February 05, 2021
"We are witnessing the French Revolution of Finance," Anthony Scaramucci declared, splashing back on the scene, once again briefly, with Gamestop euphoria.
But maybe it's more akin to Marie Antoinette's cook was bored and wanted to make some free money while the Veal Blanquette simmered.
I want to mention four things, not necessarily related.
1. With Gamestop (ticker: GME), I often think "People still work there. Someone is showing up, buying video games to sell, and helping customers." It actually is a business. The market cap at one point looked like it was on a trajectory whereby Gamestop would be able to buy Apple, which was exciting, but beyond that, it was still just a mediocre, probably-gradually-failing business. The firm, and its stock, swirled in parallel universes.
You could argue that the board and management of Gamestop should have connected the two. They surely knew their firm was not worth $24 billion dollars, even if the January-released horror game "Five Nights at Freddy's" was selling well. An issuance of shares to raise capital? But that would have invited an army of plaintiffs' attorneys that would have made the cast of "Five Nights" pale in comparison, and alas, they had to pass.
2. It's tempting to bucket this trade into Redditors Long, Hedge Funds short, which means Redditors win when the stock rises, hedge funds lose. But keep in mind the hedge fund Masters of the Universe aren't sipping tea at Versailles waiting for the Reddit army. They were in the long side of the trade as well. They may have written software to ping the Reddit boards and rapidly trade into positions that natural language processing indicated had a chance of rising. They may have just guessed. We don't know the mechanics exactly, but they were on both sides of the trade.
3. GME does not belong to the S&P 500. Despite qualifying, at least for a few days by market cap, a committee would have to agree, and for them to agree GME would have to post profits, which it does not. I could have just ended that sentence with "a committee would have to agree" I suppose. GME belongs to the Russell 2000, and its impact on that small cap index, was, well, a yawn. It went up a little, down a little. But overall nothing exciting. It didn't affect the general market in any material way.
4. Another player that appeared on the public scene was William Galvin. I moved from Massachusetts 16 years ago, and 16 years ago I thought he had been Secretary of State for a long time. Galvin seems to have more staying power than Scaramucci, and he proposed halting trading in GME. Other officials in the U.S. Government stated that they were monitoring the situation, which was not surprising given that most people in the United States were also monitoring the situation.
Regardless, Galvin's position to halt trading because a rag-tag band of Redditors, with an occasional hedge-funder playing along as a "man of the people" (remember Burning Man was cancelled this year), profited from a bunch of really rich people doesn't seem politically surefooted.
Also in the camp of politically unpopular will be charging the Redditors with manipulating the market. Whether or not that has justification we'll find out.
Maybe it was all just fun, a dose of excitement in a world desperately searching for entertainment.
Shelburne, VT 05482
Burlington, VT 05401