January 29, 2021 | The Last Laugh

Avaricious day traders, mostly young, often angry, definitely ageist and iconoclastic have been whacking financial markets. The combo of social media, fun trading apps, Covid quarantine boredom and a pervasive moister angst have detached many stock prices from the assets behind them. Suddenly, rules don’t matter.

Yesterday was all about GameStop. That saga continues. Plus an assault on silver, AMC, Blackberry, crypto and more. Plus Macerich.

That last company is the struggling owner of a bunch of second and third-tier US shopping centres which the pandemic has seriously bruised. The stock lost more than 80% of its value in the last few years which was understandable. Retails sucks.  It’s also been a heartache for the Ontario  Teachers Pension Fund, which owns a significant chunk of it.

Well, all that changed when the Reddit Wallstreetbets army targeted Macerich, inflating its value by 70% in a few days through a torrent of buying. Just ‘cause. The pension plan managers looked on in bemusement and wisely pressed the big shiny Sell button. Ka-ching! The schoolies just scored $500 million in unearned cash – a direct transfer of wealth from the pockets of the naïve moisters into the retirement accounts of aging, defined-benefit-pension-rich educators. In time Macerich will fade back into retail torpor. Hoodie losses will be epic. And the gods will chuckle.

By the way, did you read the comments posted here yesterday? Yup. All you need to know about how emotion and money mix badly. Apparently everybody now hates me. Finally.

Here’s what the Hoodies, the Redditers, hedges and, sadly, the steerage section of this pathetic blog have taught us. Or should.

The Robinhood/Reddit mob are not investors, of course. They’re gamblers. It’s a game. Under the guise of ‘sticking it to the man’ these folks are actually trying to make fast money without working for it. There’s nothing noble about being a pig. Taking a rabble of four or six million traders, hopped up on Internet chat, and throwing it against one security or asset to purposefully inflate its value is dangerous and irresponsible. It’s certainly not an ethical strike against boomers, market participants, brokers, investment funds or capitalism. But it is exploiting vulnerabilities in a system designed by people who never thought folks could be this stupid. Now we know.

What can go wrong?

Lots. Tons. The implications are large. Securities regulators are all over Reddit, Robinhood and the capital markets because what’s taking place sure smells like deliberate crowdfunding manipulation. The issue is simple: values purposefully detached from reality. This undermines market integrity where pricing is constantly scrutinized and adjusted (earnings reports, fundamental analysis, forward guidance, prospectuses, p/e ratios, macroeconomics, sector analysis – you know, the adult stuff). Yes, valuations get out of whack when investors make bets on the future, but this is new ground. This is inflation merely for the sake of creating notional wealth. Greed, personified. Turned into a video game.

The crowning achievement in this moronic, self-serving, narcissistic behavior is to cloak it in moral outrage. The abuse posted here yesterday because of (a) my day job and (b) my age was interesting. A whole bunch of people clearly think they’re victims, so it’s perfectly cool to slag their elders, victimize each other and screw up capital markets where most people’s family nesteggs, education funds and retirement bucks are housed. So they can be porcine.

How do you protect yourself from this gathering crapstorm of moister vitriol?

Don’t buy individual stocks, since volatility’s being fed and market turmoil guaranteed. The diversified ETF approach is vastly superior if you have these two goals: (1) not losing money, and (2) achievng a decent rate of return. Further achieve this with balance, holding fixed-income assets that will counterbalance short-term equity mayhem. And don’t day trade. In fact, don’t trade at all. Build a portfolio with the correct weightings between assets then rebalance once or twice a year. In between, live your life, love your dog and stay the hell off Reddit.

Oh, and if you came here to diss me, to say I jumped the shark, accuse me of being part of a corrupt system, claim I don’t understand investing, or shout I’m on the wrong side of history, just think of all those happy old secure teachers. They thank you. Me, too.

This blog isn’t called Greater Fool for nothing.

Garth Turner January 29th, 2021

Posted In: The Greater Fool

Next: Speculative Mania is a Losing Game »