Sometimes a topic will emerge from a background hum into popular consciousness, giving you the strange feeling that you’re learning something you already knew.
The financial crisis was a little like that. The risks about the US mortgage market were already being flagged. Securitization bankers were all aware that their market – with ABS vehicles that invested in other ABS vehicles – was already becoming a caricature of itself. When the crisis came, it was inevitable. But that didn’t make it any less shocking.
I’ve felt the same over the last week or so watching the media meltdown that has accompanied the short squeeze going on in GameStop, an embattled US retailer that has been adopted by a group of rowdy retail investors on social media site Reddit. Because they have decided to buy the stock en masse, and because the subsequent surge forced institutional investors to take billions of dollars of losses, fuddy-duddies like me are meant to react with shock and horror.
Somehow, however, it felt inevitable – even if that didn’t make it any less shocking. I am part of WhatsApp group that was created to schedule games of golf, but that has morphed over time into a repository for rude jokes, memes and stock tips. The young guns on this group have been harping about GameStop for the last week.
I asked them before writing this column whether this battle between retail and institutional was likely to be a one-off. They laughed, or at least that’s what I presume those crying emoticons were meant to signify.
“This is the age of the shill,” one of them told me. Apparently, every Tom, Dick and Gary with an internet connection is pumping one stock or another at the moment. GameStop is just the latest in a line of retail-driven stock frenzies. Institutional investors have already taken licks, just without the media attention. And more will come.
It’s hard to know how to take this. I don’t have much time for hedge fund managers. They seldom stay for more than two drinks and they never offer to foot the bill. But I could at least pretend they were fulfilling some vague social function that fit in with the economic models I was taught at school.
Are those models worth much now? I can’t say I have much faith in the Efficient Market Hypothesis.