In the first week of Wall Street trading in January of 2021, stock in the video game retail chain GameStop (NYSE: GME) hovered at a price of around $18 per share.
Less than three weeks later, on Wednesday morning those same shares were fluctuating wildly between $250 and nearly $400. This kind of growth is unheard of for an established, brick and mortar retail chain — especially when a pandemic is keeping people indoors.
So what did GameStop do to deserve this incredible rally? Absolutely nothing.
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If anything, you could argue that the company's lackluster performance was what triggered this incredible rise, as it was the proliferation of "short" positions — bets against the company's future value — that brought the stock to the attention of the WallStreetBets subreddit.
A subsection of reddit with millions of subscribed users, WallStreetBets describes itself as, "Like 4chan found a Bloomberg Terminal." In other words, it's a place for Extremely Online and unserious hobbyists to overanalyze the absurdly complex data that professional traders use to make investment decisions in the stock market.
Generally speaking, this leads to some pretty reckless speculation that often does not pan out well for the users. They're like small-time gamblers boosting each other up to play with the high rollers, and it's not uncommon to see a post from a redditor explaining how they lost their life savings.
But in this case they managed to turn that dynamic around. Like those little dinosaurs from Jurassic Park 2, individually they are small and vulnerable, but if they work together, they can take down the big assh**es...or, medium-sized ass**les anyway. They won't be tackling T-Rex or J.P. Morgan any time soon.
But what actually happened? The answer is complex, but the basic version requires a brief explanation of the slightly sketchy practice of short selling. Also known as "shorting," short selling inverts the standard "buy low, sell high" model of trading.
When a trader identifies a stock that they think is overvalued — because of hype, fraud, or expected trends — they borrow someone else's shares and immediately sell them at the current rate, planning to buy back once the value goes down and return them to the lender with some profit left over from the original sale.
There is also the short-call option, where — for a small fee — you offer a window of time in which to buy shares at a set price above its current value. If the stock rises above that price within the time limit, you have to sell it at a loss. But if it goes down — as you expect — you can just pocket the fee, and never have to truly own the stock in the first place.
In both scenarios you're relying on the idea that the company's perceived value will go down. But the truly sinister aspect is that — when a lot of these bets are being made against a company — it's often taken as a bad sign, leading traders to sell off their stock, driving the value down.
It's a sort of self-fulfilling prophecy that destroys businesses and small-time traders to the benefit of multi-billion-dollar hedge funds. It's the kind of trading that accelerated the financial crisis of 2009 while raking in billions for the scavengers. But if the stock's value just keeps going up — for whatever reason — the hedge fund can end up on the hook for some truly staggering losses.
Investor Chamath Palihapitiya: The GameStop story is pushback against Wall Street establishment www.youtube.com
So when WallStreetBets users noticed the overwhelming amount of betting against GameStop, they decided to intervene on the company's behalf — and to make some money for themselves while screwing over some big investors. Never mind that one of the subreddit's official rules prohibits market manipulation. It's for a good cause — kind of.
From there a strange and powerful feedback loop took hold. As more and more redditors bought shares in GameStop, driving the price above $60 over the course of a week, the incentive to treat the stock as overvalued increased — after all, there was nothing in the company's performance to justify the higher price.
Investors poured an additional $2.75 billion into Melvin Capital — one of the biggest short sellers — to cover the losses until the trend turned around. But the short sellers' dismissive attitude toward the early growth actually helped to inflate the price and spurred on the weirdos at WallStreetBets.
With some encouragement from Tesla CEO Elon Musk — who hates short sellers and generally holds a weird amount of petty grudges for a man whose 2020 earnings were literally higher than the GDPs of most countries on Earth — they drove GameStops share prices even higher. And as media coverage (hi there) spread news of this absurd battle — and the dire situation a bunch of weird hobbyists had created for Melvin Capital — the hype only grew, driving the price even higher.
Gamestonk!! https://t.co/RZtkDzAewJ— Elon Musk (@Elon Musk) 1611695282.0
By Wednesday morning, Melvin Capital and Citron Capital — another major proponent of shorting GameStop — had both announced that they were abandoning their short selling positions and swallowing the losses...but WallStreetBets doesn't buy it. Suspecting the investment firms of attempting to let the air out of the story so they can finally profit as the inflated stock collapses back to a reasonable value, redditors have continued pumping up the stock.
