GameStop bubble bound to collapse

The reason-defying rise of video game retailer GameStop’s stock price seems to combine the psychology of the “housing bubble” of the 2000s and the populism that gave us four years with Donald Trump at our nation’s helm.

GameStop looks like a struggling giant when seen through the usual Wall Street lenses of financial performance, annual reports and quarterly conference calls with investment analysts. It’s a $9-billion corporation with 6,000 stores.

To gamers of a certain age — that is, millennials and those who are entering adulthood after them — I think GameStop inspires the same loyalty as Hot Topic, another retailer of merchandise to fans of anime, video game characters, super-heroes and popular music.

There’s a touch of populism in their regard for GameStop, because it is based more on sentiment than facts and analysis; at least I think it started out that way.

Unlike Hot Topic, which went private in 2013, GameStop is still publicly traded, but has been hurt lately by online sales and competition from everywhere.

In fact, big hedge funds and other heavy-duty mega-investors decided to “short-sell” GameStop stock shares to capitalize on a bet that GameStop is on its way down.

In short selling, you borrow shares of stock, sell them, then at a later date, you pay for what you borrowed at the current going price per share. Short sellers profit when the price they pay later is less than the price at which they sold those shares.

Some financially savvy millennial fans of GameStop who communicate through Reddit, an online discussion forum, began a movement to counter the big-gun attack on a sentimental favorite.

Using a commission-free broker called Robin Hood, they started driving up GameStop share prices a year ago.

Starting Jan. 4, however, it got ridiculous. GameStop’s share price, which was $3.81 on Jan.27, 2020, rose gradually to $17.69 until Jan. 4, 2021, then zoomed to $325 on Jan. 29. The graph looks like the gentle rise of the Rocky Mountain Plateau abruptly soaring skyward at Pike’s Peak.

Many who bought protest shares within the past year are suddenly wealthy, and the big funds have been hurt as they pay more, not less, for their borrowed shares.

Now it seems, nostalgia for movie theaters and early cell phones are artificially inflating share prices for AMC theaters and BlackBerry, one of the first cell phone makers.

Like the housing bubble of the 2000s, GameStop’s share-buying snowballed when it became seen as a path to easy riches. In the face of GameStop’s current business weaknesses, however, I would remind GameStop shareholders that the housing bubble collapsed catastrophically when economic reality could no longer support its weight.

Now some in Congress are calling to end short-selling, and some want to stop further populist insurgencies on Wall Street.

I would ask Congress to kindly butt out.

Short-selling is a useful way to curtail a misguided stock market trend, a method of self-regulation.

I would also rather have the market find ways to counter sentimental surges without “help” from Congress.

Steve Hansen writes for Clovis Media Inc. Contact him at:

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