GameStop VS Bitcoin VS Federal Debt
Companies such as GameStop, Hertz, and AMC Cinema are all well-deserved “top-flow” companies recently because their stock prices have turned against the wind and come back to life. A group of young traders called “flash mobs” moved flash mobs from the streets to the Internet, got together and used social media to drive up the stock price. As for motivation, partly because of the old saying, there will always be willing The stupid man who is the picker buys at a high price, and part of it is to hold a group for warmth and fight against the big shorts on Wall Street. The purpose of the latter is to force the short sellers to increase their positions to make up for their losses, thereby pushing the stock price higher. For this reason, The flash mobs may have earned a bit of gloating in the process.
What kind of business are short-sellers doing? They first borrow the stock and then sell it for cash. They bet that the stock will continue to fall, so that the stock can be repurchased at a lower price and returned, thereby earning the intermediate price difference. Short selling is neither illegal nor against ethics. What’s more, when short sellers bet on the right, they can help adjust the stock price of bankrupt companies at a faster rate. Otherwise, “the price falls will trap many people.” . But it should be noted that there is also a concept called naked short selling, and naked short selling is problematic. When investors do not borrow stocks but directly sell stocks that do not exist in the market and then buy back stocks to make a profit when the stock price drops further, it is naked short selling. Since naked short selling sells non-existent stocks, the volume may be enormous so that it will have a severe impact on the stock price. Some analysts believe that Lehman Brothers is one of the victims of naked short selling. Therefore, naked short selling is truly illegal, and actually a fraud. For some reason, all the issued shares of Game Station were once sold short. How to sell short to this point is still a mystery, but this is not the focus of this article, just an incidental mention.
The flash mobs don’t really care about whether the game station has a future. They may know something about this company, but for several other stocks, they probably don’t know what this company does, let alone what prospects they have. For example, Hertz has declared bankruptcy, but its stock price has been pushed up by a bunch of leeks. Some flash mobs didn’t follow the trend and bought the wrong stocks carelessly: In the chaos, Australia’s GME Resources Ltd, because the stock code is also GME, has also successfully doubled.
If this continues, the result will definitely not be good. There is no doubt about this, but everyone is not sure when we will see the difference. When this madness continues, we sober observers and critics will be ridiculed by the pop-up community-some people are also referred to as “baby boomers”, which means that we are old and cannot keep up with the times. Uncle and aunt. But even if we will be ridiculed, it does not mean that we should remain silent. Whether we are professional investors, economists, or ordinary people, we still have to say. When many or most of the flash mobs of the game station finally find that their stocks have become worthless, the painful lessons they learned at that time may be beneficial to their lives, but this The impact of the event is not limited to individuals, it will also give rise to serious spillover effects.
Once the game station and other companies bet by the flash mob collapse, it is likely to trigger a large-scale market sell-off, because the current stock prices of many companies are inconsistent with their earnings fundamentals. An entire generation may even be delayed in saving and investing. But as Peter Earle, an economist at the American Institute of Economic Research, a non-profit academic think tank, pointed out, the recent stock market boom is mainly due to the Fed’s frantic printing of money, as government deficit spending has become higher Even if the printing of money does not speed up, it can only continue. I totally agree with this point. But in addition to this, the lockdown of the city caused the decline of sports betting and the emergence of zero-commission trading platforms, which undoubtedly added fire to the madness of the stock market.
Is there any difference between Bitcoin and Game Station? Yes, not at all. Like game stations, Bitcoin has no prospects for profit or dividends. Although the supply of Bitcoin is strictly limited, in fact, the supply of shares of Game Station is also strictly limited: although the company is now estimated to want to do this, it is almost impossible for their shares to be issued a second time. of. The current attraction of the game station lies only in the big fool waiting for the next takeover, and Bitcoin has been regarded by large institutions as a promising means of storing value and payment, or simply an alternative currency.
Bitcoin may be a bubble, but it may not be, and the game station is definitely a bubble. If I consider myself a gambler, I would say that Bitcoin is not in danger of crashing in the short term, and its price can easily rise. On the other hand, Game Station, on the 2nd, its stock price plummeted 60% to close at $90. The stock price has fallen by about 80% in the past two trading days. So far, the game station has given up all the gains since January this year.
In addition to the unexpected plummet after the skyrocket, the game station has also been spotted by many regulators and high-level officials. On January 29, the US Securities Regulatory Commission stated that it would review the recent trading fluctuations that have caused the share prices of companies such as game station and chain theatre AMC to soar. The focus of the review is whether there is a fraud, that is, misleading others to profit from it through false information, including selling short and then bad news; driving up shipments; or other forms of market manipulation.
Also, US President Biden’s senior economic adviser said in an interview with the media a few days ago that the Biden administration will investigate the legal issues of the game station roller-coaster stock trading. The chairman of the National Economic Council of the United States also stated in the interview that he is committed to fully understanding what happened, focusing on protecting retail investors and fair transactions, and detecting and tracing potential violations.
Federal currency and federal debt
So what about government-issued currency and federal debt? I still have a one-dollar bill from when I was a kid. At that time, the government promised to redeem the silver at any time by the ticket, but the days of redemption are gone. So, since our money has no physical support, why can we continue to exist? People often mention two reasons: One is the “Legal Currency Act” passed in 1862, which was meant to force creditors to accept legal tender; the other is that taxes must be paid in US dollars created by the government.
But in my opinion, the real reason is inertial thinking and network effects. U.S. dollar accounts are opened all over the United States and many overseas; sellers require buyers to pay in U.S. dollars; buyers require sellers to accept their U.S. dollars… and other facts make the purchasing power of U.S. dollars far more stable than Bitcoin or gold. Don’t we also use dollars to measure our profit and loss? Although the shift from the US dollar to Bitcoin or any alternative legal currency will inevitably lead to large-scale economic turmoil, it is not impossible.
At the same time, U.S. Treasury bonds are still the gold standard for debt instruments; compared to Treasury bonds, corporate bonds and municipal bonds can also be rated as safe. So what can you get by buying treasury bonds? Principal plus regular interest (except zero-coupon bonds). But where can the government pay you? As long as the deficit persists, it can only and must come from the future. Is it interesting to borrow money from the future? As for the question of how long the debt acceleration can last, as the debt snowballs, the soft landing has become increasingly slim. According to data from the US Congressional Budget Office in September last year, the total debt of the United States in 2020 has reached 98% of GDP. That is to say, 98 of the US’s 100 US dollars are now foreign debt. Therefore, the probability of default and/or inflation is quite high.
In general, with the help of social media, flash mobs have successfully blown out disturbing and destructive bubbles, and they may continue to do so if they taste the sweetness. But Bitcoin may not have a bubble. And most importantly, we must not forget the long-term debt bubble hanging over our heads.