But as crazy as all of this is, on some level it serves to expose the insanity that was already there. The stock market is all based on speculation and hype and speculation about the trends in hype — all operating at degrees of removal from the economic realities of the companies involved.
Is GameStop's share price artificially inflated? Absolutely.
But so are a thousand other companies that have spent tax cuts and government bailouts on stock buybacks, rather than paying their workers a fair wage or investing in new ventures. It may make for a more dramatic story — and will probably end up inspiring more regulatory pushback — but is the game they're playing worse than the short sellers themselves working to depress stock prices?
For so long we have been taught to treat the stock market as an index of our nation's whole economy. Perhaps that's why, in 2020, the one area where the government wasn't stingy with its support was in propping up the financial sector.
As a result, the Dow Jones Industrial Average quickly recovered from an early COVID crash and ended up increasing in value by 10% over the course of the year. At the same time we saw record-breaking unemployment, endless lines at food banks, and thousands upon thousands of businesses folding as a result of the protracted half-measures of our noncommittal COVID lockdown.
More than any flash crash or high-frequency middlemen, some weirdos working together on Reddit have helped to expose how unreal the whole system is. The stock market is not the economy. It's just a weird, artificial, predatory game our billionaire overlords play with the economy. And at the moment, some regular nerds are outplaying them — and potentially making millions in the process.
Please share this. There is currently $38 MILLION USD worth of shorts on $AMC When these short sellers don't hit… https://t.co/GLzA7Y2xVM— Reddit Trading 🚀 (@Reddit Trading 🚀) 1611767995.0
There's no way of knowing quite how high GameStop's stock will rise, or what will happen to the company when it eventually crashes back to Earth — there's not really a precedent for this. But hopefully the whole ordeal will serve as a lesson for the hedge funds, investment banks, and other bloated parasites thriving in a hellish economy — that every now and then, the little guys can bite back.
As of Wednesday afternoon, the hype is still going, with the phrase "to the moon" trending on Twitter, and WallStreetBets continuing to inflate the share price of GameStop along with AMC and Blackberry — whose stocks were similarly targeted by short sellers.
Joe Biden, the Student Loan Crisis, and the Problem with Economic Stimulus
Last week, for the first time since the stock market began its precipitous fall in February, the Dow Jones Industrial Average stabilized above 29,000 points.
By Monday, November 16th, the Dow had surpassed all previous records, closing at 29,950. Meanwhile, the national death rate as a result of COVID-19 is as high as it's been since May. Meanwhile, working Americans continue to struggle and suffer, wasting their gas money waiting in endless lines for limited supplies of free food.
If you, like nearly half of U.S. adults, don't own any stock at all, the numbers above are essentially meaningless. Even for most of the people who are invested in the stock market, their investment isn't substantial enough to make up for issues like widespread underemployment.
And yet, the Federal Reserve has poured $4 trillion into maintaining the stability of investment markets and ensuring that the Dow, the S&P 500 and various other numbers on charts that seem increasingly disconnected from reality move in the right direction. Why is that?
30 million people in this country are at risk of eviction. Millions of people are unemployed or underemployed from… https://t.co/pWGQY94iJT— Alexandria Ocasio-Cortez (@Alexandria Ocasio-Cortez) 1605753584.0
The answer to that question is complicated, but it is closely linked to the reason why President-Elect Joe Biden is currently on the receiving end of a lot of scrutiny and pushback on the topic of student loan forgiveness.
Recently the amount of student loan debt in the United States surpassed $1.7 trillion. That amount has more than tripled in the last 15 years, with around 45 million Americans currently holding some amount of student loan debt, and an average burden in excess of $30,000.
Most of that debt is nearly impossible to discharge through the standard bankruptcy process. And the fact that most of that burden falls on young people — whose careers are less established and who face generational declines in wages and wealth — exacerbates the impact of that debt. It's a major factor in the worrying declines in rates of home ownership, marriage, and birth rate among millennials.
It is widely acknowledged that the cost of higher education has ballooned out of control while it has increasingly been pushed as a necessary step on the path to prosperity. Underlying this problem is the fact that — unlike many developed nations — our federal government doesn't offer affordable public universities or fund education in fields like medicine and engineering where we always need more skilled professionals.
