Anyone want to explain the Gamestop thing

[katilac]

2 minutes ago, Spy Car said:

And more critically, markets depend on prevention unethical actors from colluding together to distort stock valuations. Nothing about this is OK.

Bill

 

Colluding is between two rival companies, so it doesn't apply to the people chatting about Gamestop on social media. Do you think there was collusion between companies here? 

[Spy Car]

2 minutes ago, katilac said:

 

By creating a false impression via deception if we gonna get all bold about it, lol. I don't think, "They're shorting Gamestop, I think it's a great time to buy!" comes anywhere near that. I mean, buying tanking stocks is very, very common. Buy low, sell high. 

No. By artificially affecting the valuation of a stock. This is a classic case of stock manipulation. Nothing about Gamestop's financials justify the current stock price (which will inevitably crash). Who will be left holding the bag?

Bill

[katilac]

9 minutes ago, Lecka said:

Fine -- or a service.  

The service of a casino is the amusement of gambling, like paying money to see a movie. You are also paying for your "free" drinks, so that's at least one tangible item besides money. 

[Spy Car]

1 minute ago, katilac said:

Colluding is between two rival companies, so it doesn't apply to the people chatting about Gamestop on social media. Do you think there was collusion between companies here? 

Collusion isn't limited to companies. The Reddit situation is novel in that it has opened up new ground for stock market manipulation. The novel aspect doesn't make it any more tolerable or less of a threat to markets.

Bill

[Bootsie]

6 minutes ago, Murphy101 said:

So in this case it’s debatable. Some might have done it just to screw the hedge funds but they also could have bought just because they saw an opportunity. Seems to me the answer should be to make short selling illegal. Which I would fully support. 

What? None of this is necessarily true. Lots of businesses do not have products and inventory.  Most banks for example. It’s all digital numbers that only mean what we agree they mean. No bank keeps actual gold bricks in their vault for example. Not that the dollar is based on gold anymore.  These hedge funds companies are businesses.   

I think when we learn more, we will find that there were not a lot of people who just saw GME all of a sudden as a great opportunity--a company with a great future that warranted a valuation of 60 times its book value.  

There is evidence that short selling helps stabilize, rather than destabilize the market. 

[Ausmumof3]

2 hours ago, Bootsie said:

Melvin Capital claims to have closed out its GME positions on Tuesday; that would have been when the stock was still below $150, indicating that it was not the hedge funds buying at $350 on Wednesday.  That is the "little guy" buying at $350--and who is going to bet hurt.  

This would probably put Melvin at loosing about $100 per share it had shorted.  If it was short 30 million shares  (almost 1/2 of the shares shorted), that would be a $3 billion loss. 

Hedge Funds do not have to report their short positions in stocks, but they do report their options positions.  In the last filing of options positions Melvin had put options for 2,000,000 shares of GME.  It is likely that the loss in value on this put options is what is hurting Melvin more than covering its short positions.

This was from Reuters - 

“Earlier this week prominent hedge funds Citadel and Point72 Asset Management extended a $2.75 billion financial lifeline to the fund. People familiar with the fund said it lost almost 30% in the first three weeks of January.”

 

[katilac]

3 minutes ago, Spy Car said:

Collusion isn't limited to companies.  

Sorry, companies or people who are rivals. I don't see how this would apply to people who have no connection to a stock market firm, and no connection to GameStop or its rivals. 

 

[Bootsie]

22 minutes ago, katilac said:

The stock market is frequently irrational. 

As will all things, the definition is very important.  People begin using the words rational and irrational and mean very different things.  If you go back to the economics meaning of rational it is simply that people make choices based upon what they think will increase their utility the most.  People would be irrational to say "I think this will decrease my happiness so I will do it..."  In this sense market players are rational.

Rational and correct (or even wise and prudent) are not synonyms.  So people, may become emotional and purchase a stock at $350 because at the moment they may think they are going to be able to sell it for $700 and make a big profit because they will realize that the Emperor Has No Clothes before everyone else and make an unwise decision, but they are being rational in their decision.

[Lecka]

2 minutes ago, Bootsie said:

Rational and correct (or even wise and prudent) are not synonyms.  So people, may become emotional and purchase a stock at $350 because at the moment they may think they are going to be able to sell it for $700 and make a big profit because they will realize that the Emperor Has No Clothes before everyone else and make an unwise decision, but they are being rational in their decision.

This is a good point.  

[Ausmumof3]

1 hour ago, Bootsie said:

Personally, I think the cynical answer is simplistic and misses the broader issues.  The SEC wants to stop market manipulation as soon as it occurs, mainly to stop the little guy from being hurt.  I think that there is evidence that continued trading is destabilizing, not stabilizing, to the market at this point.  

