Two cents on Gamestop: What we really know.
From a deep and wide reading of the twitterverse, MSM, the usual conspiracy theorists and the many academics who have never set foot in a trading room, it is clear that nothing is clear about the run up in GME.
Here, therefore, is a list of things I believe we know for sure about GME:
1. Hedge funds can be short or long. There are many more momentum and quant funds than there are fundamentally-driven short sellers. Those who believe that hedgies weren’t long GME at various points in this saga are those that choose to be fooled into believing that GME is an “us” versus “them” conflict.
2. Throughout history, short squeezes have been very unsuccessful. Suicide and bankruptcy are more likely to be the result than riches. First into the bubble can do very well indeed, but the marginal buyers that drive the price to new heights are the most at risk. This is why many “pump and dump” strategies are illegal.
3. Billionaires are not your friends. Chamath’s SoFi is also paid for order flow (like RH), while there is a very good reason why hedgies are massive SPAC owners: they get inside deals.
4. The clearing house that demanded more collateral to compensate for one-way settlement risk is not out to “get” WSB. Failure of RH is exactly the risk that the clearing house is mitigating. 2008 was caused by an excess of systemic risk in the hands of leveraged players. Demanding more collateral in 2021 is exactly the measure used to reduce such systemic problems. Faster settlement solves this problem. Where are the fintechs on this?
5. The equity markets are not “rigged”, at least not in the ways suggested by WSB. It is easy to find ex post winners in the stock “game”, but as this is more luck than skill, past (short-term) performance is a terrible predictor of (long term) future results. The market is reasonably efficient. True insiders can win, as can those who extract fees from outsiders. Otherwise, buy an index fund: 90pct of all stock market gains come from less than 5% of stocks. Do you really believe you can consistently identify the winners?
6. In the long run, daytraders lose money. Just like in the casino. A very select few have an edge (eg card counters). Everybody else will succumb to the laws of probability.
The best thing about GME and Dogecoin is that I will no longer have to hear anything about Tulipmania as the ultimate allegory for bubble greed. Tulipmania did not actually happen, as is best shown here. Yet truth is stranger than fiction.