GameStop Week: The Rewind Fee

It was a bad week to be a Wall Street Bets Reddit follower to say the least. As the saying goes, “A fool and his money are easily separated,” and money certainly gushed from GameStop long shareholders like water from a hose. After closing last Friday at $312/share, the price of GME stock fell to below $50 by the close of trading Thursday. While the massive squeeze in the “junk” stocks last week sent the broader market indices tumbling downward, the reversal of fortune for the most shorted stocks benefited the overall market greatly.

For the week, the large cap S&P 500 gained 4.75%, the small-cap Russell 2000 index skyrocketed 7.5%, and the Nasdaq 100 index gained 5.3%. Last week’s euphoria in GameStop, AMC Theaters, Nokia, and BlackBerry may have exposed the level of speculation/gambling taking place in certain areas of the stock market currently, but I’m not so sure we can necessarily delude ourselves that it isn’t taking place all over the stock market. Bad behavior can certainly be more easily discernible in others all the while we can remain oblivious to the same traits in ourselves. It can be hypocritical to point fingers at the Reddit message board, mocking the extreme level of greed taking place among its adherents, as many of us investors are becoming blasé about 10%, 15%, or even 20% returns in market indices. When I step back a bit it can seem fairly absurd that in an often recognized or described low-growth, low-inflation environment we are getting inflation adjusted annual stock market returns of over 11.5% since 2009. For context, the inflation adjusted average return for the S&P 500 since 1946 is only 5.26%, or less than half of what we’re now getting accustomed. Maybe the Redditors are not the only greedy ones out there.

In a world where money is either free or extremely cheap risk taking is to be expected if not outright encouraged. Jerome Powell in a recent speech seemed to distance the Fed from any causality to the rampant asset price inflation. But that seems like a big pill to swallow. In fact, I would go to the extreme on the other end and say that the Fed is solely responsible for the bubbles being formed across nearly all asset classes. Maybe Powell and friends at the Fed are like the frog being slowly boiled in hot water—as the temperature is slowly being turned up, they sit around oblivious the rise. But for now like Gordan Gecko said in the movie Wall Street, “Greed is good.” And until the Fed decides to raise short term rates, or until the Fed starts to lose control of the backend rates, the market seems intent on chugging higher.   

Thanks for reading,

Zach and Dave

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