How the GameStop squeeze put the fun back into markets

There isn’t as much fun in life as there is meant to be right now. So, here at MoneyWeek, we’re all grateful to the army of ordinary investors who hit the headlines last week. We’ve looked at the GameStop saga, but one of the fun things about it is the way it allows everyone to see what they want to see. Some see a political kickback against crony capitalism. Some see a series of unedifying market manipulations. Some (well, me anyway) see the saga as a side-effect of a huge rise in the number of people who are interested in markets, plus an encouraging gender and age shift (female participation is rising and Hargreaves Lansdown reckons the average age of its new clients has fallen from 45 to 37).

That’s good. The more of us who own shares, know that we own shares and hence know that we are part of the corporate world, the better. Perhaps one day universal share ownership (no longer just a dream in the UK, thanks to pension auto-enrolment) will give ordinary people (via their votes) real influence over companies. Could it make a difference? Possibly. We look this week at how four Softbank executives could make $1.2bn after receiving “unusual loans... to buy its shares”. I can see a Reddit crowd of angry shareholders trying to stop that!

John Stepek sees something different: scary market distortions caused by a nasty mix of monetary and fiscal stimulus, overlaid with boredom. There is no such thing as a normal financial interaction anymore – not so good. As this week’s podcast guest Raoul Pal points out, in the US valuations are high, yet almost everyone is playing the reflation trade. They expect economies to reopen, pent-up demand to be unleashed, growth to boom and stocks to soar as we return to a democratic, physically-free new normal. Almost no one is on the other side of the trade: fund managers have record low levels of cash and ordinary investors have record exposure to stocks. Such consensus rarely ends well – if everyone is all in, who is left to buy if anyone sells? Note that much of last week’s fall in wider markets may have been due to hedge funds selling to cover their shorts. It is a fragile time: if rolling lockdowns mean growth (and earnings) disappoint, stockmarkets could do more than disappoint.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Pal reckons the answer is to sell equities and buy bitcoin. He makes a convincing case (listen to it here) and was not impressed when I told him I have raised my own bitcoin holding from £260 to £900 (no zeros missing). I should get more, he says. Perhaps I should.

Another option is to consider where growth is less likely to disappoint. In the UK, we have got a lot wrong over the last year but we got a few things very right indeed. Our vaccine roll out should start to cut deaths fast, which should mean our recovery is faster than almost everyone else’s. If so, many things that look like they will never recover soon will – the high street, retail parks, maybe even Ryanair. If you want to hand your long-term investing over to a manager (some data is starting to emerge suggesting that active managers may have outperformed passive during the crisis) see this week's magazine for Max’s view on why it has to be Nick Train. Do that and you can use any spare time it gives you to watch some of this week’s most popular movies. According to streaming app Reelgood, the GameStop story has had one more unexpected consequence: viewings of The Big Short are up tenfold.