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The victims of the GameStop saga will be investors in the Robinhood trading platform and the movement was “doomed from the start,” said Pimco investment fund co-founder Bill Gross.
“The victims of the GameStop experience have been and will continue to be the Robinhood investors storming the doors of the financial markets (for which they have an admirable goal of creatively destroying the hedge fund / former dominance of Wall Street) without the size, the endgame plan, and the expertise in pricing math options to be successful, ”Gross said.
“Even without regulatory action, the plan was doomed from the start.”
Gross’s comments in a February 2 statement came as the shares of U.S. video game retailer GameStop and movie chain AMC Entertainment collapsed on February 2.
Traders from the Reddit group’s online WallStreetBets forum have been pushing stocks since mid-January as part of a plot to attack hedge funds taking short positions in companies.
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In a note titled “Gamestonk / Gamestink,” Gross said the move appears to be failing because it is too small and lacks “enough” strength to tackle hedge funds and established investors.
The investor wrote that the GameStop model “fails to recognize that players would switch targets quickly … which would weaken their grip on poorer but undefeated victims.”
“A leaderless group had to move at different times and in different directions, just like dating partners do,” Gross said. “In short, their bond doesn’t look like a solid marriage.”
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Gross noted that Gamestop Call Bonuses were priced and bought at a volatility of 700% or more – “an unheard of price compared to the VIX at 25% -30%.”
“Buying volatility at 700% levels reveals investors’ unreasonable hopes of future daily increases of around 175 points (50%) or more, a level that would quickly bring back the most frantic buyer on earth, wondering who could be the ultimate holder of the bag, at price points of 500, 650,… or even 1000 in a week, ”he said.
He said herd strength and psychology must be recognized for a successful raid to be effective.
“Even so, the unwinding of positions ultimately and commonly points to a musical chair, me-first exit that brings the stock price of a company with no fundamental prospects back to where it started,” Gross said.
The billionaire expects the victims of the “GameStop experiment to continue to be Robinhood investors storming the doors of capital markets,” noting that the same traders have an “admirable goal of creative destruction of the domination of hedge funds / former domination of Wall Street ”.
But he said, without the size, “the endgame plan, and the mathematical expertise of pricing options to be successful.”
To contact the author of this story with comments or news, email Bérengère Sim
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