January 28, 2021

"I understand perfectly why people who have treated the markets as an enormous casino for decades are terribly upset when people other than themselves treat the markets like an enormous casino."

That's the top-rated comment on "‘Dumb Money’ Is on GameStop, and It’s Beating Wall Street at Its Own Game/GameStop shares have soared 1,700 percent as millions of small investors, egged on by social media, employ a classic Wall Street tactic to put the squeeze — on Wall Street" (NYT). 

Finance is my least favorite subject, but I can't completely ignore something that feels expressive of my reasons for not engaging. I'm not even going to attempt to vaguely gesture at the briefest summary of what happened. Go read the article... or any article on the subject.

But I will quote the second highest-rated comment.
If the hedge fund managers are concerned, perhaps they should simply drink fewer cups of Starbucks. Eat less avocado toast. Do a better job at saving. Or, get a side hustle. Drive an Uber? Learn to code? Just pull yourself up by your bootstraps, fellas. 
This situation underscores how Wall Street is essentially a casino, with only a passing relationship to reality. The financial industry has been drawing the marrow out of our country for decades, often at the expense of working Americans. I was financially destroyed in the fallout from 2008. You'll forgive me if I see this as a well-deserved, and long overdue, taste of their own medicine.

Eat less avocado toast. Remember that meme? Know Your Meme explains:

On May 15th, 2017, Australian website 9news ran an article recapping a 60 Minutes episode in which millionaire property mogul Tim Gurner said “When I was trying to buy my first home, I wasn't buying smashed avocado for $19 and four coffees at $4 each.” Gurner was attempting to make the point that millennials spend too lavishly to afford a home, while older generations saved money in order to invest in a home. However, the quote about avocado became a subject of derision as it became the focus of dialogue around Gurner's comments. TIME tweeted an article that claimed Gurner stated "Stop buying avocado toast if you want to buy a home."

309 comments:

1 – 200 of 309   Newer›   Newest»
Howard said...

That's a cool story: a crowd sourced troll on big hedge.

Greg The Class Traitor said...

This is a lot like the Trump years, just compressed.

Especially the part about formerly respected organizations showing their true colors.

https://www.fnlondon.com/articles/td-ameritrade-swab-put-brakes-on-gamestop-and-amc-trading-20210128

"TD Ameritrade, Charles Schwab putting brakes on GameStop and AMC trading"

IOW, the big guys are working with the other big guys to screw over the little guys, and keep the little guys from returning the favor.

I will never trust either company again. I have my money in Charles Schwab. I'll be getting it out, and moving it elsewhere.

Lucid-Ideas said...

Finance is one of my favorite subjects. What's really going on is certain people and firms on Wall Street are allowed to quite literally borrow stocks and then short those stocks, and repeat the process in some cases as many as 3 or more times before moving on. Normal people are of course not allowed to this.

What normal people can do is analyze WS data and see how many of the former are betting against something. The rest is history.

Ann Althouse said...

"This is a lot like the Trump years, just compressed."

This sounds like a brilliant analogy. Can we crowd source its development?

Known Unknown said...

I applaud the retards (self-described) on Reddit putting the screws to the big hedge funds, but some of the more-millenial comments there raging against the 2008 mortgage crisis are like "I had to wait a year after graduating college before getting a real job!"

I did too, in 1994. I worked for a friend's father's ad agency/service bureau <-- those don't exist anymore for $5.25 an hour.

mockturtle said...

The message to small bettors is: The casino is rigged and you will always lose in the end. If the high rollers don't stop you, the government will. Even so, the little skirmish showed that the emperor is dressed only in his underwear.

Kai Akker said...

Symptoms. This is the reborn version of the old-fashioned, When taxicab drivers give you stock tips, it's time to......

Sebastian said...

"Drive an Uber? Learn to code? Just pull yourself up by your bootstraps, fellas."

Take it from Buttigieg to Keystone workers: just get another job.

Gusty Winds (Elon Musk Fanboy) said...

The guy that led the Reddit revolt put $50K in GameStop in and turned it into $15 Mil by squeezing the short sellers. Kind of awesome.

Meanwhile in other insider trading news, Pelosi bought options in Tesla just prior to Biden announcing the federal gov’t would be buying electric cars.

Lord Clanfiddle said...

Another eye-opening example of the corruption so dominant today. Figure out how to play the game, they change the rules. Dare to complain, get censored or deplatformed. It works--for the present. But what happens when enough people decide they won't stand for it anymore? I hope I have retired to my private island by then. My son owns an account with Robin Hood (ho ho ho--King John, more like), and took a position in AMC which he is now not allowed to sell. Multiply that by millions and the pressure rises. Look for an explosion sooner or later.

rehajm said...

