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When did speculation reach its peak?
This is the question that investors and bankers ask, but also regulators and economists.
The hype surrounding GameStop shares has turned into a heated battle for power over the financial markets.
It is a battle between millions of small savers, who move prices with their clicks, and the long-established institutions of the stock market.
This power struggle manifests itself in wild price fluctuations.
The wild back and forth threatens to turn a core idea of economics on its head, namely that the capital market is efficient and increases the prosperity of society as a whole.
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“Everything on shares” is the daily stock market shot from the WELT business editorial team. Every morning from 7 a.m. with the financial journalists Moritz Seyffarth and Holger Zschäpitz. For stock market experts and beginners.
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Even more: the struggle puts the stability of the entire financial market at risk.
Some hedge funds that were on the wrong side suffered heavy losses and had to frantically adjust their positions, causing a small market tremor.
Many brokers and trading venues used by small investors groaned under the sheer volume of customer orders and restricted the service.
Obviously all established actors are overwhelmed by the new situation.
According to the theory, the financial market is very good at directing money “with an invisible hand” to where it is most economically used.
As a reward, it also brings the highest return.
When “this invisible hand” does its job, everyone benefits: the economy gets capital, and savers are rewarded with rising prices and dividends.
Warrant volume has quadrupled in one fell swoop
And this allocation of capital no longer works in whole areas of the financial markets, or only to a very limited extent.
The stock exchange has become a playground for speculators and ideological zealots who play a self-defined political game against the “establishment” with their “trades”.
But on Thursday this establishment struck back.
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The cheap brokers, through which the retail investors placed their bets millions of times and thus caused the prices to explode, knocked their weapons out of the hands of the financial activists.
Large US brokers Robinhood and Interactive Brokers sometimes no longer accepted purchase orders for shares that had been discussed in private investor forms such as "WallStreetBets" in recent days.
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The same picture with brokers and new brokers in Germany.
In addition to GameStop, this also affected the papers of AMC Entertainment.
Customers could no longer buy warrants for the share of BlackBerry that had also shot up.
Source: WORLD infographic
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These securities, which allow investors to speculate with leverage, are the new favorite instrument of many small investors.
In the fight against the establishment, the papers seem to give them miraculous powers.
The warrant volume has quadrupled in one fell swoop.
“The consequences for the financial markets are enormous.
Many speculative bubbles in history have resulted from such leveraged investments, ”says Jim Reid, strategist at Deutsche Bank.
He sees the stability of the financial markets at risk through the new small investor movement, which is organized in financial forums.
Source: WORLD infographic
The GameStop hype on the US stock exchange is already preoccupying politics and the courts.
Two Robinhood users in Illinois and New York promptly filed lawsuits against the move.
The future chairman of the US Senate banking committee, Sherrod Brown, announced hearings on "the state of the stock market" on Twitter.
"People on Wall Street only care about the rules when something hurts them," Brown wrote.
"It is time that the SEC and Congress ensure that the economy works for everyone," he said, referring to the US Securities and Exchange Commission.
The outrage over the Robinhood decision spread across party lines.
The move is unacceptable, wrote the left-wing Democrat Alexandria Ocasio-Cortez on Twitter.
She pointed out that hedge funds could continue to trade freely.
“You couldn't buy anything anywhere.
Mega annoying "
Many retail investors also reacted in frustration with the trading restrictions.
They vented their anger on social media.
They expressed outrage that the new brokers would advertise the democratization of investment, but restrict freedom when the established players like hedge funds call for help.
Others were upset that the trading systems temporarily stalled and they couldn't buy or sell any shares at all.
“You couldn't place or buy anything anywhere.
Mega annoying, "wrote a Twitter user.
Another replied sarcastically, referring to the limited trading opportunities, “Don't worry.
The sell button is currently not available anyway. ”For savers, this meant that some of them could not get out of their positions and were unable to realize price gains.
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A discussion has broken out in the markets about the state of the financial markets, which could give rise to such a situation.
Some experts blame the advance of index funds (also called ETFs) for the upheavals.
Because all money in ETFs is bluntly invested according to fixed rules.
The passive investment houses, unlike active fund managers, cannot take corrective action in such situations with their billions of dollars.
While index-independent investors sell the GameStop shares in case of doubt and thus ensure liquidity, ETF providers cannot.
On the contrary.
If the weight of trendy stocks in the indices increases, more money automatically flows into these stocks in the liabilities, even if the company's fundamentals actually speak against it.
The index fund providers themselves do not, of course, see their responsibility to counteract a speculative mania.
They believe that retail speculation will ultimately be slowed down by counter-speculation by large investors.
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“It will be interesting to see what happens when retail buying opportunities are exhausted and hedge funds move into new short positions.
I suspect the crash will be just as dramatic as the price bubble, ”said Paul Jackson, Global Head of Asset Allocation Research at Invesco.
Small savers could achieve success with market values.
But he doubts that they can do that with a large number of large companies.
If they tried, the market would hit back.
In history there are numerous examples of speculative bubbles, the GameStop phenomenon is just a new type of game.
Source: WORLD infographic
But even money managers who have committed themselves to the active approach do not believe that the rationality of the stock market has been fundamentally called into question: “In the long term, capital markets are efficient and characterized by fundamentals, but not in the short term.
The development of GameStop shows, however, that the relationship between supply and demand can get out of hand, ”explains Marcus Hüttinger, market strategist at Gané AG.
The Gamestop case reminds him of the price explosion of VW ordinary shares to over 1000 euros in 2008. "Back then, many short sellers had to buy back the shares to limit their losses," says Hüttinger.
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ETF providers point the finger at politics and central banks.
The new US president will soon make a new fiscal gift to the Americans.
Many of the stimulus checks would be used for speculative purposes on the stock exchange, says Philipp von Königsmarck from the index fund specialist LGIM.
“In our opinion, this is not an expression of a general inefficiency of the markets.
Such scenarios come up again and again, ”says the expert.
"Lately there has been increasing discussion about bubbles in the financial markets." The current developments, as well as general volatility, are a clear indication of this.
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