Haute Couture is considered as the highest form of fashion: made with high quality materials, based on traditional techniques and crafted by artisans who often employ hundreds of hours to make just one gown, high fashion designs make most of us dream. Yet the stuff dreams are made of is reserved to a tiny fraction of people out there who can afford it. For us, mere mortals, Haute Couture provides unattainable dreams and beautiful inspirations, but nothing more. Some of us can invest in luxury garments and accessories that, though more affordable than Haute Couture, are still expensive, which means that the majority of people simply opt for fast and affordable fashion, buying every now and then a good quality design.
In the last 20 years, even though criticised for its effects on the planet and for exploiting workers, fast fashion has gone from strength to strength providing us with the possibility of being on trend: did painstakingly pleated dresses appear on the Haute Couture runways? Don't worry, you'll get your cheaper version. Did you see an impossibly expensive but minimalist and stylish cashmere sweater on that Internet site? You can bet that something similar will be available pretty soon at your nearest fast fashion retailer, maybe it will not be made with the softest yarns, but in synthetic fibres and with a small percentage of third rate cashmere, but you will eventually find it. This process, as we all know, has been dubbed democratising fashion.
There has been a fascinating phenomenon in the last few weeks in the world of finance that, at least superficially, seems to have mimicked the fashion democratisation approach. Last week the stock price of GameStop Corp (GME) went from US$96.80 to $347.50 a rise of 359% (they are at $325 at the time of writing this post). The American video game, consumer electronics, and gaming merchandise retailer hasn't been in great shape for quite a long time: having lost its market share to online trade, Game Stop Corp went from $56 a share in 2013 to about $5 in 2019 to $3.25 in April 2020.
People on the Reddit forum r/WallStreetBets - known for its users who seem to have a passion for gambling in a rather reckless and untraditional way compared to usual traders - found out that GameStop was undervalued by the market and may have been vulnerable to a short squeeze.
A short squeeze consists in betting that an asset, a share, will decline in price rather than rise (because you can see that a particular business is badly run for example). Short-sellers borrow shares of an asset that they think will drop in price from someone who has it, in return for a small fee. Then they may sell it straightaway, and wait for the share price to fall. Once that happens they will buy it and return one share to the person they borrowed from in the first place. Now the problem with this scheme is that, if the asset price doesn't fall, investors will lose a lot of money as they have to buy at a higher price and also pay the difference between the price they set and its sale price.
Many funds bet that GameStop would implode during the pandemic and users on r/WallStreetBets found out that many hedge funds had indeed taken a large short position in GameStop. So, in the last few weeks, they came up with a plan, concentrating on the GameStop shares and started buying them. The low share price meant that it became easy for a large number of people to buy in with little money. So the share price kept on rising, triggering the squeeze.
The short squeeze, the scheme that hedge funds have been using to artificially push down share prices, ended up trapping them: hedge funds had to start buying the shares to reacquire them for the borrowers and limit at the same time their losses. Buying forced the share price up even more, so their position got worse.
Last Friday Elon Musk also tweeted "Gamestonks" and linked to the r/WallStreetBets forum, causing the share to jump about 150% in after-hours trade. Soon, though, large hedge funds and traders complained: digital investment app Robinhood, that introduced the stock market to a wider public, ended up restricting trades in GameStop, allowing investors to sell but not to buy, to push the share prices down (the company explained this happened for technical reasons rather than to protect hedge funds).
It was interesting to see how large hedge funds and investors who have been gambling for decades on shares shifting the price of a stock for their own benefit, were suddenly complaining about ordinary people doing exactly what they do on an ordinary basis. Democratic socialist Congresswoman Alexandria Ocasio-Cortez commented on Twitter last week: "Gotta admit it's really something to see Wall Streeters with a long history of treating our economy as a casino complain about a message board of posters also treating the market as a casino." Representative Rashida Tlaib (D-MI) agreed, demanded a Congressional Financial Service Committee hearing on Robinhood, and tweeted about Robinhood's market manipulation, "They're blocking the ability to trade to protect Wall St. hedge funds, stealing millions of dollars from their users to protect people who've used the stock market as a casino for decades."