What do you make of this claim?  Disclaimer - I don’t know who this person is so I’m not putting this here for politics just to know what you make of the stated facts.

 

[Bootsie]

3 minutes ago, Ausmumof3 said:

What do you make of this claim?  Disclaimer - I don’t know who this person is so I’m not putting this here for politics just to know what you make of the stated facts.

 

I think that when all is said and done with some of the investigations that there will be a lot of pieces of information that come out that are not known to us.  Personally, I am not a fan of RobinHood.  But, I think it has found itself in a difficult position.  I think it may find itself on one hand being accused of being part of stock manipulation.  I also haven't kept up with the specifics of the Redditors, but if they were specifically encouraging people to buy GME through RobinHood rather than another platform, RobinHood's participation might be questioned.  If this letter is correct that the Redditors encouraged readers to buy GME through RobinHood, the questions that would come to my mind is why if the purpose is to let readers know that there is a good investment idea/possibility (rather than to try to manipulate price) would they care what broker is used.  

[Ausmumof3]

19 minutes ago, Bootsie said:

I think that when all is said and done with some of the investigations that there will be a lot of pieces of information that come out that are not known to us.  Personally, I am not a fan of RobinHood.  But, I think it has found itself in a difficult position.  I think it may find itself on one hand being accused of being part of stock manipulation.  I also haven't kept up with the specifics of the Redditors, but if they were specifically encouraging people to buy GME through RobinHood rather than another platform, RobinHood's participation might be questioned.  If this letter is correct that the Redditors encouraged readers to buy GME through RobinHood, the questions that would come to my mind is why if the purpose is to let readers know that there is a good investment idea/possibility (rather than to try to manipulate price) would they care what broker is used.  

They were definitely trying to manipulate the price I think.  I mean the stated aim seems to have been to cause problems for the hedge funds by keeping the price high?  Not to make a personal gain.  But I’m guessing the law doesn’t care about the motive for the manipulation, only whether it was illegal behaviour or not. They probably didn’t think it would be so successful though.  

[Ausmumof3]

I have a couple more thoughts on this

https://www.bbc.com/news/amp/uk-england-nottinghamshire-55849192?__twitter_impression=true

this was kind of entertaining 

This strategy was probably successful in part because of the nostalgia around Gamestop as a company.  If GameStop could figure out how to harness that nostalgia they might do themselves some good.

We as a society have a problem when one of the most significant banking, investment things is complicated to the point that average people don’t understand it.  Maybe school math needs to include more on how these financial markets etc work.  I’m going to be looking into adding this to our high school curriculum.

I for one did not know it was possible to borrow shares.  I knew it was possible to borrow money to buy shares but I didn’t know shares were a thing you could borrow to trade on.  I still don’t know what the security is that you put against shares when you borrow them.  

[Ausmumof3]

It looks like the shares are still up at $371?

 

 

 

[Spy Car]

52 minutes ago, katilac said:

Sorry, companies or people who are rivals. I don't see how this would apply to people who have no connection to a stock market firm, and no connection to GameStop or its rivals. 

 

Not true. Any two individuals can collude. This was mass collusion--which is still collusion to manipulate a stock's value.

Bill

 

 

[Moonhawk]

1 hour ago, Ausmumof3 said:

What do you make of this claim?  Disclaimer - I don’t know who this person is so I’m not putting this here for politics just to know what you make of the stated facts.

 

Just as a small point: the letter claims that "the heavily followed reddit page 'r/wallstreetbets' and their administrators advocated that their followers purchase Gamestop stock using the broker Robinhood." This is inaccurate account and understanding of how Reddit works.

There is no one person-in-charge or team ("Administrators") of r/wallstreetbets that advocated anything -- I don't even know who the mods (moderators) of the page are, and I doubt many casual subscribers do.

One person posted on an open forum their information and stated what they would be doing with it. Yes, they encouraged others to join in, and it gained steam, but saying that the "reddit page ... and their administrators advocated that their followers" do anything is just incorrect, and I'm concerned how incorrectly-phrasing this can change the entire narrative. I don't know who would really benefit from the misunderstanding, but it's an easy thing to get right so IDK why the time wasn't taken to do so on an official document.

Also, you wouldn't really say "followers" as in "devotees" or "believers", it's followers as in "subscribers" or "readers". Using "advocated" + "followers" gives vibes of the former to me, I don't know if that was intentional or not.

eta: It'd be like saying, "Well Trained Mind and its administrators advocated that their followers purchase Speed Queen washers" just because there have been positive posts on the forum about Speed Queens.

