It won't, but the media will blame it on the alt-right. "White privileged mcdonalds workers oppress poor minority new york billionaires with their greedy market manipulation! "
Apparently there's an early buyer of one of these stocks who made $40 million off of it; I last read they only sold $14 million of their position so far.
You just need a single person who's paying attention and understands these arguable flaws, pitfalls in the status quo system, they get rewarded by being able to get in early - and then they can educate a highly organized and motivated group of retail investors who are happy to rally - especially against a system that has fucked over the majority of people.
I don't know- there must be institutional players on the long side by now right? Either way, _eventually_ someone will be left holding the bag when the stock comes back down to earth.
I just checked my TD Ameritrade account. I'm able to buy GME just fine (though I didn't hit the "confirm" button).
I know RobinHood messed up here. But... they never had a good reputation to begin with. Its an open secret that RobinHood's entire setup is kind of crap.
Why should broker allow margin trading at all? If it's about risk, then who's the decider/calculator of the risk? I think this is the reason why there is a distrust from the next generation.
I looked at my margin document, other than Federal Reserve requirements and account restriction, there is no provision stating they can block a specific eligible stock as long as I meet their margin requirement.
They can set margin requirement separately for each stock.
For example, with InteractiveBrokers "long stock positions [of AMC, BB, EXPR, GME, and KOSS] will require 100% margin and short stock positions will require 300% margin until further notice".
I get that part, but why would 100% margin on buys eliminate the buys? If I have $100K cash, I can still buy $50K of XXX and meet the margin requirement. They are blocking buys, but not sells.
The context of this subthread is this message https://news.ycombinator.com/item?id=25942677 about brokers allowing the buying of GME but not on margin (and how they don't have to disallow the use of margin for every stock for that).
> there is no provision stating they can block a specific eligible stock as long as I meet their margin requirement
That may explain why they had to block trading in the stock. Margin losses almost inevitable at this point. But legal said they couldn't block lending on a single name. Their TOS, however, permit them to suspend trading in single names.
It's annoying. The regular guy should be able to profit off this too.
I was at the gym yesterday and heard like 5 people talking about stocks: gme, amc, bb. Everyone is trying to get in on this and they're trying to stop it. They bogged gme at open to scare people and now it's back up. If they didn't remove the option for users to buy they surely would have bought the dip.
Blocking people from buying a stock is not the same as blocking people from profiting off of a stock; nobody knows what the future valuation of the stock will be, so if you prevent people from buying, you may just as well be preventing them from losing money as from gaining.
Keep in mind that this is very likely a zero-sum game. At some point the bubble will pop, and as many people as gained money on the way up will lose money on the way down.
The bubble only needs to pop though if GME management screws it up.
GME has now become a $25B hedge fund with a gaming focus. They absolutely have the ability to become long term successful given these black swans they just experienced.
Now, I know *nothing* about their management, but they at least have been given a chance. Their's an Eminem song that they should be playing throughout their buildings right now. If I were them I'd sell more shares, pay down any bad debt, and invest in 10-100 of the best black swan ideas of my rank and file and see what happens.
GME has now become a $25B hedge fund with a gaming focus.
I think you're confusing their market cap with their balance sheet. A $25B hedge fund has $25B in assets, but a $25B market cap does not mean that they have access to anywhere near that amount of capital.
Sure, maybe they could issue a dilutive follow-on offering and bring in some cash, but who knows where the stock price will be by the time they get through the paperwork on that. And they're currently losing about half a billion per year on about $6B in revenue, so I'm not sure that an extra billion or so in cash is going to fundamentally remake the company....
You're right, I'm off by an OOM. I think perhaps comparing them to a $2.5B hedge fund might not be out of the ballpark.
Didn't know about the $500M lost on $6B in revenue, but gaming is a growing market, they just got a ton of free advertising, so seems like they have a chance to do something great.
> $GME is up 11% as of the writing of this post. Who is buying it?
Robinhood isn't the only investment platform that allows trades on NYSE obviously. Evidently though, it had the highest volume when it comes to GME it seems.
This is literally an event that options / derivatives were made for.
If you're a long GME holder who feels like this price is temporary: you can buy calls or sell puts (bull-trades). Or, you can sell calls or buy puts (bear-trades).
If you own a ton of the underlying and are willing to be "forced to sell" the stock, selling calls would be a marvelous option to benefit from the uncertainty of the situation. Worst case scenario, you end up holding the GME stock (ie: lost the game of musical chairs). But you'll be paid for that risk.
This helps sketch why derivatives for stocks should not be legally tradeable. The stock isn't supposed to be an investment vehicle, but a tool for steering the owned corporation.
Indeed, this entire situation is analogous to the economics of running a GameStop-like trading post, where preorders are allowed. The store wants to sell lots of preorders in order to stay afloat even outside of release seasons, and customers want to purchase preorders in order to guarantee a low price for hyped releases. This is just like the original purpose of derivatives, which were to ensure that foodstuffs would be fairly priced for both farmers and grocers, even when prepaying for not-yet-grown crops.
One would hope that GameStop would not sell preorders that it cannot guarantee from game publishers; if a game publisher promises only 100 copies to a particular brick-and-mortar, then they would be in big trouble if they took 140 preorders.
Now, folks generally agree that GameStop's business model is on the way out. The stock should not be worth much, because there is not much to say about the future of the corporation, and so not much point in participating in corporate governance. But instead, it is overly-shorted, with about 140% of shares sold short. That is no longer in the spirit of derivatives, but is now a magic trick.
My understanding is retail investors are buying stock now at $200/share, with the expectation that institutional players will be forced to buy it back at +$200/share to cover their shorts.
This will leave the original holders of the shares (the ppl the shorters borrow the money from) with a stock worth less than $200, but maybe more than their original purchase.
If the retail investors don't "get out", then definitely a few will be caught with the bag, but I think its mostly going to be institutional investors paying crazy prices for this stock.
Current price is $400 actually. Seems to be a very fast moving stock however, it probably will be dramatically different in price by the time someone reads my post.
>BlackRock Inc. trimmed its holdings in Gamestop, Inc. (NYSE:GME) by 18.23% during the 4th quarter, according to the company in its most recent Form 13G/A filing with the SEC. The firm now owns 9,217,335 shares of GME, which represents 13.20% ownership.
That mostly means that BlackRock customers have a long stake. BlackRock and other asset managers own the shares because they are part of the funds and ETFs that they manage for others. They are not really theirs.
Yes, if WSB gets their way it will be the short sellers forced to buy a bunch of overpriced stock holding it after the crash. I would openly celebrate their loss.
If all the shit to stem the tide works: shutting down discord and personal trading platforms, halting trading, yada yada works then WSB will be holding the bag. I wouldn’t really mourn their loss either because it’s a meme stock bought by people who can afford to can afford to lose.
Users on r/WallStreetBets have rallied around buying stocks, like GameStop ($GME), that are heavily shorted by the market (generally by larger trading firms). This buying has driven the stock prices up very very quickly, because of the buying itself and other knock-on market forces (google: gamma traps, short squeezes). The players that were short have thus lost a lot of money on their bets. r/WSB has taken a lot of pride in this and using it as a rallying cry to keep buying. It's mostly bs - everyone just wants to get rich - but it's effective and making headlines.
1. Big hedge fund bet against GameStop stock (shorted up to 140% of the stock, it's called naked short and everybody thought it was illegal since 2008 but that's another story)
2. Lot of small-to-medium investors coordinated over Reddit to take the opposite "bet" en masse (basically buying a lot of GameStop shares) so that the price will go up and "big hedge fund" lose a lot of money.
=> The plan worked. It's a first. Hence the news coverage.
A naked short is when you short a stock without first borrowing it. It is not the same thing as having shorts past 100% of outstanding shares, since a single share can be lent multiple times.
Was/is there a risk of the redditors losing all their money / just as much money a the hedge fund? Or is it like the hedge fund were betting with worse odds so have more to lose (excuse my ignorance of how shorting works!)
Institutional investors were betting that GameStop (GME)'s stock price would fall, redditors were betting that it would rise. So far the redditors are winning.
Early on, the bets had some basis in reality, but now it's become more of a speculation game.
Yesterday, two of the big institutional investors decided to fold, effectively loosing 100% of their investments. Edit: or, potentially more.
The same thing has started happening to a few other stocks.
I linked to the Bloomberg Money Stuff column a couple of other places, but I'll post the links here too for a more thorough (and humorous) overview:
>Yesterday, two of the big institutional investors decided to fold, effectively loosing 100% of their investments.
They can lose much more than the total value they initially invested into the shorts, since they have to buy back at several multiples of the price of the stock at the point they bought and they had heavy borrow costs too. That's why the hedge funds are at risk of going bankrupt - because they aren't only liable for the value they invested but they're liable for the whatever cost it takes to buy back the stocks they shorted.
As someone who is not very educated in finance, I'm curious how to interpret today's events. Is nasdaq/robinhood/everyone else transparently manipulating the market on behalf of hedge funds? Or are these standard mechanisms in place for preventing the stock market from swinging wildly out of control? I don't know if it's standard to completely block trading on one or more stocks.
A bit of both. If you are running a fund and down 50% from the events over the last few weeks, it's your fault. At the same time, stocks shouldn't be moving 100% each day.
WSB has basically recreated a "boiler room", which is an ages old scam where a small group of insiders would encourage people to buy stock, drive them value up, and then the insiders dump the stock. The key insight here is that for every person selling the stock and making millions, somoene has to be buying. There's a narrative about short squeezes forcing a small number of hedge funds to buy stock, but in practice many of the people buying the stock at the inflated price are retail investors hoping to get rich quick. A few retail investors will get rich quick, but that money will come from the people who join the party late and can't get out before the price drops back to earth.
The trading stops and laws that exist to prevent this kind of wild volatility are basically because for 90% of people, this is not good. By the time your parents read about this in the paper and log into their TD Ameritrade accounts to "invest", they'll be in that group of people left holding the bag.
This all reminds me of the crypto ICO's a few years back. Build a tonne of hype around something, get a vast number of people who don't really know what they're doing to put in their money, and then the big investors get out, tanking the price for everyone else.
In all the talk of conspiracy around this I'm surprised nobody is discussing the possibility that larger investors are likely manipulating/hyping the WSB community. The WSB community is acting untouchable but I get the feeling in the end they'll be the ones losing their money.
Exactly this. I went over to r/WSB earlier today to see what the fuzz was all about, and all of the posts there remind me exactly of the content that was being posted in cryptocurrency subreddits a few years ago. Posts about having bought high and intending to hold. To me when I see this I think, how many of these posts are people that are trying to hype up others to put money in, so that the people that are hyping the others can get out. And I think the answer is a lot. And the rest of them are people caught up in the hype. But the hype cannot last, it never does.
It's not a pump and dump if there's a legitimate reason to think the stock will be worth more for reasons other than the pumping itself which there is due to the short squeeze.
In this case people buying stock weren't hoping on a greater fool to sell it to later. By a large margin, more shares were sold short by a handful of hedge funds than even exist. As the price rises the expectation was/is they are forced to buy back to cover at any price.
It's entirely possible a majority of retail investors make a killing and a few large funds get liquidated. At least it was until the coordinated action to protect those hedge funds today.
The hedge fund(s) have billions of dollars of assets/investments. So they can buy a lot of stock and “shut down” (i.e. make -90% returns for their unfortunate investors) without actually going “bankrupt”.
Interestingly I think they're not entirely incompatible. If the funds can't cover their positions they will attempt to get money from somewhere. This could be loans or selling ownership of the fund, probably to other funds as it looks like has already happened with some. Effectively being forced to put more money in.
Fundamentally the funds made an extremely risky bet and the
market is (or was at one point) seemingly reasonably and expectedly betting against it with a short squeeze. The new part is the social hype driving the squeeze via an army of retail investors.
Agree some retail investors are inevitably going to be left with a net loss here, which will suck. But it was (and may still be) a reasonable play when viewing the market as a gambling platform (which the funds were doing by over-shorting).
My hope is that the people claiming to be cashing out their 401k on GME are partaking in anonymous internet hyperbole to fuel the hype and the vast majority are gambling with a few bucks they can afford to gamble with because they can't do anything else right now.
