it simple but hedge fund
managers are typically trading in the millions and billions and more shares than 1000).

Box 1
Short Selling

Step 1: A hedge fund manager borrows 1000 shares in Company X from a broker at
US$10 a share and immediately sells them, realizing US$10,000 dollars. The
manager promises to give the broker the 1000 shares borrowed at a specific point
in time and will pay a fee to the broker for his part in the transaction.

Step 2: The hedge fund manager waits to see if the share price goes down. Suppose
it goes down to US$5 dollars a share. The hedge fund manager can then acquire
1000 shares in Company X for $5000.

Step 3: The hedge fund manager returns the shares to the broker and collects a
profit of US$5000 dollars minus whatever fee/interest the broker takes.

Ok, so far so good. But what happens if the share price doesn’t plummet and instead not
only starts to increase, but actually starts to grow exponentially? ‘Houston, we have a
problem called the short squeeze!’ Meet GameStop, a gaming merchandise retailer with
over 5000 brick and mortar stores littered across the American landscape. On the 8th of
January 2021 shares in GameStop were trading at US$17.69 and by January 28th the price
skyrocketed to US$193.60 for an increase of 994.4% (see Figure 1 below).

3 [Link]
(accessed 1/2/2021).

2
 Figure 1

The next day, as the market closed, GameStop shares were valued at US$325 and the
company’s capitalization rested at US$22.7 billion, up from US$299 million in September,
2020 (see Figure 2). 4 That’s an increase from January 8th, 2021 of 1737 percent. That’s
a lot of tendies! 5 Part of the explanation for this massive spike can be attributed to the
near consistent generation of hype by members of r/WallStreetBets, the fact that many
are inexperienced investors and believe the hype, the fact many from around the world
rushed to join the fight by buying GameStop stock and easy to use platforms (apps) that
want to ‘democratize finance’ like Stake and Robinhood. There is virtually constant use
of the rocket ship emoji and members enjoy saying they will hold the stock ‘to the moon’
or eve ‘the outer edges of the universe’. Moreover, at the time of this writing (February
1, 2021, in Sydney, Australia, NYSE not open), members of r/WallStreetBets continue to
support holding and purchasing GameStop shares despite a steadily declining valuation
of the company’s shares since the first of February in the USA (there are however

4At this point in time shares in GameStop were valued at US$4.61.

5Tendies refer to chicken tenders and are used by the subreddit r/WallStreetBets to refer to gains or
profits. It should be noted that the shares reached a high of US$469.42 by 10am on Thursday, January 28,
2021.

3
significant obstacles to the stock blowing up and remaining in the stratosphere – see
below).

Figure 2

This kind of share price magic happens very rarely and is typically attributed to some
major event like a corporate merger or acquisition, a quarterly profit report that beats
the expectations of investors, a new business model, the introduction of a new invention
or product, or a once in a century Pandemic. Consider the communications technology
company Zoom. Just before the Pandemic shares were trading at US$107.47 on the 13th
of March 2020. Then, most of the world entered lockdown and with evermore people
working from home and communicating with Zoom, the share price skyrocketed to
US$559 on the 16th of October for a 420% increase in value. This, like the rise in Amazon
shares, can be explained by a locked down world due to the spread of Covid-19 and its
variants and a change in the future expectations of investors in Zoom and Amazon. But
how to explain the moon shot rise in GameStop? Did Americans all of a sudden go crazy
for games? Did expectations of GameStop’s future profitability improve that
significantly? Can we ever know the ‘true value’ of GameStop? Nope. Can its
capitalization continue ‘to the moon’ and become unchained to earnings? Technically,
yes.

