Look, ma! One hand
23 theses on...ugh...GameStop
Welcome to the Weekend Reccs by Harrison Satcher. This newsletter delivers a lovingly-tailored collection of thought-provoking goodness for your Sunday. Inside you’ll find: (1) a weekly column on economics, politics, or something unexpected, (2) a curated list of links for your enjoyment, (3) a lagniappe (because everyone deserves lagniappe), and (4) a collection of interesting, relevant charts. Grab a coffee and enjoy your morning.
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The links marked with asterisks (*) are the recommended reads.
Hi friends,
My left hand has been having some issues these past few days and is in splints. So this is coming to you from my right hand dancing across the entirety of my keyboard, which, I must admit, is driving my TFP rapidly towards zero. As you probably inferred by now this will be a short (and late) issue.
Which is sad! I love talking about the Great Recession and GameStop is a perfect segue.
So I will weigh-in using a reduced form since I only have so many hours to peck away at my keyboard.
The One-handed Read: Some statements about GameStop and my confidence expressed as a percentage.
None of this is financial advice, I am not a financial planner, etc.
A bubble is a bubble is a bubble. 100%
GameStop is a bubble fueled by a decentralized pump and dump scheme that thinks it does not have to play by the rules of gravity (all pump, no dump). This delusion is mostly earnest and not malicious. 70%
An NLP analysis of posts and comments in r/wallstreetsbets will confirm that buying GME was about memes and gambling and a little bit about David v Goliath but not really at all about class warfare or revolutionary politics. 97%
An NLP analysis of people-who-should-know-better on Twitter will say the exact opposite. 99%
Traditional media companies were caught in an interesting bind yet again where they had to decide if they are reporters (this is happening) or sentinels (this dangerous thing for most people involved is happening). Reasonable people can disagree about which hat they should wear. My anecdotal evidence says most chose the prior, which I find disappointing and akin to writing, in October 2006, about the fantastic wealth created by flipping houses. 95%
When this is all over a few hedge funds will lose a lot of money. 100%
On net, hedge funds as a group will have lost a lot less money than folks think because (1) many hedge funds are buying GME and are better positioned to offload it on unsuspecting retail trader (i.e. redditors) near the top, (2) hedge funds will capture a lot of gains during the inevitable crash(es), and (3) institutional players engaged in algorithmic trading and market-making are undoubtedly finding ways to profit on the volatility. 89%
More retail traders will lose money than will gain money, although a few will become fabulously wealthy. 80%
Retail traders are playing with their life savings, whereas institutions are playing with mostly other people’s money, making losses asymmetric. 99%
The decreasing marginal utility of wealth suggests that even to the degree that institutions are playing with their own money it will hurt them a lot less. 99%
Robinhood is not a Good Guy. 80%
But Robinhood’s limiting of buys was to comply with SEC requirements put in place after the collapse of Lehman and prevented Robinhood from going bankrupt, which would have been worse for the traders as their shares would have been wholly frozen. 52%
Schwab, IB, and TD doing the same thing sorta backs up this theory and sorta pokes holes in it depending on how you look at it. 50.01%
Regardless of the veracity of (12) there should be an investigation. 99%
Bubbles are bad. 100%
Bubbles scare people away from assets that they otherwise should invest in given standard liquidity and risk aversion parameters (housing for residential use, index funds). 99%
Investing in a well-diversified stock portfolio (i.e. buying an index fund ETF) as soon as possible and regularly increasing one’s position is the best way for an individual to grow their wealth on a multi-year time horizon. 97%
Trying to time the market, trying to take advantage of speculation like GameStop, and trying to win MegaMillions all have negative expected value but seem compelling due to file drawer bias and high variance. 99%
Bubbles cause regulation to occur, which sometimes is good and sometimes is net bad. 99%
After the Financial Crisis banks, responding to actual regulation and fear of regulation, stamped out most all subprime loans because that was a narrative(TM) and the subprime market never really recovered to it’s pre-bubble state. This is obviously a bad development if you are low-income/subprime and looking to use homeownership as a means of securing stability and building wealth. Something similar very well could occur after this. 96%
“We do not believe that securitization alone caused the crisis but, by channeling money from investors to borrowers with ruthless efficiency, it may have allowed speculation on a scale that would have been impossible to sustain with a less sophisticated financial system.” — substitute “securitization” for “social media” and “borrowers” to “pump and dump schemes.” 97.9%
This has become such a story not only because it has all the elements of a good narrative but also because the Biden Administration has been very successful in running the federal government in a smooth way and folks are not used to their being so little news after being habituated to four years of whiplash. 95%
When the crash occurs there will be calls to protect small traders. There is no straightforward, optimal answer as to how to protect small traders from bubbles while preserving access to the market. 99%
The Links / Graphs
All newsletter writers have been informed that they can only write about GameStop, and violations are punishable by death. So no links this week (actually: late, hand, etc). See you here next week.
Lagniappe
I can’t type but I can run.
I’ve found that using a 5k training program has been a good way of ensuring I don’t overexert myself (running too much or too fast is a sure way to make you run less on net) but still feel good about running enough each week. I’ve been using the Nike Run Club app with this program and have enjoyed it (YMMV, literally).
Keep the faith,
Harrison