Let the People Trade – The Rise of Economic Populism | Christopher Winter
Some, if not most of you, will be aware of what has occurred over the last few days in regard to the share price of GameStop and AMC Cinemas etc. If so, you can skip the next two paragraphs and move on to the rest of the article. If you are looking for a simple explanation on what occurred, read on.
Essentially, a few large hedge-fund companies realised that companies like GameStop were a failing business. So, they decided to ‘short’ the company. Shorting is, in the simplest terms, when you bet on a company’s share price decreasing. If the share price goes down, you make money. These hedge-fund companies then derided and rallied against GameStop to drive the share price down even faster and harder so that they could ensure they would make money. Then, onto the scene stepped the subreddit ‘r/wallstreetbets’, a subreddit which is famous for its (less than stellar) investment advice. Users on this subreddit realised what was happening with the manipulation of GameStop, and they weren’t going to stand for it. Spurred on by a love of video games, dislike for large hedge-funds, and the desire to make some money, members of r/wallstreetbets began to buy GameStop stock en-masse.
This prompted the price of the stock to go up as it became more popular. The hedge funds began to lose money as the price of the shares went up due to their short positions remaining open. Then, the cycle began. More people began to buy GameStop shares, rallying the price even further and so on. The hedge-funds began to realise that the only way they could mitigate their losses was by doing stock buy-backs on GameStop, thus increasing the price of the stock further. All in all, GameStop shares went from being worth $18 on the 31st of December 2020, shooting up to $347 on the 27th of January. An incredible increase of value.
So, what has been the result of all this besides the initial excitement? Well, some of the USA’s largest hedge-funds have lost a considerable amount of money with a few, such as Melvin Capital, losing up to 40% of their liquid assets in only a handful of days. The real winners of this are the small time, individual investors of r/wallstreetbets and 4Chan’s /biz/; some of whom have turned a few thousand dollars into millions overnight.
This event has sparked panic in stock exchanges and hedge-funds, with some calling for ‘regulation’ on smaller stock brokerage sites like ‘Robinhood’ (The US version of app-based stockbrokers such as Trading 212). Actions such as this have prompted many to label these actions as unfair. It seems as though the large stock exchange and hedge-fund firms are fine with manipulation of the markets when they are doing it, but when a few thousand little guys decide to do it, they cry for regulations and an end to small scale investment. This is the financial establishment raising its head, taking off its mask, and declaring itself the God-king of investment. At long last, the elites of the finance world are no longer pretending that the system isn’t rigged… they are publicly and actively calling for more rigging!
Movements like ‘Occupy Wall Street’ have come and gone in the past with very little effect, but this single act by a group of Redditors and 4Chan investment and crypto-currency enthusiasts has seemingly shook the investing world to its core and opened people’s eyes to the shadowy underbelly of finance.
This has prompted a rise in what some are calling ‘economic populism’. The idea that a moderately sized group of organised individuals can completely bankrupt some of Wall Streets most established hedge-fund companies in order to exact ‘revenge’ upon them for actively praying on smaller companies and encouraging them to collapse sooner.
Whilst some, including myself, may laugh and chuckle at this situation, it is also extremely important to remember that this event proves that the little guy, when organised correctly and acting intelligently, can have a huge effect on the world around them. The protestors on Wall Street 12 years ago have been long forgotten by the press and financiers, but this will be remembered as a moment in time when, even just for a few days, the little guys won. It also proves that protests and demonstrations are not always the most effective way of making a statement, and sometimes just a smidgen of organisation, education, and intelligent thinking can go a very long way.
The two main takeaways of the events unfolding over the past few days have been that, through economic populism, individuals can have an impact; and that Wall Street has raised its head, bore its teeth, and is now trying as hard as possible to stop ordinary people from getting a foot on the ladder. Economic populism, therefore, may be a useful weapon against them in the future, if its means are not completely regulated out of existence next time round.
So, enjoy the fireworks for the time being; wish those who got in early well; hope that next time round you get in the door early too; and wait and see as more and more people become aware of the fact that finance is rotten and that they will only listen to you if you can bankrupt them.