Thursday, May 30, 2024

“Pity The Downtrodden Hedge Fund Manager,” And Other Tales

This week’s unprecedented short squeeze in the stock market, which brought together the often disconnected worlds of social media and high finance, exploded with a couple of large hedge funds losing their asses. The NASDAQ said that it would halt trading on securities if they could identify that they were being manipulated by social media.

Twitter, of course, was not having it, so I saved some of what I thought were the best gems. We see author Jason O. Gilbert quoted (second gallery below), who has one of the greatest tweets of all time from 2018, also critiquing late capitalism– which was, in turn, effectively referenced in one of the even greatest-er tweets of all time the following year.

Asked a guest on NPR’s Marketplace this eve: How is this any different from some hedge fund guy going on Planet Money and talking about how excited he is about this stock or that stock?

Robots vs. The Unwashed, Robinhooded Masses

It’s no different, of course. The irony of NASDAQ’s beef is that the exchange itself pioneered technological innovations like high-frequency trading which, critics argue, are themselves tantamount to market manipulation. HFT specifically was implicated in a number of “flash crash” events. In any volatility event, the hi-tech, algorithmic nature of a lot of stock trading means that a stock can plummet in a matter of minutes. Save, of course, the “volatility halt,” which is where the market temporarily freezes trading on a stock that is moving too fast. These are controls that were implemented as a response to “flash crash” scenarios. They don’t protect the lay investor, but they aim to mitigate panic. Contrary to what “efficient market” people will tell you, most of the stock market is driven not by real information, but by perception and sentiment.

The Proletariat Strikes Back? Or Just, Uh, Effective Messaging?

The Reddit case proves that. And the case is interesting because it’s exactly the opposite of HFT– it’s just a bunch of people whose collective sum of money represent the ability to screw an institution as big as a hedge fund. The decentralized nature of the internet means that anyone with enough connections can act a fool and incentivize someone else to act a fool, too. Scalable fool-acting! Proponents of this approach argue that the objective of screwing hedge funds is noble and represents a rally of the everyman investor– the yeoman speculator!- to conquer The Big Guy.

Skeptics, though? BI’s Linette Lopez said that sorry to burst your bubble, but this isn’t some proletarian stock revolution. And she may well be correct. Joe Main Street investing in GME or any of the other targets of de-shorting may well lose his ass, too. So, verily I say unto you again, dear reader: one should not touch this stuff. It is, however, an intriguing precedent, as I tend to think that if we put all of these hedge funds out of business and restricted their ability to manipulate massive amounts of money, we might actually, for the most part, be a lot better off.

I credit my cousin Charles Ipcar for the title. Once upon a time, the man released a songbook, “Pity The Downtrodden Landlord,” which, similarly, parodies the idea of oppression of the downtrodden bourgeoisie.

Nat M. Zorach

Nat M. Zorach, AICP, MBA, is a city planner and energy professional based in Detroit, where he writes about infrastructure, sustainability, tech, and more. A native of Lancaster, Pennsylvania, he attended Grinnell College in Iowa, the Kogod School of Business at American University, the POCACITO transatlantic program, the SISE program at the University of Illinois Chicago, and he is also a StartingBloc Social Innovation Fellow. He enjoys long walks through historic, disinvested Rust Belt neighborhoods at sunset. (Nat's views and opinions are his own and do not represent those of his employer).

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