PLANADVISER - January/February 2021 - 2

publisher's note //
Trust Issues
W
ho were the biggest financial newsmakers
of late January? GameStop stock,
social news aggregator Reddit and hedge
funds-quite an unlikely trio. It was a bizarre,
out-of-nowhere news item: Struggling retailer
GameStop, which had recently announced more
store closures, suddenly becomes the center
of a Wall Street trading frenzy, its stock going
through the roof after amateur traders in a
Reddit forum invested in the stock to drive up
the price. Their goal: to force hedge funds that
had shorted the company's shares to buy GameStop
stock to prevent more losses. As one of the Reddit forum members said in
an NBC interview, " They made a bet, and we called their bluff. "
The story was everywhere, with a David-and-Goliath-type symbolism-the
little guy taking on the hedge funds that had bet against the company. Platforms
started-and then stopped-the trading of certain stocks; members of Congress
called for hearings; the Securities and Exchange Commission (SEC) noted it was
" closely monitoring " the situation. News outlets ran stories about the markets,
explaining nuances of shorts and of institutional vs. " armchair " investors.
It was even featured in a Saturday Night Live (SNL) skit called " What Still
Works? " Kate McKinnon was interviewing the new majority shareholder of
GameStop (played by Pete Davidson), examining how crazy the situation was.
Kate McKinnon: " Let's take a look at the stock market. It usually works, right?
That's where people invest all their retirement money, so it should probably work.
... " (to Davidson) " So normally a stock price reflects a company's value, right? ...
Two weeks ago, GameStop was valued at $17 a share, and then it went to $413
a share. Would you say that reflects the kind of business GameStop stores have
been doing in the past two weeks? "
Davidson's character acknowledged that the company was not in fact doing
well, agreeing that the price should have been going down, but instead went up.
McKinnon then continued, " So now it seems like ... "
" The entire system is a joke? " he said.
" Exactly, " McKinnon replied. " So, the stock market no longer works. "
While the skit was amusing, this whole GameStop drama draws attention to
many issues with which we in the retirement industry continue to grapple.
Since last spring, we've seen, time and again, economic indicators at odds.
There's been a rising stock market despite hundreds of thousands of deaths from
a pandemic and unemployment figures that would have seemed unfathomable a
year ago. People have questioned why the market can just dismiss the hardships
of so many Americans. A chart showing the increase in food insecurity and food
bank demand overlayed with the stock market climbing made the rounds, as an
example of the kind of disconnect Wall Street has from the rest of America and
as a possible foreshadowing of a K-shaped recovery that would widen inequality.
I spoke to some advisers about this, many of whom observed that it was out
of their wheelhouse but that this populist movement- " Occupy Wall Street, " as
one adviser called it-should be paid attention to.
As McKinnon noted in the SNL skit, the stock market " is where people invest
all their retirement money, " but the individual retirement investor is a tiny owner
compared with hedge funds and other market makers. Average Americans must
be able to trust that the " stock market works, " that they can reap benefits from
investing, otherwise, what will become of savings plans that rely on investments?
Any push for expanding access to plans and encouraging participants to
increase saving for retirement will be for naught. -Alison Cooke Mintzer, Publisher
publisher: Alison Cooke Mintzer
Alison.Mintzer@issmediasolutions.com
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managing editor, planadviser.com:
John Manganaro
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editorial staff: Lee Barney, Rebecca Moore,
Michele Theodore, Amanda Umpierrez,
Karen Wittwer
contributors: Beth Braverman, John Keefe,
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surveys & research: Brian O'Keefe;
Angela Marinakis, Jackie Scott
design & production: Donna Bien-Aimé,
Alanna Jacobs, Joy Liu, Linda Liu
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Lily Padula, Dani Pendergast, Valeria Petrone,
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Santamaria, Katherine Streeter, Dalbert B.
Vilarino, Shannon Wright
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PLANADVISER - January/February 2021

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