Thats not the same narrative I see on reddit. People are okay with losing as long as the big sharks are hit hard. It seems like an emotional reaction not a boiler room
It can be both. You can use the emotional reaction to push the scenario the poster was talking about. Ultimately , to the instigators in a boiler room, it doesn't matter why others invest, as long as they do. Having a compelling underdog story serves them well.
What's the difference between reddit users taking action on the advice of other reddit users and everyday folks taking action on the advice of CNBC talking heads? In both cases, someone is saying, "This security might be a good buy."
its not really whats happening. Reddit has identified that there are more outstanding short shares than stocks. So in effect they are doing more of a blockade. Effectively, if buys continue, the hedge funds they will have to buy more shares than exist to get out of it, at a rediculous price.
I'm also quite ignorant of investing and also contract law, but technically, Robinhood's recent disabling of buying new options or shares [1] falls under their terms of service [2]:
You agree that, without notice, _Robinhood may terminate these Terms and Conditions, or suspend your access to the Service or the Content, with or without cause at any time and effective immediately._ [...] Robinhood shall not be liable to you or any third party for the termination or suspension of the Service or the Content, or any claims related to such termination or suspension.
tl;dr: we can change what you can do on Robinhood at any time for any (or no) reason at all, and you can't do anything about it.
Also potentially for violating their duties as a broker. How the various duties to execute trades intersect with duties to protect their clients is going to be an interesting court case to follow. If it turns out the gamma squeeze or short squeeze works, RH clients could easily claim massive monetary losses.
If you buy stock with the purpose of pushing the price up so that other people will buy it, that’s market manipulation.
What WSB crowd is doing is market manipulation. That's illegal. WSB is doing everything openly and even celebrating it. Getting mad when openly breaking the law is not rational response. https://www.law.cornell.edu/uscode/text/15/78i
Brokers like Robinhood are reacting because they want too keep SEC out of their asses and prevent SEC doing something even worse to their customers.
Stock Markets like nasdaq are reacting to volatility, like they usually do in abnormal situation.
And they stop the manipulation by more manipulation? Why isn’t the trade blocked entirely for those stocks? Having the ability to sell seems like an inviting open door towards a specific outcome. I closed my RH account today
> And they stop the manipulation by more manipulation?
Moving the goal-posts here, but yes, this ought to be the catalyst to do just that. Changes to regulations may yet happen (not that I agree with it); kind of seems inevitable at this point.
>Shorting GME more than number stocks exist is not market manipulation?
No, it's just a risky play (as long as not naked) that can blow up and that's fine.
>HFT isn't?
No, HFT provides a service, like it or not. You might think the service isnt worth it but it's not market manipulation.
>Bailing out greed isn't?
That one usually isn't (most bailouts are other private actors' loans) but yes, I guess it can be if it allows actors to make risky plays without having real risk.
That said, what WSB is doing here isn't market manipulation either.
It's not, though - rich people get in trouble for this all the time. Bernie Madoff is going to die in prison for running a finance scam. Enough people were convicted of insider trading in the 80's that they made a movie about it - and the movie was just called "Wall Street". None of this is new.
Peasants suspected their king was getting away with raping villagers. Peasants came together and decided to show the king. They started to rape each other in the broad daylight. When the town sheriff intervened, they cried out foul, "Why is the notion of rape such a one way street?"
When the dust finally settled and anuses stopped bleeding, they discovered that they were coaxed to rape each other by Kings son who disguised himself as a commoner in the village subreddit. What made it worse was that King's son was involved in raping during the rape fest but somehow avoided getting raped himself.
> What made it worse was that King's son was involved in raping during the rape fest but somehow avoided getting raped himself.
Let's see if that's how this plays out.
Also, ignoring the fact that whilst the peasants are merely slapping each other on their wrists, they're really in fact looking to take the King who doesn't jive like them, to the guillotines.
Not so clear cut. If you hype stock to PROFIT from it by selling before it crashes, that is market manipulation. If you hype stock because you believe it is an amazing opportunity, and you happen to diversify before it crashes - that is talking about things in public.
A bunch of people hyping each other up? Also talking in public about what they like. If that moves markets? That happens.
If that opportunity is a short squeeze (which it still appears to be - newest data I can find is GME is still at 120%+ short interest), then it gets really really confusing - and I'm not sure how this is going to sort out.
People going on public news networks saying they've 'got out' and other articles talking about folks no longer being short - that would be clear market manipulation if not true.
I agree, it's not clear cut. It's unlikely that SEC goes after the WSB but they could.
What happened satisfies the four part test for market manipulation. But you would have to figure out the suspects who actually match the test. Most participants are just fools.
I'm not sure it does satisfy the 4 part test, specifically in:
(1) That the accused had the ability to influence market prices; (2) that the accused specifically intended to create or effect a price or price trend that does not reflect legitimate forces of supply and demand; (3) that artificial prices existed; and (4) that the accused caused the artificial prices.
It isn't clear that #2 is satisfied. Telling people that there is an opportunity for a short squeeze to occur is also not that different from normal technical analysis, which stock analyists do all the time. Even setting a price target is not illegal. Porsche did a short squeeze on VW and Elon is quite blatant about squeezing shorts in TSLA, and they've been fine despite profiting handsomely from it. Citron was clearly 'stating their opinion' on GME being worthless, but since they disclosed their position (short on GME), they are fine.
What typically makes it illegal is lying about your own stake, or prices, or data, or plans in an attempt to influence the market. Most smart analysts don't hold positions in what they are talking about, but some do, they disclose them, and they're good.
If someone makes a trade, makes it public, and tells everyone why - and they think it's a great idea - then it doesn't meet the test IMO.
Additionally for #3 - no one that I am aware of is using anything but public pricing data based on free and open market trading data, so it's hard to claim artificial prices existed. If someone has been publishing fake data (so claiming no short interest exists when it does, or more exists than does), then that would certainly check the box off. So far the only claims I've seen of that happening are in public financial analysis claims, not in the WSB data.
Also for #4 - It isn't clear there is any accused that checks off all 4 boxes, or a conspiracy between any individuals that could check off all 4 boxes. WSB isn't a single entity, and my guess is that none of the moderators on WSB are involved in this (if so, they are really dumb). WSB is regularly looked at for insider trading, and always comes out clean because they are a forum where people talk, they actively suppress anything that looks like a pump and dump (at least a normal one), etc.
For sure, and if you require a bunch of the other checkboxes be checked (ability to change price, actual change in price, artificial prices) for a single individual or in an explicit conspiracy between individuals it gets even harder still. The laws around this grew up when this was all mostly done in private or between groups of individuals that were keeping things private (at least at the start), or were paying significant money to explicitly promote something.
Posting about stuff on the internet in public and causing a defacto stampede, especially when it happens after hundreds of other unconnected strangers start posting their own thing? Not sure there is any precedent.
Definitely going to be some interesting court cases coming out of this!
WSB is not buying the stock with the purpose of pushing the price up beyond realising that by buying and holding, it makes covering short positions more difficult to cover.
Sorry, but what WSB is doing is free speech. Any analyst can get on TV and announce a price target. What WSB is doing is no different. WSB is a transparent group and everything they say can be read by the public.
Don't you think the honchos at Robinhood got the call from the man last night ? Its a coordinated ban of serfs from buying up AMC GME BB. Its got too hot for them.
No I don’t. I think the market makers/internalizers who are normally on the other side of retail trades want no part of the irrationality around these symbols so they pulled their orders.
There is no one on the other side of the book so Robinhood can’t execute. It’s standard market dynamics that anyone whose traded before understands.
That a bunch of new retail traders are about to learn an expensive lesson on execution/liquidity risk is a normal cycle.
I am not a WS insider. I just checked $GME its up 6% as the serfs moved on to other trading platforms. Obviously someone is on the otherside of the trade no ?
That price is based on the last trade to go through on a lit exchange independent of how big it is.
I don’t have a full book feed available to see what the book looks like but on my delayed free feed the last few trades were in the 300-700 sized lots. That’s tiny especially if the internalizers have pulled out.
My guess is that the book is actually showing some gigantic spread where the lowest sell price with any size is tens of dollars off the highest buy orders. But that’s speculation on my part.
[edit] later: just saw a 70k lot clear at $375. Guessing that’s some stops getting hit and clearing that level. The price immediately jumped up over $410. All of this lends credence to my belief that the GME book is crazy one sided and hard to execute into.
I would wait a few months and read the write-ups by people who have had time to ferret out the details and look at various angles.
There are a lot of "hot takes" and people thinking all this fits some "narrative". But I think there is just a lot going on and I'd be cautious about assigning too much meaning to any of it without a lot more information, which we won't have right away.
People have had enough, it's not just WSB anymore. The community of retail investors in GME is far beyond WSB. It's people that are frustrated with the 1% getting bailed out time and time again and them not seeing a dime at their tax dollar expense.
Occupy Wall Street was just 10 years ago. It was the longest demonstration in a lifetime. Nothing changed. How did nothing change? What message does this send?
The reason nothing changed with OWS is because they couldn't voice a clear message. Everyone knows they're being defrauded but the fraud is complex and difficult to communicate so instead you have this disorganized protest that amounts to very little change.
Tax the rich. Distribute the wealth that was stolen from the backs of the workers. It wasn’t said clearly because we were living in a post 9/11 era where uttering words like “socialism” was still unpopular.
Enough is enough. The only thing keeping the guillotines from coming out is a thriving middle class. Oh wait, that’s been stolen. It badly needs fixing and fast.
That’s called being civil. Would you prefer they instead break the law to have their voices heard? Do you want wall street suits to fear for their life?
>Do you want wall street suits to fear for their life?
Ideally yes, the rest of us are a missed paycheck or major health problem away from becoming homeless and there's no mathematical reason it has to be this way, it's just how we've structured our society.
I’ll see it only after a liberal party controls the executive and legislative branch in the absence of a filibuster failing to implement meaningful change.
There was a murderous insurrection bent on overthrowing democracy about 3 weeks ago. I rather think tempers are high enough that you'd get a lot of affirmative answers right now.
>Do you want wall street suits to fear for their life?
Well... yes? For less than what this guys did Louis XVI lost his head.
They can do what they want and suffer no consequences, of any sort. Neither economic (they get bailed out by us) nor personal (virtually nobody gets personally prosecuted and sent to jail). Why should they stop what they're doing? In their position, I wouldn't.
> How did nothing change? What message does this send?
nothing changed because camping out in a park for a few months without making any actionable, specific demands as a group is not a good tactic for effecting change. BLM was a bit more specific with their demands and have already received a few (if token) concessions.
The only way things will change, I'm convinced, is for everybody to vote out the incumbent every time. Occupy Wall Street didn't work, riots and looting wealthy areas didn't work, raiding the capitol building didn't work. The corruption is dug in.
Voting out the incumbent breaks all these decades long (multi-generational?) relationships with the elites. They will probably reform the relationships to a degree the first time, but if congressional membership dramatically changes every 2 years, those relationships will weaken over time.
To whomever disagrees, please help me understand your reasoning.
So then we just have to live with a police state and a corrupt government that redistributes wealth up? I mean I don't see an alternative. We're in a really bad place.
So they're going to show Wall Street who's boss by gambling away their grocery money? (Some will make out but I suspect the vast majority will lose big--money at least some can't really afford to lose.) I have trouble conjuring up a lot of sympathy but that's almost certainly uncharitable as I'm sure there will be stories of serious individual loss.
Is that any different to taking a day off work to go to a protest? Both situations have you losing money in order to bring issues to light. Same with union workers going on strike.
Yes, it's different insofar as the money you're losing in this protest is going directly into the pockets of the group of people you're protesting against. Very illogical way to protest.
Yes, because here they not only lose money, but also all the money they lose is gained by the exact thing they protest against. It’s as if they went to protest Amazon by working at their warehouse for free.
So you're saying they're even dumber than they appear at first glance? Sorry, but pissing money away (or actually likely giving it to some Wall Street institution) to send some ill-defined "message" really can't be called anything but dumb.
Even as an econometrician, I would never call it dumb. It's a virtual incarnation of Occupy Wall Street. These guys are probably spending less than those who protested several years ago did. Heck, you can buy a stock and still go to work. No need to forego weeks of labor.
