Who To Blame For Retail Mania Flagged By Fed?

26 thoughts on “Who To Blame For Retail Mania Flagged By Fed?”

1. Teaching 18-year-olds to not be scared of debt by way of student loans may have some unintended consequences.

2. With apologies H, but the Fed’s view on this is comical at best. For ever, backroom deals and inside information sharing has enabled the “right people” to capitalize on information and coordinate trades. Hell Henry “Hank” Paulson told a bunch of his pals that he was going to force Fannie Mae into conservatorship days before he did so they could all short that behemoth. Now that average Joe’s are openly discussing and coordinating moves, suddenly it’s bad? Come on, it’s bad because the people doing these things aren’t over educated friends of Fed chairs.

   As far as the gambling aspect of the current market goes, what the hell do you call buying up every CDO that came to market regardless of how crappy the debt was in them? The big banks gambled like there were no potential consequences with our entire economy and average Joe’s paid with half of their wealth. What price did the gamblers themselves pay? NADA, no jail time, bailouts and bonuses were their prize.

   And obviously the final point is this, when this ridiculous Fed fueled bubble does finally pop and all these retail investors lose their entire life savings is the Fed going to do the above for them? Absolutely not! See, the Fed only helps people it knows and those people are the ones that are entitled to coordinated trades and gambling on terrible investments, not retail investors.

   Co-conspirators is I agree a stretch but ally really should be given a little more weight here.

   1. Yadda, yadda, yadda.

      You’re just regurgitating every article written about the financial crisis over a dozen years.

      And you didn’t address any of the points made in this article, including and especially the fact that retail investors are better served by index funds and institutions like Vanguard. Robinhood and platforms like it are, in my opinion, cancerous. Your Whataboutism doesn’t ameliorate that.

      Additionally (and most importantly) I spend all day, everyday writing on behalf of, and advocating for, “Average Joe” when I most assuredly don’t have to.

      I decided to dedicate my entire life to it starting a half-decade ago. So you can spare me the insinuations.

      The idea that Reddit and Robinhood and “social trading” represent the “democratization” of finance is patent bulls–t.

      Jack Bogle democratized investing. The rest of this is predatory. These platforms and the venues that pay to access their order flow are preying on retail investors, the VAST MAJORITY of whom will lose money day-trading. When it comes to options, the percentage of new, inexperienced market participants lured in who will lose everything they invest is near 100%.

      And that’s the end of this story.

      1. Yes, I am regurgitating every article written about the GFC written over a dozen years. That’s because the GFC SHOULD be remembered for what it was, a statement in support of big banks no matter how many skeletons are in their closet and how much damage they do to society.

         I agree that Robin Hood and platforms like it are cancerous. But why is a cancerous financial entity suddenly of interest to the Fed? Is Wells Fargo not a cancerous financial entity? Have they not repeatedly found ways to rip off investors and customers alike? Yet they still exist, with very little regulation, able to continue scheming ways to rip people off. Why is Robin Hood different? Because it enables small time players to execute cancerous trades that have largely been reserved for bigger institutions.

         I’m not insinuating that YOU are not for progressive reform, I’ve been a long time reader and I obviously know that you have been advocating for these types of policies for a while. I am merely ranting at the hypocrisy of the Fed for suddenly being concerned about dangers in the financial world because retail investors benefit from them.

         I also am not advocating that Reddit and Robinhood are democratizing finance. What I am saying is they are enabling small investors to play the same game that big investors play all the time because they are able to leverage scale. Insider trading, coordinated trades, quid pro quo’s are all bad for markets. The problem isn’t that Reddit and Robinhood exist, the problem is that their mechanisms are not novel, they are just scaled to benefit investors who were left on the sidelines of these types of trades in the past.

         Jack Bogle may have democratized investing but he also broke the markets. ETF’s are the polar opposite of intelligent investing and fundamental investors have paid the price since their rise. He is just as responsible for the current state of bubble finance as the Fed is.

         1. “Jack Bogle may have democratized investing but he also broke the markets. ETF’s are the polar opposite of intelligent investing and fundamental investors have paid the price since their rise. He is just as responsible for the current state of bubble finance as the Fed is.”

            Oh, ok. So Vanguard is bad now too. So that’s the Fed, Vanguard, ETFs, indexing, banks and then you admitted that Robinhood and platforms like it are cancerous.

            So who’s good in your book? Crypto? Where there’s zero accountability, zero oversight, zero intrinsic value and, as far as you know, the entire thing is a Ponzi scheme run by a handful of people who could (very well might one day) crash the entire $3 trillion edifice overnight.