Edited January 29, 2021 by Moonhawk

[Spy Car]

1 minute ago, Moonhawk said:

Just as a small point: the letter claims that "the heavily followed reddit page 'r/wallstreetbets' and their administrators advocated that their followers purchase Gamestop stock using the broker Robinhood." This is inaccurate account and understanding of how Reddit works.

There is no one person-in-charge or team ("Administrators") of r/wallstreetbets that advocated anything -- I don't even know who the mods (moderators) of the page are, and I doubt many casual subscribers do.

One person posted on an open forum their information and stated what they would be doing with it. Yes, they encouraged others to join in, and it gained steam, but saying that the "reddit page ... and their administrators advocated that their followers" do anything is just incorrect, and I'm concerned how incorrectly-phrasing this can change the entire narrative. I don't know who would really benefit from the misunderstanding, but it's an easy thing to get right so IDK why the time wasn't taken to do so on an official document.

Also, you wouldn't really say "followers" as in "devotees" or "believers", it's followers as in "subscribers" or "readers". Using "advocated" + "followers" gives vibes of the former to me, I don't know if that was intentional or not.

In any case, it was an organized effort to artificially manipulate the value of a stock. That is stock manipulation and it should be treated as a serious financial threat.

Bill

[Lilaclady]

2 hours ago, Thatboyofmine said:

@Bootsie, can you explain fractional shares to me?   Not that it has anything to do with this topic, lol, but I got a notice from Robinhood saying no fractional shares and I don't know what that is.  You buy like a 1/4 of something and three other people buy the remaining and y'all split the profit?   🤷🏻‍♀️

Fractional shares just means you are buying a part of a share instead of a whole share. The broker- Robinhood or fidelity or cashApp will allow investors to split a share usually because the price is too high. My kids have an account they are using to follow the stock

market and bought fractional shares so Berkshire Hathaway class A that sells for $344,100 they bought $20 worth which is a ridiculously small fraction. Some brokers just started allowing fractional shares to allow people to buy stocks that would otherwise be too expensive. 

[Bootsie]

1 hour ago, katilac said:

 

Rational decision making is not actually a requirement of the stock market. 

I'm pretty sure they're going to eat you first, Bill. 

Doesn't it get tiresome, though, to always have the solution for the common person to support a company by shopping (by definition, SPENDING money) and the rich to support a company by buying and selling stocks (the intention of MAKING money)?

But, I think you are using the term "support" to mean to very different things.  If I buy a share of GME today, I am not supporting the company.  If Redi bought the stock for $18 a few weeks ago and I buy the stock today for $318 today, I am buying the stock from Redi (not GameStop).  Redi makes a $300 profit.  GameStop does not make a cent from this transaction.  GameStop is not being supported by this action  

The irony is:  I think some Redditors bought the stock for $5-$50 and THEN encouraged others to buy the stock, so the Redditors can make lots of money selling the stocks to the little guy.  All the while, the little guy thinks he is hurting the hedge fund and supporting GameStop.  The little guy is now holding a stock that they paid $300 a share for and the only way they can make money is to find someone who is willing to pay MORE than $300 now--and I don't think the Redditors or the HedgeFunds are going to do that.  

[Arcadia]

https://www.cbsnews.com/news/reddit-wallstreet-bets-executive-payday/

“Corporate executives reap millions from Reddit stock frenzy

Since January 1, executives at BlackBerry and GameStop have been selling stock, cashing in a total of more than $22 million in stock. Of late, they've also gotten a major boost from the loose collective of amateur traders on social media who have relentlessly bid up the companies' shares and at least some of whom have declared it their mission to divert profits from Wall Street to Main Street.

There is no allegation of improper insider trading connected with any of the trades. And multiple experts told CBS MoneyWatch they see re no evidence any of the corporate insiders and executives who recently sold GameStop and BlackBerry shares have done anything wrong. 

Still, a person familiar with the stock sales told CBS MoneyWatch that GameStop has in recent days moved to restrict executives and insiders from selling additional shares. 

Executives and insiders have been exiting at the same time Wallstreetbets participants have been pushing their members to snap up the stock. 
...

The bank accounts of four directors of troubled retailer GameStop have also benefited from the Reddit raiders. GameStop has lost nearly $1.6 billion over the past three years. Its sales recently slumped by 30%, and it is in the process of closing 1,000, or about 20%, of all its stores. Yet shares of the company have soared from about $17 at the beginning of the year to $315 on Friday.

