Smart money may not be so smart, it seems.
I’ve been wanting to get a post about WallStreetBets done for a couple of months now – I’ve been lurking since about July last year. WallStreetBets is what you get when the millennials and Gen Z take on the stock market. It’s crude, it’s obnoxious, and deliberately offensive. Describing itself as ‘like 4chan found a Bloomberg terminal’, referring to each other as ‘retards’ and ‘degenerates’, the abject nihilism of the millennial and Gen Z generation’s future perspective is framed just about perfectly.
Given that this concerns, of all things, WallStreetBets, it should be clear that none of what follows should be taken as financial advice, and you’re an idiot if you interpret anything as such. I’m not a financial advisor and I’m not responsible for you if you do anything stupid. If you have questions then do your own research or go speak to a professional (yeah, I see you rolling your eyes…)
Wall Street is where people go when they think they might be able to save for a rainy day. To build a future and get the affordable house, the 2.5 kids, and the dog, at 8% interest a year in an index fund sitting on a comfortable salary that outstrips the cost of living. WallStreetBets is where people go to burn money for the lulz. Despite the Wolf of Wall Street reminiscent logo, this sub started out as YOLO-options plays and ‘loss porn’. The ‘guh’ meme was born here, courtesy of user ‘ControlTheNarrative’.
People who cannot conceive of a future, much less the future they are berated for not having because their parents had those things at their age in a different world, find the concept of investing in that long-term future laughable. We don’t even know if we are going to have a habitable planet in a decade and here comes the stock market guy with a lecture on 50 years of incremental interest and the outright screamer of a… what’s the word – oh yes – ‘retirement’. The world is accelerating. It is a high-risk high-volatility economy, and it was that way long before Trading 212 and Robinhood. A high-risk high-volatility economy results in high-risk high-volatility investing in a desperate bid to try and secure some future capital to set aside for a rainy day even as politicians scream that everybody should always be in debt forever otherwise the global economy collapses. And the acceleration continues.
Mix in an endless barrage of ‘bootstraps’, ‘work harder’, ‘NEET’ accusations from a generation that could walk into a job out of secondary school and stay there comfortably forever, a social-media driven grind culture and an increasingly unstable gig-based economy, and you start to see why mental illness and burnout are sweeping through the global under-50 population and why nobody can take much of anything too seriously anymore.
If the world collapses, well so what?
None of these guys at WallStreetBets seriously imagines sitting on a yacht sipping champagne with a gaggle of high-class pole dancers. They’re so disillusioned with the world that losing a tonne of money and going into debt to the tune of tens of thousands of pounds is not just another day. It’s a joke. That is the world. So when the Joker, of Batman fame, pops up on the regular, it’s perhaps a bit cringey, but not a surprise. What you are looking at is two entire generations of Jokers. Because the entire world is, after all, just one big futile laugh. The stock market, being so integral to our world, is also, by the same logic, a fundamental joke. And they get this. Why aren’t you laughing?
At this juncture, it is important that I give credit and recognition to the considerable number of ‘boomers’ who have publicly thrown their support behind the movement, despite much of the rhetoric highlighting intergenerational tensions. Because they were also used to banksters trying to leech them for everything they could and the truth is that this feud is nothing more than a divide-and-conquer strategy. Keep the people fragmented and bickering between themselves and they are easier to control. For example, WallStreetBets was flooded with bots, all attempting to sway the investors away from GME. It would be entirely spurious to accuse Wall Street of paying for an army of bots to overrun a subreddit for their financial benefit, the reality being that it’s more likely a number of outside interests with their own collection of bots all trying to pump their own stocks in the mania, but the result is the same: people sell their GME to buy other stocks, thereby lowing the stock price and thus hedge fund’s outstanding debt. With retail investors divided amongst a hundred other stocks, all trying to pump this, that and the other, the ‘elite’ are free to go back to avoiding taxes and profiteering from the destruction of working people’s livelihoods.
The lesson to learn from this moment is to stay focussed and work together. That, above all, is important.
“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.”