I think the absurdity is why it's grown as big as it has: a bizarre combination of conditions achieved critical mass and has exploded into this unplanned, unprecedented paroxysm of pure absurdity that nobody would have predicted because it's so irrational, so stupid, yet it's happening.
You just said anyone who has ever contributed to a presidential campaign in their life is a moron. I don't see how this can be interpreted any other way, no one pisses away $100 to the Libertarian candidate expecting he's really going to save over $100 in income tax or reduced regulations the next year...
I would say that giving money to a libertarian (or other) candidate is a very clear message that you favor their policies compared to the alternatives. Yes, $100 isn't going to move the needle but neither is your individual vote in the vast majority of cases.
Do you know how this whole thing started? It seems you're just coming in and dismissing the whole thing, when the person who started it with $50k is now sitting on gains of $50m and even people who bought in yesterday are up almost 2x.
And some people who can't really afford to buy Powerball tickets every week. And a few of them hit it big. Doesn't make it a rational choice from a purely economic perspective.
Seeing it that way makes budgeting for it a lot easier (for me): I fully expect the loss of any and all money I'd bring into a casino, treating it as an admittance fee paid in exchange for the thrill of the tiny possibility of winning big, whose occurrence would probably influence me to double down and inevitably lose everything.
I hope thinking this way about retail investing reduces the risk of YOLOing one's life savings on individual stocks.
even people who bought in yesterday are up almost 2x.
Not anymore, they're not. Such are equities when the price becomes detached from reality. Any moorings one wishes to try and tie the price to, those are gone now.
As they say, past performance is not an indicator of future gains.
I can see all the pressure being applied to me to sell. Clearly some very rich and influential people want me to sell. This alone is enough to convince me not to. I don't care if it's dumb or it will go down to $0. I'm not budging.
Yeah, before today I'd have likely dismissed such comments as "conspiracy theory" but, RobinHood literally disabled the ability to buy, or even search for these stocks on their platform.
I have seen very little evidence of people investing money in the stock market that is not budgeted as “gambling” (ie disposable income). WSB embraces the idea that memetrading is gambling. This is not a surprise to anyone but a few outsiders.
But it kind of goes against the story that this is “the people” against Wall Street. “The people”, by and large, do not have a ton of spare gambling money sitting around. “Upper middle class folks with spare disposable income vs Wall Street” isn’t quite as persuasive a hook, though.
But one could argue the upper middle class's interests are aligned with the lower class. So it's “upper middle class folks with spare disposable income on behalf of everyone else vs Wall Street”, which is such a mouthful that "the people vs Wall St" is probably close enough.
Certainly. It takes money to make money. That rule hasn’t changed yet.
Many of societies big issues are intertwined so hopefully addressing one partially addresses many. The golden rule is particularly nasty: those with the gold make the rules.
Then you have not been paying attention to WSB for very long. It's full of degenerate gamblers, so many loss porn posts come from people saying, "How will I pay my rent this month?"
Most of the time, WSB is a community to commiserate about losses and lie about gains.
I feel like a lot of that sort of rhetoric on there is highly highly sarcastic. Half the time “how will I pay the rent?” Is followed by something along the lines of “my wifes boyfriend will never forgive me” the very next sentence.
I am with you historically, but people seem to be taking this way more seriously than previous similar shenanigans, so I'm re-evaluating my prior dismissals.
One of the most popular posts on WSB right now is somebody bragging they're putting their entire life savings in GameStop. I personally know people buying Gamestop that shouldn't be. It's pretty scary.
You must be missing a rash of people outside of the wsb sphere trying to create accounts with brokerages, have no idea what investment is, and trying to buy GME or others.
Those are the ones who would be left holding the bag when the music stops.
Very paternalistic to assume that people are gambling away their grocery money and should be stopped now that the short squeeze has become much, much more likely. Meanwhile ANY other security also has the chance to go to 0, but RH doesn't stop you from buying.
I don't think he's arguing FOR stopping the trades. I think he's worried about the folks participating financial well being.
We worry about that (people's retirement savings and so on) anytime we see market corrections, a given company go under, and etc... it's not an unusual concern.
That's elitism. Which is fine, it's a legitimate position, to believe that you have knowledge that others don't, and others should be protected from themselves. And the Law can step in to enforce this protection. You can apply that to stocks, "gambling", drugs, sex, porn, hate speech, misinformation, and everything else.
And there are a number of countries that have that philosophy in legal form. I'm glad to have a choice NOT to live in those countries and I suspect most on HN are similar.
I don't care if Robinhood bans trading or not. Don't have an account with them and likely never will. Aside from some fairly obvious things (states generally shouldn't advertise their lotteries for example), people should be able to do whatever they want with their money. And it's probably pretty fruitless to try to stop them from doing so in general.
To your transfer point, Robinhood inappropriately rejected my ACATS transfer that I initiated yesterday, which I started anticipating the collapse of their technical infrastructure. I was, of course, borne out correct and now I’m forced to liquidate with an app that barely works. So they’re even locking the transfer door. I’m talking to a lawyer this morning about options. help@ is silent.
Canceling orders doesn’t work, market orders on non-memes are up to 20min to execute, my profile page has been a fastfail 500 for four days, but because I held some of these famous securities their “we want you be informed during these uncertain times” (please) notifications work just fine.
If you still use Robinhood it’s time to go. Get out while it’s partially working. As an SRE I’m not sure that’s going to last, and that’s even before dissecting the business model.
Locking out a specific set of actions for a specific set of investors based on the data you collect on them while allowing one actions (sell) that inevitably drives asset price downward since that's literally the only action people can take.
We must not be reading the same subreddit then. There are many, many references of fucking with people or "sticking it to the man", and there have been for years.
Whether that constitutes "pushing an agenda" (your words, not mine) is up for debate. For example, do political anarchists "push an agenda"? Maybe not, maybe that's an oxymoron in a sense (the agenda is that there's no agenda) - but they are certainly "anti-establishment" (my words).
What makes you an authority on wsb or on anything else to be able to mandate that I "stop misguiding people", anyway?
I have a lot of trouble with this frame. Yes, hedge funds are bad. Yes, it's hilarious watching those shorts get squeezed. No, WSB are not modern Sherwood bandits trading on Robinhood. They are also engaged in what is pretty clearly a criminal conspiracy to commit securities fraud (and yes, a deliberate attempt to trigger a short squeeze is securities fraud), and they're doing it on an open internet forum. This is not going to end well for anyone involved.
Demonizing your enemies and styling yourself a hero of the people does not protect you from prosecution. We just saw that in the capitol not three weeks ago.
As for GME? Yes, that stock is coming down. Yes, the hedge fund can probably arrange financing to hold longer than the bandits can. Yes, it's probably going to be the "little guys" holding the bag at the end of this.
Assuming you're correct and this behaviour is illegal, who could the SEC prosecute?
The ultimate instigator, u/deepfuckingvalue, posts nothing but screenshots showing his position, without further comment. There don't appear to be any specific organizers within the group, and many posters claim that they are buying simply because they "like the stock." That would be a risible position for an institutional investor, but as these are individual retail investors it seems like it would be tricky to prove malfeasance.
Once again, this insistence on viewing 'Wall Street' as a monolothic entity. The largest asset management firm on Earth holds over 9 million Gamestop stock, none of the big banks that received bailouts in 08 are affected by this, 99.9% of hedge funds are not affected by this, high frequency traders are probably making a bundle. Institutional money was long Gamestop before this story entered the public consciousness. The idea of governments stepping in to bolster hedge funds is ludicrous, the whole point is that the government and SEC is hands off with them.
Ultimately, a few medium-sized hedge funds were caught doing something stupid and the market has rightfully taught them a lesson. It's great that retail investors got in on a high-level play like this and made money.
There was an immediate and emphatic appeal to the regulators, and the way the SEC works is often by encouraging self regulation. The CEO of the NASDAQ even went on air to ask for more SEC regulation.
This isn't unusual, it's pretty much how "government intervention" via the SEC, and a lot of other regulatory bodies, actually works.
...Exactly. This is by design. It's what regulators are designed to do. Medical/pharma is an exception. Usually regulators are designed to wield pressure. For long term goals, they usually steer towards more explicit "industry standards" that they can back... but they rarely author them.
For shorter term and more operational issues, pressure is the main toolkit.
Probably not any, but my understanding is that the answer to that is mostly yes because much of the incentive for these entities to self-regulate comes from the threat of worse-for-them regulations from SEC if they fail to do so in a way that SEC feels good about, and they spend a fair bit of energy communicating back and forth what those ways are, even if it's not made explicit on paper.
Look at the language of SEC (and other regulators outside of technical fields like pharma).
There are very occasional "landmark" regulations, often legislated, that are explicit. EG Sarbanes-Oxley.
Day-2-day, the SEC works mostly by signalling. They might make a policy declaration, or send letters to CEOs. They'll note things in periodic firm reviews. Publicly raise an eyebrow. Take action against or investigate one firm and publish findings. Rarely are specifically worded edicts issued.
Regulating bodies are designed to work largely through pressure instead of (ironically) through regulations. This is by design. Regulators are usually created in response to firms having won the loophole cat and mouse games, and the prohibitive complexity of actual regulations. If government wanted rules, they can just legislate directly instead of delegating to a regulator.
"Compliance" is often about staying away from trouble by playing a sort of guessing game. It doesn't mean that it's "hands off."
> Regulators are usually created in response to firms having won the loophole cat and mouse games, and the prohibitive complexity of actual regulations. If government wanted rules, they can just legislate directly instead of delegating to a regulator.
Large motivation to create regulatory bodies is expertise and focus on one (or more related) subject, and these regulatory bodies often simply recommend to the government/legislators and do the management the law mandates.
IMHO this 'suggestive' mode of operation is not usual outside of finance. (I might be wrong though, I have never seen a full list of regulatory bodies.)
How is disabling purchases and broker-wide outages not bolstering hedge funds?
There are hedge funds on both sides of this bet. So this intervention is both helping and harming "hedge funds" in equal measure depending on what side they have taken.
in the current situation, I don't think that private buyers trying the short squeeze (for which you have to hold) are really the driving force anymore. I think someone at robinhood had the (good) idea that at the current price, most people can realize a nice buck (by selling), while allowing them to buy a stock, which will probably go down a factor of 200 over the next year and currently fluctuates -50%/100% on a 20minute schedule required a casino license.
The whole idea of the short squeeze is that the hedgefunds can't buy anything anymore and the lenders want their stuff back. And if they are still overshorted and the lenders don't like to bleed them first, before initiating the squeeze I don't think that this somehow hurts retail investors. Maybe it benefits the lenders who can nicely bleed both shortsellers and the WSB+muskalike-crowd, but at the current price, where the stock has actually gone up quite a bit but stabilized, it seems quite clear that this thing is decided by the lenders now. Do they want to play the crazy game for a near bankrupt company and demand their loans from Melvin or Co. (which would probably result in fast default and them not seeing a substantial amount of their shares again with the others reduced to a pennystock) or do they just sail along, taxing the narcissistic sociopaths on one side, while slowly selling off their actual stock to then be bought by those and returned to them. I guess they decided for option 2 and I think they are not as dumb and chaddy as they look to you ;).
They don't need much capital, and I'd say that many have no outside investors. So, their trading PnL minus cost of running the operation is the net profit.
On the other hand, the trading PnL will typically be a tiny part of their total trading volume (maybe a few bp).
That is very interesting to hear! I imagined that this was the perfect storm for HFT. Lots of retail investors using default exchange routing settings via brokers like Robinhood and ETrade that sell their order flow. Meanwhile these retail investors are buying small amounts of very volatile equities! Lots of opportunity to rack up lots of pennies.
To stretch the analogy, the equivalent of an HFT firm in English folklore would probably be a toll-road operator; or a city-state customs officer accepting lesser private bribes in place of levying greater official tariffs on imported goods.
Robin Hood, by stealing from the rich and giving to the poor (in a period with commodity currency with no monetary policy), would be encouraging deal-flow (as the rich traders stolen from need to send the same goods again to fulfill their contracts; and the poor now have money to spend to purchase exotic goods, requiring more be imported by traders), in turn increasing travel on the toll-road/through the customs office, in turn making the toll-road operator/customs officer money. It would make perfect sense for the mythical Robin Hood to, in fact, be a toll-road operator/customs officer — or at least to be in cahoots with them.
