Reddit GameStop and the Short squeeze: Market Impact

[Soft music plays]

[Craig Jerusalim, Portfolio Manager, Canadian Equities, CIBC Asset Management]

Reddit and message boards in general are nothing new. However, when you have a pandemic

on your hands and masses of bored people sitting at home on their phones, combined with

generationally low interest rates, zero cost fractional share purchases, and stimulus cheques

sitting in bank accounts, we had the perfect scenario for the gamification and exploitation of

targeted loopholes.

[CRT televisions are piled on top of each other. One turns on and images of the Wallstreetbets

reddit page, a GameStop storefront, skyscrapers, a man in casual cloths looking at his phone,

and compute-generated imagery of stock market data.]

Now, don’t be fooled. This isn’t quite the David versus Goliath story that it’s made out to be in

the media. It’s more likely a case of David plus Goliath versus Goliath. As there were likely many

sophisticated hedge funds and professionals on both sides of the short squeeze.

[The prisoner’s dilemma]

Now, the speculative frenzy in GameStop and AMC has already begun to abate, just as we

assumed it would. Because in the end it comes down to fundamentals. But more importantly

than fundamentals it comes down to human nature. This was your classic game of prisoner’s

dilemma.

[Images of men in casual cloths looking at their phones. Images of stock market data.]

If every retail investor that had bought those stocks held onto their long positions and

continued to buy more, then theoretically, they could have continued drive the stocks higher

and send the shorts running for the exits.

[compute-generated imagery of a laptop keyboard with the word, “Exit” on one of the keys.]

But the incentive structure is such that no one wants to be left holding the bag. So, greed and

self-interest dictate the run for the exits.

[Ramifications?]

So, what are the ramifications?

[1. Short sellers will be less vocal in their positions.]

Firstly, short sellers will be a less vocal in their positions so as to not draw attention by retail

mobs.

[2. This is a sign of froth in the market]

Second, this is yet another signpost along with SPACs and Bitcoin of froth in the market,

which has to be monitored, as well as the potential that these actions erode confidence in the

market, which could hurt overall sentiment.

[A close-up of gold coins]

[3. Expect additional regulations to come into effect after the fact]

And finally, three. Do expect additional regulations to come into effect after the fact.

But other than those, and a little bit of excitement, markets will move on to the next big thing

like they always do. And GameStop will become a tiny footnote in history.

[Soft Music plays]

[The views expressed in this video are the personal views of Craig Jerusalim and should not be

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