            What a joke.

            1. lol Jeez H, why are you so defensive this morning?? Did I say Crypto? No, I didn’t mention Crypto. Now you’re putting words into MY mouth.

               A market is supposed to trade something of value. The market itself is not supposed to be the thing that you trade! May as well set up a fund for the US Economy while we’re at it! Hey let’s run a CPI fund and then trade the volume of that too! Do you honestly think all of these investment vehicles make any economic sense? The point of investing is to support something that should make an economic profit. Now we just invest in things that go up and down in numbers and hope we can capitalize on those numbers at the right time. Isn’t the entire thing gambling?

               My point with the Fed is this, they are supposed to be a government entity that supports the economy of the entire country. They do not. As you have illustrated numerous times, the beneficiaries of Fed policies for the past 40 years have been the top 1%. Executive wages have grown by leaps and bounds while middle and lower class wages have actually fallen. When the 1% gamble with the entire economy and lose, the lower and middle classes pay the price. The Fed doesn’t work for taxpayers, it works for those who pay no taxes. Why do we continue to believe in this group to successfully navigate our society off of the course it has been on?

3. Like outsized valuations for TSLA, NVDA, and BTC, the meme stock craze, CB support for pandemic-crippled economies, and yes, even Trumpism, this too shall pass.

4. The question in my mind is if dumb money will ever be considered too big to fail. Will the fed ride to the rescue in a downturn driven by retail speculators blowing up? If not, why not?

   1. As much as this irks folks, there’s a difference between Wall Street facilitating the “American dream” of homeownership by ensuring that everyone with pulse could buy a mini-mansion they knew they couldn’t afford, and a million people buying shares of a left-for-dead physical video game retailer.

      Anybody commenting on this article should watch this clip and then watch it five more times: https://www.youtube.com/watch?v=2f2kGHcdJYU

      That’s reality. Right there.

      Again: Sorry. Not sorry.

      The truth hurts.

      1. I’ve watched the provided clip the requisite 6 times in order to credential my comment. Aside from not getting my 12 minutes back, I’m left with a bitter taste. The tone of your comment, perhaps in shades of your “repulsion economy” piece, also seems designed to elicit anger.

         As a counterpoint to your “truth” I’d offer that the top holdings of accounts on a well known and gamified trading platform include: apple, Microsoft, Ford, American Airlines, dismey, and Tesla. While AMC theatres is in the top 10 game stop appears MUCH further down the list.

         Options are actively traded in all of those holdings.

         Anecdotally I have friends who, to my alarm, have taken to options selling strategies in names such as Peloton, activision/blizzard, and Alcoa.

         To confine this phenomenon to GameStop or hertz I think misses the point.

      2. Yeah, great quote from a great movie. If people want their big houses and they fancy cars they need the bankers. \Why do they need the bankers? Because the powers that be decided that bankers should benefit in every scenario of American finance. Why not just distribute 10 million dollar checks to everyone directly? Well then the bankers wouldn’t have control anymore! It would be mass chaos right? Maybe, but I wouldn’t call the current situation exactly a semblance of order. What I see going on in the markets has looked a hell of a lot like chaos for a long time. Managed chaos? If you say so. Managed implies a proactive approach and I haven’t seen anything but reactionary policies my entire life.

         1. No, you need a banker because you don’t have $400,000 to buy a house in cash. Just like you don’t have $40,000 to buy a car in cash.

            And you can’t send everyone $10 million checks. That would be $10 million for 330 million people.

            We don’t know what the limit is in terms of printing dollars and hyperinflation, and God knows I’m a staunch advocate for redistribution and money-printing, but I can absolutely assure you that sending $10 million to 330 million people would result in total chaos and outright economic collapse within 24 hours.

            1. I agree that before the information age banks were needed. Technologies exist today that can easily eliminate them. While crypto is a 3T dollar sham, the underlying technology of crypto (blockchain), was designed to eliminate the need for banks. An unimpeachable ledger is able to resolve chain of custody without the need for people in the middle to get paid. Could the Fed stand up its own blockchain, pay a ton of IT people to maintain it, and eliminate the bank’s advantage. Absolutely.

               I said 10 Million because I have the pen, obviously that would be mass chaos, but you do see my point right? Why do we need banks to control how the government supports the economy? If you want spending to increase, give money to people who spend it. If you want to grow small business, give money to small business applicants. If you want to eliminate homelessness setup housing grants. If you want to improve education then create more easily obtained scholarships. Banks do not need to control the outcomes of ANY of this.