It's been quite some time since we've had a high profile short squeeze. In the open thread last night a few commenters correctly pointed out the value of short selling in providing market liquidity, but short sales stir moral contempt in the human mind. I've never understood it...

...and yes it does bring out the worst in our financial regulatory system. If you think the SEC is bad take a look at the futures markets regulators...

Amexpat said...

That's a cool story: a crowd sourced troll on big hedge.

Most likely there's some big, smart money manipulating the crowd. And they will get out of whatever stock the mob is short squeezing before it crashes and burns lots of small guys.

JSD said...

Chris Cillizza blamed it on Trumpism. He also thought Dean Wormer and Neidermyer were the good guys in Animal House

Kai Akker said...

---Normal people are of course not allowed to this.

Normal people might not do it, but anyone with a margin account is allowed to borrow stock and sell it short. But, as Gamestop shows, your losses if wrong can be much worse than the 100% loss that is the worst possible on a long position. A mistaken short position's loss can theoretically be (almost) infinite.

rehajm said...

Point of fact: TD Ameritrade and Schwab are becoming one and the same...

wendybar said...

"Meanwhile in other insider trading news, Pelosi bought options in Tesla just prior to Biden announcing the federal gov’t would be buying electric cars."

Yeah, but that's okay. She is one of the chosen. Us plebes must bow down to her.

Leland said...

Can we crowd source its development?

Isn't that what is happening? Just need a subreddit, it seems.

rehajm said...

"Meanwhile in other insider trading news, Pelosi bought options in Tesla just prior to Biden announcing the federal gov’t would be buying electric cars."

Long ago Congress gave itself permission to do just this...and boy do they do it.

rcocean said...

The stock market has always been rigged. That's why Bush wanted to have people put SS payroll money in it. Also, why Schumer, Pelosi, Romney, Mccain, and Bush are wanted TARP and a bailout of the big banks and Goldman Sachs. You'll notice that whoever we elect, we always get Goldman Sachs heading up the Treasury or the Fed.

Spiros said...

Melvin Capital had returns of 47 % in 2015. In 2017, the fund finished up 41 %. That's incredible. But they just lost 30 % (of the entire fund in one week!) because their short bets were bad. Ha ha. Are we supposed to feel sorry for these creeps? Do they deserve a bailout?

Hedge fund generally take 2% your investment money up front and then 20 % of the profits. Even if Melvin loses big this year, they still will keep that 2% “management” fee! That is hilarious.

Seriously, hedge funds are for dumb people. Their returns are below average, even before their ridiculous fees are factored in. I've had people tell me to invest 20% of my money in these things. No way! The fees suck, the returns suck and I have no idea what the hell these funds are doing. I stick with the index funds...

rcocean said...

If you wanted a fair stock market ban short selling. That's not investing, its gambling. The old reason for the stock market was it efficiently allocated money to the most successful companies. Short selling doesn't do that. It just allows insiders to make $$$

Spiros said...

Melvin Capital had returns of 47 % in 2015. In 2017, the fund finished up 41 %. That's incredible. But they just lost 30 % (of the entire fund in one week!) because their short bets were bad. Ha ha. Are we supposed to feel sorry for these creeps? Do they deserve a bailout?

Hedge fund generally take 2% your investment money up front and then 20 % of the profits. Even if Melvin loses big this year, they still will keep that 2% “management” fee! That is hilarious.

Seriously, hedge funds are for dumb people. Their returns are below average, even before their ridiculous fees are factored in. I've had people tell me to invest 20% of my money in these things. No way! The fees suck, the returns suck and I have no idea what the hell these funds are doing. I stick with the index funds...

rcocean said...

Hedge funds are for dumb people. yeah, that's why they're all millionaires and billionaires. Also, why the managers pay 15% on 100 million, and everyone else pays 34% on 500K. Yeah, they're real *DUMB*

Francisco D said...

I interviewed hedge fund managers for a high income investment firm. From this limited sample, I was convinced that they knew nothing about business. They were computer nerds and mathematicians. When I said that to one of the managing partners, his response was, "You mean you didn't know that?"

dreams said...

It's not going to end well, I'm not in any of those stocks and I've sold off some shares of stocks I do own.

rcocean said...

There are Hedge funds and there are hedge funds. Its like everything else. Most of the poorly run ones do well for their managers. The private ones, closed to the public, make the most $$. Its a rigged system. Its not that the average person can't make $$, its that the rich and powerful are protected from losing

tim maguire said...

Lucid-Ideas said...Finance is one of my favorite subjects. What's really going on is certain people and firms on Wall Street are allowed to quite literally borrow stocks and then short those stocks

That's the official description of shorting, but it's a fiction. The reality is, no borrowing goes on. People simply sell stocks they don't own hoping to buy them back later at a better price. If stocks really were borrowed before selling, short squeezes would be impossible.

