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?
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,
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.
Stay Safe, Derf
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
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,
Signs of a little spillover impact on ETFs but maybe not mutual funds... https://finance.yahoo.com/news/gamestop-surge-leaves-u-based-060000570.html
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
u *can* sell stock u don’t own!?
this is bs – shorting is a scam
legal only for vestigial reasons
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.
Stay Safe & a good weekend to All , Derf
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,
And how is RH trading different from free fast trading at ML or Fido ?
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).
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". Same Bloomberg article, pick your source of choice:
>> 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.
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).
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.