Revisiting GameStop: Still a Populist Rage?

Okay, I’m having fun at Leon Cooperman’s expense, but this was an image that came to mind when I read about his “whining” on cable news:

“After Cooperman, the billionaire founder of Omega Advisors, complained on CNBC that people “who don’t have any idea what they’re doing” were “sitting at home, getting their checks from the government” and driving the market frenzy, wallstreetbets was awash in vitriol.”

“The GameStop stock craze is about a populist uprising against Wall Street. But it’s more complicated than that.”, Washington Post, David Lynch, February 1, 2021.

After doing a bit of reading about GameStop, here’s my sense of the situation which did not materially change from my last post.

1. Again, it bears repeating, this battle between the “little guys” and the Wall Street Goliaths echoes the uprising of the “forgotten people” who voted in Trump in 2016. As a matter of fact, this could go back to the Great Recession aftermath when bankers got bailouts and regular families lost their livelihoods and homes. The Tea Party uprisings were just a forerunner of the Trumpian era: Trumpism came out of the Tea Party. All of that feels connected (yes, I don’t have data).

“Wall Street was not unaware of the anger brewing in the country. Even as billionaire investors such as Leon Cooperman of Omega Advisors complained of a war on wealth, others saw broader societal forces at work. “There’s a nihilism that’s going on in there which I do think is reminiscent of the time. I think we saw it at the Capitol building. … People are crying for system change,” Michael Novogratz, a former hedge fund manager who now helms Galaxy Investment Partners, told CNBC. “This is generational. This is millennials and ‘Gen Z’ screaming at boomers, saying you screwed up our planet; you screwed up our economics; you screwed up our future — and screw you.” ”

“The GameStop stock craze is about a populist uprising against Wall Street. But it’s more complicated than that.”, Washington Post, David Lynch, February 1, 2021.

2. But I did wonder if this was really a regular Joe saga versus the hedge fund guys. Their behavior felt mob-like and ended up being just as predatory as the hedge fund guys. In addition trading requires money, so I didn’t think regular Joes could be playing a role. I was wrong about that; apparently, average citizens can play the stock game, even if it means losing everything they have. Which it looks like it playing out right now.

4. As I read more and more about the Reddit forum site, r/WallStreetBets, I can’t help feeling that the site is populated by immature boys who love to troll and to lulz and whatever internet thing these boys do. Their postings just sound so juvenile. They like to call themselves “retarded” and show off their losses as if nary a care in the world (which is why I thought these investors were not regular Joes).

Here are some description of the site’s culture:

5. With this mob-like “immature” lulzing behavior, I fear that they will prey on other stocks with the hope of taking down other hedge funds. They’ve gotten the taste of victory; they will hunger for more. They already have tried other stocks earlier this week. The only thing that is stopping them – maybe temporarily – is the losses stemming from the plunge in stock price of GameStop. Yes, the price skyrocketed to unrealistic levels and now the price is plunging back down.

Here’s the latest graphic of the stock that I pulled last night:

The average stock price during 2/6/2020 through 2/5/2021 was $7.76; the average high in December 2020 was $17.36. In January 2021, the stock peaked at $483. It is not realistic that a stock worth on average $17.36 (and that was the average of the high) and now could be worth in the vicinity of $400+, even with the addition of a seasoned tech pro to the board (some guy named Ryan Cohen). I haven’t read anything about a new strategy that would help the company navigate the new digital age that is swamping every industry.

6. There is also a worry of systemic risk: that one day this mob will hit on a company or bank that systemically tied into the economy somehow, in an unseen fashion like Lehman Brothers. That was the domino that set in motion the Great Recession, even though there had been signs earlier in the year (Fannie Mae, Freddie Mac, Bear Stearns). Could the same thing happen? I’ve only seen one headline that mentioned systemic risk but other than that, there doesn’t appear to be more concern about that.

But I still worry. There is a lot of unknowns.

7. Finally, if we want to get at the inequity that persists in our type of capitalism, we need to do it through legislation. Predatory trading and mob-like will only knock down our economic infrastructure and exacerbate our inequality. Elizabeth Warren, during her Presidential run, had some ideas that were worth listening to because she came from the Republican side but saw the problems stemming from our capital system and went over to the liberal side. She is probably the best person to blend the capitalism with other solutions as she appears to actually be a blend of right and left. We do need to change capitalism but we shouldn’t throw it out.

Here’s a listing of some of the articles I have read and found interesting:

Opinion | Pumps and Dumps and Chumps – The New York Times (nytimes.com) This article is written by Paul Krugman and describes that the behavior by the “regular” Joes was more predatory than benign – at least that is how I read it. In other words, this whole saga is a fake populism. He also says that GameStop is only .06 percent of the stock market value and thus won’t bring down the market.

Opinion | Are GameStop’s ‘Degenerates’ Just Getting Started? – The New York Times (nytimes.com) This article addresses the idea that the nihilism that we’ve seen from politics over the past few years is moving into Wall Street or finance.

GameStop stock plunge leaves newbie traders to reckon with heavy losses – The Washington Post This article has a good description of the Reddit site culture.

GameStop, AMC origins were in a letter from a Wall Street investor before a Reddit WallStreetBets message board took up the cause – The Washington Post This article addresses most of my concerns that I was attempting to describe in my earlier post, so this one really resonated with me.

Elizabeth Warren Urges SEC to ‘Get Off Their Duffs’ After GameStop Uproar (msn.com)