Why Is College So Expensive in America? | Making Cents | NowThis www.youtube.com
Instead we offer government-backed loans and guarantees that incentivize institutions to invest in administrative bloat and in expensive development projects to enhance their prestige and entice prospective students with unnecessary luxuries. Teenagers instilled with little sense of the financial commitments — but an unwavering belief in the necessity of college — have become cash cows.
The system as it stands is clearly broken, and whatever other reforms are called for, the resulting debt crisis is interfering with the spending power and attainment of an entire generation. In the context of a pandemic that has affected the livelihoods of so many, it would seem like an uncontroversial act for the government to alleviate some of that burden of student debt.
And for the most part, it is. Opinion polling shows that the notion of providing some amount of student loan forgiveness is broadly popular across partisan lines.
The exception is among the pundit class — and the wealthy donors they represent. Because, as various political figures — including Democratic Senators Chuck Schumer and Elizabeth Warren — have begun urging Joe Biden to make student loan forgiveness an early focus of his presidency, others in politics and the news media have done their best to push back.
When you say #cancelstudentdebt, you’re saying a minority of people who had the advantage of obtaining a degree sho… https://t.co/BMbhxUHAbK— Dan Crenshaw (@Dan Crenshaw) 1561467692.0
At the moment, a forbearance measure laid out in the CARES act has been extended through the remainder of 2020 — allowing those with federal student loans to defer payments for the time being. But further action being proposed would include forgiveness for debt owed to private companies.
Among the wide range of suggestions are legislation to provide $10,000 of debt forgiveness for individuals meeting certain restrictive criteria and $50,000 of automatic forgiveness for all student debt holders — delivered through an executive order as soon as Joe Biden assumes the White House.
In either case, some would still be left with large burdens of debt, and some would likely be hit with unmanageable tax bills — as debt forgiveness is considered a form of income. But the debate has not largely involved addressing those shortcomings. Rather, many have questioned whether we should be considering these proposals at all.
The objections tend to fall into three categories: It wouldn't help the right people, it wouldn't stimulate the economy as much as other measures, and "I paid off my student loans, so why shouldn't they?"
The last is patently asinine, and should be ignored or mocked as it applies equally to any form of progress — "My face healed after smashing against the dashboard, so why should we add airbags now?" If the people espousing this perspective want to be acknowledged for their fiscal responsibility, here's the entirety of the praise they deserve: Good for you.
The fact remains that many people are not able to pay off their student loan debts, which can have a ruinous effect on their credit rating, affecting everything from interest rates on other loans to — in a cruel twist — their employment prospects. There is a disturbing potential for an accelerating debt cycle that becomes impossible to escape.
“Things were bad for me, so they should stay bad for everyone else” is not a good argument against debt cancellatio… https://t.co/yyC60K5Uyz— Alexandria Ocasio-Cortez (@Alexandria Ocasio-Cortez) 1605569343.0
Even for those who are able to pay off their debts may feel pressured by the monthly payments to accept employment that they otherwise wouldn't — contributing to an imbalance in the employee-employer relationship that could further suppress wages. In short, it's bad.
So while it's valid to point out that there are others in the economy more in need than college graduates, we can't ignore the reality of the student debt crisis. Along with other important measures — further extension and expansion of unemployment benefits, rent subsidies, and direct payments to make it easier for people to stay home — student loan forgiveness should be considered an essential part of COVID relief.
Which leaves only one complaint left: It wouldn't do enough to stimulate the economy.
The basic issue is that the benefit of debt forgiveness is spread out over years or decades of remaining loan payments. And because it would also contribute to recipient's tax burdens, there is a concern that much of the cost of debt relief would not result in short term increases in consumer spending — the kind that spurs quick economic growth.
While that's worth being aware of, doesn't this objection have its priorities reversed? Isn't the entire purpose of a strong economy to improve people's lives? So why are we unwilling to improve people's lives unless it primarily contributes to short term economic growth?
Clearly our entire system has embraced this inverted way of thinking. That's why it can pass almost without notice when the Federal Reserve spends $4 trillion to prop up investment markets.
We happily spend that amount on measures that only directly benefit the wealthy, and yet — when it's suggested that we should spend a fraction of that on a popular policy that could improve the lives of 45 million Americans — it becomes a point of great contention.