Since the beginning of the year, four members of GameStop's board of directors have pocketed $20 million from selling company stock. One of the sellers was Kurt Wolf, a money manager and former executive consultant who joined GameStop's board last year. Hestia Capital, Wolf's investment fund, unloaded more than two-thirds of its stake in GameStop in January, grossing Wolf and his clients just over $17 million.
...

But Gorman also underlined that executives who do sell stock aren't breaking any rules. Corporate boards have no ability to stop executives from selling into a sudden stock run provided the gains aren't connected to inside information.

"This is outsider information," he said.

The problem is that stock compensation is suppose to align executives with the broader fortunes of the corporation. In the case of GameStop and BlackBerry, the executives and insiders appear to be benefiting from the frantic speculation in the companies' stock — not any real improvement in their business.”

 

[Ausmumof3]

31 minutes ago, Spy Car said:

In any case, it was an organized effort to artificially manipulate the value of a stock. That is stock manipulation and it should be treated as a serious financial threat.

Bill

If someone posted on Wtm forum that say 

instapot shares of kiltco.com shares 

were the thing to buy would that count as manipulation?

im not arguing with you btw just trying to figure out where the line is between casual chat and market manipulation.

[Acorn]

I like my Neat steamer.

[Ausmumof3]

9 minutes ago, Acorn said:

I like my Neat steamer.

Manipulation!  

[Bootsie]

Another thing that people are ignoring is that institutional participants can now short GME, borrowing the stock and selling it at $350 (to the little guy) and may be able to buy it back at $20 in a few months.  If there was an intent to hurt a few hedge funds that were heavily short, now there is an opportunity for many hedge funds to make HUGE profits shorting the stock.  

[Bootsie]

15 minutes ago, Ausmumof3 said:

If someone posted on Wtm forum that say 

instapot shares of kiltco.com shares 

were the thing to buy would that count as manipulation?

im not arguing with you btw just trying to figure out where the line is between casual chat and market manipulation.

It would not necessarily be--but it could be.  If the person was holding the stock, and promoting that the stock is worth $350, with plans to sell the stock themselves in it reaches $150 per share it would be manipulation.  If the person has inside information--it would be a violation of securities laws.  Some would also depend upon whether the person was personally involved in the market as a broker, fund manager, analyst, etc.  The person may also be precluded from trading the stock personally for a certain length of time from making the statement.  

[Bootsie]

27 minutes ago, Arcadia said:

https://www.cbsnews.com/news/reddit-wallstreet-bets-executive-payday/

“Corporate executives reap millions from Reddit stock frenzy

Since January 1, executives at BlackBerry and GameStop have been selling stock, cashing in a total of more than $22 million in stock. Of late, they've also gotten a major boost from the loose collective of amateur traders on social media who have relentlessly bid up the companies' shares and at least some of whom have declared it their mission to divert profits from Wall Street to Main Street.

There is no allegation of improper insider trading connected with any of the trades. And multiple experts told CBS MoneyWatch they see re no evidence any of the corporate insiders and executives who recently sold GameStop and BlackBerry shares have done anything wrong. 

Still, a person familiar with the stock sales told CBS MoneyWatch that GameStop has in recent days moved to restrict executives and insiders from selling additional shares. 

Executives and insiders have been exiting at the same time Wallstreetbets participants have been pushing their members to snap up the stock. 
...

The bank accounts of four directors of troubled retailer GameStop have also benefited from the Reddit raiders. GameStop has lost nearly $1.6 billion over the past three years. Its sales recently slumped by 30%, and it is in the process of closing 1,000, or about 20%, of all its stores. Yet shares of the company have soared from about $17 at the beginning of the year to $315 on Friday.

Since the beginning of the year, four members of GameStop's board of directors have pocketed $20 million from selling company stock. One of the sellers was Kurt Wolf, a money manager and former executive consultant who joined GameStop's board last year. Hestia Capital, Wolf's investment fund, unloaded more than two-thirds of its stake in GameStop in January, grossing Wolf and his clients just over $17 million.
...

But Gorman also underlined that executives who do sell stock aren't breaking any rules. Corporate boards have no ability to stop executives from selling into a sudden stock run provided the gains aren't connected to inside information.

"This is outsider information," he said.

The problem is that stock compensation is suppose to align executives with the broader fortunes of the corporation. In the case of GameStop and BlackBerry, the executives and insiders appear to be benefiting from the frantic speculation in the companies' stock — not any real improvement in their business.”

 

This is an example of how I don't think that those who are saying that the little guy is finally winning at the big players game and that is why some involved in the markets are concerned. There are some big players making money on this-selling to the little guy at this price.  