The narrative you’ve probably heard is that a bunch of nerds banded together to manipulate the stock market. Lies. And statistics. User ‘DeepFuckingValue’ cottoned onto Melvin Capital and Citron Research a full year ago. That’s where this started. He noticed that the stock price of retail game trader GameStop was going down, it sat at a hand full of dollars and, despite the obsolete business systems of the chain, discovered that the price of the stock was being forced down. Melvin Capital and Citron were short selling the stock.
Short selling isn’t inherently bad. It’s a mechanic of the market. A neutral tool. It has, in fact, been used for good in the past. Melvin and Citron’s use of it, and arguably the timing of their use, was the problem that sparked this turning point in history.
Melvin Capital had a short selling position substantially in excess of the total number of aviliable stocks that GME actually had, 140% to be precise, adding further pressure to the already substantial attempt to drive the company into bankruptcy.
All of this during a pandemic, in harsh economic times, at the expense of 14,000 full time employees and another 22-42,000 part-time employees (figures as of 2019). This from hedge fund guys on Wall Street who can all comfortably sit the pandemic out in luxury end-of-days bunkers on piles of caviar. These are financial vultures.
At the time DeepFuckingValue started to buy in, they had the stock at a handful of dollars. He bought in, he pitched the idea to WallStreetBets, who resoundingly called him a lunatic and dismissed the idea. But he kept at it and a couple more people got in on the stock. The stock price went up. When you short a stock you can drive it to 0 and that’s your end. The other direction, the up, is theoretically limitless. When increasing numbers of people started to get on board with this stock buying, the short sellers at Melvin had to cover their positions, buying the stock they were trying to dump, increasing the price further. So you can see how this can create an exponential upward spiral.
Long story short, Reddit gets into a brief scrap with Citron Research and Melvin Capital – the near-term arc of this is about a month or so, with Redditors pitching in to piss off the short sellers. Given the options plays that Melvin was gambling with, as soon as enough upward pressure was applied to move the stock price, the total debt Melvin had outstanding was suddenly magnified and there was no ceiling. In the end two other Wall Street hedge funds had to bail him out to the tune of just under $2.8 billion.
And this is where the current situation comes in. WallStreetBets played Wall Street casino capitalism at its own game, using its own rules, and won. Suddenly, according to Wall Street, it wasn’t fair anymore. They threw their toys out of their pram and called for regulation. Read that again. Hedge funds on Wall Street calling for financial regulators to step in. Once again, Wall Street demands a a crack down because it bet on black and lost. When somebody short sells at 140% of the float that’s fine, but when a market mechanic gets used against them then it should be punished and regulated and they want someone else to foot the bill. Because it’s not fair when the peasants win. Well, of course.
But if it were fair, short sellers wouldn’t have been able to put themselves in that situation in the first place. If it were fair, then hedge funds wouldn’t be trying to short sell people out of their livelihoods in a recession during a pandemic, as those same people do not have Wall Street hedge fund manager resources to fall back on when things get rough. If things were fair, insane options plays wouldn’t have become a meme in the first place because the concept of the value of money would actually have some meaning and consequently outweighed by the risk, because it could be tied to the concept of a viable future. If things were fair then two entire generations of nihilistic stock gamblers from around the globe, who laugh like hyenas every time the line turns red, wouldn’t even exist. Them’s the breaks, kids. By what right do these so-called elites claim the sheer temerity to deem themselves exempt from the rules? Or, to quote something I read in the midst of the madness, in less grandiose terms:
“Oh, what’s that, Melvin? Your financial prospects are bleak and the system feels like its rigged against you? You call this a crisis. We call this a Tuesday.”
In the most predictable act since David Cameron bought a value pack of gammon, Wall Street cried ‘market manipulation’. Except, this was all public information, those short positions are out in full view if you care to look for them and, moreover, people bought into it long before it became so politically explosive. This wasn’t back room trading under cigar fumes, this was open. Regular people like you and me, the same degenerates you walk past on the street lugging bags of shopping or fighting with an umbrella on a windy day, found a mechanic in the system and an effective way to use it. That is all. In comparison, US senators, briefed early on the coronavirus, sold millions of dollars worth of stock before last year’s crash and faced no consequences. Despite the fact that doing so quite literally counts as insider trading. Where was the outcry about that?