(In fact, come to think of it, he wouldn't even need to steal from the rich, per se. He could just destroy trade caravans, and collect a cut of the revenue from the toll-booth operators; or destroy goods already imported but not yet sold, and collect a cut from the customs office; and then distribute said cut to the poor. The same virtuous(?) cycle would occur.)
Yeah, RobinHood and Citadel Securities (that has been backing most of the options trades here) aren't at all the good guys either. Almost all of Wall Street is a money shuffle, and the "free" trades at retail had plenty of hands skimming the pot and making their own profits.
1) they are lying to you. Look at how much the stock has traded, Its alot but its nothing compared to how much SPY trades in a year. There just wasn't' anywhere near enough trading volume to make an entire year in one week even if they participated in every trade that Gamestop had this past week.
2) they lost money last year so any profit beats last year's pnl?
Average PnL per share traded for a firm doing okay is about $0.001. A decent size firm might do 4% of ADV. Tape A trades about 1.5 billion shares per day. That’s 21 million annual trading revenue.
GME traded 1 billion shares in the past week. PnL per share has been averaging close to $0.40. At 6% ADV (HFT market share spikes during volatile periods), that’s 24 million in revenue.
Or (3) they got hit on some GME paper at the outset out of pure luck, and printed the gamma much higher. SPY volume is higher but SPY doesn't realize like GME has.
I can tell you're in the industry because you say pnl instead of p&l haha.
All those institutions are interconnected. A large hit to one player can cascade to the wider market as they're forced to sell off other positions to put up additional capital. That could cause additional sell-offs for more leveraged players. And so on... The phrase "too big to fail" exists for a reason and it's smaller than you think.
It's hard to know exactly what the repercussions were, but in my experience a lot of stocks were down yesterday, including some FAANG's and the like down 5-10%. Those numbers aren't likely to be permanent, so anyone who wanted to buy anyways got a 5-10% discount.
No need for that assumption. Equities going down is not a problem for reasonable investors. You just buy more for cheaper prices according to your schedule and wait. You still own the % of your companies. It's not worth less just because you can't temporarily sell it. It would be like saying that price of your house is fluctuating from 0 to 500k depending if there is a potential buyer today or not.
Stock market crash is only a big problem for leveraged over commited entities, very small inconvenience for people beyond accumulation phase (as they may need to sell very small % of assets in coming months) and huge opportunity for everyone else.
Stocks crashing is fantastic for a little guy. It's the same with real estate prices and it's the reason entrenched players do everything to prevent it.
I'm not talking about good vs. bad, but winner vs. loser. This is Wall St vs Wall St with retail investors taking some off the top on one side. This is not retail investors vs Wall St.
What's surprising is all the concern for redditors here and elsewhere; whilst the overwhelming vibe from r/wsb is this meme resulting in squeeze is strictly personal and not at all business for most that are holding on.
The rest (presumably greedy) are either making money or losing money because they're either riding up with the market or down. That's a feature of the zero-sum game that the financial system has been reduced to both the benefit and the detriment of the greed that's on all sides of the table.
Where did I say that? They've been taught a lesson via losing a lot of money, and now they know will be a lot of eyeballs on any future trades of a similar nature.
Losing billions of dollars in one of the biggest trading stories ever seems fairly consequential and will likely affect their future behaviour. That combined with the newfound knowledge that the type of trade they made can be picked up on and exploited is also likely to affect their future behaviour (i.e. don't do that again).
Sure it is, and most of us have enough capacity for shame that it works on us. Do you think Bernie Madoff feels ashamed about the money he lost? People who have no shame are very powerful, which is exactly why we need actual, meaningful punishment for people like this.
I was wondering if this was really a pump and dump made to look like a short squeeze. Now I'm 100% convinced that this is what it is. All those people buying a couple hundred shares via Robinhood are going to lose their shirts.
Sure, but Gabe Plotkin is the uber-wallstreeter. All the rich-but-average Chosen Ones who get internships because of mommy and daddy look at what guys like him accomplish and think, "someday that too can be mine."
This is like that scene in 300 where Leonidas makes Xerxes bleed. The point isn't that Wall Street has fallen. It's that, for once, Wall Street is fallible.
If you know the term LPs you should know the typically senior management at hedge funds have a significant portion of their net worth invested in their own funds.
The fund and it's investors may lose a lot. The people running the fund will not. But it's important to remember that it's a matter of scale here. Billions is a lot to a midwestern retail worker who put half his rent check into a volatile stock. It's not a lot to large groups of already-wealthy investors who have a portion of their portfolio invested with this one fund.
You don't think losing his fund would have any personal or reputational effect on him, just because he has plenty of money to live, or do something else?
Wall Street is driven by money, relationships, and reputation. Obviously, Plotkin lost money here in terms of his this-year payout. But I believe he also takes a hit in other ways.
On Money: Plotkin's fund lost money for his investors, all of whom are rich people who will be upset with him. There will probably be some redemptions, and AUM will go down -- not just because he lost some of it, but because investors will pull out some of what remains.
On Reputation: Plotkin ends up with egg on his face because he held the bag for a bunch of mom-and-pop investors on Robin Hood. You know how Soros is known for famously breaking the Pound Sterling? Plotkin is now known for infamously being broken by GME.
On Relationships: Plotkin lost even after getting an injection of liquidity from Cohen and Griffin. That can't be good for his standing with those two power players.
"Hedge fund managers typically have a substantial amount of their own capital invested in the funds they manage, and a significant portion of their compensation is based upon the absolute, or positive, performance they achieve for their investors. As New York Attorney General Eliot Spitzer observed recently, the interests of hedge fund managers and their investors tend to be "aligned", largely due to this combination of the managers' commitment of capital to their funds and the performance-based compensation structure."
Its nice that more people are coming to this realization, though I'll admit that it's a bit funny that this, of all events, is what's making people realize that extreme wealth disparity is a problem.
The existence of billionaires isn't even good for the free market, let alone free society. In order for a market to be rational, the threat of losing money has to actually mean something, which it doesn't for the ultra-rich.
Eh. The problem isn't that billions or billionaires exist at all. I see no issue with that.
The problem is systems that resist merit. You make terrible investment decisions with the portfolio but it doesn't matter? (I think it will matter FWIW.)
There doesn't seem to be any singular person in this case to assign such fault to; best I can tell the over-shorting was caused by multiple firms acting independently, and I'd guess that the orders were signed off on by multiple people at each firm (and I'm not inclined to suspect any collusion here; in a thunderstorm people sell umbrellas, and in a pandemic people short retail).
In the meantime, the billionaire owner of Citadel (the company that just made tons of money by front-running all these retail investor trades via their data harvesting contract with Robinhood) just used some of that freshly-acquired cash to buy a stake in Melvin (the company that those retail investors just tanked) for pennies on the dollar. The feel-good rage of WSB serves as a convenient smokescreen for the rich getting richer.
While I enjoy the esprit de corp of this particular discussion, the recurring allusions to "David vs Goliath"-esque tales are rather cringe-inducing and really speak to the maturity level of those involved (if that wasn't already clear by their "tendies").
The image I have in my head is less LOTR defenders or David(s) vs Goliath, and more of a horde of zombies that broke through a barrier and jumped some guards, but are about to be mowed down by a well-armed group behind a barricade. This isn't going to end well for the retailers - but hell if isn't sending a message.
Also the collateral damage is going to be more interesting to follow than the financials themselves. Already Discord and RobinHood painted themselves as enemies of the people - whether this was their least bad option legally, or they were influenced by Wall Street is immaterial - it's already viewed as the latter. Couple that with other high-profile bans by social media platforms this year (and it's not even February!), and I can see a lot of regular people all across the political spectrum who feel abused by big, rich companies. I think the last time we saw this kind of energy on the Internet, it led to Scientology protests, Occupy WallStreet and the Arab Spring...
I would have imagined you could read the business category of any major news outlet on any given day and see the fallibility, but I think you're right that that may be a common interpretation of this event.
As repeated Reddit, the shorts are still oversubscribed and the short squeeze has yet to start. Retail investors are around 15% -- there are many index funds that are invested, perhaps they might be the last ones holding? Even so, I'll be damned if I understand anything about this.
I think it's interesting that "accredited investors" (e.g. 1MM in assets) can unionize to play in the stock market (e.g. hedge funds) but that the majority of Americans aren't permitted to unionize due to SEC rules. They are stuck with index funds. It's like we only allow top earners to be wolves and force everyone else to be sheep.
Thank you, I appreciate this level headed response. The populist outrage fueled by anonymous Reddit users who are often either lying outright or wildly speculating is completely out of control.
We really need to get those vaccines out, people are going insane...
>> this insistence on viewing 'Wall Street' as a monolithic entity.
That's not a fair statement. "Wall Street" isn't viewed as a monolithic entity. It's viewed as an entity, or industry. In fairness, Wall Street is even more insular than other industries that we happily refer to as a group: Petrogas, real estate developers, silicon valley, etc.
Right now it looks like retail investors stuck it to Wall Street and made some money because GME is still over $400/share this morning. Everyone holding GME can look at their app and feel great.
But not everyone is going to be able to sell it at $400... or even $100 in some cases. It will be interesting to see how everyone feels after the sell off.
Sure, once the squeeze is over they'll be holding expensive stock in a fundamentally near-worthless company. But then, they're probably Bitcoin believers too.
I think the argument remains that GME is not fundamentally a near-worthless company and some of these investors are probably right that it was hugely undervalued by all the funds shorting it (maybe not to the tune of $400 a share, but many of those investors have seemed to have been whales, not average joes). Retail is down in the pandemic, but it is not out. My opinions that GME is the biggest pawn shop operation in the US makes me look down on the shops from a high horse that I don't currently feel a need in my personal life for pawn shops, but America as whole will always need pawn shops.
For a lot of people buying GME, it's not about making money. It's about sticking it to hedgers that they feel didn't just expect GameStop to file bankruptcy but hoped for it.
What is worrying, is that a lot of people are going to be left holding the bag.. And I dont see this retail trading squeeze not hurting some regular retail investors..
> Short interest as a percentage of float above 20% is extremely high
> A high NYSE short interest ratio means that the stock market as a whole is vulnerable to a “short-squeeze.” It could rise quickly if new economic data, political news, or other types of information are released that make investors more optimistic.
GME was shorted 140%.
No idea if 20% being risky is sage advice but it seems like you're totally right: some hedge funds took on a massive risk, the market saw the opportunity and played the other side.
There are 100 shares. A owns 90 of them, B owns 10. A lends her 90 shares to C, who shorts them all to D. Now A owns 90 shares, B owns 10 and D owns 90—there are 100 shares outstanding, but190 shares show up on ownership lists. (The accounts balance because C owes 90 shares to A, giving C, in a sense, negative 90 shares.) Short interest is 90 shares out of 100 outstanding. Now D lends her 90 shares to E, who shorts them all to F. Now A owns 90, B 10, D 90 and F 90, for a total of 280 shares. Short interest is 180 shares out of 100 outstanding. No problem! No big deal! You can just keep re-borrowing the shares. F can lend them to G! It's fine.
Oh, and by the way: Now A has 20 shares left (out of a 100 long position), C has 20 shares left (out of a 80 long position), and E has 60 shares (out of 60 long position).
Now assume that entity E is redditors/RobinHood/financial justice warriors that pledge to hold, and not let anyone borrow their shares, to squeeze the bad bad shorts B and D. So, FJW/HODLers control 60% of the shares now, and will never ever lend or sell!
