The activity in GameStop continued Thursday, and it’s caught the eye of regulators. The Securities and Exchange Commission said late Wednesday that it is “actively monitoring” the surge.
With regulators starting to take action, many questioned what this week’s events mean for the broader market. Seven experts weigh in on what to watch.
Billionaire investor and Dallas Mavericks owner Mark Cuban noted how the market may not be that different; it’s the demographics that are changing.
“The reality is you just have to run your company and do your best. That doesn’t change the fundamentals of the company at all. In so many respects, it’s window dressing and if you are an owner of American Airlines, you’re an owner of GameStop, hopefully prior to all this, hopefully you owned it for a good reason and you believe in the company. All the manipulation — not even manipulation — all the swings in the price of the stock, it’s all just mishegoss, right? If it’s a good company, it’s a good company, and if it’s bad company, it’ll end up going out of business, and the people who bought it just to speculate some will make money, some will lose money, but that’s just the way the market’s always worked. The only thing that’s really changed is the speed and the density, and the reduction in friction for smaller traders to trade. That’s the only thing that’s changed.”
Allianz’s chief economic advisor, Mohamed El-Erian, mulled whether this moment in the market was a sign of a bigger problem, or just an exciting opportunity.
“It is enabled by very distorted financial conditions. Look, there’s four levels to this element, and you’ve been covering them. One is the pure hedge fund versus retail anti-establishment. That doesn’t have broader market implication or financial stability. The second one is the change in market structure. The third one is the interest of regulators and politicians. And then the fourth one is the one that really has a lot of market implication. Is this the beginning of the accident we worried about because of overleverage, excessive risk-taking, or is this simply another buy-the-dip opportunity for market participants as hedge funds de-gross? That is the key element for your 401(k). The other stuff is really interesting, but the bottom line is, do you believe this is the canary in the coal mine or is this yet another buy-the-dip opportunity?”
When asked about the outcry against hedge funds, former SEC Chairman Jay Clayton urged transparency.
“If you’re doing one thing and saying another, or you come on and say something and then immediately shift course, that’s inappropriate behavior. In many cases, it’s unlawful and nobody should be doing that. Whether it’s traditional pump and dump [or] more sophisticated forms of manipulation, that should be rooted out. There’s no question about that. And whether the transparency we have in our marketplace around particular positions is appropriate is something that we should be continually examining. Like I said, I think the U.S. market in terms of short positions is probably more transparent than any other, but as things change, there’s always room for improvement.”
Reddit co-founder Alexis Ohanian explained the personal element for retail investors, and how the internet is continuing to change the market.
“I think the thing that for me has been so clear is that this, like a lot of things on the internet that really go viral and take on a life of their own, has become something much bigger. I think, even just looking at the comments around the internet, it’s something that’s very personal to a lot of people, and a chance for Joe and Jane America, the sort of retail buyers of stock, to flex back and push back on these hedge funds. I do think this is a seminal moment. I don’t think we go back to a world before this because these communities they’re a byproduct of the connected internet. Whether it’s one platform or another, this is the new normal. We’ve watched the internet now over the last 10 or 15 years thanks to the rise of social media and all this infrastructure really bring a bottom-up revolution in so many industries. We’ve seen this across media, we’ve seen this across so many different sectors, and now it is happening to finance. It’s nothing short of remarkable, and I really do think this is really the start of a new era for how we’re going to perceive the public markets and the interaction with consumers with it.”
Insider Inc. co-founder and CEO Henry Blodget spoke about how history could repeat itself and urged caution for investors.
“When I heard Alexis Ohanian this morning, who I have great respect for, saying this is something completely new, it’s small folks combatting the big institutions, it’s just such an echo of what we heard in the 1990s. As David Tepper was just saying, it was exactly the same story, it was a new mechanism, chat boards. Yes, we’ve removed even more trading friction now with some of the new platforms that make it even easier to trade. That will accelerate this, but this is more than just an echo. This is a repeat of something we have seen again and again through history. … Well, I think we know how it ends. Call up some stock charts from 2000 to 2002, and you get a picture of how it is very much likely to end. I remember sitting in my office in 1998, which was two years before the peak so it can last for much longer than you think, watching a stock called K-tel which was an old, sort of music retailer from my childhood then, that suddenly did exactly what GameStop is doing. It was this new thing, it was exciting, it was some reflection of the future plans of the company, all the stories around it, it went right back to where it was beforehand. That is the scenario that I think is very likely for most of these stocks, and I would just urge anybody who has not been through this before … please don’t bet more than you can afford to lose.”
Gabriela Santos, global market strategist at J.P. Morgan Asset Management, pushed for focus on fundamentals in the long run.
“The way that we think about it is in the short term stock prices for individual companies or for the broader market can be driven by a whole variety of things – by sentiment, by speculative behavior – but over the long run, the prices of stocks should be driven by fundamentals, or earnings. And so when we think about our allocation to individual companies, we have to think about whether the price movement is merited by fundamentals or not, and then we can think about whether it’s appropriate to keep that stock or to sell that stock. But I think it’s going back to our playbook which is all about long-term fundamentals driving stock prices.”
Galaxy Digital’s chairman and CEO, Michael Novogratz, advised to sell, but also spoke about how generational conflict may be spreading to the market.
“I had a friend call me [Wednesday]. He said, ‘Oh, my God, I bought AMC.’ I called him up and said, ‘Sell it instantly.’ Listen, if you got in on the short squeezes early, great for you. You had the little guy taking it to the hedge fund managers and you put three literally legendary investors out of business almost. But you’re now at levels on all these stocks where you’re guaranteed – I’m not sure if it’s a day, or two days, or five days, or two weeks – but you’re guaranteed to lose money if you hold them. And so it’s a game of pass the parcel. What’s really interesting is how much volume is trading. GameStop traded like $25 billion of volume [Wednesday]. So there’s turnover. There’s new people buying from the original guys that squeezed this thing. What’s also interesting … is there is an anger. I spent an hour last night on the Reddit chat and it’s shocking how angry. There’s a nihilism that’s going on out there, which I do think is reminiscent of the time. I think we saw it at the Capitol Building. I think we saw it in Black Lives Matter protests. People are crying for systems change. This is generational. This is millennials and Gen Z screaming at boomers, saying ‘You screwed up our planet, you screwed up our economics, you screwed up our future, and screw you.’ And so, I think there’s a lot going on here besides the squeeze that is societal, but from a markets perspective, sell and sell soon.”
