GameStop stock rally proves media wrong, again

The media for the past decade has been trying to call the top of everything, whether it is stocks, bonds, the U.S. economy, etc. It was supposed to be that Trump would doom the U.S. economy, which didn’t happen (even with Covid, which was out of Trump’s control, the stock market and U.S. economy boomed under Trump). Or predictions of rising interest rates dooming stock market and economy. Nope. Or that inflated Web 2.0 valuations would trigger a market crash similar to in 2000-2003, with WeWork and Uber pricking the proverbial bubble? Nope. Or rising inflation forecasts due to stimulus? Nope. Or the fed in 2013-2014 tapering its QE program? Nope.

Over and over, the media keeps trying to call top on everything and keeps failing. The media said GameStop was a bubble below $20/share. Now look where it is trading. GameStop stock has doubled again and again, up from $50 a few weeks ago to above $200. The huge rebound in Airbnb’s valuation post Covid also proved the media and experts wrong, who were certain that Covid would irreparably hurt Airbnb’s business. Same for Uber stock, which made new highs post Covid, in part due to Uber Eats. New York City was supposed to be dead according James Altucher, but as stocks come roaring back to life, Wall Street remains the financial capital of the world.

As I wrote in January, GameStop stock is not going to fizzle fizzle out as so many in the media predicted. Media comparisons of today’s stock market boom as being analogous to the ’90s tech bubble, which ended in a spectacular crash and restoring the karmic balance and order to the universe, will keep coming up short. The media wants to believe that the market behaves like Newtonian physics, that what goes up must come down. Sometimes it does come down, but many times, like Tesla, Uber, Airbnb, and GameStop, it does not. The GameStop gains are going to hold and it will keep going up. I believe there is stuff going on behind the scenes that will manifest itself later and in hindsight make GameStop’s stock surge at least somewhat justified. For example, on Monday, Ryan Cohen of GameStop announced a major pivot to online commerce to become the ‘Amazon of gaming’.

What is the point of working when you can get much wealthier with speculation (unless you’re like Tom Cruise, Matt Damon, or Will Smith and make $20 million/flick or are an exec at Google or Goldman, in which case work is probably more profitable than trading) by buying and holding GameStop and other stocks, with returns magnified with options. Or wealthy by producing or speculating in ‘NFT art’ (one just sold for $69 million). This may sound nuts, but in our post-Covid ‘new normal’ economy, an increasingly large percentage of wealth is derived not from ‘going to work’ or the creation of new businesses, but rather from the appreciation of a handful of companies, assets, and sectors (such as large cap tech stocks , Walmart, Nike, and Disney stock and dividends, NFTs, the S&P 500, DJIA., and Nasdaq, and Bay Area real estate).

Over the next few decades, all this millionaire money from GameStop and other stocks, as well as tech billionaire fortunes, NFTs, and crypto will begin tricking into the greater economy, probably way more so than stimulus checks. This will be enough to fund a post-scarcity economy, in that there will be enough wealth sloshing around from asset appreciation and speculation that it will trickle down to almost everyone, without the need for more stimulus, which will allow for a very large leisure class funded by the capital gains of presumably a few million super-wealthy individuals. A tech founder or speculator, for example, worth millions or billions, will bequeath his wealth to his heirs, who may then redistribute some of that wealth down to his or her friends. All you need are a few degrees of separation from a billionaire in order to benefit, and as population of billionaires and centi-millionaires continues to swell, so will the amount of wealth going around., and the odds of someone being at least a 3 or so degrees of separation from a billionaire or centi-millionaire will converge to one. Right now, there are millions of people in the U.S. who do not need to work because either their parents or some relative has a lot of money or they know someone who has a lot of money, such as in tech (such as knowing someone who knows someone who was an early Google employee).

