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We are, as one member of what is known as the "ape army" explained to me, in the midst of a digital version of Occupy Wall Street. This time, these retail investors, whether they be those "apes" rallying around AMC’s stock, other meme stock traders, members of subreddit forums like r/wallstreetbets and r/Superstonk and other individuals aren’t holding signs in the streets. They are instead trying to use their balance sheets to fight back.
Their concern? That Wall Street is tilted against them and in favor of the big market insiders. And they are right.
In fact, it is much deeper than that. Our entire economy is now, in large part, rigged, as it has been moved further away from free market capitalism to a cronyist nightmare where central planners and big companies work together to consolidate power. They scratch each other’s backs and ultimately tie up loose ends that get in their way of rolling up money and control. Small businesses and small individuals, which make up the backbone of the economy and stand for economic freedom have been both passively and intentionally targeted.
Don’t take my word for it, just look at the evidence. Last year, government decided which businesses were essential and which weren’t, based not upon scientific evidence, but political connections and clout.
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The result was that more than 400,000 small businesses shuttered permanently (that have been reported so far), and millions more have struggled to survive. This went down in parallel with 7 tech companies gaining $3.4 trillion in value, and capital raising reaching historic levels, with a record number of IPOs and value of SPAC deals completed during 2020. The big companies were the primary beneficiaries of the small businesses’ fallouts.
This has happened time and time again, with big companies quietly- and sometimes overtly- championing burdensome regulation that is anti-competitive. Big businesses can absorb the costs into their large overhead when small businesses can’t. They keep new entrants from coming into the market.
Our entire economy is now, in large part, rigged, as it has been moved further away from free market capitalism to a cronyist nightmare where central planners and big companies work together to consolidate power.
Case in point: during the last financial crisis, big banks involved in creating the mess were supposed to be reined in. However, the Dodd-Frank regulation that was put in place had the opposite outcome. The number of independent community banks declined double digits and, after the legislation took effect, the rate of new bank formation went from about 100 per year on average to three. This meant that small businesses had less access to capital. Small business loan volume decreased while the volume of big business loans went through the roof.
While financial market participants played a big role in crushing the economy during the Great Recession, something that many people have still not yet financially or psychologically recovered from, they were deemed "too big to fail."
However, when small businesses were mandated to surrender their private property for "the public good", they barely received crumbs; certainly not appropriate compensation anywhere near what they should have received for such a mandate. They were too small to matter. Even more so, these independent economic entities are too hard to control. They are not just outsiders, but they are in the way of the power center.
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All the while, capitalism gets blamed, when this crony-enabled central planning is the one creating the economic havoc and impairing the free markets.
The ape army and other retail investors have told me they are fighting for free market capitalism. They want a fair game. They want transparency and their movement is not about these particular stocks, but about having a level playing field. They, in large part, don’t have a problem with the rich; they have a problem with the rich getting to play by a different set of rules.
Insiders get to trade in dark pools which mask the free flow of information. Bad actors often get small fines for running afoul of rules. Inside information, which is supposedly not legal, moves markets before the news hits the media.
This is by design, and while Wall Street insiders often refer to these retail investors as dumb money, they are not. They are just not on the inside. They don’t have the VIP pass. And, when they do well, they are viewed as a threat.
One of the main practices the ape army is most upset about it naked shorting. While illegal, this practice of selling shares short that a seller has not borrowed (or perhaps, even located) has a loophole for market makers.
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The concern of the apes is that the same share may be sold time and time again, basically creating the existence of the shares from nothing. While the concern is valid, the biggest perpetrator of the creating something from nothing that has slanted the market in favor of the big guys and insiders at the expense of small businesses, retail investors and individuals isn’t short sellers or prime brokers, it is the Federal Reserve.
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The Federal Reserve has created not synthetic shares, but synthetic money, in effect, and instead of the amounts being in millions, they are in the trillions.
As of the date of writing, the Federal Reserve had more than $7.9 trillion in assets on its balance sheet. Their interference in the market has disrupted risk, making assets not only more expensive for the average investor to add to their portfolio, but the value of the dollar they are investing with worthless.
Big companies, including "zombie" companies that don’t make enough profit to service the interest on their debt, have had unparalleled access to capital, which the small businesses do not, making it harder for them to compete and taking dollars away from investments in innovation.
Savers and retirees can no longer live on a fixed income without chasing risk. And now, the biggest companies in the world, based on this unprecedented Fed intervention, are now competing with individuals looking to buy homes.
This is not capitalism. This is a war on small business and individuals.
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We are now in a battle of Davids against the political and big business class Goliaths, created purely because central planners don’t want to allow for free market capitalism where everyone can win, because they lose power when that happens. They would rather rig the game, ensure those "in the club" succeed, and get rid of everything else that doesn’t serve that purpose.
That is not the spirit of America or the spirit of independence, whether it be of the retail investors, the small businesses, the gig workers, the cryptocurrency enthusiasts or anyone else who understands that decentralization ensures economic freedom. We will continue to find a way to stay independent, but come together for fairness, free choice and opportunity. That is capitalism.
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