GameStop retail frenzy ‘is a very poor way to stick it to the man': Interactive Brokers strategist

The week after GameStop (GME) stocks flew through the roof in a tug-of-war between retail investors and some hedge funds who sold the stock short, market observers and investors are trying to figure out what we can learn from this — and what this means going forward.

Steve Sosnick, chief strategist at Interactive Brokers, one of the brokerages that joined Robinhood in restricting buys of select stocks on Jan. 28, told Yahoo Finance that last week’s action isn't necessarily a new phenomenon, but a magnified version of a phenomenon that's been happening for ages.

“There’s nothing that’s that new about this,” he said on Yahoo Finance Live. “There have been short squeezes ever since there have been shorts. There have been manias even before that probably. And what I think the difference now is, it’s the nature of it.”

Last week’s action moved faster than we’ve ever seen for a host of reasons, due to technological change and more specifically changes in social media, Sosnick said.

“I think what we're seeing actually is populism in the markets,” he said. “I compared it to the run at the Capitol. It’s that same sort of anger manifesting itself — and this time through the markets.”

Many will likely find this comparison unsavory — buying stocks that squeeze a short is in no way like an insurrection and attack on America’s democratic institutions — but Sosnick sees the theme being one of sticking it to the man.

And that anti-establishment sentiment is misguided, Sosnick says.

“If your enemy is Citadel,” he said, citing one of the hedge funds that bet against GameStop and the retail investors, “they had, I assume, a fabulous week market-making in these same stocks [the Reddit traders] were trying to rip them on.” (Citadel Securities handles a large chunk of Robinhood's orders, but its hedge fund branch has been on the other side of the GameStop trade.)

“This is actually a very poor way to stick it to the man,” Sosnick said.

In his view, this is all going to backfire and be a mess that finishes as a stacked deck might suggest. Many of the original pro-GameStop investors have long seen their best-case target prices for the stock long surpassed as the stock went from $17 to over $300.

“I have no problem, absolutely love the fact that individuals are coming into markets and see them as an opportunity to make money as a source of investment,” he said. “What frustrates me is that they’re kind of getting abused and that there will be a lot of little guys left holding the bag when this is all done.”

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Ethan Wolff-Mann is a writer at Yahoo Finance focusing on consumer issues, personal finance, retail, airlines, and more. Follow him on Twitter @ewolffmann.

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