Weeks after Gamestop’s stock price suddenly soared in a Reddit-fueled mania — then promptly came back down to earth — it is once again surging. Who might be behind this new frenzy? On the latest Pivot podcast, Kara Swisher and Scott Galloway discuss why certain buyers might benefit from — and enjoy — market volatility.
Scott Galloway: So you would argue this is an honest pump. Meaning that … so, for example, Dan Loeb took a big position in Yahoo, got Marissa Mayer to come in. Everyone was very excited.
Kara Swisher: Right.
Galloway: There were posters that said, “Keep hope alive.” He talked about all the potential of Yahoo. And then, he put people on the board and I’m fairly certain the people on the board observed Marissa Mayer and said, “She is a terrible executive.” And then, proceed to watch her take EBITDA down 50 percent, revenues down 20 percent.
Swisher: Yeah, I was there.
Galloway: And Dan, just as they were starting to take down the “Keep hope alive” posters with a picture of Marissa Mayer, got the hell out of Dodge and sold all his shares after what I would call an honest pump. That’s what an activist does.
So, the honest pump of GameStop is a group of individuals. And it’s going to be very interesting once forensic analysis is done here.
Swisher: Mm-hmm.
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Galloway: I have a hunch that it’s a group of people who aren’t as unsophisticated as we think, who figured out algorithms for planting, getting in position, and then catalyzing a lot of chatter, and then pumping an honest pump of their position. Or it might be people who believe it’s part of a movement, maybe want to make a little bit of money, maybe enjoy it, maybe want to learn about stocks. Fine. But here’s the thing — it goes to a bigger issue.
And that is volatility … it’s sort of intergenerational warfare. Volatility plays to young people and is damaging to the incumbent wealthy. In 2009 — the reason I’m somewhat economically secure now is because of the volatility coming out of the economic crisis where Apple and Amazon were allowed to fall to pretty serious lows.
I was able to buy Apple at basically 11 bucks a share. I was able to buy Amazon at $160. They’re both up 10 to 20X. When you try to reduce volatility by flooding the market with quantitative easing, keeping interest rates low, or you find this type of volatility threatening and you want hearings, what you’re basically saying is the incumbents want to hold on to their wealth. Because volatility creates risk that current asset holders don’t want. And, if you’re a younger generation that has a little bit of money and, quite frankly, not as much to lose because your generation now controls only 9 percent of the wealth, and you see that the game isn’t rigged, but it’s tilted, volatility isn’t as scary to you. So they embrace it.
You know what would happen if we let small businesses be more volatile and we let restaurants go out of business? We would shed skin. And a lot of 50-year-old restaurant owners would lose their restaurants, which would make room and opportunity for 30-year-olds to come in.
Swisher: You’re a cruel man, Scott Galloway.
Galloway: Unless you let the winds of creative destruction gale, unless you let volatility run wild, all you’re doing is protecting the existing asset holders. And younger people are like, “We want some chaos. We want some volatility. We would like to see Brooklyn real-estate prices maybe get cut in half. We would like the opportunity to have real volatility in the market.” Because if it’s just, we want the markets to go up 4 to 6 percent a year, that just plays to the existing asset holders. So, I think this reflects, again, greater income inequality and a transfer of wealth from the young to the poor. And, as a result, the young — they are ready to rock. They want volatility.
Swisher: Jim Cramer went kind of crazy on this issue yesterday.
Galloway: Let’s see. What did he say?
Swisher: Oh, he just wasn’t liking it. He wanted the SEC to get in here. It’s just interesting, the different reactions.
Galloway: They’re going to come in. This is getting a little bit strange. The thing that worries me most about all of this is not Reddit. The thing that worries me most is Elon Musk. The one truism throughout history I think that is hard to deny is that power corrupts. And I’m not saying he’s a corrupt person, but when one person can start moving … Basically, bitcoin is moving toward a default currency. And when one person can take a default currency up or down 20 percent, 30 percent, with one-word tweets, that doesn’t lead to good places. To a certain extent, the reason for America’s greatness is the checks and balances. No one person has ever been able to corner the market. They get really hurt when they try to corner the market, whether it’s the Hunt Brothers and silver, whether it’s Carnegie and steel, or what have you. And it strikes me that whether it’s seven companies controlling 51 percent of the S&P by market capitalization, or an individual who has this kind of sway over the markets, that’s frightening.
Swisher: Yeah, it’s true. There have been a lot of stories recently about how cults of personality can move things. Here’s what Jim Cramer said. Obviously, he’s a well-known stock pundit. He said, “We need fair, deep markets,” in an evening tweet. “We want investing, good investing. We want to trust prices. What happened at the end of the day? It was a mockery of what was supposed to happen. Where is the government?” And then he wrote, today: “I have been a polarizing figure all my life, so it isn’t like I just turned into Jefferson or something. I do my homework. I try to outwork everyone. I say what I believe. And for that, I am hated by many, but I say ‘game on.’” There you go, from Jim Cramer.
Galloway: Well, here’s the thing, though: Where is Jim calling for legislation when he makes a comment about the fundamentals and the stock goes up?
Swisher: He runs stocks up and down too, yeah.
Galloway: Well, that’s my point.
Swisher: Not quite the same way — this is really something else.
Galloway: The bottom line is the incumbent powers are just angry that we don’t understand the mechanisms and the mediums that these individuals are using to pump. What I think we’re going to find out, though, is that the people who are doing the pumping and organizing it are more sophisticated and more established than you might think.
Swisher: Interesting, yeah.
Galloway: Yeah, I think we’re going to find out it was the king’s guard, not William Wallace, who was pumping this shit and making money. And they’re leveraging a movement, they’re leveraging this notion — people think they’re sticking it to the man. If there’s systemic risk and volatility, then fine. Let’s look at the systemic risk and volatility of hedge funds, who are able to short a stock to 140 percent of its outstanding shares, which I still don’t understand how that happens.
But my word of caution all along is, day-trading is just a great way to lose money. So if you’re doing it for dopamine, fine, if you’re doing it to learn, fine, but don’t kid yourself. When you sit down to day-trade, you’re sitting down at a poker table that doesn’t take advantage of time, and two or three people at that table have super computers, Ph.D.s, someone whispering in their ear, and they have enough chips to ride out any bad hand. So just be clear, you are at a poker table with the best players in the world. If you look at Robinhood, they have this thing — “most popular stocks.” If you just kept buying the most popular stocks, according to GameStop, there’s been analysis that said you would have lost 80 percent to 95 percent of your capital.
And here’s the problem. When we have these platforms that are just trying to get you to create more activity because they sell your clicks — they sell your information, they sell your order flow — then that agency, or that company, is no longer a fiduciary. They no longer have your best interest at heart. They just want you to get to do more and more and more. And that’s what Robinhood is, in my opinion; Robinhood is the new Facebook. It is the new menace.
Swisher: It’s an interesting situation and I think the power dynamic is changing. It’s hard to know because you can almost be on two sides of this thing. Like, well, you do need calm markets, but at the same time, too bad — this is what it is. We’ll see where it ends. We will see where it ends, but I think you’re right. Did you run far enough? Do you have enough running room there?
Galloway: Oh, thank you. Thank you for that. I feel loved. I feel loved.
Swisher: Okay, good.
Pivot is produced by Rebecca Sananes. Erica Anderson is the executive producer.
This transcript has been edited for length and clarity.
