Category Archives: journalism

GameStop – The Casino at Broad and Wall

I thought it was a very strange story. “Analysts confounded by GameStop price moves” read the headline in the business section of one of the world’s most widely read newspapers. “Recent volatility in the stock of GameStop has confused analysts following the video game retailor” read the lede line.

That there had been great volatility in the price of a share of GameStop was not debatable. The stock was trading below $20 a share at the end of 2020. On January 29, 2021 it hit $325. That’s a jump of 1,625%. If you had bought 100 shares on December 31, you would have paid $2,000. On January 29, one month later, your 100 shares would have been worth $32,500. If you think you understand the stock market that is a mindboggling increase. Certainly one to “confound” and “confuse.” But as your intrepid reporter wrote in my primer for the National Center for Business Journalism, stock markets are not what they used to be.

My grandmother Edna gave me ten shares of AT&T stock when I graduated from the 8th grade. She was a big believer in the stock market and AT&T, at the time the national monopoly telephone company and the most widely held stock in the world, was her favorite. At a monopoly utility, its revenue and profit was controlled by the government. In return, it held an exclusive franchise which made it a company almost completely protected from competition. As a result, the stock price remained very stable. And so did the dividend. The shares provided holders with a high degree of safety and a steady income.

In other words, AT&T shares traded predominately on their fundamentals, based on the health and business of the company and also on the health of the economy as a whole. In 1965, total trading volume for the year ran a few of billion shares.

Today the New York Stock Exchange can trade a couple billion shares between the opening and lunch. And swings in stock prices, where a one percent a day move was once considered extreme, can now be seen moving ten, twenty percent or more in a day.

The reason should neither confuse or confound. The simple truth is that the market has evolved from a relatively staid place where companies came to raise money for their growth and expansion and investors came to put their money to work for the benefit of the overall economy, to a casino where people with money try to out maneuver other people with the goal of adding to their money horde.

The stock market is no longer a good indicator of the health of the economy. It is, at least on a short term basis, decoupled from reality, manipulated by big time traders who care nothing about the prospects for a company. They just trade the company stock because they have identified certain characteristics in price movements which they believe can make for profitable trades in the short run.

So a battle between short sellers, who were betting that shares on GameStop (ticker symbol GME) would go down, found themselves challenged by a group of day traders who thought it would be fun to gang up on the so-called pros. The day traders, lacking the large bankroll of the hedge funds, banded together and bought the stock without concern for the company’s lackluster performance and poor prospects. That drove up the price, which put the squeeze on the hedge funds which had shorted the stock.

Definitions: shorting a stock means borrowing stock you do not own and selling it, making a bet the price will go down, enabling you to buy at a lower price and return the borrowed stock. Hedge funds sound like they are following a rational, conservative strategy but are really just large pools of money from rich people willing to take very large chances in the hopes of making even larger profits. Because they are only available to so-called sophisticated investors, they are virtually unregulated.

Why do we care?

Part of me says we shouldn’t care. Just recognize that the markets are manipulated and individuals should probably stay away. Refrain from judging a political leader’s performance by the movement of the Dow Jones average. And chalk the newspaper story referenced above to the work of a poor reporter operating in an environment where where are few editors.

But one thing about the GameStop affair bears note, as indicated in the chart below:

From CRS Report

In the midst of the wild price movements a discount brokerage, Robinhood, which caters to the day-trader crowd, restricted trading in GameStop shares. There are some situations where a brokerage has the right to do this. But they generally involve risk exposure for the broker involving a client who has borrowed on margin or sold short and may not be able to cover loses. My understanding of the GameStop incident is that Robinhood blocked all trading, even for those individuals who owned the shares and now wanted to sell and collect their profits. The broker would face no risk in that trade.

The Congressional Research Service has identified policy issues for Congress to consider as a result of GameStop. But I have a feeling this will just result in more talk and no action. It is interesting to note that hedge fund manager Leon Cooperman complained loudly about the day-trader’s action. The hedge fund managers for once found themselves playing defense. I have never heard complaints about the hedge funds and the banks, which generally trade with their own exchange memberships, regularly take advantage of individual investors due to superior knowledge of order flows, priority positioning of their trading computers and the ability to trade virtually anywhere at any time, avoiding any market suspensions or circuit breaker provisions.

My personal pet peeve is something called high frequency trading, a principal reason for the huge trading volumes these days. These systems use computers to buy and sell, sometimes holding a stock for only a fraction of a second, based on complex algorithms evaluating stock price, volume and order flow.

None of these technologies add much if anything to the nation’s economy. They consist of the financial insiders trading amongst themselves and increasing their wealth at the expense of those who they catch in the massive price swings they engineer.

They’ll make a lot of noise and probably hold hearings. But I’ll be shocked if the regulators take any meaningful steps to reign in the professional traders. After all, it’s the pros who make campaign contributions. The individual traders do not.

