Considering two books about the GME short squeeze
A star-studded Hollywood biopic put the Gamestop Stock Short Squeeze back in the news. Two books were published about Gamestop mania, so I read both books, and this post considers their viewpoint, accuracy, and historical rigor. Can we finally evaluate the 2021 Stonks Squeeze? P.S. This book review is financial advice. Do as I say, or your money gets hurt.
The Antisocial Network (2021) by Ben Mezrich
Should you see Dumb Money, the movie? Probably. It looks funny, it’s full of stars, and Paul Dano pretends to be Keith Gill.
Should you read the book Dumb Money, first published as The Antisocial Network (2001)? No. It’s a conventional retelling of what happened with GME that sides with “the Reddit masses” but doesn’t go deep enough to figure out who scammed money off those masses. Dumb Money oversimplifies the story, condenses the timeline, and covers the same ground as Wikipedia articles about the GME Squeeze. It was churned out quickly and seems designed for a movie adaptation.
The book does a good job of making stocks exciting, cross-cutting Wall Street, Main Street, and Keith Gill, a.k.a. DeepFuckingValue, a.k.a. RoaringKitty. Yet the narrative is uncritical of the story’s major players. We learn a lot about Gill’s running aspirations and his plan to buy his hometown an indoor track; we don’t learn about Gill’s history as an accredited broker for the life insurance company MassMutual, his experience at a fin-tech startup, or his stint at a legal case crowdfund program, LexShares. There’s no investigation into why Gill left his job and decided to risk his own money.
I find it strange that these details were omitted. Gill was a finance professional. His GME analysis was aimed at other finance professionals to invest their money in an undervalued equity. Two rich investors, Ryan Coen and Michael Burry, came to similar conclusions. Perhaps they even read his analysis and invested in the stock. Describing Gill as a plucky retail investor is technically true, but relatively few retail investors run rigorous earning report analyses or spend $54,000 on one trade.
As the squeeze gets going, the book conflates retail investing to internet trend investors, citing the memes and the sea shanties to pretend degenerate Reddit gamblers are typical retail traders. Stock obsessives are outliers. Typical retail investors have 401K contributions that they set and forget. Arguably, they do not benefit from manufactured meme volatility.
The book’s cited example of the single-mom nurse that follows meme stocks seems like another outlier over-analyzed to seem significant. Sure, some Redditors went from r/theDonald to r/Wallstreetbets and fancied themselves amateur investors. But I’d wager that pre-2021 Wall Street Bets had a higher percentage of finance professionals than other Reddit boards, as it’s a chat room for people who spend their days trading stocks. To his credit, Mezrich does stress the distinction that apes are typical retail traders at the end of the book during the Congressional hearing, and admittedly, the book grasps this nuance better than many elected Congress members.
The strangest part of the book is the section about Elon Musk. A cheeky sci-fi fan fiction story about the billionaire, describing Musk’s underground space base where he eats aliens he caught on Mars. I think this voice would be cute for a novelty book from Urban Outfitters, but it was jarring in a nonfiction book about a major financial event. It misrepresents Musk’s role in the Meme Stonk saga and re-entertains Musk’s tiresome narrative that he’s some superhero evil genius. It’s Elon PR. In fact, Musk’s tweets about stocks have been the subject of SEC litigation in 2018 as well as in 2022 when he purchased Twitter. Shifting to a fan-fiction retelling of Musk avoids detailing Musk’s culpability of getting retail traders to make risky bets.
This book seems written to make the internet happy and nobody mad, especially not any billionaires. It gives a TL;DR analysis of the event in broad outlines but little of the why or how this happened. This book is only for true GME obsessives. Thankfully, there’s a better book.
The Revolution That Wasn’t (2022) by Spencer Jakab
Spencer Jakab, a Wall Street Journal reporter, provides a clearer explanation of the Gamestock phenomena. His book surveys a larger timeframe, more sources and provides a deeper analysis to explain the financial machinations that caused the GME squeezes.
His thesis is clear and depressing. Wall Street investment firms made more money from GME than retail traders did, and everything worked as planned. The whole scenario was capitalized on as a ploy billionaires used to get dumb money into the market. Jakab writes, “If something stirs up the retail crowd, it’s almost always good for the industry as a whole.” He quotes Wolf on Wall Street Jordan Belfort for emphasis.
“I think what the average investor doesn’t understand is that Wall Street likes volatility, they make money on volatility, on volume, up or down. It’s nice to have a bull market but when volume dries up and there’s no activity, that’s when Wallstreet suffers most.”
