GameStop And What Comes Next

Everyone loves an underdog. That’s why it’s so easy to romanticize the groundswell of support for unloved Gamestop, Bed Bath & Beyond and AMC this week as they float atop a huge soap bubble of non-existent trading fees and chat-room populism. But market manias never end well. What’s at stake? Some quick thoughts:

• More regulation. Already, Sen. Elizabeth Warren—with logic so twisted as to defy reason—sees an opening, using this week to blame “hedge funds, private equity firms, and wealthy investors” for “treating Wall Street like their own personal casino while everyone else pays the price.” Huh? Her prescription is what you’d expect: “It’s long past time for the SEC and other financial regulators to wake up and do their jobs,” she said in a statement Wednesday. “And with a new administration and Democrats running Congress, I intend to make sure they do.”
• Shrunken markets. No one needs to tell this audience that America’s public markets were already hurting even before the GameStop games began. No, not stock prices—the markets themselves. A glut of private equity funding, flabby regulation, over-active activists and the growing agendas of institutional investors have already shrunk the number of publicly-traded companies on U.S. exchanges from over 8,000 in the go-go ‘90s to just over 4,000 today. It’s hard to see how this episode changes that trajectory.
• Maybe something much worse. Most people reading this remember the dot-com crash. That started with day trader pain and then turned into something much more widespread. So far the Covid crisis has remained a health and economic crisis as the Fed-financed financial markets kept their eyes on the distant, post-crisis horizon. Could that change? You know the answer to that.

If there’s one thing I believe in in this universe, it’s the principle of reversion to the mean. Nature—and every human endeavor—abhors overreach as much as they do a vacuum. The snap back can pinch. While this week may not be a sign of a market apocalypse, it is a good time to think about how you—and your company—are exposed and think through what a bad turn might mean for you.