Gamestop to the Moon...and back
I am thoroughly enjoying this. I'm also staying far away from it.
Despite the occasional storming of the Capitol, 2021 is already turning out to be a better year than 2020. Nothing in that blighted year entertained me as much as this week’s GameStop/WallStreetBets insanity.
This twitter thread has the most concise explanation for what’s going on:
Basically, people on the WallStreetBets subreddit noticed that a massive hedge fund made a big bet on shares in GameStop, a declining video game retailer, going down in value. So they started buying shares in the company en masse, increasing their value several times over and leaving the hedge fund begging for mercy.
Even a free-market neoliberal like me enjoys seeing the little guy put one over on the fat cats. It’s been fun to watch.
I’m also not going anywhere near it, because someone will be left holding the bag once the bubble bursts, and I suspect it will be the small-time investors who tried jumping on the train just before it goes off the cliff.
By the time you read this, the stock may have already plummeted back to earth. Now that the secret is out, I can see people subscribing to WallStreetBets by the thousands, looking for the next meme stock to take off. I don’t see how you can replicate this phenomenon once everyone knows about it. (We’ll see if lightning can strike twice with AMC, the movie-theater chain struggling for obvious reasons.)
Complicating things further, RobinHood and other online trading platforms have not stopped its users from buying GameStop and some other stocks that have caught Redditors’ eye.
Noah Millman, in The Week, predicts that this will all end in tears for everyone who didn’t get out while the getting was good:
This is pretty much the precise opposite of what the heroes of The Big Short, the book and film about the 2008 financial crisis, did. Those sharp-eyed hedge-fund investors saw Wall Street merrily dancing with trillions of dollars of sub-prime mortgage derivatives, blithe to their corrupt structuring and absurd valuations. So they shorted the whole ballroom, and made a killing. The short-sellers were the heroes of that story because they saw the truth. But the limitation of their heroism was that all they did thereby was make money off the very system that they revealed was built on fraud, while real heroes would have struck a blow for justice against the system itself.
Which is what the GameStop folks and their cheerleaders seem to think they are doing, even comparing themselves to Occupy Wall Street. Not coincidentally, GameStop has been pumped up at least in part with the explicit aim of bankrupting hedge funds that are heavily short the stock. In that sense, GameStop is quite explicitly Cinderella's revenge.
But what kind of revenge is it? The Reddit mob buying the stock don't have a fairy godmother to turn mice into coachmen or pumpkins into carriages. All they have is money — their own money. Irrational buying of a stock can push it up for a while, particularly when it has a thin float and is heavily shorted already; short-sellers forced to cover their losing bets are clearly part of what's driving GameStop's furious rise. Eventually, though, the shorts are covered, the mob runs out of funds, and the stock will rapidly collapse back to something resembling a rational valuation. GameStop's boosters will lose all their money, get sent back to the scullery, and discover that no prince is coming with a glass slipper looking for the foot it fits.
Ah — but at least the hedge funds, those nasty step-sisters, will be humiliated, and that will make it all worth it, right? Not really. Yes, a few hedge funds with large short positions in GameStop may go under — those are the risks of leveraged investing, and any investor who complains should read their disclosures. But those losses aren't gains to GameStop shareholders — unless they sell their shares, and who would buy them? No, the gains will go to the investors who pick up the other assets of those failed hedge funds, which they will have to sell in a panic to meet margin calls. That selling will artificially depress those assets' price, teeing up a tidy profit opportunity for nimble investors with the knowledge and liquidity to buy on cue. Most likely, those investors are other hedge funds or Wall Street firms. Hardly revenge to trade one cruel stepsister for another one.
Reddit's meme-based investors in GameStop seem to think they are doing politics, and observers have compared them to the meme-warriors who pumped up Donald Trump in the 2016 election. But there's a fundamental asymmetry between politics and the stock market. Politics is seasonal, culminating in elections, and if you win, you hold office and wield its power for a term. In a system like that, for better or worse, you really can "pump" an over-valued property over the finish line. The market, though, has no such terminus. The game never stops, and the only way to "win" is to take your chips and leave the table.
If there are ringleaders on Reddit who do that — who engineered the frenzy by encouraging others to buy, and then sell into the frenzy for a tidy profit — then GameStop is just a classic pump-and-dump scheme, like the ones by which Jordan Belfort of The Wolf of Wall Street built his fortune. The only novelty would be its mode of execution through a Reddit channel, and the exploitation of spite rather than greed as the primary motivation. If anyone is doing that, it's already fraudulent and illegal, and prosecutions should be forthcoming.