— Jordan Belfort, the Wolf on Wall Street
Jakab argues that GME was a consequence of reckless gambling encouraged by investment banks, clearing houses, and especially gamified brokers like Robinhood. Financial trends precipitated the GME’s squeezes, and the author argues if these things hadn’t happened, the video game pawnshop would not have enticed the world into buying its worthless stock. Trends like…
- ZIRP (Zero Interest Rate Percentage)
- Ubiquitous smartphones
- Commission free trading
- Payment for Order Flow
- SPACs, OTC, and Crypto trading (unregulated assets)
- The 2020 COVID flash crash
- “Donny Pumps” or Donald Trump’s immediate business bailout and money printing
- Using stimulus checks to open brokerage accounts
- “Buy calls” cheat-code / retail trader’s shifting preference toward options
- E-Z leverage for Robinhood traders
- Experience with TSLA Gamma Squeezes
- Billionaires and finance influencers
If the government wasn’t printing money to keep the stock market afloat, and if Wall Street hadn’t spent the previous decade making it easier for anyone to place bets on stocks, we wouldn’t have seen this short squeeze.
Jakab also points the blame at rich influencers who really made money from the 2021 Meme Stocks.
Like Ryan Coen, the Chewy.com CEO who became a billionaire from his GME trades. Today, he’s under SEC investigation for telling retail investors to buy Bed Bath & Beyond as the company headed to bankruptcy.
Elon Musk tweeted about GME, and he has a longstanding grudge with short sellers. TSLA gamma squeezes were experiences that informed the GME gamma squeeze. Later Musk went on TV and pumped and dumped Dogecoin, an unregulated cryptocurrency on financial markets. While he might not have profited from GME, he profits from the phony narrative that investing in failing securities is somehow a rebellious action.
Dave Portnoy, a spokesperson for the online gambling industry, made big bets on meme stocks for clout. He lost, but he profits from an environment of stupid retail traders. This is the guy who picked stocks to rally from a Scrabble bag. His BUZZ ETF tracks popular stocks, and it’s down 30% from ATH (on 9/15/23). Whether ETF commissions or gambling app referrals, the man always tries to score points on the vig.
When Robinhood filed for its IPO, it revealed 2021 was massively profitable and saw the creation of thousands of new accounts. Ken Griffin, CEO of Citadel Securities, ended 2021 as the world’s 37th richest person. Options sellers reported the largest profits in history, as did investment banks like Morgan Stanley and Goldman Sachs.
The evidence is overwhelming: retail did not win on the GME short squeeze. Only a small minority of people made money. Nobody stuck it to the hedgies, the market functioned as designed, and Wall Street won from meme stock mania.
Future Market Predictions
Did the market makers collude on 1/21/21 to screw over retail traders when Robinhood stopped selling Gamestop shares? Not exactly. Both books agree that financiers and lawmakers collude to screw retail traders as much as the law allows (a lot). But halting buy orders on Robinhood is not illegal nor irrational for the broker. Both books agree that Robinhood has the legal right to reject buy orders on a volatile equity if they can’t afford to fulfill the order. It’s like a store without inventory; buyers are free to go to another brokerage and buy it.
Jakab cogently argues Robinhood screwed retail way before 1/21/2021 by using Pavlovian conditioning to gamify stock trading and get their users addicted to dopamine hits from options gambling. This trend makes more money than the blip any market professionals “lost” on covering Gamestop shares.
Since publication, the Reddit board r/GME_Meltdown shows the consequences of meme stocks. The men who bought GME, BBBY, AMC, and other meme stocks seem like people trapped in cults, multi-level marketing schemes. Insisting the stocks of bankrupt companies will go up seems no different than having nutritional supplement powders in your garage. It’s hard to know who’s telling the truth on message boards, but posters have reported losing their entire savings, their jobs, homes, and families. Did these men win by getting the opportunity to invest recklessly?
The dreaded short-selling firm Melvin Capital did close, but Gabe Plotkin survived. He bought the Charlotte Hornets. He’s doing good.
As for retail traders, this week Wall Street Journal published an article about daily options gamblers. The paper claims $3.1 billion was lost last year on short-expiry options.
“We should stop pretending that’s what’s going on is investing,” said Benjamin Edwards, a professor at the University of Nevada in Las Vegas who has studied securities law. “It’s just gambling.”
— Wall Street Journal
So what does this mean for the future? I predict more of the same. More market shenanigans that benefit a few thousand people who work in the FIRE (finance, insurance, real estate) industry at the expense of billions of people who don’t. More ways to trick know-nothings into feeling confident enough to waste their money on complex financial instruments. The Gamestop Stock Shorting Scandal of 2021 is the perfect example of how inefficient markets are at running an economy. GME reinforced the truth that markets are designed to enrich the few while impoverishing many.
RIP Apes, January 2021 — January 2021.
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Originally published on my Medium account.