[katilac]

1 hour ago, Spy Car said:

Not true. Any two individuals can collude. This was mass collusion--which is still collusion to manipulate a stock's value.

Bill

Everything that I am reading on collusion specifies rivals. Where can I read examples and definitions that don't specify that? 

[Bootsie]

3 minutes ago, katilac said:

Everything that I am reading on collusion specifies rivals. Where can I read examples and definitions that don't specify that? 

In the instance of two potential purchasers of GME, those two potential purchasers would be considered rivals for the purpose of the market and collusion.  They are competing against each other (and are those rivals) in the purchase of shares.  Both cannot purchase the same share.  Rivals does not necessarily imply that one wants to beat the other--just that they are competing.

[Ausmumof3]

https://www.wsj.com/articles/keith-gill-drove-the-gamestop-reddit-mania-he-talked-to-the-journal-11611931696?redirect=amp#click=https://t.co/5bHcVYQc4D
 

this guy seems to have just genuinely believed the stock was undervalued not actually meant to start some kind of weird social movement.

[Spy Car]

32 minutes ago, Ausmumof3 said:

If someone posted on Wtm forum that say 

instapot shares of kiltco.com shares 

were the thing to buy would that count as manipulation?

im not arguing with you btw just trying to figure out where the line is between casual chat and market manipulation.

I'm not sure what "instapot shares of kiltco.com shares" means.

I think I'd take former US Supreme Court Justice Potter Stewart's line on another matter where the court needed to find a line when he said "I know it when I see it."

The Reddit group announced its intentions to manipulate the stock price and then crowded about it when they succeed from the reports I've read. Combine that with the obviously artificial value that the stock has (at the moment) and I don't think this one is a close call.

Real world prosecutions are likely impractical on a mass basis, but i strongly suspect financial crimes have been perpetrated here. And guilty parties could be subject to civil prosecution as well as criminal prosecution.

This is a serious matter that threatens financial markets. Really bad.

Bill

 

 

 

 

 I know it when I see it

 

[BeachGal]

The affected hedge funds almost certainly have their lawyers already looking into what can be done. SEC possibly, too.

RobinHood might also be investigated.

Hard to say how it will play out.

[Bootsie]

RobinHood has announced that it is limiting trading in a number of stocks (from General Motors to Starbucks).  

[Ausmumof3]

6 minutes ago, Spy Car said:

I'm not sure what "instapot shares of kiltco.com shares" means.

I think I'd take former US Supreme Court Justice Potter Stewart's line on another matter where the court needed to find a line when he said "I know it when I see it."

The Reddit group announced its intentions to manipulate the stock price and then crowded about it when they succeed from the reports I've read. Combine that with the obviously artificial value that the stock has (at the moment) and I don't think this one is a close call.

Real world prosecutions are likely impractical on a mass basis, but i strongly suspect financial crimes have been perpetrated here. And guilty parties could be subject to civil prosecution as well as criminal prosecution.

This is a serious matter that threatens financial markets. Really bad.

Bill

 

 

 

 

 I know it when I see it

 

Instapot 

kilt.com

Made up invented shares to be used as an example based on things that well trained minders are likely to recommend.

[Spy Car]

1 minute ago, BeachGal said:

The affected hedge funds almost certainly have their lawyers already looking into what can be done. SEC possibly, too.

RobinHood might also be investigated.

Hard to say how it will play out.

I expect they will sue the hell out the ringleaders and that would put the hedge funds on the right side of the law in this case.

Bill

 

[Spy Car]

2 minutes ago, Ausmumof3 said:

Instapot 

kilt.com

Made up invented shares to be used as an example based on things that well trained minders are likely to recommend.

I got that. Still befuddled on the meaning of the phrase "instapot shares of kiltco.com shares." KWIM?

Bill

[Ausmumof3]

4 minutes ago, Spy Car said:

I expect they will sue the hell out the ringleaders and that would put the hedge funds on the right side of the law in this case.

Bill

 

 

1 minute ago, Spy Car said:

I got that. Still befuddled on the meaning of the phrase "instapot shares of kiltco.com shares." KWIM?

Bill

It means autocorrect changed or to of.

 

Edited January 29, 2021 by Ausmumof3

[Ausmumof3]

https://apple.news/AclK1VFClQTaiZigIkVewmA
 

never thought I’d be posting a link from fox but apparently Texas Attorney general is getting involved 

“Texas' top prosecutor said he was launching an investigation into the GameStop market surge Friday, accusing Wall Street "elites" of rigging the markets and corruption.

"The US econ should be transparent, open," Paxton tweeted Friday afternoon. "This week's coordinated corruption by a cabal of oligarchs shows it isn't."

