I hadn’t planned for this piece, but it dovetails into the populism series shockingly well, so I’ve moved my case study on perverse incentives to tomorrow. This is a shorter fun piece.
This isn’t a novel idea, but it bears repeating: The GameStop battle is a manifestation of the same forces that put Trump in the White House. What Trump did to politics, WallStreetBets is doing to the stock market.
We are seeing a revolt against the elites. A legitimacy crisis is striking all of our institutions.
That crisis has now spread past government and the Media and to the market.
We have gotten to the point where I believe we entered a new phase of “Culture War”, centered around legitimacy and the System. There are those who believe the System deserves respect, and there are those who see the system as a Carnival, broken beyond repair. “The power of memes” becomes an intensely real force.
We’ve entered a new paradigm. Previous bull markets saw increasing retail investor interest as they progressed towards their zenith (and eventual collapse), but most of this interest was driven by a genuine belief in the stock market. In the 90s, “elitist” was a pejorative, as one never wanted to doubt the wisdom of the “democratic market”:
But now, retail investors are not trying to hop on the bandwagon and embrace the enthusiasm. Retail investors are no longer trying to outcompete hedge funds; they’re trying to fuck them over.
I struggle to find historical parallels for this kind of price war between retail investors and institutional firms (like hedge funds). Sometimes institutional firms engage in actions like these, but to push Gamestop from ~$4 to over $300 all to attempt to drive hedge funds bankrupt is an entirely new ballgame. Some argue that it is unfair this is being treated differently than price wars between institutional firms. I for one agree, but the reaction is telling.
How this will end is anyone’s guess. While clear that we are in a rabid bull market, it isn’t clear if the 20s will be a massive “run up” as prices diverge from underlying fundamentals to a never before seen degree (think the 90s on steroids), or if we only have a year or two left before everything crashes. These kinds of manias can burn people. Keep a level head.
Yellen and Biden, of course, will not be turning off the liquidity spigot any time soon. But liquidity cannot push a market up forever. Eventually, the Fed loses its weaponry, and gravity takes its course. But markets can remain irrational longer than you or I can survive.
For Yellen, her modus operandi appears to be “Apres Moi, le Deluge”.
I believe, fundamentally, that these battle lines drawn in the sand represent the new axis along which political competition is occurring. The same spirit and energy that supported Bernie and drove Trump to the White House is now being tailored to drive hedge funds into bankruptcy. Harnessing these populist energies properly would make for some powerful institutions and organizations. I believe it can be done.
Because herein lies the problem: economic and social mobility is plummeting, trust in the institutions to work properly has collapsed, and Americans are getting poorer as they take on more and more debt to survive. When you remove recourse to any “legitimate” (aka System-approved) method to improve your life, you leave people with only one option: Break the System. And either that means violence (see: BLM and the Capitol) or mask-off f*ckery (see: Wall Street Bets). Welcome to the brave new world.
This was fun to write. Especially given the absurdity going on and it was nice break from my hellish work week.
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