At the current moment a great many news stories are being written about the massive increase of the GameStop price lead by Wallstreet bets and also the 4chan board /biz. This has provoked a massive reaction from the established figures who have lost money as the shorts that they had taken suddenly proved to be a growing mistake. Some have even went as far to call for reaction and one has been bailed out with possibly other firms also hurting.
Yet while the medium of this incident is the new internet and the investor subculture that has developed it touches on core economics concepts. This incident has some differences from classical ones yet is well within the application of core economics.
A Real Economic Motivation Behind It:
Many people would be wondering why the price of GameStop a company that has had a very rough time during the pandemic and even before it started. Yet a new change of management and some new policies could see a bounce back and end the continuous problems. This provides a reason that some before this current scandal already believed that the price was too low and that the company was over shorted. This alone should be enough for some of the investors who complaining that their is not reasonable basis for the choices that the users made. It is however the fact that it was overshorted by so much that is critical to the reason why so many users jumped in.
In a basic sense it was worked out that with the amount of shorts and available shares that if users bought up the remaining shares then the shorters would be forced to pay that inflated that the users could reach. If a few isolated people had managed to raise the price that would be quite the achievement but would not be something that was noticed by the general public or seen the media focus. It is due to the fact that so many users heard about this and then took action. They took a gamble with the fact that they believed that they could raise the price before those shorts came in. They managed risk and appear to be coming out on top.
What Is The Price Of Making A Banker Upset?
When you go out to buy dinner or buy coffee you are paying a mark up in many cases when compared to the cost that you could have made it at home. Yet you may choose this for non direct economic costs that give you benefit. The fact that you believe that it will impress the person you are with or the simple fact you value your money less then your labour. The GameStop shares and other shares are often only viewed as a economic benefit when talked about especially in the west. Yet they can serve other purposes beyond just economical.
A person who will be given power in a community could use the fact that they are shareholder of local industry to demonstrate that they have nothing to gain from hurting the community. Yet in the case of GameStop the shares are serving as a emotional or entertainment purpose. The fact that big banks and the trading firms that so many dislike are potentially going to be hurt or at least upset by the action gives a massive value boost to the share. As more outrage pours out the shares continue to add value and justify it. If you are buying gamestop due to the fact that it upsets established figures then you are likely very happy with its purchase. Even if the share went to zero you have got your moneys worth. How markets react to shares becoming a experience will be interesting.
A Classic Case Of Increased Demand:
The fact that the sharemarket and the investors who bought shorts failed to factor in other forms of value is their fault and the risk that the stockmarket brings. If people suddenly found that the political actions of company devalue the brand then established figures would look foolish complaining as the share price fell. Indeed many of these figures are fine when bubbles are created by the right type of people. The tech bubble that established investors helped create was based on a lack of education about tech and a increased value of new trendy stocks.
The amount of people who dislike wallstreet and the banks beyond is massive. When the Gamestop share price suddenly became attached to those feelings it has soared. It is interesting to see Wallstreet suddenly dislike emotions when the spirit of the bull is often cited. With so many people unhappy the banks and established figures I am sure many people would pay much more then $40 to make their day a bit worse. Indeed perhaps even a $100 dollars is something people are willing to pay. Now that we are getting beyond that we could see slowdown as the price adds more friction. Something to remember however is the underlying case for buying those shares due to the shorts coming due still remains no matter how angry those shorters get.
As much as experts may claim that this is a new development and irrational by looking at the full picture reveals clear intentions. Buying stocks due to non economical reasons is a interesting development. Loans or bonds have seen this done before during wartime. The institutional reaction is already quite fun to look at already. Yet what comes next is up in the air. If these complaints become actions is also yet to be seen. Yet stockmarkets that have recently struggled to get a new generation interested could see this as the next big move. Perhaps stocks will move from retirements and experts to people action and control. Some would naturally not like the people becoming a dominant force in how capital is moved.