“It’s a big club, and you ain’t in it.” – George Carlin
The GameStop frenzy has struck a nerve with so many because it represents a morality play: David vs. Goliath, outsiders vs. insiders, the downtrodden upending the corrupt financial elites. To many long-time critics of bailouts, the Reddit crowd who made out like bandits signifies the beginning of a long-awaited populist revolt. To the young and tech savvy, this is the passing of the old guard which offers a glimpse of the future.
Lost in all of the hysteria and spin is the real struggle taking place on Wall Street, that between bulls and bears. After 12 years of nonstop Federal Reserve-abetted asset inflation, the bulls have been winning so often, their ranks have swelled while those of the bearish community have dwindled. The short seller, that most extreme expression of skepticism, has nearly gone extinct. It was he who the Reddit crowd targeted and whose grave they’re now dancing on.
Table 1: Bear funds, a dying breed
Markets are cyclical, but memories are short. How many celebrating in stock forums like WallStreetBets remember the 2008 meltdown or dot-com bubble bursting? As Jim Grant warned, “The only permanent truth in finance is that people get bullish at the top and bearish at the bottom.” Kicking someone while they’re down is worse than poor manners; it tempts the investment gods.
Everyone loves a winner. On March 15, 2010, Michael Lewis released The Big Short, a book about the housing bubble and a band of maverick short sellers who profiting from its bursting. Against all odds, they literally bet against the financial establishment and won. At the time, the S&P 500 stood 26% below its 2007 high. Stocks have since tripled and people are now cheering the big long. (One speculator, Michael Burry, happened to be on the winning side of both trades.)
There are differences. The big short was a fundamentally-driven bet eventually proven right by economic reality. The big long is a bluff at the poker table based purely on intimidation: bet so many chips that your opponent will be forced to fold. The underlying fundamentals of GameStop and true value of its stock have nothing to do wi
Article from LewRockwell