A humorously titled op-ed appeared in FT today (h/t to Vince Garton): “The ‘stonk’ bubble poses significant global risks”. It’s some grade-A Finacial Times doomsposting, bringing to my mind the wild days of the early coronacrunh, with its cacaophanous volley of doom loops, parabolic volatility, and inability to keep up with the minute-to-minute spiral of crisis. It’s also a very interesting piece that casts a gaze into the future with the recent mania for retail trading—driven by WallStreetBets and the Great Gamestop Squeeze—and sees troubling fomenting on the near horizon. Passive investing doomsday.
Some choice cuts:
Ever-rising share prices that have no basis in fundamentals have birthed yet another meme, “Stonks!” which is feeding frenzied retail speculation…
The distortion of prices caused by the growth of passive has only recently been fully understood, thanks to the work by Michael Green of Logica Funds and a growing number of academics. Green estimates that when an incremental dollar is put to work with an active manager, it has an average effect on aggregate market capitalisation of $2.50. The multiplier occurs because the number of shares available is smaller than the total number of shares outstanding, and a buyer must often pay a premium to induce a shareholder to sell. However, Green estimates that when a passive fund receives an additional dollar, the automatic decision to maintain balance by buying in proportion to market capitalisation results in an increase in market cap of more than $17!…
Leverage linked to low interest rates turbocharges these unhealthy dynamics. Balanced funds are forced to buy stocks because their bonds have risen in value. Pensions and endowments are forced into equities to replace lost yield. Stonks’ increased values are used for collateral for loans to buy more stonks. Cheap money leading to excessive speculation contributed to the 1990s dotcom bubble, the 2000s housing bubble, and now the stonk bubble. The real risk to markets is that passive flows go negative (if widespread lay-offs lead workers and employers to cut their 401K contributions). If that were to happen, passive fund selling would quickly overwhelm the market. Such a crash could resemble 1929-1932 in magnitude but at 2021 speed.
There’s a lot of different directions one could take these comments: quibbles over interest rates, the relationship between bubble growth and structural conditions, the question of “2021 speed” versus speed in earlier times…
The specter of hyper-crash (magnitude + acceleration) is made particularly interesting in light of a study released the other day (and also featured in FT) on WallStreetBets and Gamestop. Penned by a pair of Oxford researchers, the study draws comparison the mania found on the popular subreddit and the drivers of asset bubbles. Their point of reference here is Robert Shiller’s work Irrational Exuberance: the relentless upward churn of prices in bubble-mania, writes Shiller, operates by “psychological contagion”, spreading like wildfire through investors relaying messages to one another. These messages “[amplify] stories that might justify the price increase and [bring] in a larger and larger class of investors”.
The Oxford study describes these conditions as a “social contagion”, which they define as “hype”, which in turn are capable of triggering a “self-organizing bull run”—with the GameStop stock price being the immediate example, and the potential passive investment bubble possibly superceding it. The prevalence of ‘hype’ as a force driving market behavior instantly brings to mind the CCRU’s own writing on the topic; when the WSB mania first started to break through into the news cycle and kicked things into overdrive, my first impulse was to reread “Who Believes in the New Economy?”, an article that appeared as part of the group’s “Cyber-Hype” series for Mute. It is staged as a recap of a conference on the ‘new economy’ (the term deployed for the feverish years of the ICT-boom—which culminated in the Dot Com crash), where several different (and increasingly bizarre) positions air their differences and projections for what is come.
Taking the side of the ‘old economy’ is Professor James Thorne, of Axiomatic Systems Incorporated (the ‘axiomatic systems’ here no doubt referring to the capitalist axiomatics described by Deleuze and Guattari in A Thousand Plateaus):
Thorne, who proudly bills himself as a ‘neofundamentalist’, is well known for his frequent and scathing attacks on the “witch doctors of the so called new economy.” “What goes under the name ‘new economy’ isn’t an economy at all,” he argued. “It’s a bubble of sheer delirium fizzing up out of mania and crazed beliefs, destined to burst once traditional standards of evaluation inevitably reassert themselves.” Decrying the “scourge of post-realism”, Thorne doubts that “ontologically-secure profits” will ever be made in a “pirate-infested cyberspace, potlached down to a cybercommunist wasteland … it makes more sense to invest in the moon than in web stocks.”