WallStreetBets couldn’t move the market if it tried and it knows that. WallStreetBets controls, at best, a quarter of a tenth of a percentage of the total capital of Wall Street. These are the same ivory tower ‘smart money’ guys who gambled with the global economy and lost in 2008, whom the taxpayers bailed out, and the effects of which we are still feeling today. They are simply not used to losing a bet because they consider themselves to be the house, and the house is always supposed to win. Those are the real rules.
The American Dream; a self-equalising, low regulation and uninhibited Milton Friedman-style free market that can work for anybody; opportunity and success as a result of hard work – those are the rules they give you on you place card at the table. Everybody is invited. But the ‘elite’ are sitting at a different, much smaller, table and their place cards have a very different set of rules printed on them.
Am I an anti-capitalist, then? No. Capitalism is the only system that demonstrably works. The funniest thing about all of this is that this very incident more or less proves it. By exposing how corrupt and one-sided the system is in favour of the ‘elite’ beyond any shred of doubt, we get to see that as a concept, maybe this absolute disaster of a global economy, exacerbated in America’s case by their reluctance to provide social safety nets, wouldn’t be such a disaster if it was working at all. But instead it is ‘working as intended’. ‘Working as intended’ means global casino capitalism that holds absolutely no risk for the people rolling the dice, because that risk is dumped onto all the peole who aren’t lounging at the roulette wheel.
As an aside, apparently the complete nonsensical system of over-shorting a stock for more than the total existing float, was pointed out years ago. The regulators effectively shrugged. So the rules are there for everyone to use. But when retail investors use those rules, suddenly trading is actively shut down to protect billionaires. Investors are no longer allowed to make money. The rules are there for everyone to use except for the little people. If the little people use the real rules, that isn’t allowed because then they’re somehow breaking them. Rules for thee but not for me. What happened to those bootstraps?
So what happens now? A few options I can see:
The regulators crack down on Wall Street. If they do this then they signal that they work for democracy because nobody watching this debacle is OK with it – unless you’re profiting from it.
The regulators crack down on retail investors. If they do this then they signal that they work for the elite. This is more likely. Money talks and retail just stuck all of theirs in the stock market. The 1% have cash to burn for days. On the other hand, cracking down on retail might just set another spark to the political powder keg that this event has become over the last week.
The regulators leave it alone or crack down across the board. Either is probably the best option. The ‘professionals’ get a long overdue bloody nose and retail theoretically eventually goes back to dispersing their trades amongst a bunch of different stocks, occasionally driving one through the roof briefly before letting it crash back down and moving on.
Retail investors have choices to make, too. Although, I fear that recent actions by retail brokers may have tipped the scales on this one. One the one hand, they can take their profits and keep playing the market. The institutional investors learn to treat them with more respect and the nature of the market changes, as is inevitable during these periods of generational transition. It grows more volatile and that becomes the new paradigm.
Or retail traders can try to turn what is looking to be a victory into a crusade. This will get very ugly very fast and I don’t think retail investors have the money or the internal leverage to win that war, despite their overblown proportion by establishment-friendly media who would have you thinking that the corporations were David and the retail investors Goliath; or else, that the retail investors might be David, but they are also bad and deserve to be killed by Goliath in this rendition of the story. That is not an exaggeration – that is how warped the narrative gets.
WallStreetBets, to their credit, seem to understand their lack of weight in the market, recognising their quarter of a tenth of a percentage – they know that they do not make or move markets. But investors on TikTok and Twitter might benefit from the startling amount of real research and heavily detailed due diligence that comes out of WallStreetBets. For all that they mock themselves as not having a clue, it’s very clear that some of them are incredibly savvy in a variety of ways. That’s one of the strengths of cross-discplinary spaces. Some people can read charts, some people can read industry trends, some people can read public sentiment and it all counts. it’s just a matter of finding a place for all of that information to coalesce. That self-mockery, then, has been a crucial ego-check that doesn’t exist in the upper echelons of real-world Wall Street. None of those guys think of themselves as degenerates.
As for GameStop and AMC, they’ve been gifted some kind of lifeline. It won’t be this long for the long-term. They were dying companies and they were dying because they were dinosaurs. They did not adapt to the changing economy, they couldn’t retain a customer base. On paper their failing made absolute sense. They were saved on behalf of the employees and to thwart the naked greed of vulture capitalist hedge funds. If either company fails to take this opportunity to adapt, then there will nobody to save them a second time.