We all seem to have forgotten the essential truth that the economy is meant to serve us — not the other way around.
Joe Biden, the Student Loan Crisis, and the Problem with Economic Stimulus
Last week, for the first time since the stock market began its precipitous fall in February, the Dow Jones Industrial Average stabilized above 29,000 points.
By Monday, November 16th, the Dow had surpassed all previous records, closing at 29,950. Meanwhile, the national death rate as a result of COVID-19 is as high as it's been since May. Meanwhile, working Americans continue to struggle and suffer, wasting their gas money waiting in endless lines for limited supplies of free food.
If you, like nearly half of U.S. adults, don't own any stock at all, the numbers above are essentially meaningless. Even for most of the people who are invested in the stock market, their investment isn't substantial enough to make up for issues like widespread underemployment.
And yet, the Federal Reserve has poured $4 trillion into maintaining the stability of investment markets and ensuring that the Dow, the S&P 500 and various other numbers on charts that seem increasingly disconnected from reality move in the right direction. Why is that?
30 million people in this country are at risk of eviction. Millions of people are unemployed or underemployed from… https://t.co/pWGQY94iJT— Alexandria Ocasio-Cortez (@Alexandria Ocasio-Cortez) 1605753584.0
The answer to that question is complicated, but it is closely linked to the reason why President-Elect Joe Biden is currently on the receiving end of a lot of scrutiny and pushback on the topic of student loan forgiveness.
Recently the amount of student loan debt in the United States surpassed $1.7 trillion. That amount has more than tripled in the last 15 years, with around 45 million Americans currently holding some amount of student loan debt, and an average burden in excess of $30,000.
Most of that debt is nearly impossible to discharge through the standard bankruptcy process. And the fact that most of that burden falls on young people — whose careers are less established and who face generational declines in wages and wealth — exacerbates the impact of that debt. It's a major factor in the worrying declines in rates of home ownership, marriage, and birth rate among millennials.
It is widely acknowledged that the cost of higher education has ballooned out of control while it has increasingly been pushed as a necessary step on the path to prosperity. Underlying this problem is the fact that — unlike many developed nations — our federal government doesn't offer affordable public universities or fund education in fields like medicine and engineering where we always need more skilled professionals.
Why Is College So Expensive in America? | Making Cents | NowThis www.youtube.com
Instead we offer government-backed loans and guarantees that incentivize institutions to invest in administrative bloat and in expensive development projects to enhance their prestige and entice prospective students with unnecessary luxuries. Teenagers instilled with little sense of the financial commitments — but an unwavering belief in the necessity of college — have become cash cows.
The system as it stands is clearly broken, and whatever other reforms are called for, the resulting debt crisis is interfering with the spending power and attainment of an entire generation. In the context of a pandemic that has affected the livelihoods of so many, it would seem like an uncontroversial act for the government to alleviate some of that burden of student debt.
And for the most part, it is. Opinion polling shows that the notion of providing some amount of student loan forgiveness is broadly popular across partisan lines.
The exception is among the pundit class — and the wealthy donors they represent. Because, as various political figures — including Democratic Senators Chuck Schumer and Elizabeth Warren — have begun urging Joe Biden to make student loan forgiveness an early focus of his presidency, others in politics and the news media have done their best to push back.
When you say #cancelstudentdebt, you’re saying a minority of people who had the advantage of obtaining a degree sho… https://t.co/BMbhxUHAbK— Dan Crenshaw (@Dan Crenshaw) 1561467692.0
At the moment, a forbearance measure laid out in the CARES act has been extended through the remainder of 2020 — allowing those with federal student loans to defer payments for the time being. But further action being proposed would include forgiveness for debt owed to private companies.
Among the wide range of suggestions are legislation to provide $10,000 of debt forgiveness for individuals meeting certain restrictive criteria and $50,000 of automatic forgiveness for all student debt holders — delivered through an executive order as soon as Joe Biden assumes the White House.
In either case, some would still be left with large burdens of debt, and some would likely be hit with unmanageable tax bills — as debt forgiveness is considered a form of income. But the debate has not largely involved addressing those shortcomings. Rather, many have questioned whether we should be considering these proposals at all.
The objections tend to fall into three categories: It wouldn't help the right people, it wouldn't stimulate the economy as much as other measures, and "I paid off my student loans, so why shouldn't they?"