He added: "I'll help fix that."

 

 

[Spy Car]

Just now, Ausmumof3 said:

https://apple.news/AclK1VFClQTaiZigIkVewmA
 

never thought I’d be posting a link from fox but apparently Texas Attorney general is getting involved 

“Texas' top prosecutor said he was launching an investigation into the GameStop market surge Friday, accusing Wall Street "elites" of rigging the markets and corruption.

"The US econ should be transparent, open," Paxton tweeted Friday afternoon. "This week's coordinated corruption by a cabal of oligarchs shows it isn't."

He added: "I'll help fix that."

 

 

It may not be obvious to those in Australia but this country has no shortage of know-nothing populist politicians. What can I say?

Bill

[Forget-Me-Not]

7 minutes ago, Ausmumof3 said:

https://apple.news/AclK1VFClQTaiZigIkVewmA
 

never thought I’d be posting a link from fox but apparently Texas Attorney general is getting involved 

“Texas' top prosecutor said he was launching an investigation into the GameStop market surge Friday, accusing Wall Street "elites" of rigging the markets and corruption.

"The US econ should be transparent, open," Paxton tweeted Friday afternoon. "This week's coordinated corruption by a cabal of oligarchs shows it isn't."

He added: "I'll help fix that."

 

 

Is this the same guy that tried to sue a bunch of other states over election results several weeks ago? 

[Ausmumof3]

10 minutes ago, Spy Car said:

It may not be obvious to those in Australia but this country has no shortage of know-nothing populist politicians. What can I say?

Bill

Lol yeah I figured that might be what was going on... 

[Ausmumof3]

5 minutes ago, Forget-Me-Not said:

Is this the same guy that tried to sue a bunch of other states over election results several weeks ago? 

Most likely!  It doesn’t say he has any grounds for it just that it’s happening.

[Ausmumof3]

Ok so from my quick reading it seems that hedge funds have taken off as a thing more since the 1990s although they have existed for longer than that?

Is that correct?

How much does this kind of strategy (shorting?  Is that what it’s called) have on the market?

I have to be honest on face value it seems kind of “doesn’t pass the sniff test” and that’s why people are siding with the “little guys”, rightly or wrongly?

it also seems that there has been a massive increase in retail traders joining the markets through Apps that make it easy. Does this make the markets more vulnerable to ups and downs going forward?

[Bootsie]

11 minutes ago, Ausmumof3 said:

Ok so from my quick reading it seems that hedge funds have taken off as a thing more since the 1990s although they have existed for longer than that?

Is that correct?

How much does this kind of strategy (shorting?  Is that what it’s called) have on the market?

I have to be honest on face value it seems kind of “doesn’t pass the sniff test” and that’s why people are siding with the “little guys”, rightly or wrongly?

it also seems that there has been a massive increase in retail traders joining the markets through Apps that make it easy. Does this make the markets more vulnerable to ups and downs going forward?

Yes, hedge funds have existed longer than that.  The number of hedge funds and the size of hedge funds tends to wax and wane depending on the economy and market conditions. 

There is academic evidence that allowing shorting in the market generally helps promote market stability (although at extremes it can intensify market moves).

There are situations where shorting is used to reduce risk rather than increase risk.  The easiest example to understand is in the currency market.  If I am a company that knows a customer will pay me 500,000 euros next month but I am in the US and need to pay my workers in US dollars I know that the euros may be worth more or less when I receive them in a month.  So I borrow 500,000 euros TODAY and sell them (locking in my price)--I will pay back the the 500,000 loan in one month when I receive them from my customer.  

There has been a large increase in people opening accounts through APPS, but generally these are such small investors that they are not able to significantly impact the markets (somewhat like my amount of driving is not enough to impact gasoline prices.)

 

[Murphy101]

1 hour ago, Bootsie said:

Yes, hedge funds have existed longer than that.  The number of hedge funds and the size of hedge funds tends to wax and wane depending on the economy and market conditions. 

There is academic evidence that allowing shorting in the market generally helps promote market stability (although at extremes it can intensify market moves).

There are situations where shorting is used to reduce risk rather than increase risk.  The easiest example to understand is in the currency market.  If I am a company that knows a customer will pay me 500,000 euros next month but I am in the US and need to pay my workers in US dollars I know that the euros may be worth more or less when I receive them in a month.  So I borrow 500,000 euros TODAY and sell them (locking in my price)--I will pay back the the 500,000 loan in one month when I receive them from my customer.  

There has been a large increase in people opening accounts through APPS, but generally these are such small investors that they are not able to significantly impact the markets (somewhat like my amount of driving is not enough to impact gasoline prices.)

