The Reddit rampage is a sign of market turmoil ahead

The Reddit story — in which a ragtag army of small investors have executed a spectacular short squeeze against hedge-fund goliaths — can be interpreted two ways. Some say it’s another populist citadel–storming in the spirit of the moment, but this time an admirable one because its target is ‘Wall Street’, which everyone hates: the so-called ‘stick it to the man’ version. Others see a fever of price-chasing, part-driven by lockdown despair, akin to crypto-mania and the surge in online gambling; in this version, it has nothing to do with serious investment but is a sure signal of more market turmoil ahead.

To recap: several million retail investors connected via chat groups such as WallStreetBets on the Reddit social media platform collectively decided to buy stocks that hedge funds, anticipating price falls, had been short-selling. Most famously, Reddit players drove the shares of a US video games retailer called GameStop from $15 to $500, forcing funds such as New York’s Melvin Capital to incur billion-dollar losses on short positions. Some share-trading platforms tried to shut out retail buyers for fear of trouble, while regulators seemed un-certain whose side to take. Meanwhile, the Reddit mob migrated to the silver bullion market, of which some funds had also taken a negative view but where prices leapt to a seven-year high — before tumbling again.

Will all this end in a bloodbath? Most likely: GameStop was already back to $220 on Monday. Will it teach Wall Street a lesson? I doubt it: leading firms such as JPMorgan, Goldman Sachs and Morgan Stanley sail on as smug as ever, whereas hedge funds caught in this storm are themselves often seen as financial outsiders. If some go bust in the fallout, that’s the sort of Darwinian outcome the hedgies themselves would say is natural in unfettered markets.

But will the Reddit episode specifically curb short-selling, widely seen as a cynical ploy that damages companies’ survival prospects and (unlike share-buying as a positive contribution to capital investment) does nothing for the wider economy? Perhaps temporarily — though professionals say short-selling is no sin anyway, because it spotlights overhyped valuations, bad managements and sometimes (as with Wirecard, the German payment processor) outright fraud.

Matt Taibbi, the US writer who branded Goldman Sachs a ‘vampire squid’, hails the Reddit uprising as the action of ordinary people who see markets as ‘basically fake, set up to artificially accelerate the wealth divide, and not in their favour’. Maybe, but let’s not confuse that sentiment with the desirable form of popular capitalism in which investors build wealth by picking and holding shares in whose growth prospects they have faith. What we’re watching is nothing like that: behind its righteous narrative is a speculative frenzy that can only end badly for anyone who jumps late on to its bandwagon.

Welcome influx

The UK unemployment rate had hit 5 per cent by the end of November, when tax data showed 828,000 fewer workers on company payrolls than in February. Many more jobs will have been destroyed by the current lockdown, despite the continuing furlough scheme; forecasters think joblessness might peak above 7.5 per cent, or around 2.6 million people, by mid-year. That’s a miserable prospect — yet statistically not as bad as the depths of the recessions of the 1980s, 1990s and early 2010s. And let’s remember that once the last recovery took off, around 2012, the UK economy showed a remarkable propensity to go on creating new jobs until the onset of the pandemic.

Many of those new jobs were, of course, in retail, hospitality and services that depended on busy high streets and town centres: so they won’t be coming back soon. But what’s also not yet clear, as a factor in future productivity and wage rates as well as work patterns, is the impact of a pandemic exodus of migrant workers, estimated by the ONS at 900,000 and the Economic Statistics Centre for Excellence at up to 1.3 million. That’s a huge loss of skills and willing hands — and a reason to be thankful for the government’s decision to offer a path to citizenship for Hong Kong holders of British National (Overseas) status, some 300,000 of whom may choose to move here.

All stereotyping is frowned upon these days, but having lived and worked in Hong Kong I can say its people are among the most industrious, entrepreneurial and self-sufficient on the planet and their influx will bring us a great economic shot in the arm. Those who wanted to leave the then British territory in the late 1980s for fear of what Beijing might eventually do to it — fears now grimly fulfilled — mostly chose Australia and Canada because they felt the UK would not welcome them. This time, let’s do so with open arms.

Ursula who?

The knock-knock joke is dead, we’re told, killed by the humourlessness of the millennial generation. Well, not in this column it isn’t. Here we salute the memory of my predecessor Christopher Fildes’s demolition of Jacques Attali, the egomaniac Mitterrand sidekick who arrived in London in 1991 as first president of the European Bank for Reconstruction and Development with his own French chef, and famously clad his new headquarters with priceless marble: ‘Knock, knock! Who’s there? Attali. Attali who? Attali and completely over the top.’ And I still chuckle at my own encapsulation of alleged influence-seeking by a certain Chinese telecoms company: ‘Who’s there?’ Huawei. Huawei who? Who are we going to buy next in the House of Lords?’

The tradition deserves to be upheld and I’ll gladly publish your best topical knock-knocks, though I recognise how hard it is to be funny in these still-dark days. ‘Knock, knock! Who’s there? Ursula. Ursula who? Just cut ze jokes, you British clowns, and gimme ze dam’ vaccines before I set your Irish border on fire!’ I’m sure you can do better: martin@spectator.co.uk.