Gamestop and manic capital markets

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Are the wheels starting to come off?

Have you noticed a general increase in the level of current craziness?

Granted this sort of thing happens this time of year around these parts as the cold weather and short days foster increased levels of stress and depression. However a pandemic obviously compounds issues, in a myriad of ways.

Uncertainty is not something many people are prepared for, and there’s ample opportunity for stress, frustration, and anxiety, even when going out for something as basic as groceries! The latter genuinely knocks me out for the rest of the day.

One of the means of gauging the mental state of society are capital markets, and yesterday provided a rather surreal and crazy episode.

Reddit once more getting credit for engineering reality and providing a platform for people to organize, mobilize, and game the system!?

TODAY, A WAR over the value of video game retailer GameStop’s stock has caused what market guru Jim Cramer called “the squeeze of a lifetime.” Howling with glee along the way, traders on the chaotic and obscene subreddit WallStreetBets helped push GameStop’s stock price up from $20 on January 11 to $73 after traditional analysts deemed the stock a clunker.

While this isn’t the first time WallStreetBets has contributed to a surprising market shake-up, GameStop’s unlikely trip to the moon is unique in both its velocity and the allegations of harassment and hacking that accompanied it.

What’s also fascinating about this story is the literacy it encourages. It reveals capital markets not as a measures of value but as a battleground for egos and perception.

“It was a huge, massive short position,” says Corey Hoffstein, chief investment officer of quantitative investment and research firm Newfound Research. A significant amount of money was caught in what’s known as a “short squeeze,” which happens when investors who have bet against a rising stock have to buy it to cover their losses. When the price goes up, so does the loss risk for short sellers. They may then buy shares to cushion that risk because they theoretically face, as Hoffstein says, “unlimited losses as the price goes up and up and up toward infinity.” The price skyrocketed.

So-called retail investors—individuals rather than institutions—began sniffing around, especially those orbiting the hugely popular subreddit WallStreetBets, which has 2 million members and describes itself as “like 4chan found a Bloomberg terminal.” As a collective, the subreddit has previously amassed enough bodies and enough funds to drive unlikely rallies in the stocks of companies like Lumber Liquidators and Plug Power. “It was a meme stock that really blew up,” said WallStreetBets moderator Bawse1. “The massive short contributed more toward the meme stock.” GameStop seemed so utterly doomed that the current situation was actually sort of funny to the subreddit’s denizens. Banded together, WallStreetBets members bought in big enough to move the stock.

Speaking of which, how about that Bernie at the inauguration meme eh? When even our local sugar shack used it we knew we had reached peak-meme.

The idea that memes serve as a tension release makes sense, and also provides greater context to this Gamestop episode.

However memes are also a method of engagement and focus in a decentralized media environment. They help marshal attention and action, in many cases towards a specific end. In this case a comeuppance for a hedge fund that was shorting Gamestop.

While this Gamestop episode is arguably a sideshow, or a spat in the school yard between kids who have too much time and money, it is seen by some as symbolic of the current state of affairs.

Which is understandable given that it does feel as if this is the end of the world, or at least the end of the world as we knew it.

While I think the comparison is relevant, and cautionary, I’m not sure it fits. I think we take for granted that part of what is happening here is an attempt to game the system.

With Gamestop being a symbolic reason to do so.

This is part of the problem when capital markets are wrapped in the myth of economics, and are not situated between politics and culture.

LARPing is the new culture. It is the new politics. And thanks to this Gamestop episode, LARPing is also becoming the new economics.

Live action role playing is a by-product of a life spent online, especially now that our online lives are dominant due to pandemic induced shifts in culture and lifestyles.

Perhaps the next step is to question why we’re playing the LARPs that we are.

Or who benefits from all this activity.

On the surface this seems more like correlation rather than causation. Although it also argues as to why transparency is essential to how these kinds of markets and social platforms need to be governed. Especially given how participatory and accessible they are.

For a while I thought that cryptocurrencies would be a lesson that proves markets are driven by useful idiots but those idiots have done well so far, as long as they can recall their password.

Might this suggest that some movement from one to the other?

Or maybe it’s all just a bad dream?

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