4
Capital as (Social) Power

In order to think about what just happened to the market valuation of GameStop, we need
a little framing from the capital as power approach to political economy introduced by
Jonathan Nitzan and Shimshon Bichler. The capital as power approach argues that
capitalization is the most important act in capitalism (investing in an income generating
asset or holding claims on an income-generating asset). Capitalization involves investors
discounting future flows of income into a present value adjusted for risk – it’s an
imperfect science but it exists. 6 What this means when it comes to investing in company
shares is that share prices are a strong indicator of the future expectations of investors
regarding the future profitability of a corporation. In short, the anticipated future is built
into the share price. Investors and speculators may get it wrong, but the monetary level
of capitalization and share price movements remain important indicators that can tell us
about the expected success or failure of a company. So, if the share price of a firm is
decreasing, then we would expect that investors are losing confidence in that firm’s
ability to use their power to garner greater profits. This is what the hedge funds thought
regarding GameStop – that the company was overvalued and that its share price would
eventually plunge. If share prices are increasing, then we can assume that investors
anticipate greater prospects for profitability as in the cases of Amazon and Zoom we have
already mentioned. But the capital as power approach goes a few steps further than this
fairly straightforward recognition. From a theoretical point of view, the capital as power
approach to understanding the corporate universe argues that what is being capitalized
is the organized power of a firm to shape and reshape the terrain of social reproduction
for the sake of their own differential profitability (and those of their investor/stock
owners). What this suggests is that corporate earnings are not simply a matter of
producing goods and services for the market, but result from a broad array of corporate
power strategies exerted over the social, economic, cultural and political field. Examples
abound in the capital as power literature so I will just provide one example here
excerpted from my 2015 The 1% and the Rest of Us before moving on to discuss the
GameStop phenomenon.

6 The basic formulation is Present Value = Expected Future Profit/Rate of Interest

5
 As of January 29, 2020, Facebook had a market capitalization of US$754
billion, ranking it the sixth largest company by market capitalization. 7
Facebook is a software and computer services firm that the Financial
Times called the ‘world’s dominant social networking site.’ 8 After Google,
Facebook is the most accessed site in the world and has over a billion
active users worldwide. 9 The company provides its users with a
platform for social interaction and information sharing with individuals,
organizations and for-profit companies. It also helps users capture ‘life
events’ in the form of photos, status updates, likes and comments.
According to Fuchs, Facebook users can be considered what Toffler
called ‘prosumers’ or productive consumers ‘who work without pay’
when they create content on their pages. 10 Since it does not charge its
user base for the use of their software platform, the monetization and
capitalization of Facebook compelled the company to rely on revenue
from advertisers. This makes up the vast majority of the corporation’s
revenue stream. The second largest source of revenue comes from
Facebook Credits or a virtual currency that allows users to buy virtual
goods and services in games for actual money. Facebook will likely
attempt to diversify its revenue stream over time but the point now is to
ask what is being capitalized when investors purchase shares in
Facebook?

Once again, the simple answer is that investors capitalize the expected
future earnings of Facebook adjusted for some risk factor. And since
earnings come from revenue and revenue is primarily generated by
advertising, then we are led to the conclusion that Facebook sells the
human sociality and individual experiences of its user base to

7 The statistics have been updated from the 2015 version.

8 Robert Budden, Emily Steel and April Dembosky (2013) ‘Facebook Looks to New Video Ads as it Seeks
New Revenue Stream’, Financial Times, May 6.
9 [Link] and Alex Hern (2013) ‘The Faces of Facebook App Shows All 1.2 Billion

Users’, Guardian UK, October 1. [Link]

facebook
10 Christian Fuchs (2012) ‘The Political Economy of Privacy on Facebook’, Television New Media, Vol. 13, p.

143. Fuchs attempts to demonstrate how Facebook exploits its user base from a Marxist perspective. He
fails to realize that Facebook’s earnings are contingent on many more factors than Facebook workers and
its worker bee user base.

6
 advertisers. So in one sense, investors are capitalizing Facebook’s power
to maintain the website, target advertisements to its users and ensure
that the user base is stable or growing so that advertising firms have a
target audience for their clients. Earnings obviously depend on active
users and a paid workforce – from computer programmers and designers
all the way to sales people and legal and financial advisers. But
Facebook’s earnings are contingent on far more than its paid and unpaid
laborers and the desire to monetize user content. And this is the point of
theorizing capital as (institutional/social) power. Facebook’s owners
and directors must be concerned with shaping politics, society and
culture more broadly while dealing with potential competitors and the
threat of anti-trust legal action. For example, Facebook was found to
have hired a well-known public relations firm to plant false stories about
Google in major media outlets. 11 Facebook is also in the game of lobbying
and must seek to resolve legal disputes, fend off cyber-attacks, influence
privacy and data protection laws, acquire potential competitors, attract
advertisers, influence the tax code and intellectual property legislation
and the list could continue. 12 These are just some of the ways in which
the firm’s earnings are contingent upon its power to shape and reshape
politics, society and culture. Now typically, all these power plays are
mobilized to increase earnings since this is what investors are largely
chasing.

