Ron Insana: The so-called Reddit rebellion in the markets is nothing more than rank speculation
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Some people believe that the Reddit gang, which offers meme stocks like AMC, is not going to bankrupt and that the move overall is positive for investing.
They claim again that “this time is different”. In 37 years I’ve heard this terrifying chorus all too often.
The current argument goes something like this: The legion of new, young and more aggressive stock, commodity and crypto traders is smarter, more capitalized and more educated than their counterparties from 2007 or the legion of “colorful fools” who daily traded internet stocks in the year 1999. They are brighter than those who took part in the “Mutual Fund Mania” of the late 1960s or the poor souls who went off the streets in “bucket shops” in 1929, and there is simply no comparison to what happened today.
I can’t put it any clearer: this time it’s absolutely 1,000% no different and the reasoning of many who claim this is fatal.
What is going on among Robinhood dealers, members of the so-called “Reddit Rebellion”, is speculation. I think we can admit that.
Some argue that these traders are more sophisticated because they are trading options and that new innovations like commission-free trading and technology allow these individuals to catch up with the pros.
I’m not sure if understanding implied volatility is the driving force behind most meme stocks today. There may well be momentum and the lure of easy money.
They also point out that commission-free trading, tighter bid-ask spreads, and new technology balance the playing field over this particular time.
None of this is new either.
All of these elements are common in previous speculative episodes from the telegraph to the telephone, the ticker, the computer and the deregulation of brokerage fees, discount brokers, newsletter writers who moved markets. There is nothing new to see here.
Historically, these diverse and varied incentives have only offered short-lived opportunities.
This was true for almost five years during the internet bubble, which lasted from the late 1990s to early 2000.
It took a similar number of years for the housing bubble to inflate and then collapse.
The mutual fund mania of the 1960s lasted for about three years before the market peaked and then moved sideways for about 18 years.
The early 1970s were home to the “nifty 50” stocks, which attracted large retail participation. Very few of these 50 are still chic.
The bull market of the “roaring 20s” lasted until 1929 before a spectacular crash occurred.
People who literally came in from the street and day-traded stocks in Wall Street’s bucket shops were wiped out.
And further back in time, brilliant personalities like Isaac Newton, for example, lost a fortune in the “South Sea Bubble”.
The brilliant physicist found that gravity is a force in financial markets too.
French investors were wiped out by the “Mississippi Program” which, along with the “South Sea Bubble”, deceived day traders in the 18th century, just like the much-cited Dutch “tulip mania” in the 1630s.
I am not condescending to the individual investor or trader. I am warning them.
This episode may well last for some time. But when politics changes – be it regulatory, fiscal or especially monetary – the game will change.
There’s always a crease in any epic speculative episode that makes it seem like “this time is different”.
Simply put, it isn’t.
—Ron Insana is a CNBC employee and senior advisor at Schroders.
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