Then there is the tired expression “this will end badly,” but the media has been saying that for a decade and they keep being wrong. Why should they be right now. Look at all the dozens of upon dozens of posts right now on /r/wallstreetbets of people making hundreds of thousands of dollars or even millions of dollars in GameStop and other investments. It’s not ending badly for them. They, the media, said it would end badly with Covid, yet there are more people getting rich then ever before. I look at it like this: if you get rich, at least you can lock in profits. If you fail to act and sit on the sidelines awaiting the crash that never comes, then you will never have an opportunity to get rich and lock in gains.

Consider had you sold your stocks in 1996 because the financial media and overrated analysts and economists such as Shiller said it was overvalued using some useless metric (such as the CAPE Shiller ratio or the yield curve inverting) . Even after the 2000-2003 bear market, which saw the S&P 500 lose half its value, and then the 2008 crash, the market would have never revisited its 1996 lows where you sold, so there would have never been an opportunity to buy back at a lower price in spite of the market being overvalued. Including dividends, it’s even worse had you sold, as you would have missed out on those too. Yes, this goes to show how one should ignore such warnings of overvalued markets.

Same for endless forecasts of high inflation due to stimulus, expansion of fed balance sheet, the ballooning of the national debt, and other factors, who keep being wrong, but does not stop the media and pundits from trying over and over to predict the ‘next Weimar’ or the ‘next 1980s double-digit inflation.’ Even as far back as 2008 pundits said that the fed has ‘no idea what its doing’ and that ‘the situation would get out of control’ as the fed tries to unwind its massive balance sheet, yet 12 years later nothing bad has happened. No hyperinflation, no dollar collapse, no bear market, no recession (except due to Covid, not due to expansive monetary or fiscal policy). Over and over, the fed keeps defying predictions of the unraveling and collapse. We are told that ‘no one in charge knows what they are doing’ and that ‘America is on the precipice of its collapse,’ yet year after year, America keeps coming out on top relative to the rest of the world, even during Covid, which saw the S&P 500 outperform other developed and developing market indexes and the large cap tech sector and delivery apps reach valuations never thought imagined.

Sometimes it feels like we’re living in an upside-down world (or as some on the dissident-right call ‘clown world’). It seems like everything that should be a certain way, whether bubbles popping or inflation rising due to money printing, refuses to happen. The most obvious outcome is the most improbable, and the least probable the most likely. The 2000-2003 market crash is thought of as how overvalued markets and stocks are supposed to end, but what if it’s the exception? People look to history to predict the future, but the rules are being rewritten everyday, and every market cycle and economic cycle is unique. There there are subtle differences between two seemingly similar events (such as Japan’s crash in the early 90s, versus the Great Recession, yet small differences in the initial conditions produce hugely different outcomes; that being, that the US recovered from its crash and recession quickly, but Japan, decades later, never fully recovered). To say we are living in a clown world would seem to imply complete disorder or total randomness, but there is an underlying system or set of rules to this apparent madness or nonsense.

Investing is not supposed to always make sense (such as how inflation does not budge in spite of trillions of dollars of money printing, or the resiliency of the bond market). In invoking Q, maybe we need to ‘trust the plan’. I do. This does mean I necessarily like the plan or don’t wish it were different, but reality unfolds how it does, in ways that may seem illogical yet at the same time predictable once you understand the rules, not how we want it to.

Going forward, I remain bullish as ever on the US stock market, especially large-cap tech/FAANG stocks such as Amazon, Microsoft, and Facebook, PayPal, and Tesla, but also recent IPOs such as Airbnb and Uber. Forecasts of higher interest rates will not derail the market, just as the market was undeterred in 2017 in spite of higher rates, but also the fed has pledged to keep rates rock-bottom for years even in spite of surging stock prices, booming GDP growth, and fattest corporate profits ever. Because of such factors, I am still expecting 20% annual returns for the S&P 500 probably for another 6 years minimum.

Overall, the media needs to stop trying to call the top of everything. It’s obvious they have no talent at this. Their narratives keep falling flat or being wrong.