Why?

The answer is that in normal times (if there is such a thing) rising earnings or company
profits means that share prices (or ownership claims) will be bid up. And here’s where it
gets interesting. GameStop’s earnings hardly warrant the share price skyrocketing to the
levels it has achieved. In fact, the latest post on the company’s Investor Relations page
noted the following:

11Danielle Kucera (2013) ‘Facebook Hires Burson-Marsteller to Pitch Story on Google’ Bloomberg, May 13.
[Link]
[Link] (2/03/2014).
12 A list of issues that Facebook has paid lobbyists working on can be found here:

[Link] (20/11/2013).

7
 Total sales declined 3.1% driven by an 11% decrease in the company’s store base
due to its planned de-densification strategy, temporary store closures around the
world due to government mandates and lower store traffic, particularly later in
December, due to the significant impacts of COVID-19. The Company believes the
industry-wide traffic decline during the Holiday period adversely impacted
comparable sales for the nine-week period in the high single-digit to low double-
digit percentage point range. In addition, significant worldwide supply chain
constraints impacted the ability to distribute products to customers across all sales
channels. 13

Not the greatest news for sure. Yet the share price for GameStop shot up 1737 percent and the
members of r/WallStreetBets (previously 300,000 members and now in early February 2021
8.1 million) are calling on members to hold or buy GME when the market opens on Monday, 1
February, 2021. There is also a threat that this ‘decentralized democratic hedge fund’ (the
r/WallStreetBets members and their global supporters) will boost the fortunes of other stocks
like AMC and BlackBerry. It seem that the world of market capitalization has been turned
upside down and hedge fund owners and Wall Street are writhing. This is particularly true for
the hedge funds that shorted GameStop like Steve Cohen’s Point72 – losing an estimated 10 to
15 percent. 14 What happened?

Somethings New Under the Sun or Revenge of the Nerds

We have to think of social media as an ongoing and novel human experiment with
unpredictable outcomes for the political economy of global capitalism. Never has the
world been so connected and r/WallSteetBets is a perfect example of this connectivity
and what it can do to corporate capitalism rather than just inflame identity politics and
hideous racism. An online army has formed under the ‘this is the way’ slogan and all
evidence thus far suggests that no one wants to break rank on pushing up GameStop
shares prices regardless of nationality, race, religion, skin colour, gender or creed. 15
There is definitely a sense that members of r/WallStreetBets are all in this together. ‘This
is the way’. It is difficult to pinpoint an exact moment for the emergence of this

13 [Link]
sales-results (accessed 1/2/2021)
14 [Link]

hedge-fund-carnage (accessed 1/2/2021)

15 ‘This is the way’ is the mantra of the warrior tribe the Mandolore in Disney’s The Mandalorian – a popular

television series with many.

8
‘decentralized democratic hedge fund’ but its origins seem to go back to a video posted
on YouTube by DeepFuckingValue also known as Roaring Kitty and in ‘real life’ as Keith
Gill – a certified financial analyst from Massachusetts, USA who used to hock life
insurance. It is true that r/WallStreetBets has really run with GameStop and that it is
potentially overvalued now, but the rally in GameStop shares was not inspired by
complete randomness and a desire to stick it to Wall Street hedge funds (even if this is
what it has, in large part, become). Here are some of the highlights from the YouTube
video by Roaring Kitty:

• When the YouTube clip is broadcast in September of 2020, shares in GameStop

are US$4.61 and its market capitalization US$299 million.
• He begins by saying that GameStop is one of the most compelling asymmetric
opportunities in the market and that Michael Burry of The Big Short fame has
GameStop in his portfolio. 16
• He goes on to suggest that GameStop has a healthy market share in the gaming
market.
• It’s the only major brick and mortar store dedicated to gaming and about 25% of
people buy their new games and 40% buy their used games in the store.
• The company has new management and a reboot plan along two lines: 1) right-
sizing costs of the legacy business which will free up cash flow helping with, 2)
rebranding itself as a premier gaming hub with leading gaming partners and
experiential products (the gaming industry is US$150 billion dollars).
• Video game spending is up 30% year over year across physical and digital games.
• GameStop is the most heavily shorted company on the market with the short
interest/adjusted float over 100%. 17

So as this brief analysis suggests, Roaring Kitty’s examination of GameStop’s prospects

was not without merit and definitely impacted the view of the company among the
members of r/WallStreetBets.

16 Burry was the manager of Scion Capital, a hedge fund that profited from the greed and malfeasance of
the banking and real estate markets that lead to the Global Financial Crisis of 2007-8.
17 [Link] (accessed 2/2/2021). It should be

noted that there are additional videos where he discusses the upside and fundamentals for investing in
GameStop.

9
The trouble for some hedge funds and Wall Street more broadly is that individual retail
investors are realizing that collectively they have incredible power to move markets and
set prices for company shares. Even worse, new initiates are learning about finance and
how ‘free’ the market is for the little guy. There is little doubt that social media and
anonymity have a lot to answer for for extreme and divisive politics but r/WallStreetBets
seems to be an example of the multitude coming together to target big institutional
investors and in the process make a profit (I am not lionizing or speaking for this group
in any fashion – these are my individual observations reading the threads and only
preliminary statements can be made as the issue is ongoing at the time of this writing).
In future, the organized ‘diamond hands’ may not even have to target short sellers but
simply by being organized, bid share prices up above their so-called ‘fundamentals’ based
solely on their desire to back one or many horses. 18 That some individuals have made a
massive profit out of the stratospheric rise in GameStop cannot be doubted (many,
perhaps smarter investors, have cashed in and broken rank), but it is unclear whether
they were solely motivated by profit unlike their Wall Street counterparts. Whether it
started as a political movement to ‘stick it’ to hedge funds and the men (and they are
mostly men) that run Big Finance can be questioned, but there is considerable evidence
that the political bent is leaning that way – a mission for an online army of organized
nerds sick of Wall Street taking advantage of Main Street and the destruction of jobs,
communities and families that often coincide with their financial practices. In some
senses, if this is not revenge of the nerds (and I say ‘nerd’ is a kind way), it is revenge of
the hopeful trampled over. One telling example is the following post by u/space-peanut
on r/WallStreetBets that garnered 758 comments:

This is for you, Dad

I remember when the housing collapse sent a torpedo through my family. My father's
concrete company collapsed almost overnight. My father lost his home. My uncle lost
his home. I remember my brother helping my father count pocket change on our
kitchen table. That was all the money he had left in the world. While this was
happening in my home, I saw hedge funders literally drinking champagne as they
looked down on the Occupy Wall Street protestors. I will never forget that.

18Diamond hands is a term used on the r/WallStreetBets to mean an investment is profitable and they will
be holding on to their investment for maximum value. Paper hands is the reverse.

10
 My Father never recovered from that blow. He fell deeper and deeper into alcoholism
and exists now as a shell of his former self, waiting for death.

This is all the money I have and I'd rather lose it all than give them what they need to
destroy me. Taking money from me won't hurt me, because i don't value it at all. I'll
burn it all down just to spite them.

This is for you, Dad.

28 AMC 1/21/22 $22 calls

Most of the replies to this thread share either support or similar stories and anger
towards a rigged system in the United States that has seen the wealthier get wealthier
and the poor, poorer not to mention sick. Another example of the solidarity being built
around a desire for revenge against Big Finance is by u/lesmiserobert (responding to the
comment above):

I feel your pain, brother. Reposting my similar shared experience in solidarity.

We are in this together!

I could not put a price tag on $GME. I will keep these shares until the day that I
die.

This isn’t about the money.