The last is patently asinine, and should be ignored or mocked as it applies equally to any form of progress — "My face healed after smashing against the dashboard, so why should we add airbags now?" If the people espousing this perspective want to be acknowledged for their fiscal responsibility, here's the entirety of the praise they deserve: Good for you.
The fact remains that many people are not able to pay off their student loan debts, which can have a ruinous effect on their credit rating, affecting everything from interest rates on other loans to — in a cruel twist — their employment prospects. There is a disturbing potential for an accelerating debt cycle that becomes impossible to escape.
“Things were bad for me, so they should stay bad for everyone else” is not a good argument against debt cancellatio… https://t.co/yyC60K5Uyz— Alexandria Ocasio-Cortez (@Alexandria Ocasio-Cortez) 1605569343.0
Even for those who are able to pay off their debts may feel pressured by the monthly payments to accept employment that they otherwise wouldn't — contributing to an imbalance in the employee-employer relationship that could further suppress wages. In short, it's bad.
So while it's valid to point out that there are others in the economy more in need than college graduates, we can't ignore the reality of the student debt crisis. Along with other important measures — further extension and expansion of unemployment benefits, rent subsidies, and direct payments to make it easier for people to stay home — student loan forgiveness should be considered an essential part of COVID relief.
Which leaves only one complaint left: It wouldn't do enough to stimulate the economy.
The basic issue is that the benefit of debt forgiveness is spread out over years or decades of remaining loan payments. And because it would also contribute to recipient's tax burdens, there is a concern that much of the cost of debt relief would not result in short term increases in consumer spending — the kind that spurs quick economic growth.
While that's worth being aware of, doesn't this objection have its priorities reversed? Isn't the entire purpose of a strong economy to improve people's lives? So why are we unwilling to improve people's lives unless it primarily contributes to short term economic growth?
Clearly our entire system has embraced this inverted way of thinking. That's why it can pass almost without notice when the Federal Reserve spends $4 trillion to prop up investment markets.
We happily spend that amount on measures that only directly benefit the wealthy, and yet — when it's suggested that we should spend a fraction of that on a popular policy that could improve the lives of 45 million Americans — it becomes a point of great contention.
We all seem to have forgotten the essential truth that the economy is meant to serve us — not the other way around.
Boeing's 737 MAX is to take to the skies once more after the go-ahead from the FAA, fueling the stock's rise.
Shares of Boeing (BA) have continued to climb this month, rising over 33% from their October 30th closing of $144.39, and have continued to climb this week.
There are a few key events contributing to this rapid rise in the stock:
1. October's quarterly report unveiled further job cuts, for the airline as well as a smaller-than-expected loss. Losses were $1.39 a share, beating out expected losses of $2.47 a share. Headcount will also shrink by 11,000. Even in one of the worst markets for travel stocks in decades, investors appear to be confident in the company's long-term prospects.
2. With multiple COVID-19 vaccine trials reporting positive results, investors are starting to eye a post-coronavirus world where pent-up demand for travel will see millions taking to the skies. With Boeing still the market-leader in US commercial aircraft, expect that demand to trickle down to the airplane manufacturer's bottom line.
3. With the FAA clearing the 737 MAX to fly after two fatal crashes, the plane is expected to become a hot commodity once more. The planes have been grounded for 20 months while Boeing made changes to software, design, and training to reassure customers, and airlines are eager to get them flying once more.
The 737 MAX has a longer range and burns 14% less fuel than Boeing's previous 737 NG, making it a strong choice for airlines' long-distance and trans-continental routes. Alaska Airlines and Ryanair are both expected to take MAX deliveries in a matter of months and US passengers could be prepared to fly in already-delivered planes as early as late December.
That's not to say Boeing's rapid rise will continue. These vaccines are still awaiting FDA approval and the 737 Max still needs clearance from air safety regulators internationally including Transport Canada, Civil Aviation Administration of China, and the European Aviation Safety Agency.
Meanwhile, it may be an uphill battle for passengers to board a plane again after COVID-19, not the least on an airplane model that dominated the headlines following the crashes of Lion Air Flight 610 and Ethiopian Airlines Flight 302.
Positive news in the last month has allowed Boeing's stock to soar. The real question is how long will it stay up?