 

Everyone I know would say pay me in USD.  They would not go get a loan for it bc if the customer doesn’t pay they’d end up twice screwed.  I think the only people who even think of doing like you suggest are the kind of wealthy that won’t be hurt losing a million so figure why not risk it.  Most people don’t have the luxury of being comfortable with that kind of risk taking. 
 

I’m not convinced that kind of risk taking makes for a more stable market overall. It also sounds like it would be the kind of market only a select few would be able to navigate.

[idnib]

On 1/28/2021 at 11:24 AM, Murphy101 said:

Yes. I was having two different conversations at the same time about this and my post was a mess. Sorry. 
 

yes. Robinhood should be investigated. I hope they did lose a lot of business but the question is did they gain a lot of business from hedge funds to make up for it?  Idk yet. I also wonder if they will be the next target for populace investment activism.  Why would they do this? What was their personal profit reasons for this action?

I'm getting in late to the conversation and somehow I can't get that quote above to be  below me. I own GME and I've been following the Reddit folks on and off this week so I thought I'd chime in.

Wrt Robinhood's personal profit reason, they are pre-IPO and Have been through several rounds of funding. Although I have not had time to look into the veracity of this rumor, people were saying there was some kind of connection between the hedge funds that were holding short positions and the funding of RH. True or not, it spread and affected people's perception. IMO the much more likely problem was liquidity.

On 1/28/2021 at 3:11 PM, Bootsie said:

A "naked short" would be illegal.  A naked short would occur if I sell shares of a stock I do not have control over (so I didn't really borrow the 100 shares).  It would be like I told you that I was selling you a cup of sugar--come and get it-- (but I didn't have any in the house)  AND then I was counting on going and finding some sugar to buy or borrow before you got to my house.  

 

I was under the impression that some firms (not sure who) were grandfathered in when naked shorting was made illegal. Do you know if this is the case?

On 1/28/2021 at 4:37 PM, Bootsie said:

Short sellers wouldn't be trying to put GameStop out of business.  They simply think that the stock of the company is going to go down in price and want to sell it now and then buy it at a lower price later.  (Or, if I think they will go out of business, then I might want to short the stock.)

I've heard of instances of short sellers making a company cheap and more easy to target for buyouts and/or dismantling. And I think it can affect the business in terms of their ability to obtain loans on collateral, at better rates, or even at all. And if you're Melvin and people watch what you're doing because you make 30%, more people pile on.

4 hours ago, Bootsie said:

I also haven't kept up with the specifics of the Redditors, but if they were specifically encouraging people to buy GME through RobinHood rather than another platform, RobinHood's participation might be questioned.  If this letter is correct that the Redditors encouraged readers to buy GME through RobinHood, the questions that would come to my mind is why if the purpose is to let readers know that there is a good investment idea/possibility (rather than to try to manipulate price) would they care what broker is used.  

There were people encouraging people to use RH. I can't know their motivations, but from what I saw it was mostly when someone wanted to jump in but the firm was saying it take 3-5 days to transfer funds. RH gives you $1000 in instant deposits to use, more if you pay for RH Gold. And the day RH changed their policies and shut down selling of GME and other shorted stocks completely, people did a 180 and were suggested TD Ameritrade as a place that was approving quickly and RH quickly fell out of favor. It could have been shilling though.

3 hours ago, Ausmumof3 said:

They were definitely trying to manipulate the price I think.  I mean the stated aim seems to have been to cause problems for the hedge funds by keeping the price high?  Not to make a personal gain.  But I’m guessing the law doesn’t care about the motive for the manipulation, only whether it was illegal behaviour or not. They probably didn’t think it would be so successful though.  

There really wasn't a stated aim. There's a guy DFV (username deep****ingvalue) who has been posting his positions for about a year, usually without comment. He's now up $40-$50 million dollars. I think he got in on 40 cent calls last year. Other people started buying because of the 138% short. Once people were cut off on RH and people learned more about things like short ladders, it became much more of a David vs Goliath story. Then certain politicians weighed in and people started thinking of it as revenge for 2008. Cue 2008/2009 videos of people marching down Wall St. while people were celebrating and drinking champagne above them. All this happened in 3-4 days; a real whirlwind.

Now some people are in it for the money, some for fun (buy a share to say you were there), some because they never recovered from the recession, some because they hate hedge funds, some because their angry about the stimulus checks, etc.

ETA: forgot to add that DFV was doxxed by CNBC today and was on the front page of the WSJ earlier today. His real name is Keith Gill. Now that he's given interviews I think it's okay to say. He's not really a leader or anything, just someone who posts positions like any other investment forum. He's just done really well with GME.

