Wall Street’s hedge funds are on track to lose tens of billions of dollars in the “short squeeze” caused by traders on Reddit, but some Canadian entities affected by the frenzy are cashing in ― while they still can.
The Ontario teachers’ pension plan and a small Calgary cannabis company are among the Canadian entities seemingly making bank on surging stock prices amid an epic run driven by the r/WallStreetBets subreddit.
The Ontario Teachers Pension Plan sold its 16.4-per-cent stake in U.S. mall owner Macerich for US$500 million (C$638 million) after the company’s shares soared, according to regulatory filings obtained by Bloomberg News.
Macerich, which owns 47 malls mostly in major U.S. cities, had been struggling even before the COVID-19 pandemic, and had seen a multi-year slide in share prices until this past month, when shares more than doubled in the space of three weeks.
Investors on r/WallStreetBets have been pumping it up as the “landlord” of retailers like GameStop and AMC Cinemas, two other companies targeted in the buying frenzy.
Meanwhile, a little-known Calgary cannabis company called Sundial Growers Inc., another company talked up on Reddit, became the most-traded stock on the New York-based NASDAQ stock exchange Friday morning as it announced it’s issuing US$100 million in new shares.
Sundial has also seen interest from the r/WallStreetBets crowd, and its stock is up nearly 70 per cent since the start of the year, though it’s still well below levels it saw before COVID-19.
The company hinted it may be going on a shopping spree, saying it plans to use the windfall “for the financing of possible acquisitions of, or investments in, equipment, facilities, assets, equity or debt of other businesses, products or technologies,” among other things.
“Average Joe” investors are communicating on the r/WallStreetBets subreddit to talk up the share prices of companies that were shorted (that is, bet against) by powerful Wall Street hedge funds. The higher the share price, the bigger the loss for short sellers.
According to analytics firm Ortex, investors (including those hedge funds) are on the hook for US$71 billion (C$89.5 billion) in losses on those bets so far this month.
Video game retailer GameStop became the most intense focus of this “short squeeze” in recent days, particularly after Tesla founder Elon Musk seemed to jump on the bandwagon, tweeting “GAMESTONK!” on Tuesday (an internet meme referring to GameStop stocks).
The result is that these hedge funds are now exposed to massive losses on their failed bets against GameStop and other businesses. One hedge fund, Melvin Capital, announced this week it’s closing out its short positions after taking what Wall Street observers believe is a huge loss.
Several other hedge funds have poured US$3 billion into Melvin Capital to keep it afloat, CNBC reported.
Amid the hedge fund carnage, retail stock trading platforms like Robinhood and TD Ameritrade on Thursday stopped their traders from buying GameStop shares, as well as some other short-squeezed stocks, only allowing traders to sell their holdings.
That caused outrage among retail investors, who said the move amounted to proof Wall Street is a rigged game, favouring the rich.
Under pressure from politicians and a class-action lawsuit by some of its traders, Robinhood said Friday it would allow trading in GameStop shares to start again.
GameStop’s share price soared 70 per cent Friday morning, to US$344 a share. It was trading around $20 a share prior to the rush.
With a file from Reuters