Updated: Aug 15, 2022
Stephen Akin looks at Bloombergs Matt Levin's story.
Game? Stopped? ??? ??????
Remember GameStop? GameStop Corp. common stock started the year at $18.84; at the end of January it briefly traded as high as $483 because people on Reddit’s r/WallStreetBets forum bought a lot of it.
There were call options and gamma squeezes and short squeezes; brokerages restricted trading in the stock as it got so volatile that it blew up their clearinghouse margin; we all had a good time. Then it ended. GameStop closed yesterday at $45.94. Oh well. Never mind.
The whole thing was interesting and often very funny, but I do not think it was very important. Sometimes stocks trade at the wrong price for a while; sometimes there are bubbles and pumps and short squeezes; sometimes everybody sees the bubble happening in real time but no one can stop it. When this happens, people lose money, and people lost money on GameStop. But the people who lost money on GameStop seem to have been mostly (1) sophisticated hedge fund professionals who made reasoned risky bets that did not work out and (2) people who made self-consciously risky dumb gambles after reading r/WallStreetBets and pretty much got the gamble they paid for.
Seems fine? The stock market cannot only be a casino; it has to serve the purposes of price discovery and capital formation and all that good stuff. But in order to serve those purposes it has to also be a casino, and it seems to me that the casino worked fairly well for GameStop. GameStop was the hot craps table with the excited crowd gathered around it. Everyone understood intellectually that the odds were against them and eventually the hot streak had to end, but look how happy everyone was! Look at the hugs and high-fives! Drink the free drinks! Isn’t this great? Don’t you want to gamble here too? Who cares if you lose some money?
I guess this is all kind of a minority position. Today the House Financial Services Committee is holding a virtual hearing with the grim title “Game Stopped? Who Wins and Loses When Short Sellers, Social Media, and Retail Investors Collide,” and I do not think anyone will be having much fun.Congressional hearings on Robinhood and Reddit make this an excellent time to bring this issue to light.
Congressional hearings on Robinhood and Reddit make this an excellent time to bring this issue to light. I am quite concerned about the gamma acceleration that is occurring in stock and options markets regarding GME Game Stop and other public traded issues.
If you listen to the scuttlebutt it’s all about retail traders, Robinhood and other novice market traders gambling with the latest stimulus check.
It’s quite serious, even with trade commissions at zero there are underlying risks that remain in markets. If retail investors don't understand how financial markets work they are playing with
their financial future.
Many of you know I've been writing on this topic for years.
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