Renowned independent economist Dr Andy Xie shared insights on the GameStop stock frenzy in his recent SCMP article.
The drama unfolding around GameStop is a tale of the internet levelling the playing field between at-home retail investors and Wall Street. The US stock market may become as retail dominated, and as volatile, as the Chinese market.
What’s happening illustrates that the internet has levelled the playing field between retail and institutional investors. Online coordination is making the retail impact explosive in some segments of the market.
Millennials are the first gaming generation in the digital age. They can spot the vulnerabilities and cracks in the financial system. Financial products are priced on past trends. But millennials have the numbers to change trends and make the big boys lose big time.
The democratisation of high finance is not only transforming the financial system, it is also changing how the monetary system functions. Little guys can exploit cheap liquidity from the Fed, as big banks or hedge funds have been doing seemingly forever.
The world has seen decoupling between money supply and inflation, because globalisation has cut labour’s pricing power. Hence, the money supply has gone mostly into financial markets to be used by big speculators and financial institutions. The resulting financial inflation has led to extreme wealth inequality.
As the masses figure out how to tap into the central bank’s cheap liquidity, money spreads around faster, and the benefits from financial inflation are distributed wider. This may recouple money with inflation. When financial inflation is concentrated among a few, it spills into real inflation in small segments like art or luxury property.
Hence, the central banks could pretend not to see inflation. But when millions benefit from financial inflation, the wealth effect will be far more inflationary. Thus, even if the financial bubble doesn’t pop on its own, the resulting inflation could force the Fed to raise interest rates and pop the bubble.
Read the rest of the article here.
Dr Andy Xie 謝國忠, is an independent economist, director of Rosetta Stone Advisors and is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States.
He was a part of Morgan Stanley in 1997 and the Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. He also spent two years with Macquarie Bank in Singapore, an associate director in corporate finance and five years as an economist with the World Bank.
Dr. Xie earned a PhD in economics in 1990 and an MS in civil engineering in 1987 from the Massachusetts Institute of