Waiting on the GameStop Knife to Fall themargins.substack.com

Ranjan Roy, the Margins:

Even the “retail” is plenty of well-off people. While most of the media coverage focuses on laid-off college-aged kids and uses the term “mom and pop” investors (is that even okay in 2021?), I can promise you plenty of friends in tech (who often make a lot more than friends in finance nowadays [Haha, sorry -Can]) and doctors are sending me $GME or $AMC gain porn. The already wealthy are having a laugh, catalyzed by r/WSB. I mean, the world’s richest man joined in [on] the fun. Can we please stop making this about the “little guy” vs. “Wall Street”?


But when that stock starts absolutely tanking — what happens? Does it stop exactly at some reasonable enterprise valuation? That’s not how momentum works. In trading, everyone loved the adage “don’t try to catch a falling knife” but while everyone enjoyed the lulz on the way up (other than Melvin Capital), it will be [GameStop CEO Jim] Bell’s job to catch the knife on the way down to try to keep as many of these people still employed as possible. Whatever happens, it will dangerous and ugly. Real employees could lose their real jobs thanks to the lulz.

The rally around heavily-shorted stocks like GameStop and AMC has been a surprisingly gripping story for something so inherently dull. From GameStop’s staggering rise, to trading apps intervening — and the backlash and lawsuit that resulted. If you are like me and not a Wall Street goon, the narrative of a bunch of Reddit users causing a hedge fund to require emergency funding to the tune of $2.75 billion is hilarious and satisfying. The effects of stock markets may impact us all, but it is only a game for the rich.

But Roy’s essay is the best thing I’ve read so far about this event. The part of this story that caught my eye from the beginning is that the rally’s earliest Reddit– and YouTube-based cheerleader bought over fifty-thousand dollars worth of GameStop stock in 2019. That is not the kind of money that regular people can just throw at probably-failing mall companies. A handful of people who were probably wealthy to begin with are going to make a lot of money. A lot more people — from retail traders who don’t really know what they are doing, to GameStop employees — are going to be hurting after this is over. Big money traders are still running this thing and it still sucks for the rest of us.

If this puts a damper on your enthusiasm for this story, I’m sorry.