In the meantime, Redditors on WallStreetBets are discussing the best charities to donate to, paying off debts, and funding food banks for people that they know are in far worse financial positions than they are and do not have the capital to throw at the stock market. They are supposed to be the bad guys in this story?
The real risk for retail turning this into a crusade, however, is the chance of the movement becoming some sort of deliberate and coordinated predatory pack of financial firm hunters. Wall Street do have rules that they are supposed to operate by, of necessity, and retail is skirting incredibly close to those rules recently. If the idea is to force some social equality into the picture, then deciding that no expectations apply to retail somewhat undermines any ethical or moral argument. As is so often the case, and I can’t believe I’m writing this, some of the guys who will get hurt by misdirected mass vigilante finance will also be innocent traders just trying to do their jobs. Indescriminately targeting short selling and hedge funds because ‘hedge fund bad’ without real due dillegence, won’t look good. If retail investors use the argument that there are one set of rules for them and another for the rest, then they have to show some further discipline and not take the piss. They lose all credibility if they do.
If retail investors start from the position that they are trying to protect the jobs of GameStop employees, if only for the time being, then it looks disgustingly hypocritical for them to then start attempting to destroy the jobs of others en masse and for the sake of it. Sending a message and curbing ‘elite’ excess is one thing, becoming a bloodthirsty crusade mob hunting down heretics, is another.
That is the sound of inevitability….
Nobody seriously expected this to last, at its current fever pitch, past the end of the week. I expected it to be a short-term event before the crowd became too unruly and difficult to organise, and eventually you’re left with a new week in the stock market. At the point where Wall Street started to call for regulation and bailouts and attempted to criminalise the retail investors and clutch their pearls, the tone shifted and has continued to harden ever since. There was, amongst retail, the general idea that the money was nice but the thing tying them together was the opportunity to bloody the nose of exploitative donor-class disaster capitalists. To quote a Joker gif popular with WallStreetBets: It wasn’t about the money; it was about sending a message.
I’ve heard various theories on today’s market. Some say that, on the longer term, we’re possibly in a period of consolidation before a dip and then another large bull run, and others say that we’re about to go over a cliff. There are smarter and more experienced people than me to give any sort of longer-trend analysis, so I’ll leave that to them. What I will dispute is the consistent comparing of this week’s market to the dot-com bubble. Where GameStop is concerned, perhaps, but at this point, the comparison has fallen apart. $GME is not driven by pure greed and opportunism. It has become a vector for political rage. It is, absolutely, a bubble, and nobody invested thinks that everyone is getting out without some sort of pain on the inevitable pull back. It is known that the downturn is going to brutal, but this is no longer a market narrative. Media like Bloomberg’s Balance of Power or CNBC keep talking about fundamentals, valuation, bull runs and long holds. This is not a trade floor anymore: it is a battlefield.
We are told that Citron and Melvin got out of their positions earlier in the week at a massive total loss. Nobody believes them. I haven’t seen any evidence either way, but it is telling how little people are willing to trust the word of these institutions now. Others have been driven to attack the government stimulus checks because they claim they might be used to hurt the poor billionaires. It’s little more than institutionalised victim blaming. The Financial Times made a pathetic attempt to link WallStreetBets to the alt-right – they were swiftly corrected and subsequently corrected their article.
Of course, they are well aware at this point that the movement has become political. Too much has happened for it not to be. But talking about class division and the wealth gap is a difficult conversation that they do not want to have, and they are not willing to close the wealth gap, and so here we are: Small-time investors using the stock market mechanics to play the stock market, and winning at the expense of billionaires, who then throw their toys out of the pram and shut down access to those stocks. God forbid the so-called ‘elite’ are held accountable for their own reckless gambling and cynical market manipulation at the expense of everybody else.
On the 28th January retail brokers collectively stopped providing access to $GME and $AMC due to “market volatility”. Traders were only allowed to sell their stock, but not to buy. Robinhood provided a 250-word blog post 99% of which was fluff – ‘volatility’ being the single world of any potential use. The general consensus was that, owing to the coordinated manner in which those apps stopped allowing trades, that this was market manipulation Wall Street style. Scared of further stock advances, they had simply cut off investors ability to invest. It would have been better for brokers to fully suspend both buy and sell buttons altogether instead of only allowing sales. As it is, it’s easy to interpret the actions of those brokers, who all market themselves as the democratisation of finance, as the result of taking dictation from the same ‘elites’ who are losing money via these apps – frontrunning of trades aside.
