When the face-ripping rally in GME began, it was hard not to be impressed by what the Redditers had pulled off. They identified a stock with an high level of short interest and squeezed the hell out of it. This is every trader’s dream. Speculators have been searching for overcrowded trades ever since the days when Cornelius Vanderbilt and Jay Gould battled it out. .However, the strategy behind a squeeze is to get out when the shorts begin to cover..Redditors have taken the basis for a great trade to a level of ridiculousness that is only harmful to their brokerage account balances. The chants from the Redditers to “HODL” or “hold the line” even as it became apparent that the majority of the shorts had covered is beyond any logical comprehension. Sure, Redditers will scream that “it isn’t about the money; it is about sending a message,” but they have now managed to turn a great trade into a rage against the machine cult. .The supposed reason for their rage is to punish Wall Street for their “past sins” mostly centered around the 2008 crisis. One of the many flaws in this logic is that the big losers from the GameStop squeeze are hedge funds, not the large Wall Street investment banks which received TARP bailouts..Hedge funds are entrepreneurial operations. Managers generally have their capital at risk. There is nothing wrong with the Redditers putting the hurt on some big operators. That is part of the game, and these fund managers left themselves exposed by managing risk poorly and piling into overcrowded positions. .But many of the grievances go beyond 2008. They attack financiers and speculators as “parasites,” “job destroyers,” amongst other ill-founded name-calling. This is pure ignorance and just the latest edition of a centuries-long hate against so-called “money changers.”.Free and functioning capital markets are critical to the prosperity we enjoy..Banks, hedge funds, venture capital firms, private equity all play their part and have financed everything from Silicon Valley start-ups to the fracking revolution. Even hedge funds and other speculators that engage in trading on a shorter-term time horizon play a mostly invisible – but vital – role by providing liquidity and assisting in the price discovery process. Without them, markets would not function nearly as well. .This is not to make excuses for 2008. It is deeply troubling that even though the TARP funds were paid back in full and the causes of the Great Financial Crisis are more complex than the established narrative makes them out to be. Government picking winners and losers in any industry is more than just bad economic policy. As we have seen, it is destructive to a society’s culture and gives credence to the often-misaligned notion that the “game is rigged.”.However, none of this is an excuse for nihilistic victimizing cultish behavior..Albeit there are other causes for this behavior. An entire generation – my generation – has been taught that (a) the highest political ideal is being a victim and (b) they have little to no agency in life. The sad but not surprising end result has been the popularity amongst millennials of “burn it down” Presidential candidates like Ron Paul and Bernie Sanders, to “burn it down” movements like Occupy Wall Street and Wall Street Bets. .What has happened with GameStop and other trades the Redditers made proves the precise opposite. It shows that we do have agency. It is possible to make it big in this world. Not all of us will achieve our dreams, but what matters is that we got a shot, which we clearly still have. By all means, advocate for reforms, so we can have freer markets and root out cronyism. But wanting to burn down the extraordinary capitalist order we live under because it isn’t perfect is self-defeating. .As a final piece of advice to the Redditers; keep trading even when you get punched in the mouth. The world is a more interesting place with more speculators in it..Denton Wierzba is guest columnist for the Western Standard and a Futures Trader from Central Alberta
When the face-ripping rally in GME began, it was hard not to be impressed by what the Redditers had pulled off. They identified a stock with an high level of short interest and squeezed the hell out of it. This is every trader’s dream. Speculators have been searching for overcrowded trades ever since the days when Cornelius Vanderbilt and Jay Gould battled it out. .However, the strategy behind a squeeze is to get out when the shorts begin to cover..Redditors have taken the basis for a great trade to a level of ridiculousness that is only harmful to their brokerage account balances. The chants from the Redditers to “HODL” or “hold the line” even as it became apparent that the majority of the shorts had covered is beyond any logical comprehension. Sure, Redditers will scream that “it isn’t about the money; it is about sending a message,” but they have now managed to turn a great trade into a rage against the machine cult. .The supposed reason for their rage is to punish Wall Street for their “past sins” mostly centered around the 2008 crisis. One of the many flaws in this logic is that the big losers from the GameStop squeeze are hedge funds, not the large Wall Street investment banks which received TARP bailouts..Hedge funds are entrepreneurial operations. Managers generally have their capital at risk. There is nothing wrong with the Redditers putting the hurt on some big operators. That is part of the game, and these fund managers left themselves exposed by managing risk poorly and piling into overcrowded positions. .But many of the grievances go beyond 2008. They attack financiers and speculators as “parasites,” “job destroyers,” amongst other ill-founded name-calling. This is pure ignorance and just the latest edition of a centuries-long hate against so-called “money changers.”.Free and functioning capital markets are critical to the prosperity we enjoy..Banks, hedge funds, venture capital firms, private equity all play their part and have financed everything from Silicon Valley start-ups to the fracking revolution. Even hedge funds and other speculators that engage in trading on a shorter-term time horizon play a mostly invisible – but vital – role by providing liquidity and assisting in the price discovery process. Without them, markets would not function nearly as well. .This is not to make excuses for 2008. It is deeply troubling that even though the TARP funds were paid back in full and the causes of the Great Financial Crisis are more complex than the established narrative makes them out to be. Government picking winners and losers in any industry is more than just bad economic policy. As we have seen, it is destructive to a society’s culture and gives credence to the often-misaligned notion that the “game is rigged.”.However, none of this is an excuse for nihilistic victimizing cultish behavior..Albeit there are other causes for this behavior. An entire generation – my generation – has been taught that (a) the highest political ideal is being a victim and (b) they have little to no agency in life. The sad but not surprising end result has been the popularity amongst millennials of “burn it down” Presidential candidates like Ron Paul and Bernie Sanders, to “burn it down” movements like Occupy Wall Street and Wall Street Bets. .What has happened with GameStop and other trades the Redditers made proves the precise opposite. It shows that we do have agency. It is possible to make it big in this world. Not all of us will achieve our dreams, but what matters is that we got a shot, which we clearly still have. By all means, advocate for reforms, so we can have freer markets and root out cronyism. But wanting to burn down the extraordinary capitalist order we live under because it isn’t perfect is self-defeating. .As a final piece of advice to the Redditers; keep trading even when you get punched in the mouth. The world is a more interesting place with more speculators in it..Denton Wierzba is guest columnist for the Western Standard and a Futures Trader from Central Alberta