A: 100 long (=20 shares, 80 lent), B: 80 short (=0 shares, 80 borrowed), A+B together net 20 long (the rest is held by C, D, E)
Well, so no A can sell, say 10 shares to B:
A: 90 long (=10 shares, 80 lent), B: 70 short (=10 shares, 80 borrowed), A+B together net 20 long (the rest is held by C, D, E)
And now, B returns those same 10 shares to A:
A: 90 long (=20 shares, 70 lent), B: 70 short (=0 shares, 70 borrowed), A+B together net 20 long (the rest is held by C, D, E)
Well, so no A can sell, again, say 10 shares to B:
A: 80 long (=10 shares, 70 lent), B: 60 short (=10 shares, 70 borrowed), A+B together net 20 long (the rest is held by C, D, E)
And now, B returns those same 10 shares to A:
A: 80 long (=20 shares, 60 lent), B: 60 short (=0 shares, 60 borrowed), A+B together net 20 long (the rest is held by C, D, E)
As you see, with only 10 shares circulating, and 60 shares in the hands of HODLers, B can happily reduce their short exposure. Let those shares circulate in this manner a bit more, and you end up with:
A: 20 long (=20 shares, 0 lent), B: 0 short (=0 shares, 0 borrowed), A+B together net 20 long (the rest is held by C, D, E)
Now, B is out of their short and flat, A has the same 20 shares it had at the beginning, and only a 20 long position now, and C, D, E keep holding their 80 shares net together.
Now, C,D can also drive down their position, we end up with A holding 20 shares, C holding 20 shares, and E holding 60 shares.
TL;DR: as long as 1 share is circulating, the shorts can reduce their position to zero, even if the majority of shares is held by never-lenders, never-sellers.
And now the market can collapse, and E is left holding the bag.
This is fascinating. Is Melvin Capital the "B" in this situation, and that's how they "closed their short positions" earlier today? It just shuffled hands between the other funds?
A lens to look at this through is - "why is short selling allowed?" Advocates cite increased "liquidity." But, does society really benefit? Short-selling really just lets trading firms extract value from the failure of others. In that sense - professional trading firms that participate in short-selling could be grouped into a monolithic "Wall Street" in the sense that they are extracting value without a benefit for society.
Most advocates argue that short-sellers help find the accurate price of a security, in service of the broader market goal of capital allocation. People who argue that markets should be long-only wind up advocating for frauds and failures to be mispriced in the market.
Liquidity is not usually the primary benefit. That’s usually the argument for high frequency trading firms.
Personally, I am not a fan of shorting but in addition to "liquidity" there is also "price discovery". Using excess leverage to short and floating 150% of the shares short is potentially a problem but the same would be true if it was the reverse (ie. buy or long positions). Price manipulation is the real problem here.
Given more capital and a reasonable amount of time, the short sellers in this instance will be correct. The value of the GameStop stock using commonly accepted valuation methods of our day is much lower than $300 or even $100 per share. Unfortunately brick-and-mortar companies with declining revenue and no visible growth prospects are valued differently than high flying tech stocks. Keep in mind that I understand the rules of the game dictate that shorts can be squeezed and the share does not have to trade at the commonly accepted valuation.
A company existing is not just automatically a good thing. If there weren't any Gamestop stores anymore that opens up the retail space for, say, Micro Center or Fry's Electronics to step in and fill that role and do a better job, create more jobs, etc. That's true also for all the other resources Gamestop consumes, their exclusive contracts with businesses, pre-order bonuses, underpaid labor, whatever.
There's a term, 'Zombie Corporations' for businesses that are both stagnant and also generally aren't very beloved by their customers, but are still able to stay in business due to some localized monopolistic factors. Those kinds of companies exist in every sector and still 'make money' but they're usually the kind of companies short sellers target.
Getting rid of them is not some fundamental ill of society - yes it could in theory make some people lose their jobs, but it also keeps the economy going. If this kind of things didn't happen it would be impossible for new businesses to come up and with those new businesses new job creation, new ideas, etc.
The act of shorting a stock puts downward pressure on the stock price, similar to the way buying a stock puts upward pressure on it.
Suppose you see an ongoing pump-n-dump---sketchy pseudoinformation being passed around to raise the price of a stock someone has already bought, so they can sell later. If you short the stock, you act to reduce the price excursion and potentially help the eventual victims.
Suppose it's not a pump-n-dump, but rather "irrational exuberance"---people buying a stock and raising the share price for non-economic reasons. Short selling applies alternate pressure on the stock price, reducing the effects of a subsequent correction.
because it’s a free country. why would we restrict people from taking loans and who is the government to say the loan has to be denominated in dollars instead of shares?
short sellers have also discovered a lot of fraud companies because they have a monetary incentive
and for society as a whole, we should want the markets to price things accurately. things that are overpriced just means capital that isn’t being used somewhere else efficiently
it may seem ugly but capitalism is creative destruction. it’s an evolutionary system, the weak need to die so the strong can thrive
I agree with this mostly, but you can't deny that the swift action Wall Street firms/brokers have made to protect the interests of those effected hedge funds.
> a few medium-sized hedge funds were caught doing something stupid and the market has rightfully taught them a lesson.
Individually, what they were doing (shorting that stock) might have been perfectly sensible. That they collectively overshorted made them vulnerable. I'm not convinced yet that it was stupid.
> Ultimately, a few medium-sized hedge funds were caught doing something stupid
Shorting a company that sells a physical product in malls during a pandemic is stupid? It seems their intuition is correct but there was a black swan event.
Shorting a company to the extent that you have enough leverage to go bankrupt? Not the brightest move. Shorting it so that you may not be physically able to satisfy the sales? That's window-licking territory.
Yep, and this is a particularly silly article. One group of investors caught another group making a spectacularly poor decision. It just happens that the first group are retail traders (I'm not sure I would call them "investors").
This story is far less dramatic than the media is making it out to be. Short-sellers are a fringe group within the industry who often totally fail on trades (short selling is a pretty risky bet with an unlimited downside). This situation is definitely not monumental or new. Retail investors have been pumping stocks for the last 100 years. They contributed to the crash of 1929 and the dot com bubble, for instance. No they didn't have a subreddit to express themselves, they instead were driven by newspapers and pundits to direct their trades, but a similar premise nonetheless.
Ultimately, a few medium-sized hedge funds were caught doing something stupid and the market has rightfully taught them a lesson. It's great that retail investors got in on a high-level play like this and made money.
Why is betting on the decline of an off-line video-game chain stupid? I'm surprised GameStop is even still in business.
I'm wondering about this. I was a little skeptical of the whole David-vs-Goliath bring-down-wall-st thing. But if it's really true that this is just one small and low-relevance hedge fund getting their ass handed to them for doing something dumb, then why does it feel like there's a whole machine trying so hard to tear down /r/wallstreetbets and distort the entire retail investing market to stop it?
Why did Discord ban their server on a flimsy pretext right at the height of the attention? Why is there a sudden flood of articles about how this is all so very concerning in the mainstream financial press? Why are they mobilizing the universal weapon of calling everything they don't like Nazis?
Nobody cares about these two hedge funds in particular, but they are concerned in general about retail investors having some way to band together to move a (very small) market. If it can happen to one fund it can happen to any random fund on Wall Street and that kind of risk and uncertainty can’t be allowed.
Same mentality when companies that try to fight unions forming, even those forming at their competitors. A few Amazon employees want to form a union? The entire retail industry will suddenly show their support for Amazon. Can’t set the president of allowing the little guy anywhere to get used to being able to band together and take collective action.
Nobody would be complaining if they lost a ton of money on a stupid trade. In fact they would be posting loss porn on the front page of the subreddit and laughing about it. In fact, some WSBers did short GME and lost a bunch of money.
But when the hedge funders get caught then for some reason it's bad and Reddit or Robinhood or the government needs to step in and fix the situation. Instead, we should all be laughing over Melvin Capital's loss porn.
How do you know there isn't a russian doll scenario of sock puppets all the way down, and some other hedge fund isn't going to profit in a few months from all of this on a trade we never heard about? After all, the hedge fund industry as a whole does better, not worse, when there is lots of churn, even when that churn means places with names like Melvin every now and then go under. I admit this scenario is not likely, but still, the should statements can be misleading, and I don't recommend them.
One thing to know about the stock market is that it gives the real time price of a stock, but also the real time price to set the price of a stock (by matching the order book volume up to the price you want to reach, then maintaining it).
Feel like the platforms are helping out hedge funds by making it challenging to put more pressure on the short squeeze before Friday. Sounds a bit like a cartel in co-ordinating activity under the guise of "reducing risk exposure" - shepherded on by the Financial media.
Trade itself is no longer on technical merits (except those in early) but have you looked at valuations across the stock market these days -- everything is off given pandemic. So that line of reasoning by all the financial talking heads just proves they don't understand the moment.
It's pretty reckless behavior for sure but its more about rage and control then anything imho.
That everything is off is just your assessment which a lot of people disagree with.
When it's difficult to do business and make better use of the money then equites are more attractive place to keep your money. This is especially true with a lot of additional money supply and low interest rates.
It makes perfect sense to me why we had the run we had during the pandemic. Anything else would be a big surprise.
Right ... that works until you have decide to move your money out of equities. At which point it is a race to the exit. Once the next rotation happens don't get caught being flat footed.
And I disagree - I do think everything is off (not just the markets being highly volatile). With many people making record money this year and human suffering being at the highest levels and considerable outrage everywhere, it feels like something is breaking down in society (at least North America). There is something very amiss right now, which I am sure we will be able to determine with the benefit of hindsight. Hopefully we can pick up and move on quickly post pandemic.
I am not attaching a judgement to my assessment. It's just an observation that equites are worth more when money supply increase and new business opportunities are difficult to come by.
If you have a box producing 4k usd per year people may want to pay around 100k for it on normal times but when you can't find any other investments and the government is pumping money into the economy then suddenly the box becomes way more valuable. It's after all better to buy it for 150k even if it produces 3k instead of 4k than to just your money in the bedroom mattress. This same mechanism that causes stocks to rally every time a big player (EU or US) announces another QE round
What I find interesting is that RobhinHood has removed GME, AMC, BB, and other WSB darlings. This immediately caused massive drops before market opening. Why does this read poorly to me? I don't do much trading on RH, but I had been using it to monitor the prices as I passively follow this saga. People are upset, and I get it.
So you're telling me that by buying GameStop stock, I can help screw over hedge fund managers? I have not bought a single stock in my whole life, but I'm in. How do I start?
You're probably late to the party here. Reddit is holding for $1000, but there comes a point where the funds would be so unable to fulfil their shorts that any ones left holding it will declare bankruptcy rather than pay, and you lose yours too.
Even if you're willing to risk throwing away some money to "stick it to the man", it will take a while - It may be easier in the US, but I signed up to Degiro to get some shares a couple of months ago and it was a fairly lengthy process even for Europe's closest equivalent to Robinhood. Day long stops in the process for e.g. putting in a verification transaction, or for degiro to do their kyc diligence etc, and the consensus is that the finale to this gamestop thing is friday, one way or the other.
When have hedge funds been bailed out by the government? Especially over a single stock? Even if a small hedge fund or two go bankrupt this doesnt affect the economy much and there is no chance the government will bail them out. This isn't all of wallstreet on the line at all.
Although there is definitely a David/Goliath fairness scandal in here, this piece doesn't seem to know the difference between market makers, brokers, and hedge funds.
Market maker: guy who makes money standing in the market all day so that when you come, you don't have to wait hours for a dude who wants to buy your shipment of pork.
Broker: offers you access to the market, and often lends you money as well. Needs scale, is often a lot of marketing, both in getting the customers, and in getting the customers to actually trade.
Hedge Fund: Umbrella term for an investment company that can do a very wide range of things. They can buy art, or fund litigation. Often we just mean they buy and sell stocks, and take some of the profits when things go well.
So, I am really an outsider to all this, but it's amazing to me that a market maker is a thing. Like, why is that guy not replaced by a computer? They never get tired, and they don't screw up. (usually)
The author seems to have bought in a bit too much into the narrative in the WSB forum. This post reads more like a regurgitation of the grandiose pronouncements you see there rather than an insightful analysis of the situation.
477 comments
[ 5.3 ms ] story [ 152 ms ] threadI'm not so sure
Also get ready for the 100+ opinion pieces on every media platform about this so everyone can get their ad dollars.
Here [0] he talks the first time about the GME stock; the video was uploaded on the 28th of July, 2020 and the stock was at $4.03 back then.
Here [1] you can find his latest GME update; he's sitting on $50 Mio. right now, although it's quite volatile.
Here [2] you can see a post from his Reddit account on November 2019 showing his GME calls.
It's just crazy and fascinating at the same time.
[0] https://www.youtube.com/watch?v=GZTr1-Gp74U
[1] https://www.reddit.com/r/wallstreetbets/comments/eick65/gme_...
