The hedge fund genius who started GameStop’s 4,800% rally now calls him “unnatural, insane and dangerous”

In April, Dr. Michael Burry, the hedge fund investor who made millions selling subprime mortgages during the 2008 crisis and was dramatized by Christian Bale in “The Big Short”, made a bold move into the depths of the Coronavirus pandemic.

Burry’s Scion Asset Management hedge fund said it bought 5.3% of video game retailer GameStop

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between $ 2 and $ 4.2 per share, spending about $ 15 million in total. Burry’s move was to urge GameStop to use its money to buy back shares, potentially retiring about half of its outstanding shares. In a firmly written letter to GameStop’s board of directors, Burry asked the company to exhaust its $ 300 million buyback authorization. At the time of the letter, GameStop’s total market capitalization was only $ 300 million.

Burry’s move helped spark one of the craziest, most out-of-control businesses in financial history, which generated billions of dollars in paper profits for some investors, including many amateur speculators, and caused what could be billions in losses for some of more sophisticated hedge funds.

GameStop rose from a low of $ 2.57 per share when Burry was building his position this spring to more than $ 240 at one point in after-hours trading, as a bunch of amateur speculators have used Reddit social media app to corner GameStop’s heavily sold shares. The ensuing increase in GameStop’s stock created a squeeze reminiscent of Volkswagen’s rise in 2008 to a market capitalization of half a trillion dollars during the depths of the 2008 crisis, which led to about $ 30 billion in losses hedge funds.

At the request of investors like Burry, GameStop has repurchased about $ 200 million in shares since 2019, reducing its shares by 38%. The repurchases, combined with massive hedge fund bets against GameStop, which suffers from falling sales of video games in stores, means that it ended 2020 as one of the world’s best-selling stocks.

Enter the Reddit topic r / wallstreetbets, where for months the posters tried to squeeze GameStop bears and increase the company’s stock. How GameStop gained momentum due to the addition of Chewy

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founder Ryan Cohen as an investor and growing sales of PlayStations, Redditors started to smell blood in the water. A squeeze organized by social media occurred in January, which generated an 881% gain in GameStop shares last month.

The battle royale is reminiscent of a similar confrontation about 15 years ago, albeit one among professional traders, versus today’s iteration, where amateurs are battling giant funds. In 2006, billionaire John Arnold negotiated with Brian Hunter of the hedge fund Amaranth Advisors in a giant (long March / short April) natural gas futures deal. The duel paid Arnold a fortune, but it cost Amaranth $ 6 billion and caused the fund to end.

As GameStop’s valuation skyrocketed to $ 14 billion, making some retail traders millionaires, this has been at the expense of some successful funds. The hedge fund Melvin Capital, one of the biggest shorts released by GameStop, lost a lot with GameStop’s grip. that was supposedly fell 30% on Monday, according to the Wall Street Journal, and demanded a $ 2.7 bailout of Citadel billionaires Ken Griffin and Steven A. Cohen and Point 72 Asset Management, respectively, to stay afloat.

When the squeeze turned into a Wall Street fiasco that occurs once in a decade, amusing onlookers, two of Silicon Valley’s biggest talkers, Elon Musk and investor Chamath Palihapitiya, joined.

Palihapitiya traded in the tightening, buying call options at GameStop, which appeared to accelerate the tightening on Tuesday afternoon. After Palihapitiya’s tweet, GameStop went from $ 90 to close at $ 147.98.

Minutes after the market closed, Musk joined the party with even more powerful results. With tens of millions of avid fans around the world and a knack for moving stocks with a single inscrutable tweet, Musk simply wrote: “Gamestonk”. He linked to the Reddit topic where the tightening was coordinated. This was good enough for a 43% jump in GameStop shares in after-hours trading.

Now GameStop’s hedge fund bull Michael Burry, possibly the person who instigated current circumstances with his huge buyback call, says the squeeze is “unnatural, insane and dangerous”. In a tweet, Burry said there should be legal and regulatory repercussions for the increase. (It looks like he later deleted the tweet).

Maybe Burry is trying to put a lid on the Pandora’s box that he helped to open. Or he may be suffering from a little FOMO, or fear of losing. The 3.4 million shares that Burry bought for about $ 15 million would be worth $ 710 million at current prices, making him an almost billionaire.

Unfortunately for Burry, the title files reviewed by Forbes indicate that he sold his GameStop before the fun really started. As of September 30, Burry owned only 1.7 million shares and is more than likely to have continued to sell while GameStop reached the end of the year.

For more information on GameStop:

GameStop’s big rise creates a new billionaire as Reddit traders bet against Wall Street