January 28, 2021


“Across most of America, GameStop is just a place to buy a video game. On Wall Street, though, it’s become a battleground where swarms of smaller investors see themselves making an epic stand against the 1%... All the wild action pushed GameStop’s stock as high as $380 on Wednesday, up from $18 just a few weeks ago… There is no overriding reason why GameStop has attracted this cavalcade of smaller and first-time investors, but there is a distinct component of revenge against Wall Street in communications online.” AP News

Buying GameStop shares was encouraged by Reddit forum r/WallStreetBets, where “thousands of average Joe day-traders” trade stock recommendations. Bloomberg

Short sellers betting against mall retailer GameStop have lost $5.05 billion mark-to-market in 2021, according to a note published [Tuesday] by S3 Partners when the stock was 16% higher in intraday trading… One of the biggest GameStop short seller ‘victims’ is Melvin Capital, a hedge fund that started the year with $12.5 billion in AUM [assets under management] and lost almost 30% through Friday last week, according to The Wall Street Journal. It announced an emergency infusion of $2.75 billion from fellow hedge funds Citadel and Point72 on Jan. 25, and told CNBC today that it closed out its short position in GameStop on Tuesday afternoon.” Investopedia

“Nasdaq CEO Adena Friedman told CNBC Wednesday that the exchange monitors social media chatter, and will halt trading if they match the chatter with unusual activity in a stock.” Business Insider

Many on both sides are unsympathetic to complaints from the financial establishment and argue that the incident exposes structural issues with the stock market:

“The financial establishment is calling for ‘authorities’ to do something about it. Why? The stock market is all about gambling. It’s a game. The finance bros are just mad that some guys on Reddit played better than the hedge-fund managers who are used to winning… Even NASDAQ was threatening to shut down the market over the mass inflation of GameStop stock to protect their friends on Wall Street. NASDAQ CEO Adena Friedman was literally stuttering her way through a justification for regulating the people who made the house lose… Taking billions out of the market and bankrupting people is only something hedge fund managers get to do, not you people in your underwear trading at home. Duh.”
Megan Fox, PJ Media

“How is the Redditors’ collaboration much different from hedge funds and institutional investors deciding to short GameStop almost as a collective? Why is market manipulation and activist investment acceptable when a billionaire does it but not when an anarchic group of quarantined day traders does? Why is it OK to bet on a company’s failure? Pull at these threads long enough, and you might unravel the ideological underpinnings of the financial industry. It’s not just money Wall Street fears losing in this imbroglio; it’s its legitimacy, too…

“Industry veterans complain that there are no fundamentals attached to this GME boom—no basis in company revenue or in some strategic plan to turn around the retailer. One could say as much about the many baroque financial instruments that underwrite Wall Street’s riches while contributing little to the common good. The financialization of the U.S. economy over the last 40 years has been a disaster for most Americans—bringing income inequality, recessions, a housing crisis, and the impression, probably justified, that the economy simply doesn’t work for them. It is indeed a giant casino, and like any casino, it’s rigged to the benefit of the operators and their partners.”
Jacob Silverman, New Republic

“A lot of normal investors are horrified by this kind of thing, and think that some time after this there will be rules introduced to stop the pitchfork brigades from squeezing the shorts. But I think the Reddit short squeeze play is a public service overall. If your institution is shorting a stock so moronically that a few dudes with tiny accounts can make you pay out millions to them in gains, you and your institution are the idiots, not them.  It’s your turn to go onto CNBC [and] cry, while they go to their YouTube channels and gloat!”
Michael Brendan Dougherty, National Review

“Lulz aside, this drama, like the seemingly endless rise in stock prices since 2009, interrupted briefly by the COVID-19 scare last March, is a sign of a financial system totally out of touch with economic reality. Trillions in government aid to business and Federal Reserve infusions into the financial markets have created a monstrous gusher of money with nowhere to go but speculative assets, at a time when ICUs are at capacity and 24 million people tell Census Bureau interviewers that they’re having trouble getting enough to eat.”
Doug Henwood, Jacobin Magazine

Other opinions below.

