What caught my eye this week.
Should the average Monevator reader – likely a passive investor – give two basis points about this week’s GameStop-centered mania in the markets?
On the one hand, no.
Even though it made the BBC News. Even after it drew an investing-related comment from your friend who only posts about cats and macramé.
Only a handful of stocks went bonkers this week. They’re immaterial to the indices.
You might argue mass fund ‘de-bulking’ in the face of the volatility caused prices to decline more broadly for the past few days; I’d agree it’s possible.
But we don’t invest with a time horizon of days around here.
These distortions will work out. We’ll hear about a hedge fund or two getting rescued. As for those long GameStop who say they’ll hold at any price – they’re probably already dead, in trading terms. They just don’t know it yet.
GameStop might have a brighter future. The initial short squeeze was inspired. But the firm surely wasn’t undervalued by a factor of 70 or more?
You have to know when you’ve won.
It ain’t what you takin’, it’s who you takin’ from
On the other hand, yes, all investors of all stripes should care.
I was going to write a lot more about this today. I said I would in the comments. But I feel like I’ve eaten two KFC buckets worth of information in one sitting.
And if I – an investing junkie – am stuffed, then 95% of you are, too.
So just a few quick discussion points:
- You can’t have major dealing platforms imposing and then removing and then reinstating trading restrictions without fallout, even if – perhaps especially if – it was outside their control.
- You can’t have hundreds of thousands of ordinary people making headlines around the world for apparently sticking it to gilded hedge funds without creating a narrative that will linger.
- You can’t help but notice we’ve had two destabilizing flash situations – the Washington insurrection and now this pile-on – already in 2021. Very different, ideologically, though some of the rhetoric is the same (elites, corruption, control). But both were partly nurtured by algorithms that notice and nudge and readjust and prod us ever more – and ever more of us – in a given direction. This seems all-important, in the same irreconcilable way that climate change does.
- Me and The Accumulator can’t agree on how much of the class warfare rhetoric that’s said to be motivating the Redditors is real and how much is window dressing. What’s undeniable is it strikes a chord. The gulf between the wealthiest and the rest looms larger than ever. (See the Oxfam report link below). We can’t say there were no canaries.
- There’s no way Wall Street (and the City, or specifically the cluster of streets around Berkeley Square) isn’t in on both sides of these trades.
- People complain about vocal shorting. But promoting long positions sustains an entire media industry and is just matter of fact investing. Why is that so different? It’s only in edge cases that shorting actually hurts a good company, aside from banks.
Money ain’t got no owners. Only spenders
Of course, if I have to choose I’m on the side of the ordinary guys.
The biggest hedge fund managers are ridiculously rich on the back of what they do, which is about as socially useful – on a relative ‘per pound of earnings’ basis – as if you and I sat down to have a game of Risk this weekend.
We need some custodians of capital and price discovery, sure. So let’s have ordinary fund managers paid outlandish six-figure salaries fighting the zero sum fight. Not eight-figure oligarchs.
With that said, shorting isn’t evil. And targeting hedge funds for a perceived role in the 2008 financial crisis is way off-base. (It takes respectable bankers to have the influence and debt to blow things up that badly.)
Anyway, I’ll outsource my defense of shorting to the excellent Cullen Roche in the links below, and my musings on where social media and attenuation fits into all this to the chap from ETF Trends.
Both are great reads, among much else good stuff this week.
You come at the king, you best not miss
Now for some good news: after this week’s announcements (again, see the links below) we have five Covid vaccines that work.
Broadly, it seems the tricky-to-handle mRNA vaccines have a very high efficacy and prevent the vulnerable from succumbing to the virus. The more traditional ones are less effective, but prevent serious illness.
So the former into the arms of the vulnerable, and the others ASAP for the rest of us for herd immunity. Hopefully that’s enough to get us out of this mess and away from our screens. (Those screens are getting to everyone!)
Indeed I believe it’s just possible we’re starting to see this working in the UK statistics, following the UK authorities’ commendably advanced rollout.
A BBC report I saw today dwelt on the apparently mysterious persistence of high Covid prevalence in today’s data from ONS random sampling, versus falling official Covid case counts and all the rest.
We should note the statistics do cover different time periods.
But could it also be that fewer people are developing strong symptoms and seeking a test because the vaccinations are now having an effect on the more vulnerable cohorts? Even while the continued spread of Covid means it’s still showing up as amok among those randomly sampled people, who maybe have little to no symptoms?
As our Covid article the other week explained, that’s the sort of thing we’d expect to see first as vaccination begins to have an impact.
