Money Talks! The Free Speech Battle Comes to the Stock Market!
If you have been following the financial news you may have heard a weird story about a retail chain called GameStop, a group of small individual investors --in the "investment world" the regular Joe or Jane who saves up a few dollars and invests on his or her own behalf is known as a "retail investor"-- and a bunch of hedgefund guys who got stuck shorting a stock that went up.
Back on January 29th when we started writing about this --we do a daily random news story post for social media-- we thought this was a quirky story with a free speech twist. If you are wondering how a financial story ended up having a free speech twist... well... it gets complicated. MarinGOP takes NO POSITION regarding stock trades. We definitely don't give out financial advice. Nevertheless we strongly support the individual's right to choose how to invest his or her own money. We also are strongly opposed to censorship of any sort and we are outraged by "crony capitalism." (We are strongly in favor of actual capitalism... but crony capitalism is another story.) So... all told the GameStop story has fascinated us.
Basically it was, and is, a David versus Goliath story. A handful of giant hedgefunds decided to "short" GameStop stock. (GameStop is a mall based retailer that sells video games. In the era of Covid-19, shutdown and digital downloads GameStop the company has not been doing that well.) The hedgefund managers' assumption was that GameStop as a company was on the way out. ("Shorting" a publicly traded company that has a falling stock price can be a good way to make a fast buck. The flip side of that is if you happen to short a company that goes UP in price you take a metaphorical financial bath.) This story becomes a David versus Goliath story because sometime in the middle of 2020 some very small "retail investors" started talking up GameStop stock. This was partially an emotional play on their part. The stock market is a bit like college sports... some people have a tendency to "bet" on their team regardless of how good their home team is.... So a company people feel sentimental about can have a "nostalgia play." A lot of guys in their thirties and forties who remember GameStop in the glory days of malls in the early '90s have a sentimental feeling about GameStop.
Back in the late Summer of 2020 a lot of retail investors on a message board on Reddit started talking about GameStop. One in particular happened to be aware of the heavy short interest in GameStop. This was NOT insider information. It just happened to be a piece of information precious few people were paying attention to. Reddit being Reddit.... the Reddit investors apparently decided to drive up the stock price to mess with the big hedgefund guys. There was nothing illegal about the Reddit traders' stance... people make odd emotional choices regarding finances all the time. What is odd about this story --or, more accurately what is the first odd part of this story-- is that the little guys beat the big guys at their game. If you think of this as a giant game of chicken, the big guys blinked first... and the hedgefund managers screamed bloody murder.
MarinGOP makes no moral stance about the rights or wrongs of shorting a stock.... but we DO THINK it is wildly hypocritical of any hedgefund manager engaging in shorting to complain about losing money. If you "short" a stock you are betting that the price of a stock will decrease. If the price goes up the people who are shorting a stock --in financial slang these people are just called "the shorts"-- lose money. If the price goes up a lot --and goes up quickly-- the shorts lose a LOT of money. Shorting is risky... very risky... In technical terms what we saw in the last week of January was a "short squeeze." (In less technical terms the guys attempting to short this company and drive it into the ground ended up taking it in the shorts.) The big guy shorts took a risk and the little guys took a risk and ate the big guys' lunch. If you want to hear it explained quickly and with humor I recommend watching this short clip with the excellent Charles Payne. You can see it here.
Politics aside this would be an epic financial story. But in the end of January, 2021, it also became a free speech story and a political story. As of today it looks like special interests --probably the "big guys"-- leaned on a social media platform to cancel the chat group of small investors. There is no evidence to suggest the little guys were discussing anything illegal... because in the United States of America the big guys can lose. And... everyone has the right to free speech.
