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How the tale of Reddit, GameStop, Robinhood is really about these bigger trends

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Yahoo Finance Editor-in-Chief Andy Serwer breaks down what happened with GameStop, Reddit and Robinhood last week tells us about some bigger trends at play.

Video Transcript

MYLES UDLAND: But of course, the big story remains everything that is going on with the retail trade, GameStop, Robin Hood, sort of pick your poster child here, silver star of the show this morning. But over the weekend, Yahoo Finance Editor in Chief Andy Serwer, wrote about the five big trends that this mania or this event really speaks to. And so, Andy, let's start with one of them, which is populism. And I think that, I'm curious how you see that unfolding, because everyone can kind of apply their own populist lens to this event. And I think any spin that people have on it really leads down some fascinating roads.

ANDY SERWER: Yeah, I think that's right, Myles. I mean, the bottom line is here that retail investors were always sort of the joke on Wall Street, and they were always wrong. But part of this phenomena is that retail investors are right. They're driving these stocks up and encouraging their friends to get in, and then they're making money. Of course, how long's this going to last?

The other line I heard someone say was from a hedge fund person, was that 2020 was a bad year for humans and a great year for finance. Well, guess who's taking revenge right now? And I think the WSB people, you know, this is not a secret, but they're feeling all these years of being maligned by the system. And that they are sort of getting their torches and their axes and sort of storming the castle.

And in a way, they are sort of parallel to the Bernie and Trump people. You don't want to take that too far, because there's obviously not an equivalent between storming the capitol and picking up on a short hedge fund, but people are discontent with elites in America, you guys.

JULIE HYMAN: Yeah, they are. Although ironically, on this trade, I mean, there are certainly hedge funds on their side of the trade also, and with the silver trade as well. Citadel Securities is one of the biggest longs on the silver ETF that the Redditors now seem to be buying. But you mentioned the sort of political connection here. And this is something that this has reminded me of as well, the sort of populist trend that we have seen in politics. So what are some of the parallels that you're watching there? And then, what does that tell you about the sustainability of what's going on?

ANDY SERWER: Yeah, and these trends are connected, Julie. And so with the government, there's a couple of things going on. First of all, I think that this transition from Donald Trump to Joe Biden has been underestimated in terms of the impact on the markets. I mean, it's just not going to happen. You've got this pretty big abrupt change without any market dislocation.

And some of that has to do with the fact that hedge funds had such a great year last year, up 20%, 30%, some of the biggest ones. So these long short hedge fund managers in places like Citadel on the other side of that business, Coatue, et cetera, they were looking to unwind these positions simply because they were concerned about the trade. Also, of course, government, another big government influence here, is that Biden and Yellen are looking to flood the zone with liquidity. So that's part of what's going on as well.

And then finally, governments like to investigate. So we've seen, of course, that AOC and Ted Cruz are all up in arms together. They were in concert for 58 minutes before they started squabbling again. Elizabeth Warren, the SEC, Letitia James, the AG in New York, and Sherrod Brown, Maxine Waters, they all want to investigate. So there's a lot of rattling of sabers there. What they need to do or will want to do, is, of course, up in the air.

BRIAN SOZZI: Andy, in talking to folks for this story, did you come away with the sense that there is systemic risk from this frenzied retail activity we've been seeing?

ANDY SERWER: Yeah, I mean, that is arguably the biggest question here. And people look at it two ways. One, this is uncharted territory. So by definition, there is systemic risk. And I said this has got to be in the black swan Hall of Fame, right? I mean, no one saw this coming. I'm sorry, maybe someone did, but I'd love to talk to them. So there is that.

On the other hand, if you look at say, the market cap of GameStop at its highest, it was like less than 1% or about 1% of Apple's market cap. And then you add all the rest of them up and it's pretty inconsequential. But the rattling that's going on to the status quo suggests that this time is different. So that's a little bit unsettling. And the hedge funds, their unwinding of positions is now pretty much equivalent to what it was in March of last year. So that's a big deal.

MYLES UDLAND: Yeah, and I think, you know, I don't think the size of a market cap or the size of a trade certainly as you know, Andy, going back to long-term capital management, certainly shows that the size of a trade need not preclude it from becoming a systemic event where a lot more things happen. And I think we're sort of just seeing the beginnings of what may be a fallout in this specific situation. All right, Yahoo Finance Editor in Chief, Andy Serwer. Andy, appreciate you joining the show this morning.

ANDY SERWER: Thanks.