Think the Reddit Crew are the New Kids on the Block? Think again says Seth Freedman
“…GameStop is the Yellow Sam of its generation, a freak occurrence that took genius planning, no little luck, and perfect execution to pull off…”
Seth Freedman is a writer. He worked as a stockbroker in the City for six years before moving to Israel. He served for 15 months in a combat unit of the IDF between 2004 and 2006. He was the whistleblower at the centre of the gas price-fixing scandal in November 2012. He is the author of Binge Trading which covers the darker side of the City in the run up to the 2008 crisis.
Bookmakers love nothing more than being hated: the rallying cry of #BashTheBookies across Twitter and beyond is sweet music to their ears. When Barney Curley pulled off the outrageously-brilliant Yellow Sam betting coup in 1975, the cost to the bookmakers was easily offset by the surge in new punters hoping lightning would strike twice. When it finally did – and it took just shy of forty years to occur – Curley’s second stroke of genius hit the bookies for a reported £2m, chickenfeed in the eyes of an industry turning over tens of billions in revenue.
However, this time the bookmakers had the massive added benefit of a mature social media connecting gamblers across the globe, and couldn’t have been more grateful for Curley coming back for a second bite of the cherry. Interest in racing went through the roof, and the bookmakers coffers’ brimmed over with the mug punters’ hard-earned, easily-lost cash. The house always wins. If it didn’t, there wouldn’t be a house at all. All that each individual gambler can hope is that they are the lucky one to beat the odds and buck the trend. They might loathe and despise the house, but really they love it to death – they just can’t admit it in public.
“…they know their followers are too uneducated to challenge the orthodoxy – yet display exactly the same traits when ramping a dying share to high heaven simply to pocket quick and easy cash…”
So in gambling, so in stockmarkets. The GameStop story unfolding before our eyes is the Yellow Sam coup on crack, a supercharged saga taking place in a perfect storm. A captive audience under year-long house arrest, a social media primed to deliver worldwide edicts at the touch of a button, and a millennial generation seething with anger at the financial folly of their forebears, manifest here in a wholly heartfelt – yet wholly irrational – hatred of the very markets they’ve arrived at to trade.
“…The same happened to Volkswagen stock in 2008, when the mother of all squeezes briefly made it the most valuable company in the world, eclipsing the market cap of even Exxon…”
Echoing the idiocy of wannabe class warriors the world over, one journalist’s tweet last night perfectly summed up the situation: “This morning I started interviewing some amateur investors about buying GameStop shares. What has happened in the meantime is pretty extraordinary. Occupy Wall St 2.0?”
Occupy Wall St 2.0? More like Fortify Wall St 101. This is dreamland for the fund manager foe that these amateur trader troops hope to vanquish. The markets are bathing in a deluge of new money from people basically born yesterday in terms of trading comprehension and stock machinations. Sure, GameStop burned some fingers of a handful of hedge funds caught short, but so what? If – as so many interviewed for the press claim – the aim is to “defund the hedge funds” and all the other lofty-cum-lunatic ideals they espouse, the GameStop affair is having precisely the opposite effect.
Funds – and markets in general – simply adore volatility. Think they’re all short while the Robin Hood army are all long? Yeah right. They can’t believe their luck, as they gun down the legion of amateurs like cannon fodder in an orgy of action. They’re cleaning up as the trading volumes reach stratospheric levels, and so are the market makers, the clearing houses, the spread betting firms, the CFD brokers, and every other institution who benefits from the stock trading stampede. One short squeeze doesn’t make a summer – it’s just that those ludicrously claiming victory at this ridiculously premature stage haven’t got a clue how the game works.
Which is why it could happen at all. The ignorance of the general public when it comes to capital markets is nothing new, but what is so worrying this time is how their ignorance is bliss to those conducting this millions-strong orchestra. GameStop has made small fortunes for those leading the charge, who cloak their naked greed in robes of rebellion and activism, but they couldn’t care less what happens to all of their followers left long of stock when the bubble bursts.
Similarly, those senators making cheap political capital off something far beyond their comprehension are only interested in GameStop as a zeitgeist response. Anyone who properly understands markets knows what a short squeeze is, why it comes about, and what happens when it’s over. The same happened to Volkswagen stock in 2008, when the mother of all squeezes briefly made it the most valuable company in the world, eclipsing the market cap of even Exxon. The difference then was that what happened in the market, stayed in the market – there were no Elon Musks, Ilhan Omars, Trump Jrs, et al even noticing what went on, let alone shrilly harnessing themselves to the bandwagon to further their own popularity and careers.
Wall Street is an easy target – always has been, always will be – but the double standards of those at the helm of the GameStop ship is breathtaking. This whole coup was concocted precisely to make money at others’ expense, which is exactly what they accuse hedge funds of doing. They claim going short of a stock is singly venal and pernicious – it isn’t, obviously, but they know their followers are too uneducated to challenge the orthodoxy – yet display exactly the same traits when ramping a dying share to high heaven simply to pocket quick and easy cash.
If this was a revolution, it wouldn’t take place on the very battlefield they wish out of existence, using the very same swords they profess an ardent desire to beat into ploughshares. The armchair generals prey on their weak rank and file, sending them over the top into the line of enemy fire, knowing full well the fate that will befall them, while they remain safely tucked up at home with their already-banked profits swelling their bank balances.
GameStop is the Yellow Sam of its generation, a freak occurrence that took genius planning, no little luck, and perfect execution to pull off. But Barney Curley was a professional gambler and racehorse trainer, and made no attempt to mask his plot as a Samsonesque act of insurgency. Those behind the GameStop saga are the exact opposite – the only problem is they’ll soon be bringing the house down on the heads of the very people they claim to champion.
The author was not compensated for this article.