Good Friday Morning, especially to Novavax, who appears to have developed the 5th viable vaccine for COVID-19 (90% effective). I want to reiterate something here: we’ve never developed a coronavirus vaccine before, and in less than a year we’ve created five vaccines we’re on pace to give to the public. That is utterly incredible. Operation Warp Speed is a modern medical miracle and anyone who tells you otherwise is lying. If we can get all five vaccines approved and out the door by the end of the spring, it’s not inconceivable we could have all of America vaccinated by fall.
On vaccines, the media continues to report on shortages and failures of the federal government. I can’t find a shred of evidence that’s true. Those statements are coming from political leaders, but if you look at the data, the 7-day average on vaccinations grows every day. And Thursday, we set a new single day high with 1.7 million vaccination doses administered nationwide. That’s not something you do with widespread shortages. Some key facts:
- The United States continues to administer around 1/3 of all vaccine doses worldwide.
- We’ve administered 27.3 million shots
- The 7-day average of daily vaccination is 1.26 million
- We’ve used 56% of the vaccination supply we have and more is delivered every week
- 8.3 doses have been administered per 100 people.
The vaccine rollout is a success. And it’s improving. We’re going to clear the Biden hurdle easily, and he’s not going to have to do anything. I had an internal hope that we’d his 1.75 million doses in a day at some point this week, and we were close with 1.7 million. How close to 2 million can we get next week? If we can hit two million, that will be a great feat. Current models suggest that we’ll hit 60% herd immunity by June (between vaccination and infections).
This week, I’m writing about the stock market and GameStop craziness, and the populist anger bubbling underneath. Links to follow.
Where you can find me this week
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CNN nukes credibility on Biden administration and vaccine rollout – The Conservative Institute.
New COVID variant poses first challenge for Biden administration – The Conservative Institute.
The Stock Market, GameStop, and Populism.
A few years ago, I wrote a column for the Conservative Institute entitled “Normalcy” isn’t coming back (it’s no longer on the CI website due to database issues they had a while ago, but someone stole it, hence the weird link). The thrust of my argument then was as follows:
The forces driving our cultural polarization are moving forward largely unaffected by anyone in the White House. Donald Trump might like to think he’s the main driving cultural force out time, but in truth, he merely reflects our culture — as most presidents do. Those elected tend to reflect those who elect them.
We live in a reactionary age. As Andrew Sullivan so aptly sums up, “Reactionary thought begins, usually, with acute despair at the present moment and a memory of a previous golden age. It then posits a moment in the past when everything went to hell and proposes to turn things back to what they once were.”
MAGA, Make America Great Again, is reactionary politics summed up in four potent words. It posits that America was once great, and wants to get us back to that golden age of greatness.
Liberal elites are telling themselves that getting rid of Trump will achieve their own golden age. They believe they can return to the magically “serene” Barack Obama years and whitewash the Trump project from their minds as nothing more than a bad dream.
Here’s the thing: There is no golden age of the past to return to — and “normalcy,” whatever that means, is not coming back.
Reactionary politics exists on both sides of the aisle, though it takes different forms. What makes our current moment different than the past is that we’ve managed to commodify reactionary politics and shorten the time it takes one side to react to the other. There isn’t one main issue swinging our reactionaryism; it’s several small points.
I think I was mostly right on that point. Biden was elected, we had an inauguration, but anyone saying things are back to “normal” is fooling themselves. To wit, here are a few things to prove nothing has returned to “normal,” if anything, the extremism is expanding.
- Joe Biden has used his Executive Order powers more in his few days as POTUS than Trump, Obama, and Bush combined. Biden has signed 17 such orders so far, with more on the way. It’s not just dealing with the pandemic. Biden has issued sweeping orders across the board.
- News organizations are stealth editing old articles to help or harm politicians they support or oppose. The Washington Post stealth edited an old profile of Kamala Harris to remove a tasteless joke she told. Newsweek stealth edited an old profile of Sen. Tom Cotton to try and tarnish his military record. The New York Times has famously spent time stealth editing its 1619 Project essays as people have pointed out discrepancies or wrong claims in them. The Times also went back to edit old coverage to soften negative stories on sexual harassment allegations involving Joe Biden.
- Fauci has now pivoted to tell people to wear two masks, not just one.
