Collective insanity, insurgent revolt or just playing games?
Who cares if we can all have a laugh at Mr Moneybags drop his shorts and reveal the entitled shrivel underneath.
As Kenan Malik writes in The Guardian “Having been outgamed by a bunch of nerds, the titans of Wall Street did what all entitled people do. They whined. How dare people manipulate the market!” And surprise, surprise, “having the right connections means that when you whine, others listen.”
Watching who listens to the whining is as telling as the glimpse afforded of the “widespread disturbance to people’s judgment” that passes for normal in Wall Street.
“One might naively imagine that (the stock market) exists to allow people to invest in companies. But share trading often has little to do with productive investment. According to the writer Doug Henwood, IPOs – initial public offerings through which people can buy shares in private companies – have, over the past 20 years, raised a total of $657bn (£479bn). Over that same period, the companies in S&P’s 500 stock index have spent $8.3tn (£6trn) buying their own stock to boost its price.
A stock buyback – a company purchasing its own shares to reduce the number openly available and so push the price up – is a form of market manipulation that was illegal in the US until Ronald Reagan decided that to ban it was to restrict market freedom. As a result, many corporations, instead of building factories, now plough money into their own shares.
It has helped raise the stock market to record levels and provided shareholders with a huge largesse. But few others have benefited. The pharmaceutical company Merck insists that it must charge exorbitant amounts for its medicines to help fund new research. In 2018, the company spent $10bn on research and development – and $14bn on share repurchases and dividends. One report suggests that had Walmart diverted half the money it has spent on stock buybacks into wages, one million of its lowest-paid employees, many of whom live below the poverty line, could have had a 50% pay increase.” Read whole Guardian article here
The Economist figures that the “bafflement, even panic, that washed over Wall Street” and drew in “those running the country” speaks to a “larger disquiet about American stocks.”
ZeroHege’s Tyler Durden thinks it’s not just the absurdity of the valuations but a plumbing problem: “Rebellion Has Clogged Entire Financial System’s Plumbing. While mainstream media is juggling with just who to be angry at, and who to virtue-signal for in the WallStreetBets Reddit Rebellion and Robinhood Rout episiode, the reality under the surface is that the US financial markets have just been punctured by the thin blades of truth. As Charles Hugh Smith recently noted , “it is fatally wounded but nobody dares notice.”
Noticing could be expensive. Can’t stop the music. Maybe just try and turn it down a bit? : “Fed’s Powell just talked up a classic Buffett market bogeyman: Inflation”. Read Eric Rosenbaum 1/2/2021 at CNBC
And as long as the music is playing, you’ve got to get up and dance.”
Just follow the money…
more articles etc
bbc.co.uk 13/3/2021 Why the GameStop story is far from over By James Clayton One of the wildest stories of the year is still very much alive – Many amateur traders are still both making money – and getting hurt – Our understanding of what happened in late January, when GameStop’s share price was making headlines around the world, remains incomplete
theguardian 03/03/2021 Bitcoin and Robinhood will end badly for those who can least afford it by Nouriel Roubini
Millions in precarious jobs are betting scant savings on worthless stocks and cryptocurrencies via share-dealing app
The US economy’s K-shaped recovery is under way. Those with stable full-time jobs, benefits, and a financial cushion are faring well as stock markets climb to new highs. Those who are unemployed or partially employed in low-value-added blue-collar and service jobs – the new “precariat” – are saddled with debt, have little financial wealth, and face diminishing economic prospects.
These trends indicate a growing disconnect between Wall Street and Main Street. The new stock market highs mean nothing to most people. The bottom 50% of the wealth distribution holds just 0.7% of total equity market assets, whereas the top 10% commands 87.2%, and the top 1% holds 51.8%. The 50 richest people have as much wealth as the 165 million people at the bottom.
pcgamer.com/ 24/2/2012 Here we go again? GameStop’s share price bounces back to $180 Andy Chalk The company’s price broke $90 today, then continued to surge in after-hours trading.
ox.ac.uk/news/ 15/2/2021 Retail investors are amateurs in a high-stakes market: they cannot win – News of the demise of the hedge fund-dominated financial markets … was wildly exaggerated, according to Oxford Professor Bige Kahraman.
“In fact, says the professor of finance at the Saïd Business School, far from small shareholders taking the fusty old hedge funds to the cleaners, as they drove up the price of GameStop shares by 145% in one day, some hedge funds were winners all along.
While some were shorting the shares, anticipating the failure of the video game retailer, others hitched a ride on the citizen shareholder bubble and helped to drive up the share price. Some hedge funds, says Professor Kahraman, could have ‘hedged’ and been on both sides of the wicket. Kerching. But then, that is what hedge funds do.
Some hedge funds could have ‘hedged’ and been on both sides of the wicket….Kerching. But then, that is what hedge funds do.
‘There is a misconception,’ says Professor Kahraman. ‘That the price going up was solely due to small investors. Hedge funds are good at riding bubbles…The dramatic movement was not only due to small investors but hedge funds identified and then rode the bubble all the way as the price went up and then sold.’
‘Small investors,’ she says ruefully. ‘Are always going to lose money…private investors will have been a relatively small fraction of the bubble.’” more here
capitalaspower.com 2/2021 GameStop Capitalism: Wall Street vs. The Reddit Rally (Part 1) by Tim Di Muzio1 (excerpt)
Capital as (Social) Power
In order to think about what just happened to the market valuation of GameStop, we need a little framing from the capital as power approach to political economy introduced by Jonathan Nitzan and Shimshon Bichler. The capital as power approach argues that capitalization is the most important act in capitalism (investing in an income generating asset or holding claims on an income-generating asset). Capitalization involves investors discounting future flows of income into a present value adjusted for risk – it’s an imperfect science but it exists.6 What this means when it comes to investing in company shares is that share prices are a strong indicator of the future expectations of investors regarding the future profitability of a corporation. In short, the anticipated future is built into the share price. Investors and speculators may get it wrong, but the monetary level of capitalization and share price movements remain important indicators that can tell us about the expected success or failure of a company. So, if the share price of a firm is decreasing, then we would expect that investors are losing confidence in that firm’s ability to use their power to garner greater profits. This is what the hedge funds thought regarding GameStop – that the company was overvalued and that its share price would eventually plunge. If share prices are increasing, then we can assume that investors anticipate greater prospects for profitability as in the cases of Amazon and Zoom we have already mentioned. But the capital as power approach goes a few steps further than this fairly straightforward recognition. From a theoretical point of view, the capital as power approach to understanding the corporate universe argues that what is being capitalized is the organized power of a firm to shape and reshape the terrain of social reproduction for the sake of their own differential profitability (and those of their investor/stock owners). What this suggests is that corporate earnings are not simply a matter of producing goods and services for the market, but result from a broad array of corporate power strategies exerted over the social, economic, cultural and political field. Examples abound in the capital as power literature so I will just provide one example here excerpted from my 2015 The 1% and the Rest of Us before moving on to discuss the GameStop phenomenon… “
read more here or download PDF here
TheGuardian 18/2/21 GameStop hearing: Robinhood founder defends halt to trading Vlad Tenev accused of creating ‘smokescreen’ to deflect blame before House financial services committee
bbc 11/2/21 Elon Musk grills Robinhood boss over GameStop row on Clubhouse 01/02/2021 By Cristina Criddle