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Is anyone else concerned about what is happening?

Good Morning All,

Curious as to the classes' thoughts re this GME, etc., public short squeeze by folks using Redditt, Wallstreetbets.

I have great concerns as it's what I call "Bro-Investing" but by no means mean that as a negative, plenty of women trading, posting on the board there, plenty of folks who are trading out of their basement but also likely plenty of folks trading out of multi-million dollar homes off the beach..who really knows.

If you poke around on that board you see phrases like, "hedge funds having to cover by selling their "Boomer" stocks, i.e, the JNJs etc.

I used to work with many young folks and I'll be the first to tell you they think differently, are very smart and do NOT buy into the "way things were" , don't like to take advice from a silver haired elder, do business and life thru their cell phone and all were on Redditt.

I've posted before about the sports gambling, Penn National, Bitcoin, these young bucks aren't going to sit around and wait to collect their 2.7% divvy from their old line stock, they have no fear and understand optionality and risk.

Stock market has been "gamified"...similar to playing poker or betting on the Super Bowl.

Have to agree for the first time in my life with AOC when she asks how can trading be restricted on RobinHood for the average person but the hedge funds can trade as they see fit...she's got a point.

What impact could this have on the markets and mutual fund investing? Do you see this blowing over as the media moves onto the next sound bite?

Best,

Baseball Fan
«1

Comments

  • Hedge funds make numerous "donations" to govt, on both sides of the aisle. Lots of lobbying power. Maybe that's why trading is restricted for retail investors.
  • Surely you're not suggesting that government policy is being influenced by money???
  • I agree with most of what you said except for the part about the younger crowd understanding optionality and risk. For many, if not most, those understandings only happen after one gets their butts handed to them a time or three. Just look at what has happened to some hedge fund managers who should know better than most. We'll see.
  • Howdy folks,

    I more curious than concerned. You make a great point in that hedge fund managers and their influence over Washington. Retail investors can't match. Gee, welcome to America. Ever since elections got so expensive and contributions really started to matter, special interests have been swaying congressional action to the detriment of the citizenry. Throw in Citizen's United and we're well and truly screwed. Need transparency within 24 hours on campaign ads and contributions.

    As for banging the hedge fund short side players - screw them. Two things that need to change is the ability to sell more shares than exist and transparency.

    I've been dealing with this crap for decades in the precious metals markets. There are always more ounces of short interest than there are ounces of the metal -that have ever been minded. Both gold and silver. This is what leads to the divergence between paper bullion prices and street prices. It's call the premium or mark-up. When it expands, you start seeing supply problems. As I write, the US Mint is out of gold for sale. Buying gold right now is a back order situation. Econ 101 says this is the sign of an artificially priced market.

    So, I'm curious. This should hurt anyone around here and I must admit it is a bit titillating to watch legalized pirates getting handed their asses.

    and so it goes,

    peace and wear the damn mask,

    rono
  • "This should hurt anyone around here"

    Knowing rono from way back I'm pretty sure that he meant to say "This should not hurt anyone around here". As a fellow "old timer" I notice that I have to be very careful to proofread two or three times what I type now, and still I sometimes miss stuff.
  • Interactive Brokers has put AMC, BB, EXPR, GME, and KOSS option trading into liquidation only due to the extraordinary volatility in the markets,” the company tweeted. “In addition, long stock positions will require 100% margin and short stock positions will require 300% margin until further notice.”
    Stay Safe, Derf
  • Just from watching this board I am sure that positions some of us hold via the ARK funds are seeing unusual volatility, both up and down. M* has had to review its rating on Baron Partners because Tesla has come to represent 47% of AUM in that one fund. I have a few individual stock positions as recommended by a newsletter editor. On more than one occasion he has attributed the movement of a newsletter stock to shorts covering, but I have not seen anything like what's gone on this week. One bucking bronco I have has been rising or falling double-digit percentages on any given day, so I conclude that someone or something is exerting unusual pressure on the pricing. The problem I see coming is the day all the players decide to pick up their marbles at the same time; that will likely set off a crash.
  • Howdy folks,

    Thanks Dan. This sort of evolution in the market should Not impact most of us. We're not playing those games. It sure is fun to watch. Shit, we went thru this with datelining.


    And so it goes

    Peace and wear the damn mask

    Rono
  • It is unsettling to see market swing by several % in 2 days, especially there was no particularly bad news or earning. Boeing was bad but that was expected.
  • Good Evening,

    Just read Gasparino's article in the NY Post...re to the phrase, "Canary in the coal mine"...is Tesla really worth $880 share...hasn't Tesla been pumped up with the similar approach that GME, NOK, AMC have been...clocking the shorts as the "common" investor piles in. Selling credits to other auto mfg's to make their quarter...huh? Musk is of the same cut as many of these young buck investors...no fear, doesn't buy into the old way of thinking/investing

    Dunno...maybe a sign of how broken, risky this market is or is it just me overthinking it and letting my conservative nature show.

