An apparently bipartisan stance on the Wall Street GameStop saga in the US Congress has erupted into another political tussle over the January 6 Capitol riots.
Shares in US video game retailer GameStop endured a roller-coaster ride on Wall Street as trading platforms such as Robinhood restricted trading in the company.
The stock plunged 35 per cent overnight after surging nearly 40 per cent earlier in the day. Sending it on a roller-coaster ride, Robinhood said it was restricting trading in the red hot stock as well as others.
READ MORE: How an online forum called Reddit boosted a struggling company’s stock by 1700 per cent
“We continuously monitor the markets and make changes where necessary. In light of recent volatility, we are restricting transactions for certain securities to position closing only,” Robinhood said in a statement, adding that it was also doing so for AMC, BlackBerry, Bed Bath & Beyond, Nokia and three other stocks.
“Amid significant market volatility, it’s important as ever that we help customers stay informed,” Robinhood said.
Rising Democrat star Alexandria Ocasio-Cortez called for an investigation into Robinhood, labelling its actions were “unacceptable” on Twitter.
Texas Republican Ted Cruz replied to her, saying, “Fully agree”.
However, the rare apparently moment of unity ruptured almost immediately.
“I am happy to work with Republicans on this issue where there’s common ground, but you almost had me murdered 3 weeks ago so you can sit this one out,” the New York congresswoman wrote in a tweet directed at the Texas senator.
“Happy to work w/ almost any other GOP that aren’t trying to get me killed. In the meantime if you want to help, you can resign.”
READ MORE: Prosecutors say Capitol rioters intended to ‘capture and assassinate’ elected representatives
She continued: “You haven’t even apologised for the serious physical + mental harm you contributed to from Capitol Police & custodial workers to your own fellow members of Congress. In the meantime, you can get off my timeline & stop clout-chasing. Thanks.”
Mr Cruz, who voted against certifying the election results that cemented Democrat Joe Biden as US President, criticised her remarks as “partisan”.
Republican resistance to Mr Biden’s inauguration, in apparent support of outgoing president Donald Trump’s baseless claims the election had been “stolen”, was widely condemned as a cause of the January 6 riots, in which five people, including a police officer, died.
“What does he think the logical response to his lies should be? A hug? Maybe there’s anger bc his actions deserve accountability,” Ms Ocasio-Cortez tweeted in response.
Shares of GameStop fell more than 60 per cent at one point and were halted several times on Thursday, after having soared in recent weeks because of support from individual investors on Reddit. The stock was flat about 10 minutes after the market opened.
Despite the losses following the opening bell, GameStop shares are still up more than 1100 per cent this year – surging from just under US$20 (A$26) at the end of 2020 to a current price of about US$225 (A$293). It’s largely because of an army of investors who are buying the stock to hurt hedge funds that have bet against GameStop.
The phenomenon is called a short squeeze. An investor who thinks a stock will fall borrows the shares and sells them, with the hopes of buying them back at a lower price and pocketing the difference before paying back the loan.
The problem is that a short seller can be hurt if the stock they borrowed keeps climbing. The losses, in theory, are infinite. So that creates another buying frenzy as short sellers rush to buy back the stock before it moves even higher.
A community on Reddit called Wall Street Bets has been leading the charge against the short sellers. Experts say that the rise of no-fee trading due to the popularity of online brokers such as Robinhood just makes it even easier for individual investors to keep plowing into GameStop stock.
The GameStop phenomenon has taken Wall Street – and all of the US for that matter – by storm. The White House has said it is looking into the stock’s massive surge. US Federal Reserve chair Jerome Powell was asked about it during a press conference Wednesday.
It’s unclear how much longer this short squeeze can last. Online brokerage TD Ameritrade, which is now owned by Charles Schwab, has started to limit trading in GameStop and other shares that have also gotten a pop from the Reddit crowd, such as movie theatre chain AMC.
And Wells Fargo’s financial advisory unit has banned employees from making recommendations to clients about GameStop and AMC.
The big concern is that average investors may be ignoring longer-term risks about GameStop as they look for a quick short-term pop.
Although the retailer reported decent holiday results and now has the backing of Chewy co-founder Ryan Cohen, GameStop is still losing money as the sales of video games have increasingly shifted from buying a cartridge in a box at a physical store to a download model.
“GameStop shares are trading completely un-tethered from fundamentals and that is dangerous,” David Trainer, CEO of New Constructs, an investment research firm, said in an email to CNN Business.