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From the Left

“The GameStop folly isn’t just a get-rich-quick scheme. It’s a tale of inequality… One poster claimed to use day trading gains to pay off a $23,504 student loan bill. Others talk of using stimulus checks to invest. Anger is never far from the surface. ‘They have had this game rigged for over a 100 years,’ wrote one poster. ‘Pay back is a b----. You think we all forgot what these a------ elitists did during 2008 and the sweet bailouts they got while the rest of us suffered?,’ wrote another…

“The wealth of American billionaires has soared by nearly 40 percent since mid-March 2020. But the economic prospects for almost everyone else remains less than promising. This is particularly true for the millennials and older members of Gen Z, who appear to make up most of the day trading hordes. Millennials possess significantly less in the way of assets as baby boomers and Gen Xers did at the ages they are now, and have much more student debt. Meanwhile, Melvin Capital is down 30 percent this year because of a bad bet, yet gets a bailout from other rich hedge funds…

“If [this] doesn’t tell us something about our age of inequality, I don’t know what does.”
Helaine Olen, Washington Post

“There is certainly a populist verve to Redditors getting rich at the expense of large investors, while making a mockery of the notion that private financial markets rationally allocate capital. What’s more, at least some of the GameStop longs appear to have political motivations (of a sort). This said, it is far from clear how progressive the ultimate redistribution of wealth from the GameStop craze will be. Eventually, this stock will come crashing down to Earth, and when it does, it will make many ordinary people who got caught up in the mania significantly poorer…

Another less-than-populist aspect of this drama is that the hedge fund that’s been hardest hit — Melvin Capital — did not become the favored target of WallStreetBets on account of its unique avarice or unscrupulousness, but rather, its exceptional transparency…

“Hedge funds generally go to great lengths to guard their short positions. If they use put options, for example, they buy them over the counter, which means they don’t have to list them in regulatory filings… For Wall Street, the upshot of all this is going to be: Never let regulators or the public know what your short positions are. Which doesn’t seem like a huge win for ‘the 99 percent.’”
Eric Levitz, New York Magazine

The United States was a much more equal and prosperous place when Wall Street was clapped in regulatory irons, and the economy was a lot more stable…

“If we strictly regulated Wall Street with large capital requirements, a financial transactions tax, simply banning most of the complicated derivatives and options used today, and so on — aimed not at the retail investor but mainly at the big financial firms — the American economy would be a lot healthier. If we scooped most stocks into a social wealth fund owned equally by every American, normal people could benefit from the market without having to take crazy risks. There are better ways to beat the rich than pump-and-dump schemes.”
Ryan Cooper, The Week

From the Right

“For those who think — not unwarrantedly — that the market is rigged against them, the Robinhood revolt is a wonderful bit of schadenfreude. But nothing has changed about GameStop’s business. It’s still primarily a brick-and-mortar retailer in an electronic world. It’s certainly not worth $300 a share. So while Robinhood buyers who got in early made a good bit of money — at least on paper — the bubble will eventually burst, and the shares will likely fall back to earth again…

“The problem is that GameStop isn’t the only stock this is happening to. Blackberry, makers of the handheld device you no longer use, and AMC, owners of movie theaters you no longer go to, are also looking like Apple on steroids. And what’s really worrying is that Dow 30,000 is all about this sort of irrational exuberance. Yes, we laugh at $300 GameStop, but is Tesla really worth $880 a share? It isn’t just Robinhood traders working in concert who are driving up company valuations; it’s hedge funds and Wall Street banks research departments and large mutual funds…

“If history and common sense are any guide, GameStop is the canary in the coal mine. And everyone — from the small investors to Big Banks — is in for a scare.”
Charles Gasparino, New York Post

“The SEC is ‘assessing’ the Reddit users, not the fact that market leaders may move to manipulate matters to save themselves. The full weight of the federal government isn’t going to come down on those trying to game the system. Instead, it’s going to come down on those who simply saw a legal opening and made money off the ‘wrong’ people, i.e. the hedge funders…

“When a bunch of hedge funds collude to short a stock at a ridiculous rate for their own gain, that’s all good according to the SEC. When some normies online decide to get together and fight back, they are treated like criminals.”
Bonchie, RedState

“You might buy GameStop shares in order to receive its future cash flows, but you might also buy it because your friends on Reddit own it and it seems fun to go all in on a random stock, no less so because of the nostalgia you feel for your childhood trips to buy Halo. You might even screw over some short-sellers in the process, and why not?…

“Many people enjoy patronizing casinos despite the widely known fact that casino gamblers are certain to lose money over a long enough time period. But for most gamblers, especially amateurs, the casino is less an investment product than a consumption good. If you go to Mohegan Sun with a few hundred dollars and waste it away at the blackjack table, you will probably be worse off than if you’d made money, but you will have gotten to have a generally pleasant time spending a few hours drinking free cocktails and sharing stock picks with the dealer…

“The rise of online day-trading is turning certain stocks from investments into consumption products. As with casino gambling, the possibility of a financial gain is part of the appeal, but the process of trading in and out of stocks with online friends is about more than making money. It’s an experience; it’s a lifestyle.”
Daniel Tenreiro, National Review

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