Lars isn’t convinced yet, but I want to be optimistic. Of course my guess is as good as yours. We’ll have to see what the experts say.
Fingers crossed. Here’s to saner times – and more normal markets – to come.
From Monevator
How to calculate your personal inflation rate – Monevator
Stonking gains, hedge fund pains – Monevator
From the archive-ator: The problem with low interest rates – Monevator
News
Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!
Private rents fall by up to 12% in UK’s big cities in Covid crisis – Guardian
Mega-rich have already recovery from pandemic losses, but it could take the poor a decade, says Oxfam – CNBC
Young women of colour navigate the risky world of forex trading – Guardian
‘Weaponised’ options trading turbocharges GameStop’s dizzying rally [Search result] – FT
Products and services
Contactless card limit in UK could soon rise to £100 – Guardian
Eight ways pensions are about to get better – Which
The coming freeze on free banking [Search result] – FT
How to avoid the new and costly Brexit-imposed import fees – ThisIsMoney
How to save with green heating and hot water technology – ThisIsMoney
JP Morgan to launch new UK digital-only bank – Guardian
Sign-up to Freetrade via my link and we can both get a free share worth between £3 and £200 – Freetrade
The top 10 companies for customer service – ThisIsMoney
Art deco homes for sale, in pictures – Guardian
Comment and opinion
Why it’s usually crazier than you expect – Morgan Housel
Larry Swedroe: Is there a whelk in your portfolio? – TEBI
Preparing for a stock market crash – Banker on FIRE
Let them vote – Of Dollars and Data
Can my wife retire? – Lazy Man and Money
Three retirement myths of the social media era – Incognito Money Scribe
For their sake – Humble Dollar
Mistaken – Indeedably
Pension procrastination: advice for freelancers – Freelance Finances
Actually, well-being does keep improving above $75,000 a year [Research] – PNAS
GameStop: once more with feeling
My view on short selling – Cullen Roche at Pragmatic Capitalism
Robinhood first restricts then later eases GameStop trading – CNBC
A broker explains why platforms had to restrict trading of these stocks [escalating collateral costs] – Yahoo Finance [See also John St Capital]
Freetrade was forced to disable trading of US stocks on Friday as mania spread – Reuters
Semantic density, algos, and GameStop: this time it’s different – ETF Trends
“They’re harassing me however they can”: Citron’s Andrew Left – Institutional Investor [h/t Abnormal Returns]
A GameStop sea shanty – TikTok via Twitter
How does the GameStop saga end? – A Wealth of Common Sense
[Primer if you’re lost] The WallStreetBets subreddit effect – Protocol
This is unacceptable.
We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit.
As a member of the Financial Services Cmte, I’d support a hearing if necessary. https://t.co/4Qyrolgzyt
— Alexandria Ocasio-Cortez (@AOC) January 28, 2021
Naughty corner: Active antics
Ark Invest’s Big Ideas 2021 [Research, PDF] – Ark Invest
Reducing a complicated portfolio to one ETF – FireVLondon
Bank compliance department causes £1m crypto profit – Finumus
Goldman Sachs: It’s not a bubble, but avoid these three sectors – Business Insider
The grocery store stock puzzle – Verdad
The pandemic and politics
New Novavax vaccine shot shows 89% efficacy in UK trials – BBC
Johnson & Johnson one-shot Covid vaccine also shown to work – Guardian
Despite vaccinations, Israel struggling with new variants – Bloomberg Quint
The pandemic has erased entire categories of friendship – The Atlantic via MSN
How Dr Anthony Fauci survived Donald Trump – The Atlantic
UK stands firm over special visa for Hong Kong residents – BBC
Kindle book bargains
Don’t have a Kindle? Buy one.
When: The Scientific Secrets of Perfect Timing by Daniel Pink – £0.99 on Kindle
The Squiggly Career: Ditch the Ladder, Discover Opportunity, Design your Career by Helen Tupper – £0.99 on Kindle
Essentialism: The Disciplined Pursuit of Less by Greg McKeown – £0.99 on Kindle
The Organised Time Technique: How to Get Your Life Running Like Clockwork by Gemma Bray – £0.99 on Kindle
Off our beat
The climate crisis is worse than you can imagine. What if you try? – ProPublica
As birth rates fall, animals prowl humanity’s abandoned ‘ghost cities’ – Guardian
The high price of mistrust – Farnham Street
And finally…
“Cyberspace. A consensual hallucination experienced daily by billions of legitimate operators, in every nation.”
– William Gibson, Neuromancer
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