Edited January 30, 2021 by idnib

[Spy Car]

21 minutes ago, idnib said:

I'm getting in late to the conversation and somehow I can't get that quote above to be  below me. I own GME and I've been following the Reddit folks on and off this week so I thought I'd chime in.

Wrt Robinhood's personal profit reason, they are pre-IPO and Have been through several rounds of funding. Although I have not had time to look into the veracity of this rumor, people were saying there was some kind of connection between the hedge funds that were holding short positions and the funding of RH. True or not, it spread and affected people's perception. IMO the much more likely problem was liquidity.

I was under the impression that some firms (not sure who) were grandfathered in when naked shorting was made illegal. Do you know if this is the case?

I've heard of instances of short sellers making a company cheap and more easy to target for buyouts and/or dismantling. And I think it can affect the business in terms of their ability to obtain loans on collateral, at better rates, or even at all. And if you're Melvin and people watch what you're doing because you make 30%, more people pile on.

There were people encouraging people to use RH. I can't know their motivations, but from what I saw it was mostly when someone wanted to jump in but the firm was saying it take 3-5 days to transfer funds. RH gives you $1000 in instant deposits to use, more if you pay for RH Gold. And the day RH changed their policies and shut down selling of GME and other shorted stocks completely, people did a 180 and were suggested TD Ameritrade as a place that was approving quickly and RH quickly fell out of favor. It could have been shilling though.

There really wasn't a stated aim. There's a guy DFV (username deep****ingvalue) who has been posting his positions for about a year, usually without comment. He's now up $40-$50 million dollars. I think he got in on 40 cent calls last year. Other people started buying because of the 138% short. Once people were cut off on RH and people learned more about things like short ladders, it became much more of a David vs Goliath story. Then certain politicians weighed in and people started thinking of it as revenge for 2008. Cue 2008/2009 videos of people marching down Wall St. while people were celebrating and drinking champagne above them. All this happened in 3-4 days; a real whirlwind.

Now some people are in it for the money, some for fun (buy a share to say you were there), some because they never recovered from the recession, some because they hate hedge funds, some because their angry about the stimulus checks, etc.

ETA: forgot to add that DFV was doxxed by CNBC today and was on the front page of the WSJ earlier today. His real name is Keith Gill. Now that he's given interviews I think it's okay to say. He's not really a leader or anything, just someone who posts positions like any other investment forum. He's just done really well with GME.

Keith Gill is a professional financial analyst who has made a boatload off this stock manipulation scheme. He is likely in a world of legal hurt. He should be IMO. 

Bill

 

[MommytoFour]

5 minutes ago, Spy Car said:

Keith Gill is a professional financial analyst who has made a boatload off this stock manipulation scheme. He is likely in a world of legal hurt. He should be IMO. 

Bill

 

Up until recently, he worked in marketing at a life insurance company. I don't think he's been working as a financial analyst any time in the recent past.  I haven't read the whole thread but why do you think that he should be in legal trouble?  On Reddit, he hasn't even been encouraging people to buy GME. He has just been posting screenshots of his GME buys and account balances since June 2019.

 

[TravelingChris]

5 hours ago, Spy Car said:

Rational investing is not  a "requirement" but those who invest irrationally are soon parted from their resources.

Illegal and unethical stock manipulation is bad for the world's economic health.

Bill

 

Actually, random investing is better than so called rational investing in getting returns.  That is why mutual funds that use managers to choose versus random choices do worse.

[Pam in CT]

[eyeroll]

Well HERE are two players that definitely won big out of the whole brouhaha. Hard to see either AMC or Silver Lake as "little people" in any kind of David & Goliath or Robin Hood narrative, but, every gamble does yield winners.

 

ETA  Curious now if Elizabeth Warren or SEC or other investigators ever really will try to dig down to the bottom of the stack of turtles nearly all the way down and unearth where exactly the Reddit pile-on really started.

Edited January 30, 2021 by Pam in CT

[BeachGal]

2 hours ago, Spy Car said:

I expect they will sue the hell out the ringleaders and that would put the hedge funds on the right side of the law in this case.

Bill

 

According to my son, who is a trader, they might try but are in murky water. It’s hard to say at this point what will happen.

Robin Hood, otoh, is manipulating the market but will probably not be affected due to their affiliations with high frequency traders (HFTs) some of whom now sit on the board of the SEC.

Other things are going on but we’ll have to wait to see what transpires.

Pensions and 401Ks are very unlikely to be affected. ERISA protects participants’ investments and works well.

This is likely to blow over but will be interesting to see how it unfolds.