Taking the opposite position is Liz Volta, who
mocked Thorne’s appeal to ‘financial foundations’ as a ‘skeptico-depressive disorder’, entirely dissociated from contemporary reality. Her paper on ‘The Telecommercial Condensation of Virtuality’ described the new economy as an “effectively self-consistent hype-plane built out of brands, consumption potentials, and viral marketing, with audience and web-traffic bought and sold as commodities. It trades in pure quanta of captivation. Under these conditions apportioning value on the basis of underlying actual assets is peculiarly archaic.” According to Volta, belief in the new economy has become a factor of production: both an operative fiction and a good investment in itself.
While the CCRU was clearly sympathetic to the position taken up by Volta (and by Jack Shwarz, who offered a psychedelic celebration of irrational exuberance that entailed “collective ego-dissolution into the hypersphere”), in reality it was Thorne who had the last laugh. But Volta’s point still stands: the mad circulation of “pure quanta of captivation” is an apt description for hype-as-social contagion; while the bubble cannot grow infinitely—the work of Christopher Freeman and Carlota Perez, patron saints for this blog as much as Marx, have illustrated time and again the importance of the bubble and its destruction in the rhythmic pounding of innovation waves—the traders engage with it as if it were capable of being carried to infinity. There’s a careful nuance in Volta’s words. It isn’t simply that belief itself is a factor of production. It’s belief in the new economy that has become a factor.
But this isn’t the new economy. That had collapsed, and then shortly thereafter the housing bubble burst, laying waste to the dream of efficient markets and ushering in a period of ‘administered neoliberalism’ (to borrow from Dumenil and Levy), where the Federal Reserve acts as the leviathanic backstop, the unrestrained modulator of flows. The new economy and its lingering ghost has become the economy of the general cartel, or more properly the meta-cartel: an invisible architecture whose lines of demarcation supercede the usual property borders between firms, and the metaphysical border between the ‘public’ state and ‘private’ enterprise.
What the CCRU had Volta gesturing towards—and Shwarz fulfilling—was not a position of belief in the new economy but one of unbelief towards it. One doesn’t need to believe in the new economy in order to work with it—it’s a matter of “tuning into artificial reality, which is the only reality left”. The investors of WSB who set in motion the GameStop ordeal didn’t believe in GameStop: they approached it from a position of unbelief, in order to short-circuit the process.
Xenogoth drew a similar set of insights in his blogpost on WSB:
As with mediums and evangelicals, their own belief is a lot less important than how their actions can stoke and exaggerate the belief of others. In channeling collective belief, they have all the power to make that which they themselves don’t believe in become real (or actual) regardless.
This is far less conspiratorial when we consider market dynamics. You can more or less guarantee that most PR firms and marketers don’t actually believe in the product or business or institution they’re advertising. But it’s not their job to believe, they just have to convince others that it is worth believing in. That’s the hype machine.
The gall of r/WallStreetBets in this regard has captivated the internet for the last few days. They have shone a giant light on economic superstition and, in the process, lifted the lid on hyperstition. But they have done so without hiding their hand. They have humiliated the game by bending its rules in plain sight. The problem — for hedge funders, if no-one else — is that they risk both the system and their own investments in the process.
The question of belief and unfbelief has subsequently become complicated in the world of WSB. A perusal of the subreddit reveals the formation of opposing camps. These can be roughly mapped across an “old guard”, the longtime users of the forum who took up this position of unbelief, and the influx of new users. The former has largely moved on from GameStop, AMC, etc, and wishes for a “return to normalcy” (which entails making outlandish bets and posting ‘loss porn’). The latter continues to hold GameStop and AMC, still waiting for the Squeeze that will never come. Effectively now a very vocal cargo cult, they are operating in a zone of earnest belief, which they drape in a series of fraying political justifications—I will hold, into eternity if I have to, in order to make the hedge funds bleed. You can immediately contrast this to the old guard, who tend to dismiss the political ground by dismissing politics altogether: “politics are retarded”.