What if there are no ringleaders, though, no plan, no scheme? Then it really is just a fairy tale they told themselves, a rare instance of auto-fraud. I doubt there is any way to regulate that out of existence, and it probably wouldn't be a great idea to try, since irrational exuberance has ever been the market's lifeblood.
If it was easy to become a stock market millionaire overnight, we’d all have private jets. If you really don’t want to miss out on this action, for God’s sake, don’t invest any more than you can afford to lose. Come to think of it, that’s a good rule for investing in individual stocks, period.
A few days ago I wrote about some European poll results showing far-right parties and leaders, like Marine Le Pen, maintaining their popularity despite Trump’s defeat and post-election insurrection. I noted that Le Pen has a good chance of making it to the second round of the French Presidential election in 2022, but she’ll likely be crushed. The key question is whether she’ll earn more than the one-third of the vote she won last time around.
It’s a long way off, but if this holds, the answer is oui.
Barring some major catastrophe (say, a second Great Depression caused by the pandemic and then people trading meme stocks) I’m skeptical that Le Pen would do that well against Macron. But an awful lot of French people who said they’d never vote for her are certainly thinking about it now.
(And that assumes her opponent would be the centrist Macron. The odds that she’ll be in a runoff against a left-wing candidate like Jean-Luc Mélenchon - who won almost 20% of the vote in the first round last time around - are small, but not that small, especially if something traumatic happens in the next year. Then all bets are off.)
The extreme right may not take power in Western Europe any time soon - certainly, not on its own - but it looks like they have a role similar to the left-wing New Democratic Party here in Canada. The NDP can’t realistically win a federal election, but they usually have a few dozen Members of Parliament and sometimes find themselves having real power if there’s a minority government.
If Le Pen’s Rassemblement National and other right-wing parties are no longer untouchable but are just another normal, respectable (or at least semi-respectable) part of the political landscape, like the Greens or the socialists or the Pirates, that’s almost as much a win as actually taking power.
Trust in the media is at an all-time low, and it’s entirely because of Facebook and Fox News and YouTube and Trump.
Absolutely nothing to do with anything major media outlets do. Not their fault at all.
Newsweek quietly changed a story this week to support a new column critical of Sen. Tom Cotton (R-AR) after his office reportedly alerted the publication to the discrepancy.
The change came after Newsweek’s Natalie Colarossi rewrote a Jan. 23 column from Salon that suggested Cotton “didn’t have” experience as an Army Ranger, despite attending the U.S. Army’s Ranger School, a course required for leaders in the 75th Army Ranger Regiment. However, the Ranger course is also open to anyone in the military and is routinely attended by soldiers and officers who never serve in a Ranger unit.
However, an Aug. 8, 2015 Newsweek story about two women who had completed the course suggested it was synonymous with being called a Ranger. “For the first time in the Army Ranger School’s 64-year history, two women have completed the intense training program and will become Rangers,” the original version noted.
Newsweek edited the story this week to allow for greater ambiguity, with the revised introduction stating, “For the first time in the Army Ranger School’s 64-year history, two women have completed the intense training program and will be allowed to wear the coveted Ranger tab on their uniforms.”
Hey, that’s Newsweek. Kind of a zombie publication anyway. At least you’d never see an outlet like the Washington Po-
On July 23 2019, Washington Post reporter Ben Terris published a profile of Maya Harris — Vice President Kamala Harris’ younger sister and adviser. The article opened with a widely derided comparison made by then-Presidential candidate Harris about how campaigns are like prisons. The anecdote included a poorly received joke about prisoners and water…
[…]
On Jan. 22 2021, as part of a series of features prepared for the Biden Inauguration, The Washington Post republished the Terris piece with a new lead and a new co-author, removing the controversial comments from the 2019 version of the story. Absent that change, the rest of the story remained largely the same. Further, clicking the link to the 2019 version of the article initially redirected to the newer, “sanitized” version, making the old version effectively disappear. The outlet Reason first reported the change, accusing the Post of making politically motivated editorial decisions.
Well, the past is the past. The important thing is, going forward I’m sure American newspapers and TV networks will cover the Biden Administration just as thoroughly as they did with Trump.