            2. Now this is a good comment.

      3. Incidentally, the provided clip isn’t reality, it’s a movie.

         While this may not be reality, it’s certainly closer.

         https://m.youtube.com/watch?v=3r76KkcJaTE

         1. Oh it’s a movie? I wasn’t aware. I thought there was a camera in someone’s DB9.

            The difference between me and some of you folks is that I’m not so lost in my aversion to an unfair system that I can’t engage with reality.

            If I was, virtually nobody would read this site. 75% of readers are here for market commentary. They’re not here to listen to rants about how unfair it all is.

            I’m happy to oblige the 25% of you who are here for the philosophical / existential / deep socioeconomic commentary, which is why nearly every, single “Month’s Best” article is dedicated to that kind of analysis.

            But most people are here to stay abreast of markets. Maybe one day I’ll split the site into two separate portals.

            The overarching point is that some you of guys and gals seem so disillusioned that the only thing you can relate to is cynicism and hatred towards every facet of what you’re begrudgingly compelled to accept as daily life in a hyper-capitalist society.

            It ends up manifesting in a steadfast refusal to admit that anyone other than a familiar list of villains is to blame for anything. It’s all Janet Yellen’s fault. It’s all Dick Fuld’s fault. And so on, and so forth.

            The world’s a lot more complicated than folks are willing to admit. When you try to congeal everything and assign blame to a handful of people for all of society’s multifarious ills, you end up with autocratic charlatans peddling quick fixes occupying high office. Then you end up with dictatorships.

            1. While I admit to being in the disillusioned camp, I also don’t support Autocratic leadership of any kind. In my opinion if markets were truly democratized there wouldn’t be a ruling class of Billionaires presiding over them. While monetary policy may not be autocratically led it certainly does look closer to an oligarchy. Monetary policy is controlled by former and soon to be big bankers. The revolving door between the two certainly explains why policy seems to benefit them first and everyone else maybe. How about putting an economist social worker in charge of the Fed? I wonder how policy would look then?

               All of that said, I appreciate reading both types of content that you create.

      4. Yes I watched the clip three times and now I might have to watch the whole movie again.

         In theory, If we eventually become fully automated, with robots doing all the work, then we will literally be at the mercy of those at the top that push the buttons. Humans will be relegated to the status of high-priced cattle.

         Right now, presently, we’re only 75% automated and thus only 75% at the mercy of those at the top.

         Yuk. Dystopian thoughts. Is that what we’re coming to?

5. I have no monetary debt. I am not a conventional thinker. The Fed will absolutely start buying equities ( ETF’s) to save Americans (and themselves) from America.
   My finger is always poised over the sell button.
   Thanks for the movie recommendation.

   1. This is what I learned from February, 2020:
      In the future, if the stock market ever goes into a free fall, sell everything quickly.
      As soon as the Fed starts whispering (I will be listening) about buying equities, go back in, 100%.
      I got the sell side right last time, but waited longer than I should have to get back in.
      Otherwise, I will just hold. But it is hard to just sit there snd watch the account balances go down.

      1. Exactly the same take I had. The Fed IS the market now. If they sell, we sell, if they buy, we buy. Now can we call the S&P 500 socialism?

         1. Astute observation. Capitalism has become socialism.

            Those at the very top are the ultimate welfare queens. Pampered, privileged, expecting everything to be delivered, and adding no value to anyone.

      2. One way to avoid the difficulty associated with watching prices fall is to ignore the general change and focus on income. At he height of the COVID downdraft last year I was down 8% or so, but more importantly my current income rose and continues to grow today. I don’t buy common stocks anymore because actually they serve no function for me. S&P dividends are less than 2% right now. Even my Vanguard TIPS fund is earning close to 5%. Anyway, everything recovered by June so nothing actually happened.

      3. Brilliant strategy. Yes this is the right approach.

6. I feel bad for all the retail investors who will eventually get sent to the school of hard knocks to learn the downside of speculative trading/investing. It is bound to happen – it always has. I feel worse for the segment of the population who has been badly affected by the pandemic (maybe even died or been seriously injured for life), and have lost so much financially and emotionally. Kids have been badly affected socially and academically- and are absolutely blameless. Lets hope the Democrats pass some additional help for those affected and those who are otherwise in need. It won’t be enough, but it will help if some of it gets through Congress. If that happens, I guess when Kevin McCarthy becomes Speaker we can survive his BS.

7. OK, OK. I’ll ‘fess up. I AM RESPONSIBLE for the retail mania.

   We always need to blame someone so l will take responsibility on this one.

   The comments reinforce the notion that you have to play the cards you were dealt, not the ones that you wish you had been dealt.