There never was a free market. There were only those who controlled the narratives and those who followed them.
The price of a stock is dependent on the expectations of its ability to generate cash in the future. If you can influence the expectations you can influence the price. This is why Wall Street and Silicon Valley love story tellers – they can create momentary suspensions of reality and allow us to dream.
Elon Musk made us dream of an electrified future and now he makes us dream of Space Exploration. Steve Jobs made us dream that we could attain a slice of perfection in this life through his iPhone. Mark Zuckerberg made us dream of a world in which no one would ever be alone.
The power of their message created expectations of future success which we funded through our investments. At the time they had nothing but an idea but through their story they were able to attract our capital and turn the dream into a reality. Without the long standing cult of Tesla followers who maintained belief and funded Tesla through its darkest periods we would have no Model S. Without the Steve Jobs hook that captured every tech media outlet during Apple Presentation Day we would have no iPhone.
Sustain a dream long enough and you will see it take form. Over the last decades those who controlled media outlets, financially or socially, could set the expectations, influence the price, attract investments and hence create a new reality.
In the case of GameStop, hedge fund analysts would parade their bankruptcy thesis on CNBC and simultaneously short the stock to drive down price live on television. The analyst would berate the stock and next to him would be a live graph showing the price decline. It was marketing genius that sold their ideas. As they gave reasons for why the price would drop we would see it do so live. In this way they could manufacture consent. They could control expectations and hence control the price. However what happened last week shattered the monopoly on expectation creation. It demonstrated that decentralisation of knowledge and social media news had dealt a fatal blow to the monopoly of Wall Street in determining expectations.
CNBC & Wall Street are no longer the agenda setters
Once one realises that reality is merely a dream that those with influence have created we can pick it apart. There is not a definitive stock price, there is no definitive outcome. There are only a range of possibilities that are all attainable if the story is convincing.
Historically we let the story be written by those with polished accents and prestige. The social class endowed with these attributes would occupy positions of influence; NYT Journalist, CNBC Anchor, Hedge Fund Analyst, Investment Banker and set the narrative. They would create expectations, sell a dream which we investors would fund into reality. Those who disagreed were seen as wrong. They were not wrong, they merely lacked the influence to be right.
Give me the influence and I will give you the outcome.
This is the ingenuity of WallStreetBets. It was a 2 million member community (now 8 million+) that created an echo chamber of its own reality. If hundreds of thousands would buy GameStop, the price would rise. If the price would rise those who theorised it would, would be validated and more people would buy. This cycle would continue until the expectations were altered either organically through people taking profits and creating a dip, or by force.
In the case of GameStop it was by force. Through arguably market manipulation hedge funds drove down the price through ‘short ladder attacks’ and market makers prohibited investors from buying stock (an unprecedented move). The double cross shattered the expectations of future price growth and created a sell off.
Many people would look at this and say well was this not a Ponzi scheme? I agree, it was, but all growth stocks are Ponzi Schemes – the only differentiation between a Tesla or a Snowflake and a GameStop is the power of the storyteller. Neither are profitable and both promise exceptional growth in the future with little profitability to show for it today. The primary difference is WallStreetBets storytellers are Joes not Musks. If one Hedge Fund Analyst would go on CNBC and cogently argue that GameStop was the future of e-gaming with the flashing stock ticker over his shoulder, expectations would be shifted and the price would reflect it.
Imagination would be made reality because those who we expect to be right or informed would tell us so.
WallStreetBets refused this conformity. It is an alternative media that is contrarian. It is populated by Joes and Janes who are not the prestige class. Hence they face an uphill battle in manufacturing consent. When deciding to invest you must choose to either do the due diligence yourself (laborious and riddled with self-doubt hence not done by most), choose to trust CNBC or anonymous WSB’ers.
Replace CNBC with established analyst and WSB with any decentralised online community and the same analysis applies.
I propose that due to our growing and ingrained distrust of corporate knowledge: CNBC, NYT, FOX, CNN, Barrons, WSJ, people will choose to trust those who have yet to deceive them and whose narratives can be challenged on an open transparent platform. Moreover with each of these outlets it is not clear whether you are the consumer or the product. Is CNBC’s greater incentive to give you the correct advice or is it to placate Wall Street through influencing retail investor opinion?
The answer is unclear and one does not even have a forum to ask it in expectation of the response being honest for it probably lies somewhere in the middle - something the executives would never admit. Thus reading a newspaper or watching television is a one dimensional ‘talking to’ whereas participating in an online forum is a real ‘talking with’. The facts and implications can be challenged live and dis honest members of the community can be excluded. When was the last time a Fox/CNBC journalist was removed due to their dishonesty? When was the last time a journalist had the honour to admit ignorance? Even newspaper corrections are tucked away in pg.451, hidden from view, as if hiding the mistake would make us forget them. No, it only makes us distrust them.
Corporate established media invests and protects, decentralised media optimises. Ultimately the optimiser will bring you closer to the truth or inform you if there is none. Hence it will win. Wall Street with its tentacles in every corporate tent will find their influence waning to decentralised knowledge centres like WallStreetBets or Twitter.
How Will the Corporates Respond
When entrenched power is seeing itself decline there is always a desperate response to reclaim what was lost. Decentralised knowledge poses a direct threat to the news media and to their corporate sponsors. CNBC will always deride it because it is competition, why listen to Jim Cramer’s stock picks when you can listen to WSB or Twitter? The Hedge Fund class fears them as they are chaotic.
Hedge funds have models of how price action should work. Randomness and irrationality destroys the usefulness of the model and WallStreetBets is nothing but irrationality that can become reality. Hedge funds will deeply analyse the subreddit and try to predict it, control it and monetise it but they underestimate the strength of 8 million unemployed gamblers. They will always be outfoxed, outthought. They are on the subreddits turf of which they understand little. I expect them to be the ones who will be manipulated.
When faced with a rabid force that they can neither tame nor predict they will move to clip its wings through regulation or outright censorship. We are already seeing the SEC consider curtailing retail purchasing of options to ‘protect investors’, yes but which ones? We are already seeing Janet Yellen (who was paid $800,000 in speaking fees by Citadel and millions more from other financial institutions) talk of making the market more efficient. Trite, nonsense, polite enough to gain platitudes, vague enough to wage war.
Markets are battlefields of imagination where the more influential (socially & fiscally) enforce their will upon the rest. There is no objective efficiency, there is no determined valuation - there is only opinion and a battle to make it fact. One can employ financial capital to move markets and mechanically create a new reality or use social capital to convince everyone of it. Whilst Wall Street maintains a firm grip on both they are no longer alone – decentralised knowledge is ascending whilst their old corporate media outlets are declining and due to the democratisation of markets even financial capital is not a pure monopoly; they still rule the roost but not with the same bravado and self-assurance that once exited.
Last week the curtain was pulled and the Emperor of the Markets had no clothes – one of the supposed great hedge fund managers of our generation at Melvin Capital had failed to employ basic risk management and lost more than 50% of his fund. When it seemed that this was only the beginning the established market makers changed the rules of the game. They stopped you from purchasing shares so they could stop being wrong. To save themselves they showed the Great Game in all its shame and glory. It is a battle of setting expectations, a battle of gaining influence, a battle of setting the rules in your own favour and we small fish are finally in the ascendancy. The trust that was any financial intermediaries most important asset is now lost and there seems to be no avenues to regain it.
The curtain has been drawn, the market wizards have no magic, who will you trust now? Your decision will dictate the future of our economy and our society.
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