We’re not returning to “normal” any time soon. Most of those are elites acting wrong. It’s the kind of technocratic action that begets more populism. The best evidence that populism is still alive and kicking, despite the elites saying otherwise, is this utterly bonkers, insane development with the Reddit forum r/wallstreetbets taking out one Hedgefund and causing billions in losses to Wall Street.
What happened with GameStop.
I suppose I need to back up for one moment and explain what’s going on because not everyone follows Wall Street news.
GameStop is one of the most shorted stocks on Wall Street. That’s when investors bet a stock is going to lose value. For a more technical explanation, a short is when “Short-sellers borrow shares of an asset that they believe will drop in price in order to buy them after they fall. If they’re right, they return the shares and pocket the difference between the price when they initiated the short and the actual sale price. If they’re wrong, they’re forced to buy at a higher price and pay the difference between the price they set and its sale price.”
Or to put in internet meme terms, “A friend has a PS5 he bought for $800. You borrow his PS5 and sell it for $600 because you know they will be cheaper soon. You expect to buy one of the cheap models for $350 and pocket the difference. Well, unexpectedly, the price of PS5’s has jumped to $700. You have to buy a PS5 for $700 to give it back to the friend you originally borrowed it from. Now just multiply that by millions or billions.”
So Wall Street was betting on GameStop’s stock to drop. In fact, they had bet somewhere between 120 – 138% of the stock was going to fall in price. Before the surge, GameStop was trading at around $20 a share, and some of these Wall Street firms were betting on the price to drop as low as $4.
These facts were all noticed by the Reddit forum r/wallstreetbets, who all decided to jump in and buy GameStop stock together to drive up the price to cause a short squeeze. “A short squeeze occurs when a stock or other asset jumps sharply higher, forcing traders who had bet that its price would fall, to buy it in order to forestall even greater losses. Their scramble to buy only adds to the upward pressure on the stock’s price.”
Reddit caused a stock trading around $20 or less to pop close to $340 on Wednesday, and before trading got halted on Thursday, pre-markets were saying it could jump to $500. That pop destroyed hedge funds and other traders who had those shorts on GameStop. How much, you may ask? Billions. From the WSJ:
The mammoth gains have forced money managers to dump bets that the stocks would fall, magnifying the rally. Bearish investors who took short positions have lost $23.6 billion this year through the close of trading Wednesday on GameStop alone, according to financial analytics company S3 Partners, including $14.3 billion on Wednesday when the stock price jumped 135%, its largest percentage increase in history, to a record $347.51.
On Wednesday, GameStop shares hit a high of $380, briefly giving the videogame retailer a market value of $26.5 billion—more than that of Delta Air Lines Inc.
Those billions of dollars have flowed into the accounts of day traders, many of who are overnight millionaires. And note, the billions I’m mentioning above cover only one stock: GameStop. Redditors have jumped into several other stocks that were shorted as well (there’s an entire list of short stocks). It’s estimated that investors in short bets have lost nearly $71 billion.
The result is that the WSJ is reporting many hedge funds are struggling. A few have even had to seek private funding to bail themselves out of their position in GameStop.The story doesn’t stop there, though. On Thursday, the gravy train came to a screeching halt. Trading platforms like Robinhood and others started halting trading on key stocks. The WSJ says:
At least three brokerages said the trading restrictions stemmed from mandates from their clearing firms, which process the securities on the back end after a user executes a trade with their brokerage. Webull Chief Executive Anthony Denier said his platform’s clearing firm, Apex Clearing Corp., notified him Thursday morning that Webull needed to shut off the ability to open new positions in certain stocks. Otherwise, Apex wouldn’t be able to settle the trades.
The clash between short sellers and individual investors, frenzied trading in shares talked up on social media platforms and trading restrictions swiftly put in place left many financial professionals stunned.
“It’s a domino effect,” Mr. Denier said, adding the industry was likely reckoning with the question of whether “customers could pay for the stocks they had to buy to cover their short positions.”
“If [they] are not able to pay to cover their short positions, someone else is going to have to pay for that purchase,” he said. “And if their clearing firm fails and there’s not enough collateral in the account to cover the purchase, that trade fails and will cascade into multiple trades with multiple customers.”
But that’s not how it came off at all. The internet writ-large believes, with some validity, that the platforms halted trading on specific stocks to protect large hedge funds. The official belief is that trading got halted to allow the large hedge funds to reposition themselves and stop the bleeding from investors in shorts.