The Great Recession of ’08 turned my life inside-out. I lived with my single
mother, who was a small business owner and part-time dental hygienist. She
had just been diagnosed with breast cancer. Even through the chemotherapy,
she continued to bust her ass every day to keep us from going under. She was
fired from her part-time job for having cancer, and was struggling to keep up
with the mortgage, car payment, medical bills, etc. My mother died in October
of 2009 and the business, the house, everything went along with her.

My mother did not get bailed out. I did not get bailed out. You and your parents
did not get bailed out. You know who did? Wall Street. And on our dime. These
hedge funds, like Melvin Capital Management LP, continue to manipulate and
exploit working Americans like you and me, and they do so with relative
impunity.

The abhorrent avarice of Wall Street has earned my contempt, and I stand with
you…

If you have any ounce of humanity, any ounce of decency, the stories on this thread just
shatter your heart into a million pieces. 19 But out of this existential pain and perhaps for

19
[Link] (accessed
1/2/2021).

11
many other reasons, the r/WallStreetBets has become a global phenomenon – most
everyone is watching. The genie is out of the proverbial bottle and no one knows exactly
what wishes will be granted. What is certain, is that unlike the Occupy Wall Street
movement that fizzled out for a variety of reasons – perhaps the largest one being the lack
of cohesion over political and economic demands – this movement shows little signs of
abating because r/WallStreetBets members have witnessed their own collective power
and agency beyond marching in the streets with placards (in my mind a worthy cause but
a different tactic). Members have also bought advertising billboards across the US,
including a giant electronic one in Time Squares, New York City that reads $GMC go
burrrr. They actively made hedge funds that shorted GameStop take a giant haircut. That
said, there are some obstacles to be wary of: 1) r/WallStreetBets have built up solidarity
and there is much to be said for the supportive messages, educational practices and
rallying cries on the subreddit but as in any large group (reminder: now 8.1 million), there
could (and likely will) be divisions that could threaten a united cause – indeed, some may
be suggesting others hold the shares while others are secretly selling 20; 2) as it is an open
forum there is a danger that it could be used by Wall Street and hedge funds to ride along
with the group or bet against the current or possibly post false or misleading information,
3) there is an issue with trading platforms (apps) that have been a real snafu for the
movement –with Robinhood being perhaps the most infamous. Mark Cuban, the
billionaire investor and owner of the NBA’s Dallas Mavericks chimed in to
r/WallStreetBets on the matter:

Final thought. First thanks for the great questions. Thanks for changing the
game. Thanks for taking on Wall Street. Thanks for making kids around the
country if not the world (including my son and daughter). WSB changed the
game far more than everyone on this board will ever get credit for.

That said, you will do all this again. You will go after WS and the next time you
will be smarter. There was only one thing that messed you all up: RobinHood
and the other zero commission brokers that everyone used didn’t (sic) have
enough capital to fund the fight. They let you down in a big way.

When you load back up, fight (sic) a broker with TRILLIONS OF DOLLARS in
assets on their balance sheet. Someone that can be there when the fight starts
and wont (sic) blink an eye.

20 I thank Frances Cowell for this point who suggested those holding during a mass sell-off might end up

‘the real suckers’. There is the total possibility that Keith Gill (DeepFuckingValue) wittingly or unwittingly
stoked a movement and exited, leaving everyone holding the proverbial bag.

12
 No disruption is easy or happens in a straight line. Stay with it. I am a
believer. 21

However, Cuban, who appears to side with r/WallStreetBets, has argued that the group
can be more powerful if they continue to buy as the hedge funds try to drop the price.
With these three things in mind, r/WallStreetBets remains an interesting social
experiment and one that currently has much of the world’s attention. There will be much
to write about in future regarding this new development in finance and social media and
this commentary is just Part I. At the moment (now February 3, 2021) GameStop has
closed out February 2, 2021 at US$90 per share making the value of the company a mere
US$6.28 billion. AMC and BlackBerry, two other companies favoured by r/WallStreetBets
members are also down. Some believe that (due to the trading amounts and the speed of
the transactions) it’s the hedge funds trading their shares back and forth with each other
to bring down share values. Let’s see if r/WallStreetBets can hold the line.

21[Link]

on_to_do_an/ (accessed 3/2/2021).

13