The GameStop stock is part of our national pandemic gambling binge | Hacker News Reader

The GameStop stock is part of our national pandemic gambling binge

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59 pointslxm65 comments

I don't know if it's a gambling binge, but I'll tell you the returns from capital seem to far outstrip the returns to labor in our modern society. Seems like you are either part of the investor class or the lower class in America and I think people have caught on, willing to take chances to get into said investor class.

I think the interesting part about "capital returns" in the past year, is that they're almost all on paper. There's relatively little actual wealth being transferred.

Almost nobody is actually realizing returns by pulling money out of the market, because there's nothing meaningful to spend the money on in 2020. Even the people pulling money out to buy a house, are mostly buying reasonably sized homes at inflated prices. Or to pay inflated education costs, which people without such large nominal wealth often wouldn't pay in the first place (or have forgiven via IDR etc).

Obviously each of the new tech millionaires with 50+% gains COULD cash out and buy, I dunno, a semi-truck full of flatscreen TVs. But they won't. And if any meaningful % of them did, the paper gains would evaporate in a heartbeat.

So I dunno. There's a lot of fake gains showing up in bank accounts, but I'm unconvinced that meaningful wealth accumulation has happened, or that most millionaires are actually converting that wealth into a higher standard of living. I think society is in a holding pattern, with inflated capital investment prices for lack of anything better to spend money on.

>There's a lot of fake gains showing up in bank accounts

Being able to afford a house, or giving your kids a start in life without having any student load debt to pay off are definitely not "fake" gains.

>reasonably sized homes at inflated prices

How do you know they're inflated? Maybe that's just how much homes in economically productive areas are going to cost from now on.

>Obviously each of the new tech millionaires with 50+% gains COULD cash out and buy, I dunno, a semi-truck full of flatscreen TVs.

The ones that have sense will buy multiple homes, take exotic vacations, and retire early.

> How do you know they're inflated? Maybe that's just how much homes in economically productive areas are going to cost from now on.

My understanding of GP's thesis is that they're inflated because the homes, and even their surrounding neighbourhoods and infrastructure, actually haven't changed meaningfully while the price went way up.

Yes

I would argue the gains are "fake" if the inflation of spending of the investor class tracks the market.

In other words, we see inflation in private school tuition, homes, etc, that is correlated with this bull market.

That's it exactly - the hamster wheel of this whole thing. I've made more money than I expected as a programmer and gotten better investing returns too. And yet the prices of homes keeps going up and inflation in other areas is almost certainly going to follow as monetary velocity is increasing.

I've never been a gold bug, but I get pushed a little further in that direction each day.

IDK the stock market has millions of sales every day, nearby homes are bought and sold every month. The asset appreciation seems genuine to me. Maybe people didn't consume as much in the past year cause of COVID and that money pumped up the asset prices a bit more than usual but it's not like things are totally detached from the laws of supply/demand.

> Almost nobody is actually realizing returns by pulling money out of the market, because there's nothing meaningful to spend the money on in 2020.

After a certain point, how much money can one meaningful spend in general? From @aninhumer:

> If we suppose that the goal of society is to produce the greatest utility, and that the utility wealth provides an individual is sub-linear (i.e. twice as much money makes you less than twice as happy), then inequality is inefficient resource allocation.

* https://news.ycombinator.com/item?id=14505342

I think that's partly why we're getting more concentrated wealth generally: the folks at the top had a lot, but they can't spend it all, and so they let it ride and so it compounds.

This brings up an interesting thing I thought about, and I don't know if it was by design or just a side effect. It used to be that people's retirement was based on Social Security and a company pension plan. But now pensions have gone away, Social Security won't pay enough for most people, and we have 401K plans that encourage long-term stock market investments.

Now I've always felt that increases in the stock market don't actually reflect a better economy (it may be a lagging indicator -- more people healthily employed == more consumer spending). But a lot of the higher stock prices could be related more to B2B health, not B2C, or due to things like low interest rates, etc.

So the effect of 401K is that regular people care more about the stock market than they normally would, therefore vote for politicians that support business-friendly policies even if that is against the overall interest of the voter. And it also happens that people closer to or in retirement care more about the stock market than younger voters, and older people tend to vote more. So is this the main master plan behind 401K, or is it just an interesting side effect?

Yup because we are currently in an innovation boom due to new emerging technologies. If the innovation slows down then the returns will shift in favor of labor while capital generates negatives returns.

Or maybe the innovation permanently destroys labor possibilities... not many self-checkout machines are going to be replaced with humans.

C > L

https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...

"returns from capital seem to far outstrip the returns to labor in our modern society"

For those interested, check out Thomas Piketty’s books.

I made more money on some savingss in 2020, by literally doing nothing and just watching it grow, than a lot of people earn in 9-5 jobs. I'm happy about it of course, but it seems wildly unfair. I'm not what you'd call a Marxist, but it's pretty obvious that there is a serious socioeconomic imbalance here and something needs to be different.

