One of the most disturbing aspects of what, on some measures anyway, was the most spectacular short squeeze in a quarter century, was the accompanying rage.
Anger directed at Wall Street is nothing new. Just ask 2009. Short squeezes aren’t new either. And anyone who’s spent any time at all reading online market commentary knows short sellers aren’t exactly the most popular people in the world, even if the investing public’s fascination with calamity means they get a lot of press.
What was perhaps “new,” though, was the parallel between the short squeeze and political entropy. Some of the WallStreetBets rhetoric echoed that heard all too often across western democracies since 2015, when populism began to spread in earnest.
It’s still too early to know whether this is a false equivalence. As analysts from Height Capital Markets pointed out, we could all look back at this a year from now and feel stupid for trying to read too much into what was little more than another manifestation of speculative market froth. But it’s also possible that we just witnessed something with broader, socioeconomic ramifications.
Read more: ‘Anger’: WallStreetBets, GameStop, Robinhood Drama Becomes National Scandal
“It may be easy to dismiss recent trading as a pump-and-dump, simple momentum, or idiocy – and looking back it may be all of those things – but a review of many threads on the subreddit r/wallstreetbets reveals something deeper,” Edwin Groshans and Hunter Hammond wrote.
If we’ve learned anything over the past half-decade, it should probably be that dismissing “idiocy” out of hand is not always safe, even when it’s possible to say, definitively, that something (e.g., a movement) is objectively idiotic.
For example, irrespective of whether you’re a fan of Donald Trump’s, it was (and will always be) objectively idiotic to believe that he’s a champion of the American working class. The former president is a lot of things. But that just isn’t one of them. And it’s not even the inherent contradiction of a billionaire purporting to be a blue collar savior that makes it idiotic. Rather, it’s Trump’s every word and deed prior to becoming president. His entire life (almost literally) was spent perpetuating the (exaggerated) idea of himself as superior to everyone else, especially those with less money than him. Arrogance was a point of pride.
So, the narrative (“Donald Trump, man of the people”) was always silly, but people bought it — figuratively and literally. Eventually, that buy-in was deep enough that tens of millions of people were effectively pot-committed. The result was January 6, 2021.
The parallel to this week’s market action is pretty clear. Whether or not the narrative makes any sense could ultimately be irrelevant. I spent some time on Saturday morning trying to figure out if, in fact, the narrative did make any sense. And I had a hard time.
It’s difficult to imagine downtrodden, blue collar, white Americans whose economic fortunes have steadily declined over the past four decades due to, for example, the disappearance of good-paying, union jobs, are the same people buying GameStop. In the same vein, it’s impossible for me to imagine African Americans in, for example, inner-city Baltimore or Chicago, piling into shares of AMC, Build-A-Bear, and Bed Bath & Beyond.
In essence, I don’t think the narrative makes much sense outside of the obvious, which is just that a message board where a ton of people congregate to talk about speculation in markets has had a helluva run over the past year (or so) and now they’re trying to figure out how to frame it.
“The absurdist morality tale over the unalienable right of Redditors to pump up meme stocks and punish Wall Street has obscured a more reckless impulse,” Bloomberg’s Katherine Greifeld and Claire Ballentine wrote Saturday. “Encouraged by Robinhood’s addictive gamification of day trading and egged on by like-minded Redditors on WallStreetBets, these traders have rejected the tedious, long-term view of the passive-investing crowd,” they added, noting that “instead, many are chasing the dopamine high of going all in and getting rich quick on increasingly absurd ’90s-era nostalgia stocks — all while giving the collective middle finger to the Wall Street pros and their valuations.”
But, as noted on multiple occasions this week, there is one unifying theme: Anger. And that worries Ray Dalio.
You might scoff — Dalio being the quintessential example of “the elite.” But remember, Dalio is not your average hedge fund manager. Not by any stretch.
He’s spent the last several years in a near constant state of philosophical reflection and frequently hosts Reddit parties of his own, during which anybody can ask him anything they want to ask.
Dalio spoke to The Washington Post Friday, as some readers are doubtlessly aware. Although some of you have probably already seen the clip below, I wanted to present it for those who haven’t.
As the Post noted, “when asked if the GameStop stock rebellion was a populist revolt or a pyramid scheme, Dalio said, ‘They’re using the mechanics of the market. They’re squeezing the shorts, and rebellion if it’s not destructive, if it’s not antagonistic, is part of an evolutionary process.”‘
However, Dalio also warned that the express desire to “bring people down” is disconcerting.
“What concerns me more is the general anger and almost hate and the view of bringing people down that’s almost pervasive in all aspects of the country,” he said.
The “hateful” rhetoric reminds me of the messages among Enron traders, or the general derisive language you hear in trading pits.
What may be truly worrying Dalio is that the ultra rich are the recipients of the verbal aggression this time and that the participants are middle, middle-upper class: the bulk of voters.
I don’t agree. Dalio is rightly worried that the rising level of hate aimed in whatever direction the hater feels like aiming just to hurt a particular target for fun or because they deserve it or just because we can, etc is becoming more and more common. The example, of course, was our self-serving Grand Pooh-Bah who disliked everyyone but himself, including his “base,” and nearly everything he did every day for four years was directed to harm some targeted individual or group. He got away with it so others think why not me? Let’s go get Pelosi, or my stupid neighbor’s dog or Wall Street or that bastard who just cut me off in traffic… Acting out at a high level is becoming more and more common. Homicides up 50% in my city last year, including in two malls, more than once. Like Ray D, I’m worried.
Bang-on H. This resonates in total harmony with my senses too.
I read (and commented on) your “Revenge of the Excluded” article prior to reading this one and, having read earlier in the day a brief blurb elsewhere on Ray speaking out, immediately connected most of the same dots that you just laid out in this article.
I also support the notion that there are other whales in the sea squeezing the other shorted whales, and thus enhancing the market disruption all whilst hiding behind the public rage being generated solely against the Reddit forum members more visibly stoking the fires. That needs to be recognized IMO, and put on the table of any public reckoning to be taking place here. I think Ray should be present as all this gets “committeed”. I, for one, would feel a whole lot better if he was. He seems to be cut from a different cloth than most Billionaires in America.
This is about a group of traders collaborating on message boards, rather than at fancy restaurants. And it is smaller players. The market will adjust- any anger, is just a way of diverting from the goal of making money and hurting others. Its the same aggression as any trading floor- I spent years there it is really not much different. Just somewhat different players. Talking about this as a social movement is very likely a giant reach. Many of these day traders are going to get burned. Just a matter of time.
Yes, I can go on Reddit and there are ample examples of what you describe. And I am with you it will not end well for the greater fools amongst them that are there at the collapse stage of these targeted “stonks” with few bona fides.
But I do disagree it is entirely due to the “smaller players”. RobinHooders have moved it a good measure, yes, but what about the bots that took over like Ray describes, trading it in a frenzied state last week ? Bots belong to the elite. The shorts belong largely to the elite. Can it be that his battle royale is largely hidden, while the “hordes of deplorables” get the blame and get stoked to the brim for the carnage (and glory/martyrdom) that they seem so determined to bring upon themselves ?
Financialization of the economy is a fairly new paradigm.