[2] https://www.reddit.com/r/wallstreetbets/comments/e3kpbc/gme_...
$GME is up 11% as of the writing of this post. Who is buying it?
This is actually making me angry to watch.
-edit-
I had like one share - Robinhood just sold my shares without me ordering it. Dunno what happened there.
I know RobinHood messed up here. But... they never had a good reputation to begin with. Its an open secret that RobinHood's entire setup is kind of crap.
My understanding is TD Ameritrade is only blocking the purchase of stock on margin. If you have the cash, you're allowed to make the purchase.
The lender. As in all loans. As is in every detail described in one’s margin contract.
For example, with InteractiveBrokers "long stock positions [of AMC, BB, EXPR, GME, and KOSS] will require 100% margin and short stock positions will require 300% margin until further notice".
https://twitter.com/IBKR/status/1354792600004386818
The context of this subthread is this message https://news.ycombinator.com/item?id=25942677 about brokers allowing the buying of GME but not on margin (and how they don't have to disallow the use of margin for every stock for that).
That may explain why they had to block trading in the stock. Margin losses almost inevitable at this point. But legal said they couldn't block lending on a single name. Their TOS, however, permit them to suspend trading in single names.
I was at the gym yesterday and heard like 5 people talking about stocks: gme, amc, bb. Everyone is trying to get in on this and they're trying to stop it. They bogged gme at open to scare people and now it's back up. If they didn't remove the option for users to buy they surely would have bought the dip.
Keep in mind that this is very likely a zero-sum game. At some point the bubble will pop, and as many people as gained money on the way up will lose money on the way down.
GME has now become a $25B hedge fund with a gaming focus. They absolutely have the ability to become long term successful given these black swans they just experienced.
Now, I know *nothing* about their management, but they at least have been given a chance. Their's an Eminem song that they should be playing throughout their buildings right now. If I were them I'd sell more shares, pay down any bad debt, and invest in 10-100 of the best black swan ideas of my rank and file and see what happens.
I think you're confusing their market cap with their balance sheet. A $25B hedge fund has $25B in assets, but a $25B market cap does not mean that they have access to anywhere near that amount of capital.
Sure, maybe they could issue a dilutive follow-on offering and bring in some cash, but who knows where the stock price will be by the time they get through the paperwork on that. And they're currently losing about half a billion per year on about $6B in revenue, so I'm not sure that an extra billion or so in cash is going to fundamentally remake the company....
Didn't know about the $500M lost on $6B in revenue, but gaming is a growing market, they just got a ton of free advertising, so seems like they have a chance to do something great.
Robinhood isn't the only investment platform that allows trades on NYSE obviously. Evidently though, it had the highest volume when it comes to GME it seems.
If you're a long GME holder who feels like this price is temporary: you can buy calls or sell puts (bull-trades). Or, you can sell calls or buy puts (bear-trades).
If you own a ton of the underlying and are willing to be "forced to sell" the stock, selling calls would be a marvelous option to benefit from the uncertainty of the situation. Worst case scenario, you end up holding the GME stock (ie: lost the game of musical chairs). But you'll be paid for that risk.
Indeed, this entire situation is analogous to the economics of running a GameStop-like trading post, where preorders are allowed. The store wants to sell lots of preorders in order to stay afloat even outside of release seasons, and customers want to purchase preorders in order to guarantee a low price for hyped releases. This is just like the original purpose of derivatives, which were to ensure that foodstuffs would be fairly priced for both farmers and grocers, even when prepaying for not-yet-grown crops.
One would hope that GameStop would not sell preorders that it cannot guarantee from game publishers; if a game publisher promises only 100 copies to a particular brick-and-mortar, then they would be in big trouble if they took 140 preorders.
Now, folks generally agree that GameStop's business model is on the way out. The stock should not be worth much, because there is not much to say about the future of the corporation, and so not much point in participating in corporate governance. But instead, it is overly-shorted, with about 140% of shares sold short. That is no longer in the spirit of derivatives, but is now a magic trick.
[0] https://en.wikipedia.org/wiki/GameStop_short_squeeze
This will leave the original holders of the shares (the ppl the shorters borrow the money from) with a stock worth less than $200, but maybe more than their original purchase.
If the retail investors don't "get out", then definitely a few will be caught with the bag, but I think its mostly going to be institutional investors paying crazy prices for this stock.
https://www.sec.gov/Archives/edgar/data/1326380/000083423721...
>BlackRock Inc. trimmed its holdings in Gamestop, Inc. (NYSE:GME) by 18.23% during the 4th quarter, according to the company in its most recent Form 13G/A filing with the SEC. The firm now owns 9,217,335 shares of GME, which represents 13.20% ownership.
If all the shit to stem the tide works: shutting down discord and personal trading platforms, halting trading, yada yada works then WSB will be holding the bag. I wouldn’t really mourn their loss either because it’s a meme stock bought by people who can afford to can afford to lose.
GameStop just also got $100M-$1B in free advertising (maybe someone in the ad biz could weigh in with a better estimate on that).
If the GameStop management allocates their newfound wealth well, this stock is just as likely to perform as well as any other $25B company.
They could do something like sell $2B in fresh capital and invest it in a slew of gaming startups, who then suddenly have distribution figured out.
Lots of creative ways they can not squander their windfall.
I know nothing about their management, but have seen many many people get a double and then hit a grand slam.
All comes down to the management.
1. Big hedge fund bet against GameStop stock (shorted up to 140% of the stock, it's called naked short and everybody thought it was illegal since 2008 but that's another story)
2. Lot of small-to-medium investors coordinated over Reddit to take the opposite "bet" en masse (basically buying a lot of GameStop shares) so that the price will go up and "big hedge fund" lose a lot of money.
=> The plan worked. It's a first. Hence the news coverage.
Edit: Typos and formatting
A naked short is when you short a stock without first borrowing it. It is not the same thing as having shorts past 100% of outstanding shares, since a single share can be lent multiple times.
Which one is more insane?
Early on, the bets had some basis in reality, but now it's become more of a speculation game.
Yesterday, two of the big institutional investors decided to fold, effectively loosing 100% of their investments. Edit: or, potentially more.
The same thing has started happening to a few other stocks.
I linked to the Bloomberg Money Stuff column a couple of other places, but I'll post the links here too for a more thorough (and humorous) overview:
Monday: https://www.bloomberg.com/news/newsletters/2021-01-25/money-...
Tuesday: https://www.bloomberg.com/opinion/articles/2021-01-26/will-w...
Yesterday: https://www.bloomberg.com/opinion/articles/2021-01-27/reddit...
They can lose much more than the total value they initially invested into the shorts, since they have to buy back at several multiples of the price of the stock at the point they bought and they had heavy borrow costs too. That's why the hedge funds are at risk of going bankrupt - because they aren't only liable for the value they invested but they're liable for the whatever cost it takes to buy back the stocks they shorted.
The 100% number came from a video that someone at Citron Capital posted. I can't find the actual video, but it's quoted at https://www.bloomberg.com/news/articles/2021-01-27/melvin-ca...
However, I'm not sure about Melvin - they may well have lost more than 100%.
The trading stops and laws that exist to prevent this kind of wild volatility are basically because for 90% of people, this is not good. By the time your parents read about this in the paper and log into their TD Ameritrade accounts to "invest", they'll be in that group of people left holding the bag.
In all the talk of conspiracy around this I'm surprised nobody is discussing the possibility that larger investors are likely manipulating/hyping the WSB community. The WSB community is acting untouchable but I get the feeling in the end they'll be the ones losing their money.
Basically hedge funds promised to buy 140% of available GME stock which is impossible.
It's entirely possible a majority of retail investors make a killing and a few large funds get liquidated. At least it was until the coordinated action to protect those hedge funds today.
- “We’re going to put these hedge funds into bankruptcy”
- “These hedge funds will buy all our stocks at inflated prices”
If the hedge funds can buy all the stock, they’re not at risk of going bankrupt.
And if they are at risk of going bankrupt, they can’t buy all the stock at inflated prices.
A lot of retail investors are going to lose money when this bubble pops. /r/wsb has not invented a new way for everyone to get free money.
Fundamentally the funds made an extremely risky bet and the market is (or was at one point) seemingly reasonably and expectedly betting against it with a short squeeze. The new part is the social hype driving the squeeze via an army of retail investors.
Agree some retail investors are inevitably going to be left with a net loss here, which will suck. But it was (and may still be) a reasonable play when viewing the market as a gambling platform (which the funds were doing by over-shorting).
My hope is that the people claiming to be cashing out their 401k on GME are partaking in anonymous internet hyperbole to fuel the hype and the vast majority are gambling with a few bucks they can afford to gamble with because they can't do anything else right now.
Notably, public forums are not included as part of a boiler room scam.
You agree that, without notice, _Robinhood may terminate these Terms and Conditions, or suspend your access to the Service or the Content, with or without cause at any time and effective immediately._ [...] Robinhood shall not be liable to you or any third party for the termination or suspension of the Service or the Content, or any claims related to such termination or suspension.
tl;dr: we can change what you can do on Robinhood at any time for any (or no) reason at all, and you can't do anything about it.
[1] https://old.reddit.com/r/wallstreetbets/comments/l6w4uo/robi...
[2] https://d2ue93q3u507c2.cloudfront.net/assets/robinhood/legal...
What WSB crowd is doing is market manipulation. That's illegal. WSB is doing everything openly and even celebrating it. Getting mad when openly breaking the law is not rational response. https://www.law.cornell.edu/uscode/text/15/78i
Brokers like Robinhood are reacting because they want too keep SEC out of their asses and prevent SEC doing something even worse to their customers.
Stock Markets like nasdaq are reacting to volatility, like they usually do in abnormal situation.
Shorting GME more than number stocks exist is not market manipulation? HFT isn't? Bailing out greed isn't?
Why is this notion of market manipulation such a narrow one-way street?
Moving the goal-posts here, but yes, this ought to be the catalyst to do just that. Changes to regulations may yet happen (not that I agree with it); kind of seems inevitable at this point.
No, it's just a risky play (as long as not naked) that can blow up and that's fine.
>HFT isn't?
No, HFT provides a service, like it or not. You might think the service isnt worth it but it's not market manipulation.
>Bailing out greed isn't?
That one usually isn't (most bailouts are other private actors' loans) but yes, I guess it can be if it allows actors to make risky plays without having real risk.
That said, what WSB is doing here isn't market manipulation either.
It's not, though - rich people get in trouble for this all the time. Bernie Madoff is going to die in prison for running a finance scam. Enough people were convicted of insider trading in the 80's that they made a movie about it - and the movie was just called "Wall Street". None of this is new.
This has to be a joke.
When the dust finally settled and anuses stopped bleeding, they discovered that they were coaxed to rape each other by Kings son who disguised himself as a commoner in the village subreddit. What made it worse was that King's son was involved in raping during the rape fest but somehow avoided getting raped himself.
Let's see if that's how this plays out.
Also, ignoring the fact that whilst the peasants are merely slapping each other on their wrists, they're really in fact looking to take the King who doesn't jive like them, to the guillotines.
A bunch of people hyping each other up? Also talking in public about what they like. If that moves markets? That happens.
If that opportunity is a short squeeze (which it still appears to be - newest data I can find is GME is still at 120%+ short interest), then it gets really really confusing - and I'm not sure how this is going to sort out.
People going on public news networks saying they've 'got out' and other articles talking about folks no longer being short - that would be clear market manipulation if not true.
What happened satisfies the four part test for market manipulation. But you would have to figure out the suspects who actually match the test. Most participants are just fools.
(1) That the accused had the ability to influence market prices; (2) that the accused specifically intended to create or effect a price or price trend that does not reflect legitimate forces of supply and demand; (3) that artificial prices existed; and (4) that the accused caused the artificial prices.
It isn't clear that #2 is satisfied. Telling people that there is an opportunity for a short squeeze to occur is also not that different from normal technical analysis, which stock analyists do all the time. Even setting a price target is not illegal. Porsche did a short squeeze on VW and Elon is quite blatant about squeezing shorts in TSLA, and they've been fine despite profiting handsomely from it. Citron was clearly 'stating their opinion' on GME being worthless, but since they disclosed their position (short on GME), they are fine.