Savings or investments? As for the bull market, it won't past forever. Can you also make that work in a bear market? At any rate a great number of people benefit from the markets via 401Ks and stock comp.

Of course it won't work in a bear market, but neither will working 9-5 if you get laid off.

It is easy to see it as "doing nothing" but the reality is your risked your money during a period of time which was very uncertain. Uncertainty = higher risk in terms of stocks.

The reality is you took a big risk and you got a big return because you kept your money in the market.

Eventually the stock market will crash and the imbalance will be corrected. People who are invested in risky stocks will likely be bankrupted as those companies fail. Likewise for people who used lots of leverage. Then the working class will be seen as smart because they made 50-100k from working while joe investor lost 500k in the market.

see dot com crash for an example

I did not for one moment believe that my money was at significant risk, given that my investment time horizon is on the order of decades.

The only circumstances I could imagine that would have caused me to lose a significant amount of money in 2020 were on the order of "global catastrophe resulting in widespread death and destruction", greater than what Covid appeared to be even at its worst. At such a point, the last thing on my mind would be the performance of my investment accounts.

That's part of what bothers me about it. If I felt like I was actually taking a risk, I'd a lot feel more "entitled" to what I've received.

In my opinion, it really is gambling for the vast majority of participants. The same millenial peers of mine who talk about sports betting endlessly seamlessly talk about crypto and stock options within the same sentence. They are all just more things to bet on when there isn't a game on TV. It's the same crowd of people who wouldn't hesitate paying for UFC pay per view to live bet, or ending the night at the nearest casino in any city they are currently binge drinking in. There is a whole subset of millennials who follow the words of David Portnoy and/or Joe Rogan and others like some sage prophets, echoing their rhetoric and chasing their bets.

These people aren't sticking it to the man. They are looking for their next bet to hit, and taking fools and the resulting media circus with them. The celebration of hedge fund losses is rooted mainly in memes rather than an actual coherent class struggle, since if you have enough money to blow on dumb bets constantly without going broke, chances are you are living somewhat comfortably to begin with.

Gambling or trying to participate in what is increasingly "the economy", because work sure as hell ain't the way to make any money. Unprecedented bull run during a pandemic with record high unemployment.

Observing that "X doesn't lead to the desired outcome" and "Y is not X" does not imply that "Y will lead to the desired outcome". If you want to accumulate money, gambling on games with negative expected value is not the way to do it.

> gambling on games with negative expected value

There are different ways to treat "expected" - in one sense, by definition every stock has neutral expected value in the short term, that's what the market price is. And in the longer term, it has the expected value of the rate of increase of the overall market. Given what we've seen the overall market do in the past year, and the unprecedented combination of massive government relief spending and low interest rates, owning stocks at all right now seems to be a great idea.

If you use a different way of calculating "expected", then everyone expected Gamestop to be worth very little based on all the traditional markers of a stock, future cash flows, etc. But those people were wrong for quite a while and many of them lost a lot of money, and many people who bet against the common wisdom made a lot of money. Even today the price is still a factor of 10 higher than what most analysts recently had it at.

Basically, if you're so sure that this was a "negative expected value" bet for everyone who went long on gamestop, why wouldn't you short it today and make a ton of money?

I agree that this stock run-up was a form of gambling, but it's dishonest to write all these people off as making bad decisions because it's not like there is a true expected value that anyone can calculate with certainty ahead of time.

"Expected value" is a well-defined term from statistics: "In statistics and probability analysis, the expected value is calculated by multiplying each of the possible outcomes by the likelihood each outcome will occur and then summing all of those values." This explanation is from investopedia no less.

Anyway, shorting gamestop has some probability distribution that includes every outcome from making a bunch of money to losing your shirt because of a viral meme (shorting losses have no theoretical limit). That distribution can simultaneously have positive expected value and also be an unattractive bet because of the risk involved...and that's before we talk about shorting fees.

Yes thank you I am aware. The comment I was replying to made no sense in the context of a statistical expected value, because by definition that is just the current price, that was the first half of my comment

To be pedantic though, it's also possible for the EV of Y to be worse than X, yet for the probability of a good outcome to be higher with Y.

Observing that people are turning to Y is not the same as saying Y is better than X, it’s just saying that X appears to be relatively worthless.

Yeah I think more people, especially younger generations, see the current wealth gap and know that getting lucky on a big bet is their only way to escape 40 years of toil for a modest existence. I can't blame them for wanting to gamble, as dumb as it may be.

Yep. The returns on capital is much higher than the return on labor. On net, more people trading is reducing income inequality.

This sentence doesn't make any sense. Return on capital is a percentage, and one that doesn't even translate to something comparable to a return on labor.

More people trading reduces the rate of inequality expansion, if people go into the market generally. More people playing dumb games with huge risk is only going to increase inequality.

Exactly. Just because more people are at the craps table doesn't improve your odds or give you a chance against the casino.

