Eleven Interest Rate Hikes by the Federal Reserve Fail to Curb Gambling Fever in US Stock Market

Introduction

Despite the Federal Reserve implementing eleven interest rate hikes, the US stock market continues to be gripped by a gambling fever, with investors bidding up obscure stocks only to witness their dramatic crashes. The latest example is VinFast Auto Ltd, an unprofitable electric-vehicle maker, which experienced a four-week trading frenzy resulting in a market value greater than McDonald’s Corp. and four times that of General Motors Co. However, the stock has plummeted by approximately 80% in just eight days.

Greater Fool Theory

This trend indicates that the greater fool theory has become a prominent feature in the investing landscape of the US. This theory suggests that investors are constantly searching for investments with dream-like possibilities, which can be manipulated by a crowd acting in unison. Peter Atwater, an adjunct professor of economics at William & Mary, describes VinFast as the latest “lottery ticket” in this trend.

VinFast’s Rollercoaster Ride

VinFast, a Vietnamese company, experienced a mysterious surge in mid-August, prompting day traders to join the trade and drive a 504% rally over six days. However, many retail investors arrived too late and bought the stock just before it started to plunge.

De-SPACs and Risky Bets

This boom in risky bets mirrors the investments made in other companies that went public through blank check deals, such as Grindr Inc. and Intuitive Machines Inc. These special purpose acquisition companies (SPACs) have a small percentage of stock available for trading, making them susceptible to manipulation. Social media sites like X (formerly known as Twitter) and Reddit have become platforms for investors to generate interest in these stocks.

VinFast’s Limited Trading Availability

Only around 1% of VinFast’s stock is available for trading, and the timely listing of call options further fueled its surge. However, the stock eventually plummeted from around $15 to $93 before settling at $17.15 over an eight-day slide.

Record Losses and Lofty Valuation

Despite its significant losses, VinFast still holds a market value of nearly $40 billion. The company’s chairman and founder, Pham Nhat Vuong, controls 99% of the stock but is unable to sell due to the terms of the blank-check deal. Similar to Rivian Automotive Inc. and Lucid Group Inc., which experienced massive rallies before plunging, VinFast’s lofty valuation may have further to fall.

Gambling Mentality

Traders, many of whom began investing during the pandemic, continue to embrace a gambling mentality when it comes to stocks. With easy access to online trading platforms and the influence of personalities like Barstool Sport’s David Portnoy, investors are treating stocks like casino table games.

Conclusion

The COVID-19 pandemic has significantly changed the investment landscape, with a generation of individuals realizing they can trade and organize investment activities through social media platforms like Twitter and Discord. This has led to a rise in “degenerates” who engage in gambling-like behavior by betting on various assets, including stocks.

With assistance from Annie Massa.

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