    @Rono...you've been spot on many times...but yeesh, remember the phrase, "this is contained to the housing market"...

    Good Luck to All,

    Baseball Fan
  • Too much time at home. But, hey, hedge funds shouldn't get to have all the fun...

    Signs of a little spillover impact on ETFs but maybe not mutual funds...
    The $189 million Wedbush ETFMG Video Game Tech ETF jumped more than 16.1% Wednesday, pushing it up approximately 25% since the start of the week. The $758 million SPDR S&P Retail ETF soared 12%, powering it to a 21.9% gain for the week-to-date.
    https://finance.yahoo.com/news/gamestop-surge-leaves-u-based-060000570.html

  • I think this explains things pretty well:
  • edited January 2021
    It is sad actually. When big money manipulates the market... ehhh no big deal. When big money starts losing money.. the sky is falling, we have to stop this or the market will collapse! Same with insider trading.. a few senators sold their stock holdings after learning about covid. The DOJ just recently ruled...nothing to see here. If you or I acted on inside information I don't think that would be the outcome. Money talks.
  • Agree with @royal4.

    On another note, let's not paint the entire market with a broad brush. The sky is not falling. This is limited in scope and reach. Believe it or not, Elon Musk summed it up nicely in 1 tweet:

    u can’t sell houses u don’t own
    u can’t sell cars u don’t own
    but
    u *can* sell stock u don’t own!?
    this is bs – shorting is a scam
    legal only for vestigial reasons
  • edited January 2021
    I liked that tweet (Musk). Did you see the follow up tweet... something about Musk selling cars that didn't exist on the promise they'd be available in the future or something like that. Kind of throwing it back at Musk that he did something similar.
  • A deep dive look inside the no-fee options trading community:
    ...while millions are now discovering WallStreetBets for the first time, it has been building momentum throughout the pandemic. One can trace its epic rise to a perfect storm of favorable conditions: the exponential growth of the app Robinhood and its no-fee options trading, the extreme volatility Covid-19 brought to the markets, the stimulus checks mailed to millions of Americans, the lack of televised sports for much of the year, and the unwanted free time stuck at home the pandemic has forced on many people.
    Inside the Reddit army that's crushing Wall Street
  • edited January 2021
    FaceBook shut down discussion on this type of trading, but Reddit is still operating.

    Today is the end of month, the margin day, and companies (shorted positions) have to pay what the owe. This costed some hedge funds who shorted GameStop and AMC considerably.
  • Shared a few links on short selling and an interesting presentation in this thread:

    MFO Thread
  • Even a (few) at MFO owned GameStop & probably didn't know it.
    https://www.investors.com/etfs-and-funds/sectors/gme-stock-gamestop-investors-instantly-make-16-billion-gamestop-stock-squeeze/?src=A00220

    Stay Safe & a good weekend to All , Derf
  • I secretly hope that Loeffler & Perdue got caught on the wrong side of any of these trades as pay back for their insider trading activities.
  • edited January 2021
    Stocks that are heavily shorted are most susceptible to Robinhood trading. Some hedge funds have to sell their winner stocks in order to pay their margin calls today. Did not expect the $ amount involved to be sizable. SEC is looking into this matter since it appears to be manipulating the market.
  • What really concerns me is that this similar to the Madoff investors...hear me out...they were all "ok" with it as long as they were making money.

    We were all "ok" with this "artificial", central bank driven, ponzi scheme market as long as we were making money and our portfolio grew over the past dozen years.

    Now, we are ok with the Hedgie Big Shots getting hammered by the Reddit "Bro" crowd.

    Just like folks kinda, maybe, shoulda, ya, sure, obvious knew Madoff was total fraud as who the heck could generate consistent returns like that over time...in hindsight...we'll say, ya, we kinda, maybe, shoulda, ya, sure the market has been total fake BS the past dozen years.

    Now...the hedgies get clocked and we are ok with it but wait this thing turns systemic real quick and our portfolio's get drawn down by 50%-60%...then and only then we are going to have a problem with the Reddit/WSB approach, no?

    Open your eyes! Be careful!

    Best Luck and Good Health to All,

    Baseball Fan
  • edited January 2021
    this thing turns systemic real quick and our portfolio's get drawn down by 50%-60%...then and only then we are going to have a problem with the Reddit/WSB approach,
    This is new territory with unknown risks. Question is what can SEC do about it? They seem to be way behind the matter.
  • Sven said:

    Stocks that are heavily shorted are most susceptible to Robinhood trading. ... SEC is looking into this matter since it appears to be manipulating the market.

    What does this mean, how would it work?