What typically makes it illegal is lying about your own stake, or prices, or data, or plans in an attempt to influence the market. Most smart analysts don't hold positions in what they are talking about, but some do, they disclose them, and they're good.
If someone makes a trade, makes it public, and tells everyone why - and they think it's a great idea - then it doesn't meet the test IMO.
Additionally for #3 - no one that I am aware of is using anything but public pricing data based on free and open market trading data, so it's hard to claim artificial prices existed. If someone has been publishing fake data (so claiming no short interest exists when it does, or more exists than does), then that would certainly check the box off. So far the only claims I've seen of that happening are in public financial analysis claims, not in the WSB data.
Also for #4 - It isn't clear there is any accused that checks off all 4 boxes, or a conspiracy between any individuals that could check off all 4 boxes. WSB isn't a single entity, and my guess is that none of the moderators on WSB are involved in this (if so, they are really dumb). WSB is regularly looked at for insider trading, and always comes out clean because they are a forum where people talk, they actively suppress anything that looks like a pump and dump (at least a normal one), etc.
edit: add a lot of info on the 4 point test
Posting about stuff on the internet in public and causing a defacto stampede, especially when it happens after hundreds of other unconnected strangers start posting their own thing? Not sure there is any precedent.
Definitely going to be some interesting court cases coming out of this!
It is not illegal.
Trading against shorts instead of fundamentals isn't market manipulation.
Matt Levine's column from 2 days ago, for example, goes over some of those questions to a decent degree: (possible paywall)
https://www.bloomberg.com/opinion/articles/2021-01-26/will-w...
There is no one on the other side of the book so Robinhood can’t execute. It’s standard market dynamics that anyone whose traded before understands.
That a bunch of new retail traders are about to learn an expensive lesson on execution/liquidity risk is a normal cycle.
I don’t have a full book feed available to see what the book looks like but on my delayed free feed the last few trades were in the 300-700 sized lots. That’s tiny especially if the internalizers have pulled out.
My guess is that the book is actually showing some gigantic spread where the lowest sell price with any size is tens of dollars off the highest buy orders. But that’s speculation on my part.
[edit] later: just saw a 70k lot clear at $375. Guessing that’s some stops getting hit and clearing that level. The price immediately jumped up over $410. All of this lends credence to my belief that the GME book is crazy one sided and hard to execute into.
There are a lot of "hot takes" and people thinking all this fits some "narrative". But I think there is just a lot going on and I'd be cautious about assigning too much meaning to any of it without a lot more information, which we won't have right away.
Enough is enough. The only thing keeping the guillotines from coming out is a thriving middle class. Oh wait, that’s been stolen. It badly needs fixing and fast.
Ideally yes, the rest of us are a missed paycheck or major health problem away from becoming homeless and there's no mathematical reason it has to be this way, it's just how we've structured our society.
2. It was stupid.
3. It violated the principles of our society.
That is the point I’m trying to demonstrate. Solutions come from within, not without.
Well... yes? For less than what this guys did Louis XVI lost his head.
They can do what they want and suffer no consequences, of any sort. Neither economic (they get bailed out by us) nor personal (virtually nobody gets personally prosecuted and sent to jail). Why should they stop what they're doing? In their position, I wouldn't.
nothing changed because camping out in a park for a few months without making any actionable, specific demands as a group is not a good tactic for effecting change. BLM was a bit more specific with their demands and have already received a few (if token) concessions.
Voting out the incumbent breaks all these decades long (multi-generational?) relationships with the elites. They will probably reform the relationships to a degree the first time, but if congressional membership dramatically changes every 2 years, those relationships will weaken over time.
To whomever disagrees, please help me understand your reasoning.
Meanwhile this financial system is hardly just a monolithic monster and plenty of big institutions will make money too.
I think the populist ideas / results around this are all weirdly misguided.
https://www.youtube.com/watch?app=desktop&v=AsTCB0ud2zM
I don’t particularly care if it goes to $10 tomorrow. I don’t expect to make money here. It’ll be fun to watch for a few days, maybe weeks.
We just felt a lot of solidarity with the sentiment over there, and are happy to make a small contribution to the squeeze.
It feels kind of like contributing to a Kickstarter with low chance of success.
But you know, there’s a nonzero chance it goes to $1000 before the shorts can wiggle out. That’s what makes it exciting.
In general, since watching what they did to Tesla I have no sympathy for shorts.
I hope thinking this way about retail investing reduces the risk of YOLOing one's life savings on individual stocks.
Not anymore, they're not. Such are equities when the price becomes detached from reality. Any moorings one wishes to try and tie the price to, those are gone now.
As they say, past performance is not an indicator of future gains.
Many of societies big issues are intertwined so hopefully addressing one partially addresses many. The golden rule is particularly nasty: those with the gold make the rules.
Most of the time, WSB is a community to commiserate about losses and lie about gains.
That's something I'd say to be funny, especially on reddit.
Those are the ones who would be left holding the bag when the music stops.
We worry about that (people's retirement savings and so on) anytime we see market corrections, a given company go under, and etc... it's not an unusual concern.
When I see 'concern trolling' I usually think of it as just a term slapped on something to hand wave and ignore it.
And there are a number of countries that have that philosophy in legal form. I'm glad to have a choice NOT to live in those countries and I suspect most on HN are similar.
Canceling orders doesn’t work, market orders on non-memes are up to 20min to execute, my profile page has been a fastfail 500 for four days, but because I held some of these famous securities their “we want you be informed during these uncertain times” (please) notifications work just fine.
If you still use Robinhood it’s time to go. Get out while it’s partially working. As an SRE I’m not sure that’s going to last, and that’s even before dissecting the business model.
Certain brokerages also have commercial relationships with the people who are in the short position.
Feels like a conflict/abuse of your power.
I've been in WSB for ages, and it was, is and will always be about the money.
What these journalists got wrong or are lying about is wsb being mainly an anti-establishment movement.
Whether that constitutes "pushing an agenda" (your words, not mine) is up for debate. For example, do political anarchists "push an agenda"? Maybe not, maybe that's an oxymoron in a sense (the agenda is that there's no agenda) - but they are certainly "anti-establishment" (my words).
What makes you an authority on wsb or on anything else to be able to mandate that I "stop misguiding people", anyway?
https://www.reddit.com/r/wallstreetbets/comments/l6omry/an_o...
https://www.forbes.com/sites/giacomotognini/2020/11/12/mit-s...
Demonizing your enemies and styling yourself a hero of the people does not protect you from prosecution. We just saw that in the capitol not three weeks ago.
As for GME? Yes, that stock is coming down. Yes, the hedge fund can probably arrange financing to hold longer than the bandits can. Yes, it's probably going to be the "little guys" holding the bag at the end of this.
It's criminals all around as far as I can see.
Can you provide a source for that statement?
> Yes, it's probably going to be the "little guys" holding the bag at the end of this.
I agree 100%.
I'm sure things would have worked out differently for Nixon had he distributed a press release regarding an up-coming DNC burglary beforehand.
The ultimate instigator, u/deepfuckingvalue, posts nothing but screenshots showing his position, without further comment. There don't appear to be any specific organizers within the group, and many posters claim that they are buying simply because they "like the stock." That would be a risible position for an institutional investor, but as these are individual retail investors it seems like it would be tricky to prove malfeasance.
Ultimately, a few medium-sized hedge funds were caught doing something stupid and the market has rightfully taught them a lesson. It's great that retail investors got in on a high-level play like this and made money.
It's government intervention no matter how you look at it. Just because it's not a direct capital infusion does not make it any less bad
There was an immediate and emphatic appeal to the regulators, and the way the SEC works is often by encouraging self regulation. The CEO of the NASDAQ even went on air to ask for more SEC regulation.
This isn't unusual, it's pretty much how "government intervention" via the SEC, and a lot of other regulatory bodies, actually works.
For shorter term and more operational issues, pressure is the main toolkit.
There are very occasional "landmark" regulations, often legislated, that are explicit. EG Sarbanes-Oxley.
Day-2-day, the SEC works mostly by signalling. They might make a policy declaration, or send letters to CEOs. They'll note things in periodic firm reviews. Publicly raise an eyebrow. Take action against or investigate one firm and publish findings. Rarely are specifically worded edicts issued.
Regulating bodies are designed to work largely through pressure instead of (ironically) through regulations. This is by design. Regulators are usually created in response to firms having won the loophole cat and mouse games, and the prohibitive complexity of actual regulations. If government wanted rules, they can just legislate directly instead of delegating to a regulator.
"Compliance" is often about staying away from trouble by playing a sort of guessing game. It doesn't mean that it's "hands off."
> Regulators are usually created in response to firms having won the loophole cat and mouse games, and the prohibitive complexity of actual regulations. If government wanted rules, they can just legislate directly instead of delegating to a regulator.
Large motivation to create regulatory bodies is expertise and focus on one (or more related) subject, and these regulatory bodies often simply recommend to the government/legislators and do the management the law mandates.
IMHO this 'suggestive' mode of operation is not usual outside of finance. (I might be wrong though, I have never seen a full list of regulatory bodies.)
There are hedge funds on both sides of this bet. So this intervention is both helping and harming "hedge funds" in equal measure depending on what side they have taken.
Is it? Do we have some information on that yet?
Why does disabling purchases help?
(It also prevents J. Naive Trader from buying into this train wreck and losing a bucket of money when the bottom falls out, which it will.)
https://financialpost.com/news/fp-street/rbc-online-banking-...
The whole idea of the short squeeze is that the hedgefunds can't buy anything anymore and the lenders want their stuff back. And if they are still overshorted and the lenders don't like to bleed them first, before initiating the squeeze I don't think that this somehow hurts retail investors. Maybe it benefits the lenders who can nicely bleed both shortsellers and the WSB+muskalike-crowd, but at the current price, where the stock has actually gone up quite a bit but stabilized, it seems quite clear that this thing is decided by the lenders now. Do they want to play the crazy game for a near bankrupt company and demand their loans from Melvin or Co. (which would probably result in fast default and them not seeing a substantial amount of their shares again with the others reduced to a pennystock) or do they just sail along, taxing the narcissistic sociopaths on one side, while slowly selling off their actual stock to then be bought by those and returned to them. I guess they decided for option 2 and I think they are not as dumb and chaddy as they look to you ;).
I've heard from a former colleague at a major HFT firm, that they hit their entire revenue target for the year, just in the past week.
They don't need much capital, and I'd say that many have no outside investors. So, their trading PnL minus cost of running the operation is the net profit.
On the other hand, the trading PnL will typically be a tiny part of their total trading volume (maybe a few bp).
Robin Hood, by stealing from the rich and giving to the poor (in a period with commodity currency with no monetary policy), would be encouraging deal-flow (as the rich traders stolen from need to send the same goods again to fulfill their contracts; and the poor now have money to spend to purchase exotic goods, requiring more be imported by traders), in turn increasing travel on the toll-road/through the customs office, in turn making the toll-road operator/customs officer money. It would make perfect sense for the mythical Robin Hood to, in fact, be a toll-road operator/customs officer — or at least to be in cahoots with them.
(In fact, come to think of it, he wouldn't even need to steal from the rich, per se. He could just destroy trade caravans, and collect a cut of the revenue from the toll-booth operators; or destroy goods already imported but not yet sold, and collect a cut from the customs office; and then distribute said cut to the poor. The same virtuous(?) cycle would occur.)
1) they are lying to you. Look at how much the stock has traded, Its alot but its nothing compared to how much SPY trades in a year. There just wasn't' anywhere near enough trading volume to make an entire year in one week even if they participated in every trade that Gamestop had this past week.
2) they lost money last year so any profit beats last year's pnl?
I’m in the industry. I stand by what I said:)
You said something that was flagrantly wrong, I’m just trying to help correct you.
Average PnL per share traded for a firm doing okay is about $0.001. A decent size firm might do 4% of ADV. Tape A trades about 1.5 billion shares per day. That’s 21 million annual trading revenue.
GME traded 1 billion shares in the past week. PnL per share has been averaging close to $0.40. At 6% ADV (HFT market share spikes during volatile periods), that’s 24 million in revenue.
I can tell you're in the industry because you say pnl instead of p&l haha.
Stock market crash is only a big problem for leveraged over commited entities, very small inconvenience for people beyond accumulation phase (as they may need to sell very small % of assets in coming months) and huge opportunity for everyone else.