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trump’s attempted coup – THAT WAS the week that was

The Week is Over

The cliché says that journalism is the first draft of history. We shall have to wait the verdict of historians several years down the road to craft a title for the tumultuous events of the last week and put them into perspective. For now it shall suffice to note that the FBI is calling on citizens to help identify members of the violent mob of Donald Trump supporters who attacked the United States Capitol on Wednesday in an attempt to stop Congress from tallying the Electoral College votes declaring Joseph Biden and Kamala Harris the next president and vice-president.

It was the first time since the Constitution was ratified on June 21, 1788, that a President of the United States attempted to overturn the results of an election and remain in office after the election of his successor had been certified by the states and the District of Columbia.

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trump’s attempted coup – Day 5

January 7 – Insurrection

A violent mob of Donald Trump supporters, urged to action by Trump himself, Wednesday attacked the United States Capitol in an attempt to stop Congress from tallying the certified Electoral College votes declaring Joseph Biden and Kamala Harris the next president and vice-president of the United States.

In that, they failed.

But for hours they laid siege to the seat of the American government, marauding through the halls, vandalizing offices, occupying the chambers of the Senate and the House of Representatives, and preventing the members from attending to the business of the day. Before the insurrection was quelled, shots had been fired inside the Capitol and on the grounds, tear gas and flash bangs had been utilized, and four people had died.

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trump’s attempted coup – Day 4

US Senate
(January 6 – Georgia and the Senate)

Pinch me.

Awww…. Not so hard.

We will not know for sure until the official certification. But as of this writing, it looks as if the people of Georgia have come through and elected two Democrats to the United States Senate. That would make the Senate evenly divided, 50 Democrats and 50 Republicans. And in case of a tie vote, the tie is broken by the President of the Senate. “The Vice President of the United States shall be President of the Senate, but shall have no Vote, unless they be equally divided” (U.S. Constitution, Article I, section 3). And the President of the Senate is, drum-roll please, the Vice-President of the United States. And the Vice-President of the United States is, rim-shot here, Democrat Kamala Harris!

What does this mean? First and foremost, it means Kentucky Republican Mitch McConnell will get a new title. Minority Leader. And as minority leader, he will be able to control, insert cymbal crash here, absolutely nothing. With the election results still unofficial I am afraid of jinxing something. But I would love to be able to get into McConnell’s face and congratulate him on his new found impotence.

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trump’s attempted coup – Day 3

(January 5 – U.S.D.C. Court)

They are battening down the hatches at the White House. But before we get to that, we have another extraordinary court decision to contemplate.

Yesterday the United States District Court for the District of Columbia denied still another request for an injunction seeking to stop Congress from counting the Electoral College ballots declaring Joe Biden the 46th President when it meets tomorrow. The opinion handed down by Judge James E. Boasberg pulls no punches in describing the scope of the plaintiffs’ complaint:

Plaintiffs’ aims in this election challenge are bold indeed: they ask this Court to declare unconstitutional several decades-old federal statutes governing the appointment of electors and the counting of electoral votes for President of the United States; to invalidate multiple state statutes regulating the certification of Presidential votes; to ignore certain Supreme Court decisions; and, the coup de grace, to enjoin the U.S. Congress from counting the electoral votes on January 6, 2021, and declaring Joseph R. Biden the next President.

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trump’s attempted coup – Day 2

(January 4 – The Georgia Telephone Call)

No sooner had I posted the first installment of this series of columns when events overran its contents. Yesterday the Washington Post released the audio recording of a sixty-plus minute telephone conversation Donald Trump had the day before with the Secretary of State of Georgia, Brad Raffensperger. Raffensperger, a Republican, and Trump have been at odds for weeks. Trump insisting that he won the vote in Georgia but was the victim of massive vote fraud and Raffensperger, noting that he supported and voted for Trump, certifying that Biden was the victor by a margin of 11,779 votes.

Please, listen to the audio and read the transcript and make up your own mind.

When I heard it, my thoughts immediately turned to the first time I heard Richard Nixon’s voice on a recording discussing the Watergate break-in. He was considering having the CIA block the FBI from investigating the connection between the burglars of the headquarters of the Democratic National Committee and the Nixon reelection committee.

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trump’s attempted coup

(January 3)

Two months since the election and only today do I write about the outcome. That is because, unbelievably, the outcome is still not 100% certain. I had prepared the graphic within days of November 3, 2020. Joe Biden and Kamala Harris, two leaders-elect. And an empty room representing the loser, Donald Trump, who refused to concede and sulked off into retreat. The two leaders are the unquestionable victors receiving 81 million votes. The most of any presidential ticket in history. And 306 electoral college votes, the same number as Trump received in 2016.

In all this time, Trump has refused to admit defeat. Trump and his acolytes continue to maintain a fantasy that he really won, and won it “bigly.” They have fought the battle to validate their alternate reality by whatever means available. Trump got 74 million votes, they argue. More than he got in 2016. How could he have lost? Easy. Biden got 7 million votes more. And flipped five states Trump won in his 2016 campaign against Hillary Clinton.

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