    And how is RH trading different from free fast trading at ML or Fido ?
  • Stocks that are heavily shorted are most susceptible to Robinhood trading

    ISTM the risk of a short squeeze (and manipulation thereof) increases rapidly as the magnitude of short positions increase. A stock that is shorted more than 100% (by one investor borrowing the stock to short, then another investor borrowing the same stock to short again) must almost surely experience a positive feedback loop if its price starts to rise significantly and investors attempt to buy "fictitious" shares to cover.

    There's already Reg SHO in place to control shorting. Notably Rule 203 that requires short sellers to locate shares to short before shorting. It would not seem to be difficult to enhance this rule to require the location not only of shares to short, but shares of a company that has not been 100% shorted (or 50% shorted, or whatever threshold works).
    https://www.sec.gov/divisions/marketreg/mrfaqregsho1204.htm

    This wouldn't protect investors from getting squeezed, but it would seem to impede the feedback loop.

    And how is RH trading different from free fast trading at ML or Fido ?

    How is buying a lottery ticket different from investing in a stock? The recreation value of the former is greater while the expected return of the latter is greater. Robinhood as a platform offers more "fun".
    They can browse the 100 most-held stocks among fellow users for inspiration. An entertainment ecosystem has risen up alongside Robinhood; TikTok videos under #robinhoodstocks have millions of views. In some ways, Robinhood reflects how Silicon Valley mastered the art of manufacturing behavioral loops, encouraging an app user to log back in one more time or spend one more minute engaged.
    Same Bloomberg article, pick your source of choice:
    https://www.bloomberg.com/news/articles/2020-12-19/robinhood-s-role-in-the-gamification-of-investing-quicktake
    https://www.washingtonpost.com/business/robinhoods-role-in-the-gamification-of-investing/2020/12/19/83b310ca-41bf-11eb-b58b-1623f6267960_story.html
  • I've worked directly with (not for) the SEC: believe me, generally speaking they do not know up from down. If they were geniuses they'd be making fortunes in the markets, not GS salaries. Don't count on the SEC to be anything other than a day late and a dollar short.
  • Must be the same folks from the FAA moonlighting.
  • @msf
    >> A stock that is shorted more than 100% (by one investor borrowing the stock to short, then another investor borrowing the same stock to short again)

    ? Is this different from naked shorting?

    And if not, does naked shorting happen now? Investopedia and other sources imply a strong no, but it certainly did occur in 07-09, and Investopedia goes on, on that topic page and the failure-to-deliver page, to acknowledge that it may still exist --- and even defends it (!).

    Roger about RH environment and visible crowd. I was asking only about trading, but the vibe is different, sure. Maybe Fido should have Zoom / Facebook-style trading.

    @sfnative, a good friend of mine used to be a bigwig SEC attorney and then worked for the dark side afterward. He reported (and would report, I expect) quite the opposite of what you say. But that was a while ago, so maybe it has tended to ineptitude.
  • sfnative said:

    I've worked directly with (not for) the SEC: believe me, generally speaking they do not know up from down. If they were geniuses they'd be making fortunes in the markets, not GS salaries. Don't count on the SEC to be anything other than a day late and a dollar short.

    Well, we've seen that since... forever. The argument over how tightly to regulate seems to always translate into simply being lackadaisical. And the CFPB has been de-toothed from the start.
  • Naked shorting is selling a security short before you have identified the particular shares you are selling. Except for market makers this is illegal.

    The general prohibition of naked short selling is Rule 203(b)(1), codified as 17 CFR § 242.203(b)(1). The exceptions allowing this practice are in Rule 203(b)(2).
    https://www.law.cornell.edu/cfr/text/17/242.203

    It's easy for traders to create a 100%+ shorted stock legally. If you think about it, even shorting one share of stock creates a "fictitious" share that can be shorted. Suppose there's only one share of a company stock. Bob wants to short the stock, so he borrows it from Carol and sells it to Alice. Now, even though there's only one "real" share, Carol and Alice both believe they own shares of the company. Net, there's still only one share: 2 long + 1 short.

    We're already at 100% short. Rinse and repeat. Ted decides to short the stock. He borrows the one "real" share from Alice and sells it to you. There are now two shorts even though there's only one "real" share. Net, still one share: 3 long + 2 short.

    Now I decide that I really want the share, so I offer you much more than the last trading price. You're okay with the price and sell me the share. Bob and Ted, both being short and facing margin calls (not to mention the chance the women might want their shares back to sell), panic and start a bidding war against each other.

    Their predicament is worsened by the fact that they're both bidding for just one "real" share. There's insufficient supply to met demand at any price without serially unwinding the chain of short sales.

    A smart company might do what AAL is doing - taking advantage of the situation with a secondary offering.
    https://finance.yahoo.com/news/american-airlines-set-issue-stock-193849410.html
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