A hedgefund manager can go on cable news and bad mouth a company in an effort to drive a company's price down... but there is currently a "narrative" promoting the idea that it is "dangerous" for small investors to talk up a company they LIKE on an internet message board. Even more disturbingly... in late January a financial stock trading app called Robinhood that had MARKETED itself to small investors as a low cost or no cost trading platform took it upon itself to spontaneously stop their customers from trading this specific stock. (Robinhood may be in trouble over a number of different issues... Robinhood is currently being sued because it halted trading on SEVERAL different stocks including BGS. Apparently there was a short-long war heating up with BGS as well as GameStop in late January.) To MarinGOP this feels like crony capitalism. We are in favor of capitalism. We despise "crony capitalists." A real capitalist, an HONEST capitalist, can deal with potentially taking a loss... Crony Capitalists put their fingers on the scales. In January and February of 2021 we found out how far big tech and the mainstream media would go to to curry favor with the elite crony capitalists at the expense of the little guy. At MarinGOP we have NO respect for the disgusting behavior of CRONY faux capitalists who try to put their fingers on the scale.
"Crony Capitalism" is NOT real capitalism. It isn't fair and it rightfully makes people suspicious of the market as a whole. In a free market people have the choice to make risky investments. Oddly the "smart money" of the big hedgefunds had forgotten the basic fact that shorting is inherently risky. So... when the little guy traders took them to the metaphorical woodshed the financial news was suddenly FILLED with stories claiming that although the little guys hadn't done anything "technically" illegal it was still in some unspecified way, bad.
Guess what? In a financial trade sometimes the little guy wins, sometimes the "smart guy" is wrong and we should all have a choice. We should also have some facts instead of mere narrative. Right now friends of the shorts are trying to craft a narrative that protects the big guy hedgefunds from the very real derision they deserve for being taken to the woodshed by a band of little guy investors. Right now the media is doing the bidding of Wall Street by crafting a narrative that suggests the little guys need to be blocked from trading for their own good. Ooops.... If the little guys are beating the big guys and the big guys get big media to suddenly say it isn't fair.... we know what side the "media" is on... probably the side of "narrative."
(If you wonder WHY the MarinGOP is interested in this story... well... the hedgefunds don't invest THEIR OWN money... in fact... apparently some of them short with public pension fund money. We don't know which pension funds were idiotic enough to short in such an epic fashion... but we want to know if the tax payers are going to end up on the hook. We are also rabidly opposed to censorship, and we despise crony capitalism. We like real capitalism. We also detest a narrative driven media that prefers to massage a story rather than report facts as accurately as possible.)
As of the first week of February, 2021, this story is still ongoing. The losses haven't been added up yet. The winners may not have locked in their wins yet. And quirky as this story is we expect it to get quirkier.
Personally we believe in free choice... and we think there is something rather charming about a starving student successfully taking a hedgefund trader metaphorically to the woodshed and then using some of his profits to buy games --from the GameStop chain he loved enough to invest in-- for sick children. Apparently he will be using the rest of his money to help pay for college. Now that is a story about American capitalism we should ALL celebrate.
(If you want to dive deeper into this saga and have a couple of hours to spare we strongly recommend three podcasts by Dan Bongino that have covered the GameStop story over the past two-ish weeks. Dan Bongino's Ep. 1444 introduces the GameStop "Panic" very well for someone NOT versed in financial lingo. (You can listen to Ep. 1444 by clicking here.) Dan Bongino's Ep. 1445 expands on his earlier post and discusses some of the emotional reasons behind the Reddit traders' battle with the big hedgefunds. (You can listen to Ep. 1445 by clicking here.) Dan Bongino's Ep. 1446 does a very good job of explaining just how risky overshorting a stock is. (You can listen to Ep. 1446 by clicking here.) Dan Bongino's Ep. 1448 is a follow up on his earlier podcasts about the GameStop story and lays out some of the political fears regarding crony capitalism. (You can listen to Ep. 1448 by clicking here.) We're sure there will be more to this story... and if it impacts free speech or politics in anyway --and if MarinGOP doesn't become yet another victim of a digital purge-- we will try to keep you updated.)
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