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The past few weeks have seen Corporate America and the wider Investor community come to terms with the GameStop saga wherein hordes of individual investors banded together on social media platforms such as Reddit and wreaked havoc on many stocks through Short Selling and other forms of speculative frenzy.
As the story unfolded, it became clear that what was hitherto the practice of speculative and frenzied market movements that was the preserve of Hedge Funds and other Big Finance firms was now being followed by individual investors.
While these entities cried foul over such Market Manipulation, the investors and the business press were quick to point out that this was precisely the same thing that established market players were doing all along and hence, all that the individual investors did was take a leaf out of their playbook.
Indeed, there were many who gleefully said that the GameStop saga is the manifestation of the saying, The Shoe is on the Other Foot, as far as Power to the People was concerned.
In other words, the individual investors were paying the biggies in the Same Coin.
Of course, there are others who said that such unrestrained market activities must be curbed, more so because these retail investors were acting in ways that could be described as unwanton destruction, rather than being based on any underlying economic and financial principles.
In other words, the criticism against hordes of retail investors ganging up on established and Blue Chip stocks was that they were driven by malice and acting out of spite.
Indeed, for a few days, it seemed as though that the long awaited shift in the Balance of Power between Hedge Funds and Individual Investors was tilting towards the latter.
However, prominent trading apps such as Robin Hood immediately began to clamp down on such retail investors, prompting both praise from the Biggies and scorn and howls of protest from the Individual Investors.
While Robin Hood caved under pressure from the established firms, nonetheless, the GameStop saga is a taste of what is in store for Wall Street and other Equity Markets around the world as far as Third Party Trading Apps and the power of Small Investors to make a difference were concerned. Moreover, this was seen as the first shot in the war of attrition.
Having said that, there is another dimension to this whole story about GameStop and that has to do with how the Retail Investors were merely copying the strategies used by Hedge Funds and other Big Finance firms for decades now.
Indeed, many were quick to point out that in the aftermath of the Great Recession of 2008, Hedge Funds and other firms did the same then under the guise of market corrections.
In other words, the criticism was that if such speculative frenzies were driven by established firms, then it is capitalism at work, and when retail investors did the same thing, it was seen as socialism and radicalism.
It is hard to gainsay this as there are valid points in this argument, especially the fact that Big Banks have been doing this for ages and that too, getting away with it.
For instance, the periodic stock market crashes are as much about fundamentals as they are about how Big Finance manipulates the markets to their advantage.
Therefore, the GameStop saga can be seen as manifestations of the saying, The Shoe is on the Other Foot in that it reversed the roles and power between Big and Small Investors.
The way out to prevent such wild gyrations in the markets is through increased regulation and punitive action, however big or small the entities are.
This is something that not only Wall Street but also other markets worldwide have to implement as there cannot be one rule for some and other rules for others.
Moreover, with App based trading empowering the Small Investors, it is also time to look at whether there is a need to overhaul the regulations.
What is perhaps the biggest take away from this story is that Robin Hood was forced by the Establishment to suspend trading in the stocks that were the target of the frenzy.
This clearly indicates that the Biggies can and will do everything and anything to retain the Status Quo.
So, the story is not over yet as there would be many more such events in the years to come, what with Technology empowering the Small Fry and at the same time, being a tool in the hands of the Biggies as well.
Learning is that trading based on fundamentals must be the norm and the speculative excesses must be the exception to the rule so that there is market equilibrium.
Last, with a Democratic Administration, there is likely to be more support for the Small Investors as can be seen in the way prominent legislators came out in their favour.
However, it is also the case that the Status Quoits are fighting Tooth and Nail and in a manner similar to the Industrial Revolution, there is a Battle being waged for Market Dominance.
Where this would lead to is anybody’s guess and for the moment, the Biggies have won the day while the next iteration might very well be the Shoe on the Other Foot again in the coming days.
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