All of which brings us to the big take away here: we’re not returning to normal any time soon. The GameStop situation has shifted power dramatically. It’s the internet mob versus the investing institutions. WSJ put it like this (and remember, they serve most of those institutions):
Long-held strategies such as evaluating company fundamentals have gone out the window in favor of momentum. War has broken out between professionals losing billions and the individual investors jeering at them on social media. Meanwhile, the frenzy of activity is stirring regulatory and legal concerns, as well as the attention of the Biden administration. The White House press secretary said on Wednesday that its economic team, including Treasury Secretary Janet Yellen, is monitoring the situation.
This is investment populism. It’s the mob taking control of the markets and deciding what it wants to do. Sound familiar? It sounds like populists surging into political parties across the globe. It sounds like internet mobs in a variety of settings. It sounds like the marches over the summer. And if we’re honest, it’s a bit surprising this hasn’t happened sooner with the internet. It’s effortless to generate enthusiasm via social media and forums. The internet mob has found its voice in day trading, which could be a radical change in the stock market.
It’s also not surprising this is coming at a time with peak “woke capitalism,” where corporations compete to be the wokest in things like commercials and outreach. As businesses find their woke voices, it’s natural for mobs to form that do the same.
That said, it’s too early to tell if this is a true seismic shift in investing, where you see populists outsmart the big investment firms by merely being able to generate churn and momentum in the markets. But the ingredients are there for this to become a populist movement, especially once you start factoring in the anger over what happened with Robinhood and more.
The other issue with this story is that you have to disentangle the populist angle, which is real, from comparing this to past investment bubbles. One of the better investment blogs out there, Epsilon Theory, posted this piece, which I appreciate:
As asset prices decouple further and further from the real economy and a rising percentage of unprofitable companies come to market, a new generation buys a stock not because they believe in the company and its products and want to share in its future profitability. They buy stocks as a substitute for sports gambling or to stifle the unending boredom of the pandemic. They bet their entire stimmy check on deep OTM options in a YOLO move to bragpost @ their online friends.
In 1999 the main overriding thesis was “internet gonna change the world”. Now the overriding thesis is “stonks only go up”. The market is turning into a meme machine, a cartoon of its former self, as Neb Tnuh might say. …
The orthodox view of financial markets (or “the boring Boomer view” as they would say on Reddit) is that the stock market is where companies go to raise money for investment and expansion in the real world. Now, the cynical view is the majority view: the market is a place where founders and insiders cash out and executives turbocharge stock-based compensation via buybacks. That’s not good. When capital markets are a source of ridicule, not respect, it hurts capitalism and it inevitably hurts America. It’s all fun and games until someone loses their 401k.
There’s certainly a comparison here of things being like 1999. As I’m typing this, Dogecoin, a cryptocurrency started as a gag has gained value as Redditors are trying to push its value up. Maybe they’re successful, maybe not. We’ll see. But the comparison to 1999 is a good one, because there’s just a high level of frothiness and a deep belief that stocks always go up. I still think the populism angle is more important here, though.
One of the most viral posts from r/wallstreetbets regarding the push on GameStop talked about watching his family barely survive the 2008 recession. There’s an anger of watching larger banks succeed while the people get bled dry by a bad recession. The ramifications of that recession continue to linger over our politics and culture in ways we just can’t comprehend, at least for the millennial generation.
It’s arguable that the 2008 recession is directly responsible for both Obama and Trump, and the country, not satisfied with the results of either, is pushing populism out in different directions and sectors of society. Disruption is king, and a deep dissatisfaction with everything in the country is driving that disruption.
Whatever the answer, I do think the GameStop short squeeze and the populist anger coming out of it signal that normal isn’t coming back. The question is, what happens next? How does “The Empire Strike Back” with the populists? Because that is coming. It may have partially happened Thursday. But if not, there’s going to be a push against these retail investors, which can cause even more populist backlash (see the attacks on Trump and building his support through the primaries). Normal isn’t coming back, and reactionary politics is the name of the game.
Links of the week
N.Y. Severely Undercounted Virus Deaths in Nursing Homes by up to 50%, Report Says: The state attorney general, Letitia James, said it’s likely that the Cuomo administration failed to report thousands of Covid-19 deaths of nursing home residents. – NYTimes
GameStop: Intentionally Dying – Chris Arnade
Twitter Thread(s) of the week
Satire of the week
Thanks for reading!