The political justification only came later, as something to fill the void when the promise of explosive price momentum never arrived (well, it did, at somewhere in the $400 range—which is remarkable, just not in the $1000+ range that many expected). Yet even the position of unbelief itself might have been a secondary justification. What the Oxford study points out, through analyzing the drift of conversations on WSB, is that sentiment was contagious, and underscored the explosion of hype. The convergence on a given stock—GameStop—was the end result of a self-reinforcing loop where clusters of conversation congegrated, formed into a network, and assimilated more and more users into itself. It was a gambler’s delirium.
Lyotard and his ‘wicked book’, Libidinal Economy, become instructive here.
In the final chapter simply titled “Capital”, Lyotard provides us with an extended series of reflections on the Crash of 1929—driven by rampant speculation, a “business euphoria” as Aglietta described it—combining both more conventional economic theory and his ultra-schizoanalytic perspective. What interests Lyotard is the ‘dead’ body of capital, capital-as-void: credit capital. I believe that this in indirect dialogue with Deleuze and Guattari’s take-up of Bernard Schmitt in Anti-Oedipus, who saw the kind of capital unleashed in enterprise financing as a kind of empty potential: a ‘mutant flux’ that was ‘charged’ when being inserted into production process (I’ve blogged a bit in on this before: see my old post ‘Money Games’).
For Lyotard, this is capital that has been emptied out of the utility that conventional economists lend it. It has the status of Zero when it emerges from the financing structure (the bank, central or commercial)—and in the run-up to 1929, it was this voided-out entity that was then immediately cycled into speculative finance fever. What was going on?
Lyotard attributes it to jealousy, and when the Oxford study talks a contagious gambler’s “sentiment” circulating the digital realm of WSB, we can take this as an epiphenemonen, a dissimulation, of this jealousy. What’s important is that this jealousy isn’t jealousy as we might recognize it in everyday life: as he points out earlier in the book, there is the jealousy that might accompany the lover, or perhaps even the gambler, which is aligned with envy. The subject activey desiries what another subject has: its attached to an object. But for Lyotard this conceals another kind of jealousy, which he defines as a pulsional jealousy, a jealousy that erupts at the level of daily life as looting, conflict, and conquest. Speculation is a kind of war, but it isn’t one with an overt goal. It loots for the sake of itself.
The ‘pulsional’ described in Lyotard’s work is close to the Freudian Trieb, commonly translated as drive or instinct. Yet this translation causes a loss: an instinct is oriented towards an object, but, as Lacan never tired of pointing out, Freud held that Trieb had no object. It is slippery, viscous; as long as it does take an object, this is a process that remains secondary. And Lacan again: there is a piece of the death drive in every drive, so every drive that becomes attached to an object also contains a paradoxical drive to dissolution. It’s this dynamic, I think, that is highlighted in Lyotard’s deployment of Trieb as pulsion. The specific case of 1929 brings this to the fore quite well: speculation as the surface-effect of pulsional jealousy and traded on credit, capital that itself has no object. The process, producing and running through the libinal labyrinth, is carried beyond affirmation and negation, and it exacts both—on itself.
Speculation as pulsional jealousy makes it, for Lyotard, into an “anti-system”, operations wholly detached from capitalism’s ‘productive’ dimensions. The usual circuit of credit, he writes, ‘opens up a future’ through productive investment. Here, instead,
it entails the death of the body it exploits through exhaustion… ‘Bad’ infinity comes from this looting, which returns nothing of what it takes, which can only lead to the exhuastion of the reproductive body. Consumptive hoarding creating between one part and the other of this body a more and more overpowering inequality of wealth: creating between one piece and the other of the libidinal patchwork a more hateful jealousy with regard to intensities.