Showing posts from January, 2021

The GameStop conundrum

This week we saw a huge play come to its climax. For a while the retail investor community at r/wallstreetbets (WSB) on Reddit has been pumping several stocks that have been targeted by short sellers (mostly in the form of big hedge funds). GameStop ( GME ) was among the most prominent ones (others include AMC , BB , BBBY , NOK , etc.). The pump was done on the aforementioned subreddit, spilling over onto other social media platforms like Twitter where many retail investors, bystanders, billionaire businessmen, and even celebrities have joined in to push the stocks up in the massive short squeeze against the short sellers.  Why has this caught so much attention? The motivation of the WSB community was driven by the fact that many short positions in these companies were overleveraged. GME  for example had a short interest at 140% of its float . This means that there was more demand for borrowing stocks to be sold short than the number of stocks in circulation ( this article explains t

Again no inflation? Velocity of money and the E-P ratio reexamined

A lot of investors are wondering when exactly can we expect inflation to hit our economies? An economist's answer - only in the long run.  This bad joke is turning out to be true. Despite the huge, unprecedented (sic!) rise in money supply over the past year, it is unlikely we will experience a rapid increase in inflation over the coming two years. Why is this so?  Let's start with a fascinating development on the money markets. Velocity of money , that important indicator derived from Fisher's quantitative theory of money (MV=PQ) measuring the circulation of money in the economy (how fast goods are bought and sold), became detached from the real economy approximated by the employment-population (EP) ratio.  For those new to the blog, I have been particularly fond of tracking these two indicators, and for a very good reason - I find them a realistic portrayal of the situation in the real economy. The velocity of money has, thus far, been a great indicator of economic activ