In all honesty, this is more than likely untrue, however, the utter lack of substantive communication on the matter, at the time of writing, certainly leaves the theory on the table given the current climate. The one-sided way this debacle is being handled is not helping to ease tensions. In retaliation, investors are finding new ways to buy those stocks out of sheer spite, regardless of the now massively inflated price tags, or simply digging their heels in and diamond hands-ing. If the stock market has ever looked like a disjointed 300 recreation, this is it.
For a profession that claims to deal in people, the fact that they didn’t see this would be shocking if these self-proclaimed ‘smart money’ men hadn’t been so thoroughly outclassed by a bunch of ‘dumb money’ amateurs. These guys are supposed to be smart? Shutting down the ability to buy stock without any reasonable explanation, was colossally idiotic. With the exception of WeBull, who first explained that there were problems at their clearing firm, he got the message out in a minute, everyone understood, and then WeBull resumed trading in the considered-censored stocks thereafter. It took a less than a hundred words to clear things up on a concrete mechanics-based level.
Everyone else seemed to ignore the highly charged political climate, let’s add something that looks entirely like bold-faced skulduggery and flaunt it at an enraged public. Or were these idiots attempting to apply the homo-economicus market model? If that was the case, then breaking news: Humans are not calculators. Anybody involved in the stock market should understand that there will be mechanistic procedures and some for of pipeline involved. The pipeline is having problems, thus no flow. To suddenly decide that the flow only goes one way is bad, to not explain that the pipeline is interrupted is stupidity.
Instead, a potentially benign side effect of the pressure on the market, became another nozzle for pumping more fuel onto a fire that is getting very large and very hot. To everyone watching, it looks like yet more market manipulation from Wall Street who are doing everything they possibly can to stamp on any form of dissent.
Some brokers put an entrance fee in front of their apps, which I am OK with. Amidst the excitement there are a lot of naïve questions from people who have jumped in looking to make a quick buck. They are the most likely victims of the downturn – they clearly have no experience and have no research. Putting a fee in front of the app presents a choice: do you actually want to do this? And it might just give the easily swayed enough pause for thought to make a wiser decision. If you’re not ready to invest the initial capital you clearly are not ready to invest full stop. It’s easy to get caught up in the moment until you, inevitably, see red.
This would have dispersed. Just let it run its course, take the pasting, and eventually this insane moment playing out on something as boring and unattractive as the stock market, would have blown over the broader public’s heads and the investors would have filtered out into other stocks. But the ‘elite’ can’t take it, they have to try to throw their weight around at every opportunity because they’re so used to getting their way unquestioned. It’s the same reason they are scared of the Decentralised Finance movement (despite throwing their money behind bitcoin in droves) – they hate anything that functions as an equaliser. In their arrogant bids to dominate and control events, they have only increased the volatility they keep screaming about, and that has, at this point, filtered well beyond the stock market. They have made the volatility worse, they have drawn it out, they have ensured that people are digging their feet in. In trying to master all the little people, they have whipped them into the very frenzy they seemed so keen to avoid. They have created a powder keg.
Now the whole thing has gone global. What started off in America has become universal. Between the news coverage, Youtube commentary, livestreams and social media frenzy, with #eattherich notably trending on twitter, a stunning moment of collective will to power has emerged. Because working people around the world know that the global elite do not care about their lives and will sell their jobs for highest price they can get. WallStreetBets has dragged in people from Beijing to Brazil and all of them know that the world is rigged against them. Where we go from here, is anybody’s guess.
If you want to replace some of the confederate statues that were torn down during the Black Lives Matter protests, might I suggest that one of those replacements is a replica of the WallStreetBets guy? They’re done a service to the American public, and everyone else besides, by breaking this insane farce wide open and exposing the maggot-crawled carcass of ‘opportunity’ beneath the façade. Also completely on brand with American capitalist ideals. Or just a giant statue of a tendie. Whatever gets you off.
Now they really have a reason to hate millennials.