Now, all this story may be interpreted as a sort of financial revenge perpetrated by a group of people against capitalists. Were they trying to "democratise" the world of finance maybe? Well, seen from this perspective the comparison with fast fashion works pretty well: fast fashion is cheap, trendy, popular and, well, fast. The GameStop shares represented the same thing: affordable and trending (think about their meme quality), they represented a possibility to make money, but also to achieve the same status of financial experts, becoming part of the stock market hype.
In a way the historical moment plays in favour of this financial interest: hit by the Coronavirus pandemic, and having lost their jobs or working from home and therefore having saved some extra money that may usually go towards holidays, entertainment, restaurants/clubs and travelling, quite a few people have been attracted by trading and by the possibility of making some money.
Maybe the historical moment is similar to the one recounted in the film "Tulip Fever", set in The Netherlands in the 1600s as tulip mania exploded (incidentally in 1636 there had been a plague and other trades had slowed down); or maybe some of us must have thought that, if we managed to buy turnips from Daisy Mae in "Animal Crossing: New Horizons" at 90 Bells only to sell them a few days later at over 500 Bells to Timmy and Tommy, we are probably financial gurus and we didn't know it.
The focus has moved on other shares, namely AMC Entertainment Holdings Inc. (AMC), but also BlackBerry and Nokia and today the Reddit users have also started betting on silver, so that prices have skyrocketed to around $30 (at the time of writing this post) for the first time since 2013.
The same GameStop scenario may not apply to other stocks, and this could be just a bubble, but what happened may be hiding something else. Some are wondering, for example, if the GameStop frenzy was generated by some genuinely exuberant investors out on a buying spree or if it was engineered.
Last week online chat service Discord banned the WallStreetBets server for violating community guidelines including "hate speech, glorifying violence, and spreading misinformation." Indeed, while this perfectly co-ordinated efforts revealed all the madness and volatility of trading, the irrationality of the market and the extent of corporate privilege, WallStreetBets is associated with white supremacists who are not really into challenging the surreal stock market and distribute wealth. At the same time, not all the people who started investing in GameStop Corp (or who had invested in less suspicious times - consider that there are some people who bought shares when they were cheap as presents for their children or for friends with a passion for video games) are part of a white supremacist plan, but they were hoping to make some extra money.
So far there is not moral in this story, but the GameStop share mania revealed not just how finance works nowadays but also that investors are definitely younger. Social media, including YouTube, but also Instagram and TikTok, simplified the process of trading, introducing a new generation to finance. Trading apps such as Robinhood are aimed at millennials and have made it cheaper for ordinary people to trade, so you can easily do financial operations from a computer, but also from a mobile phone.
It is also interesting to see more women developing an interest in finance: in "The Wolf of High Street", a short Channel 4 documentary, we see a group of young women who are into trading currency and they are bringing into the scene a very different image of investor that doesn't fit anymore with the traditional macho image of classic male traders (materialistic Wall Street investment banker, yuppie and serial killer Patrick Bateman out of American Psycho comes to mind...).
At the end of the day GameStop Corp proved to be a great story about finance and investments with the potential of becoming a film or a successful TV series (mind you, we may have to rethink the costumes for this one and make them more casual and street style, leaving behind the tailored Wall Street suits...).
As for big fashion groups listed on the stock exchange, they are safe for the time being, but new trading apps and sites may allow consumers to buy fractions of shares. So fashion houses should maybe start wondering why would people want to buy the next IT-bag when they may be able to afford even a tiny fraction of their empire? In fact that's probably what the next must-have is going to be - fashion stonks or even fractions of them (please, be aware of the risks and rapid losses associated with trading and investing, especially if you're an amateur in this field).
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