The writer is founder of Muddy Waters Capital
The recent boom and bust of GameStop shares are a wake-up call to policymakers that world markets and economies are precariously positioned, and pose serious risks to political stability.
The US is patient zero for this sickness and as the US goes, so too will much of the world. GameStop illustrates clearly that capital markets are driven by flows and investor positioning, rather than by the underlying fundamentals of businesses.
The primary causes of this market dysfunction are the prevalence of passive investing and leverage enabled by low interest rates. The combination has resulted in grotesque distortions of capital allocation while further bifurcating society into haves and have nots.
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