Articles such as this are a product of the never-ending "never waste a good crisis" crowd.

all the better to frame WSB and the proles as the culprit, rather than information assymetry / under-regulation of short selling (why for example, is short interest data not available at higher frequency)

I would just like to remind here that if your goal is to create the wealth for the long term then being lazy and investing in good-old (boring) index funds is a better way. NYT has a nice article published recently on this: https://www.nytimes.com/2021/02/04/upshot/stock-market-winni...

Or maybe, just maybe... you could do a "hybrid" approach?

I have my 401K and Roth IRA maxed, an emergency fund set aside, all my debts paid off, and the vast majority of my income being set aside in safe index funds and bonds.

As such, I feel like it's completely responsible for me to take a small percentage of my annual income and devote it towards "high risk investments". I call it my "gambling money".

In the past 6 months, by trading and holding various cryptocurrencies, I managed to turn $100 into $1000, then $1000 into $5000.

This is essentially just "play money" for me, and I don't feel guilty about throwing some of it at online sports betting or online poker or GME/AMC/BB or Dogecoin or whatever.

It's money I can afford to lose, but it also has the potential to give me 100x gains while my index funds never will (at least not within my lifetime).

I think it's important to maintain a balanced portfolio, and having some "gambling money" set aside for high risk investing is an important part of that.

I'm doing both until I see a clear winner.

It's year 3 so far, there's no clear winner yet. My win condition: 10 years for my own stock picking. My lose condition: if I'm getting abysmal lower returns on my stock picking (e.g. 20% of index funds).

You don't need to wait, there are many historical examples of indexing beating stock picking.

Also, 10 years is a pretty short time horizon considering this recent bull market is approaching that age.

Good luck, though.

> The GameStop surge was just one of the ways Americans have renewed their love of gamblng.

There is nothing about Americans specifically. Check out Telegram/Discord channels, there are more non-Americans shilling GME than the total number of American users in those groups.

Cheaper to host your bot ring in eastern europe I imagine

Friend of mine does data analytics for off track betting. The spike in wagers from the stimulus checks was staggering.

So many people I know immediately took their stimulus check, dumped it into some dumb crypto meme, and lost all their money. There is something to be said about money allocated for low level economic activity is instead obliterated into the worldwide ether, sometimes at massive electricity costs just to rub salt into the wound of our warming world. I wonder if in the future we will see national economies shrink as people dump more local fiat into economically useless, speculative crypto that is distributed globally.

The Stock market, even the gamestop event, is far better use of money than the various government powered lotteries. it is very difficult to tell people gambling is bad when you see the amount of advertisement that state lotteries are permitted to spend on let alone the national cooperative versions.

at least with the stock market your bets are pretty much not going to leave you broke if you choose wrong but 99.9% of the time a state lottery is a losing bet.

Government powered lotteries are designed to raise funds for things like schools, not as an investment vehicle.

The saga reminds me of Korean cryptocurrency craze of 2017[1], when the government decided to crack down on the exchanges and people were decrying that they were being robbed of their only viable way to middle-class life.

Well, the following price dip proved the government's point. If the government had looked the other way, there could have been millions who would've watched their life savings evaporate. (Also, if you really wanted, there was nothing seriously stopping you from pouring your money to BTC or ETH or whatever. The government's action mostly worked on those angry horde who couldn't tell Satoshi from Nvidia.)

There's a lot of inequality. That doesn't mean the government should encourage (or even tolerate) get-rich-quick schemes that prey upon desperate, financially illiterate people. Because when a few of them become millionaires and one third of them just lost their next month's rent, you made inequality worse, not better.

[1] https://news.ycombinator.com/item?id=16121434

I might be many things to different people. I hear your gambling and rise my performance: https://zby.medium.com/gamestop-capitol-hill-riots-flashmobs...

This seems like it would partly be a result of near zero interest rates. Don't have anywhere to park your cash and get a modest return? Of course people are going to start speculating their money on crazy, stupid shit.

International.

At the risk of sounding dumb; why not? As long as you put money in you're willing to lose it seems it's better to take a calculated risk on a stock or cryptocurrency in hopes for a return. When you're poor and can make as much as a paycheck in a single lucky trade it almost doesn't make sense not to try.

When you're poor and inexperienced, you probably don't have much of a basis of estimating the risk versus reward of all the potential options you could put that money into. There are a lot of influencers selling courses saying that trading forex, crypto, and meme stocks will make you rich in 10 easy steps, and it's very easy to get mixed up in an echo chamber that's trying to extract money from you instead of helping you grow your money.

It's not calculated risks for the poor though. It's putting their paycheck on hot tips from Wall Street and tech bros who think losing large multiples of a poor person's paycheck is hilarious and ending up struggling to pay rent because it turns out their advice wasn't so good. When you haven't got much capital, the amount of good luck you need in investment to not be poor is enormous, and losing more than you can afford by trying is near certain.

When you're poor, a share in GME is not the sort of money you're willing to lose, and it makes no sense at all to participate in a rich person's subculture that sees losing several times your income as a cause for boasting.

Reply on news.ycombinator.com