I didn’t want to do this — talk about GameStop, Reddit, Stonks, short squeezes, hedge funds and roaring kitties.
And yet, here we are.
I didn’t want to do this because part of what I hate about traditional financial journalism is that it focuses on the sensational and statistically improbable, potentially leaving the average reader with a twisted sense of what is normal and probable.
I didn’t want to do this, but then I kept reading the stories that celebrated all the sensational. I fielded questions like “Are short sellers bad?” and comments like “I bought GME. Wish me luck.” So I can’t help myself.
My apologies for piling on.
Short selling is not bad. Short selling is a necessary market function. Brokers go short to maintain orderly market flow.
Institutional investors also frequently go short — borrowing securities, selling them at today’s market price and then hoping to buy them back at a lower price in the future. This makes money for them when the stock price declines. If the price rises, they lose money.
There is no deeper moral meaning to this short selling activity.
Short selling is part of the plumbing and wiring of financial markets. Short selling is no more evil than copper wires are evil for lighting up your house. Should you, the nonlicensed electrician, touch those copper wires? NO! Step away from those wires. Do not short stocks yourself unless you want to get fried.
Institutional investors also use borrowed money, engage in options strategies and trade for short-term gains and losses. Retail investors should probably never do these things. I’m not saying it should be illegal for individuals to do this — we permit harmful vices all the time in a free society among consenting adults. But there should be warning labels and limits and stern discouragements and heavy taxes to prevent people from doing themselves much harm.
Robinhood is a financial services app providing an easy-to-use on-ramp for retail investors. A seemingly friendly, accessible Main Street approach to Wall Street. It should be a morally neutral platform. Unfortunately, it appears to encourage all the worst investment behaviors that Main Street retail investors should not engage in. Behaviors such as using leverage, trading options and buying and selling individual stocks.
Robinhood is a menace because it’s going to cost people money — people who probably can’t afford to lose it. And lose it they will.
Despite the name, the Robinhood app does not favor the “everyman” over the Wall Street sharps. On the contrary, to the extent it encourages leverage and options, individual stock and short-term trading, it will inevitably transfer money from the everyman to Wall Street. All under the guise of “democratizing investing.” There are some great “democratizing investing” apps. Robinhood is not one of them.
Reddit is cool. A couple of its denizens found value in an unloved stock, GameStop, many months ago. It was so unloved that many hedge funds had large short positions on the stock. In January, a mob of Reddit users and others engaged in a buying frenzy, a storm-the-Capitol-type pile-on in that stock. It was as unwise, conspiratorial and briefly successful as any shocking market move in recent memory.
To be clear, there is nothing new about one part of this. Attacking short sellers and making them suffer is a time-honored blood sport among professional hedge fund investors.
What was new was that Robinhood investors and Reddit Bros figured out a way to put on their Viking hats, fur-trimmed coats and body armor to overwhelm the financial barricades to cause mass hysteria in the stock.
Would-be populists, ranging from Sen. Ted Cruz to Rep. Alexandria Ocasio-Cortez, questioned attempts by regulators to slow the GameStop frenzy. Their commentary was neither informed nor helpful.
The slowdowns, we now know, were designed not to save the mob from itself or to defend short sellers, but to prevent market makers — including Robinhood — from failing. They were the Capital Cops of this story trying to do their jobs. Nobody wins when market makers go down. Unless you are in favor of anarchy. Which I am not.
We also now know that much of the frenzy involved large institutional investors as well as the Robinhood-Reddit Bros crowd. The Wall Street Journal has reported on huge gains by traditional hedge funds joining the pile-on in January. I just mention this because the simple David and Goliath story is always appealing in markets but frequently wrong.
A few other thoughts:
I recently argued that despite the fact that traditional inflation in the economy seems tame, the run-up in real estate and stock markets should be understood as a specific form of inflation.
I cannot prove the following, but I believe it: The frenzy in GameStop, like the frenzies in stocks such as Tesla and AMC, cryptocurrencies such as Bitcoin and Dogecoin, and commodities such as silver, seems to share a moblike, desperate quality. My thesis is that the Federal Reserve’s easy monetary policy (low interest rates, huge securities portfolios) has created an ocean of extra cash, sloshing around the capital markets. The excess liquidity creates waves and, occasionally, tsunamis. These rogue waves in the markets are a kind of inflation.
They can be destructive, but only if you put yourself in harm’s way. Stay inland, and defend your castle against the Viking hats.
Michael Taylor is a columnist for the San Antonio Express-News and author of “The Financial Rules for New College Graduates.”
michael@michaelthesmart
money.com |twitter.com/michael_taylor
"Stop" - Google News
February 08, 2021 at 05:07PM
https://ift.tt/2YVRJSz
Taylor: Stop the Game. Stop - San Antonio Express-News
"Stop" - Google News
https://ift.tt/2KQiYae
https://ift.tt/2WhNuz0
Bagikan Berita Ini
0 Response to "Taylor: Stop the Game. Stop - San Antonio Express-News"
Post a Comment