Sunél’s Blog | The Barbarians at the Gate

The story of the week must be the army of small investors taking on the Wall Street professionals, and they seem to be winning. This story is so big that the weekend edition of the Financial Times in the UK covered it in no fewer than five articles, including the front page and the editorial. If you’ve missed it, over the past few weeks a conversation escalated amongst small investors on a chat platform, Reddit, to invest in an old-fashioned gaming company, GameStop, destined for decline. It makes no sense, but their reason was to teach the Wall Street hedge funds a lesson. These hedge funds have been selling the shares short – they sold the shares without owning them, in the hope to buy them back at a later stage at a lower price. So the Reddit gang started buying the shares and soon the share price escalated to the extent that the hedge funds had to start buying shares to deliver on their promises, which in turn pushed up the share price further. The result was that a few hedge funds went bankrupt; the trading platform, Robinhood, used by the Reddit gang temporarily stopped trading for small investors and needed a capital injection to survive. The irony of a platform called Robinhood defending the entrenched Wall Street firms is not lost.

There is now also talk of local shares like Steinhoff being targeted by these investors or other social media groups jumping on the bandwagon.

It is a fascinating example of new ways in which the disenfranchised can make their voices heard. These include younger, marginalised, and unemployed investors. It seems that a large percentage of investors who are laid off are young people, casualties of the pandemic. It helped that they received money from the government during the pandemic and that they perceived that they would make more money. Whether you agree with their actions or not, and whether they acted within the law or not, you should take note. We should all take note.

Remember last year when another group of young people got a crowd together to book out Trump’s rally with no intention of attending? There’s a familiar ring to it.

Inequality, which was already at an all-time high before the pandemic, has stretched even further.

A recent New York Times article examining the reason for global markets rallying in a year when economies were decimated, investigated what happened to income in the USA over the past year. Although the number of jobs was down 6 percent, employee compensation was only marginally down. How could this be? Because the millions of people now without jobs because of the pandemic were disproportionately in lower-paying service jobs. Higher paying professional jobs were more likely to be unaffected, and some sectors have been booming. Workers and bosses in those sectors are even better off.

Wall Street, as a representation of rich people, was largely unaffected or experienced better prospects, even boom times. Tesla’s Elon Musk became the richest person in the world through an astonishing 700% rise in Tesla’s share price in 2020, as an example.

It is easy to see why those who lost their jobs last year and those who have never recovered from the 2008 financial crises may feel that the system is stacked against them. Very few participants in the financial market crisis paid a long-term price for the impact of that crisis. Similarly, during this pandemic, people working in the markets have not felt the same impact as those working in the real economy.

Even if the GameStop saga fizzles out, it will not be the end of this kind of protest. Social media and digital transactional functionalities will allow protestors increasingly novel ways of making their issues known. And there are valid reasons why large population portions of the democratic, capitalist countries may be dissatisfied – inequality of opportunity and spoils is unsustainable, and perceptions that the capitalist system itself is broken and unfair are widespread and persistent. Look at the difference between the packages of CEOs and the lowest-paid workers. Ask a young person – particularly those trying to enter the job market. Ask your children.

They feel bitter about inheriting a broken system and a damaged environment from us. They are not scared to demand change.  They are not scared to demand it because what they are scared for, is their future. Think Greta Thunberg, whom Time magazine named Person of the Year in 2019. Scared and hopeless people don’t care about the system. They don’t care about the capitalism they’ve experienced. If we want the system to survive, if we want to survive the barbarians at the gate, the system will have to change.

Ps. I love to hear your comments.  If you are not on our mailing list, you can subscribe to receive this blog every week on our website www.foundationsa.com.

Kind regards,

Sunél

//5 February 2021

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