Stocks crashing is fantastic for a little guy. It's the same with real estate prices and it's the reason entrenched players do everything to prevent it.
Just take a look at the shareholders and count how many shares those institutional have: https://money.cnn.com/quote/shareholders/shareholders.html?s...
It's Wall Street vs Wall Street - redditors were just the catalyst, and will be left holding the bag.
The rest (presumably greedy) are either making money or losing money because they're either riding up with the market or down. That's a feature of the zero-sum game that the financial system has been reduced to both the benefit and the detriment of the greed that's on all sides of the table.
There's no distinction between the two, if you have that mindset you will be left holding the bag even if you think you won.
Has it? What leads you to believe that THIS is the time investment firms will stop being reckless?
This is like that scene in 300 where Leonidas makes Xerxes bleed. The point isn't that Wall Street has fallen. It's that, for once, Wall Street is fallible.
Even if the fund tanks, they can set up a new one, probably with sympathetic money or just cruise off into the sunset with their millions.
I don't buy it.
The problem is bigger than originally conceived then.
On Money: Plotkin's fund lost money for his investors, all of whom are rich people who will be upset with him. There will probably be some redemptions, and AUM will go down -- not just because he lost some of it, but because investors will pull out some of what remains.
On Reputation: Plotkin ends up with egg on his face because he held the bag for a bunch of mom-and-pop investors on Robin Hood. You know how Soros is known for famously breaking the Pound Sterling? Plotkin is now known for infamously being broken by GME.
On Relationships: Plotkin lost even after getting an injection of liquidity from Cohen and Griffin. That can't be good for his standing with those two power players.
https://www.sec.gov/spotlight/hedgefunds/hedge-mfa.htm
You're starting to get it.
The existence of billionaires isn't even good for the free market, let alone free society. In order for a market to be rational, the threat of losing money has to actually mean something, which it doesn't for the ultra-rich.
The problem is systems that resist merit. You make terrible investment decisions with the portfolio but it doesn't matter? (I think it will matter FWIW.)
In the meantime, the billionaire owner of Citadel (the company that just made tons of money by front-running all these retail investor trades via their data harvesting contract with Robinhood) just used some of that freshly-acquired cash to buy a stake in Melvin (the company that those retail investors just tanked) for pennies on the dollar. The feel-good rage of WSB serves as a convenient smokescreen for the rich getting richer.
Also the collateral damage is going to be more interesting to follow than the financials themselves. Already Discord and RobinHood painted themselves as enemies of the people - whether this was their least bad option legally, or they were influenced by Wall Street is immaterial - it's already viewed as the latter. Couple that with other high-profile bans by social media platforms this year (and it's not even February!), and I can see a lot of regular people all across the political spectrum who feel abused by big, rich companies. I think the last time we saw this kind of energy on the Internet, it led to Scientology protests, Occupy WallStreet and the Arab Spring...
I think it's interesting that "accredited investors" (e.g. 1MM in assets) can unionize to play in the stock market (e.g. hedge funds) but that the majority of Americans aren't permitted to unionize due to SEC rules. They are stuck with index funds. It's like we only allow top earners to be wolves and force everyone else to be sheep.
Hehe.
We really need to get those vaccines out, people are going insane...
That's not a fair statement. "Wall Street" isn't viewed as a monolithic entity. It's viewed as an entity, or industry. In fairness, Wall Street is even more insular than other industries that we happily refer to as a group: Petrogas, real estate developers, silicon valley, etc.
But not everyone is going to be able to sell it at $400... or even $100 in some cases. It will be interesting to see how everyone feels after the sell off.
Guess what's changed in the 56 minutes since you posted this?
GME: $265.00
Though I think it had dipped into around $380 by the time of parent post, and heading down. But someone bought at $430 this morning.
We won’t know for days who makes money and who doesn’t. It certainly won’t be everyone.
> Short interest as a percentage of float above 20% is extremely high
> A high NYSE short interest ratio means that the stock market as a whole is vulnerable to a “short-squeeze.” It could rise quickly if new economic data, political news, or other types of information are released that make investors more optimistic.
GME was shorted 140%.
No idea if 20% being risky is sage advice but it seems like you're totally right: some hedge funds took on a massive risk, the market saw the opportunity and played the other side.
There are 100 shares. A owns 90 of them, B owns 10. A lends her 90 shares to C, who shorts them all to D. Now A owns 90 shares, B owns 10 and D owns 90—there are 100 shares outstanding, but190 shares show up on ownership lists. (The accounts balance because C owes 90 shares to A, giving C, in a sense, negative 90 shares.) Short interest is 90 shares out of 100 outstanding. Now D lends her 90 shares to E, who shorts them all to F. Now A owns 90, B 10, D 90 and F 90, for a total of 280 shares. Short interest is 180 shares out of 100 outstanding. No problem! No big deal! You can just keep re-borrowing the shares. F can lend them to G! It's fine.
If the person who bought the shorted share lends it to someone else to short, one share has been shorted twice.
Now there are 240 long positions (100 A, 80 C, 60 E), and 140 short positions (80 B, 60 D), for a net 100 long, as before.
Short interest is 140/100 = 140% of the shares outstanding.
Now assume that entity E is redditors/RobinHood/financial justice warriors that pledge to hold, and not let anyone borrow their shares, to squeeze the bad bad shorts B and D. So, FJW/HODLers control 60% of the shares now, and will never ever lend or sell!
A: 100 long (=20 shares, 80 lent), B: 80 short (=0 shares, 80 borrowed), A+B together net 20 long (the rest is held by C, D, E)
Well, so no A can sell, say 10 shares to B:
A: 90 long (=10 shares, 80 lent), B: 70 short (=10 shares, 80 borrowed), A+B together net 20 long (the rest is held by C, D, E)
And now, B returns those same 10 shares to A:
A: 90 long (=20 shares, 70 lent), B: 70 short (=0 shares, 70 borrowed), A+B together net 20 long (the rest is held by C, D, E)
Well, so no A can sell, again, say 10 shares to B:
A: 80 long (=10 shares, 70 lent), B: 60 short (=10 shares, 70 borrowed), A+B together net 20 long (the rest is held by C, D, E)
And now, B returns those same 10 shares to A:
A: 80 long (=20 shares, 60 lent), B: 60 short (=0 shares, 60 borrowed), A+B together net 20 long (the rest is held by C, D, E)
As you see, with only 10 shares circulating, and 60 shares in the hands of HODLers, B can happily reduce their short exposure. Let those shares circulate in this manner a bit more, and you end up with:
A: 20 long (=20 shares, 0 lent), B: 0 short (=0 shares, 0 borrowed), A+B together net 20 long (the rest is held by C, D, E)
Now, B is out of their short and flat, A has the same 20 shares it had at the beginning, and only a 20 long position now, and C, D, E keep holding their 80 shares net together.
Now, C,D can also drive down their position, we end up with A holding 20 shares, C holding 20 shares, and E holding 60 shares.
TL;DR: as long as 1 share is circulating, the shorts can reduce their position to zero, even if the majority of shares is held by never-lenders, never-sellers.
And now the market can collapse, and E is left holding the bag.
Liquidity is not usually the primary benefit. That’s usually the argument for high frequency trading firms.
It's almost like they forgot who Christian Bale portrayed in that movie.
Being on the short side isn't a problem per se. Having 140% short float is.
Given more capital and a reasonable amount of time, the short sellers in this instance will be correct. The value of the GameStop stock using commonly accepted valuation methods of our day is much lower than $300 or even $100 per share. Unfortunately brick-and-mortar companies with declining revenue and no visible growth prospects are valued differently than high flying tech stocks. Keep in mind that I understand the rules of the game dictate that shorts can be squeezed and the share does not have to trade at the commonly accepted valuation.
There's a term, 'Zombie Corporations' for businesses that are both stagnant and also generally aren't very beloved by their customers, but are still able to stay in business due to some localized monopolistic factors. Those kinds of companies exist in every sector and still 'make money' but they're usually the kind of companies short sellers target.
Getting rid of them is not some fundamental ill of society - yes it could in theory make some people lose their jobs, but it also keeps the economy going. If this kind of things didn't happen it would be impossible for new businesses to come up and with those new businesses new job creation, new ideas, etc.
Suppose you see an ongoing pump-n-dump---sketchy pseudoinformation being passed around to raise the price of a stock someone has already bought, so they can sell later. If you short the stock, you act to reduce the price excursion and potentially help the eventual victims.
Suppose it's not a pump-n-dump, but rather "irrational exuberance"---people buying a stock and raising the share price for non-economic reasons. Short selling applies alternate pressure on the stock price, reducing the effects of a subsequent correction.
short sellers have also discovered a lot of fraud companies because they have a monetary incentive
and for society as a whole, we should want the markets to price things accurately. things that are overpriced just means capital that isn’t being used somewhere else efficiently
it may seem ugly but capitalism is creative destruction. it’s an evolutionary system, the weak need to die so the strong can thrive
Individually, what they were doing (shorting that stock) might have been perfectly sensible. That they collectively overshorted made them vulnerable. I'm not convinced yet that it was stupid.
Shorting a company that sells a physical product in malls during a pandemic is stupid? It seems their intuition is correct but there was a black swan event.
Would I start a company to sell physical video games, in malls, in a pandemic? Hell no.
Would I short it to the extent that it the shares become ‘rare’ enough to induce a lot of demand? Also, hell no.
Both extremes are....not clever.
Why is betting on the decline of an off-line video-game chain stupid? I'm surprised GameStop is even still in business.
Why did Discord ban their server on a flimsy pretext right at the height of the attention? Why is there a sudden flood of articles about how this is all so very concerning in the mainstream financial press? Why are they mobilizing the universal weapon of calling everything they don't like Nazis?
Same mentality when companies that try to fight unions forming, even those forming at their competitors. A few Amazon employees want to form a union? The entire retail industry will suddenly show their support for Amazon. Can’t set the president of allowing the little guy anywhere to get used to being able to band together and take collective action.
But when the hedge funders get caught then for some reason it's bad and Reddit or Robinhood or the government needs to step in and fix the situation. Instead, we should all be laughing over Melvin Capital's loss porn.
Trade itself is no longer on technical merits (except those in early) but have you looked at valuations across the stock market these days -- everything is off given pandemic. So that line of reasoning by all the financial talking heads just proves they don't understand the moment.
It's pretty reckless behavior for sure but its more about rage and control then anything imho.
And I disagree - I do think everything is off (not just the markets being highly volatile). With many people making record money this year and human suffering being at the highest levels and considerable outrage everywhere, it feels like something is breaking down in society (at least North America). There is something very amiss right now, which I am sure we will be able to determine with the benefit of hindsight. Hopefully we can pick up and move on quickly post pandemic.
If you have a box producing 4k usd per year people may want to pay around 100k for it on normal times but when you can't find any other investments and the government is pumping money into the economy then suddenly the box becomes way more valuable. It's after all better to buy it for 150k even if it produces 3k instead of 4k than to just your money in the bedroom mattress. This same mechanism that causes stocks to rally every time a big player (EU or US) announces another QE round
Even if you're willing to risk throwing away some money to "stick it to the man", it will take a while - It may be easier in the US, but I signed up to Degiro to get some shares a couple of months ago and it was a fairly lengthy process even for Europe's closest equivalent to Robinhood. Day long stops in the process for e.g. putting in a verification transaction, or for degiro to do their kyc diligence etc, and the consensus is that the finale to this gamestop thing is friday, one way or the other.
As long as you are cool with your actions making a bunch of different hedge fund mangers richer at the same time.
I see that you've been HODLing some GME. Sorry bro, have to charge you with economic terrorism. Nothing personal.
When Goldman, JP Morgan, et al finally take the hit, we all know that DC will rush to their aid. It has happened before, and it will happen again.
Nobody is buying these worn-out wall street apologetics.
Broker: offers you access to the market, and often lends you money as well. Needs scale, is often a lot of marketing, both in getting the customers, and in getting the customers to actually trade.
Hedge Fund: Umbrella term for an investment company that can do a very wide range of things. They can buy art, or fund litigation. Often we just mean they buy and sell stocks, and take some of the profits when things go well.
For all the things that are "guy" above, computers are heavily involved.