The story that the public seems to intuitively understand and that the financial media is completely ignoring is that nothing odd or unusual is going on here. The GameStop buyers are doing what everyone in the stock market does--they made a bet on the future price movement of a stock. That's it. That's all they're doing.

What's upset the financial media and the usual big banks is that in this one case, they have done it better than the big banks. This...crisis? scandal? what?...is a reaction to the peasants, just this once, for a little while, successfully breaching the ramparts of the tyrant's fortress.

Spiros said...

rcocean I think short selling has some role to play in efficient capital markets through improved price discovery and liquidity. Basically, short selling exposes companies whose stock prices are too high. There are also positive impacts on corporate governance. So it's not all bad. BUT funds like Melvin Capital look like they're profiting off other people's misery.

tcrosse said...

This is similar to playing Don't Come and Don't Pass at the craps table, but
other players might hate you for it.

Kai Akker said...

What tim maguire is describing is "naked" shorting. It is illegal, but it probably does still happen. It certainly used to. There used to be more ways to get around the requirement that the shares being sold short had to have been borrowed somewhere first.

But that is the law and at any reputable brokerage, it is the practice. Thus the notorious call-in that a short seller might receive, frequently at the worst possible moment. The owner of the stock finds it is highly priced enough that he wants to sell it. He has no idea that the shares in his account have been borrowed by someone else (this is in the fine print, though). So the broker calls in the short's borrowing. He's informed that he must buy the shares back, at a price usually unpleasant, and thus return them to the account of the original owner who is now selling them.

D.D. Driver said...

There is so much about this that I love. But what I really love is how much fun and joy these little self-proclaimed "retards" (a term they use as a badge of honor) are having bringing the whole rotten system down. And then watching how the establishment freaked out and Streisand effected the whole damn operation.

Seriously, I had tears in my eyes laughing at some of the memes these guys are publishing to taunt the hedge funds.

Nonapod said...

Another round of the powerful elites versus the downtrodden populists. But if recent events have taught us anything it's that even though the little guys might win a fight, they can't win the war.

gilbar said...

The old reason for the stock market was it efficiently allocated money to the most successful companies. Short selling doesn't do that. It just allows insiders to make $$$

And, Who's the Most Famous (Infamous?), Most Successful Short seller of all time?
Does the name George Soros ring a bell??

Calypso Facto said...

Ann Althouse said ... "This sounds like a brilliant analogy. Can we crowd source its development?"

Too slow on the crowd sourcing: How Trumpism explains the GameStop stock surge

Hunter Biden's tax payer funded Hooker said...

I enjoyed reading about some asshole hedge funders getting clobbered by their own game.

https://pjmedia.com/news-and-politics/megan-fox/2021/01/27/how-a-bunch-of-redditors-with-600-stimulus-checks-outsmarted-wall-street-hedge-fund-managers-n1413427

Hunter Biden's tax payer funded Hooker said...

I despise Charles Schwab.

Ken B said...

Robinhood has joined the suppression movement. I guess billionaires can afford large bribes.

If I could buy stock in politicians then today I would be long, very long, in AOC. I’d probably buy a few shares of Liz Warren too. And I’d be long in Schumer and Pelosi because the billionaires are going to shovel money at them to shut reform down.

Short Robinhood.

It looks to me like the real stock manipulation was stopping trading. Biden can earn points calling for an investigation and prosecution.

Freeman Hunt said...

Do away with shorting.

Kai, my understanding is that Melvin had shorted over 100% of shares. If that's the case, it would be impossible for any actual borrowing to be going on, right?

AZ Bob said...

Another round of the powerful elites versus the downtrodden populists. But if recent events have taught us anything it's that even though the little guys might win a fight, they can't win the war.

The Ivy League versus those smelly Walmart people is what I was thinking.

Hunter Biden's tax payer funded Hooker said...

Elon Musk enjoyed the elite hedge funder dunking.

Poor asshole Bidenist elite pony-boy Connecticut hedge funders.
boo hoo.

Lawrence Person said...

There are legitimate reasons for hedging and short selling. But the hedge funds got greedy by shorting more than 100% of the stock. That's why this play works: because they hoist themselves on their own petard and got screwed by their own excessive greed.

Ken B said...

It is import To remember the hedge funds had publicly announced their short positions. And Reddit traders were also in the open. They reacted rationally to stupid bets.

Surely no honest defense of this is possible. The corruption is too blatant, the lies are too obvious.

Red pills for all!

Meade said...

"That's why this play works: because they hoist themselves on their own petard and got screwed by their own excessive greed."

Yep. Greed and fear. Reminds me of the pro-impeachment players in Congress.

Michael said...

There's a telling scene in the book, The Big Short where a young, go-getter woman staffer from the SEC shows up at a hedge fund conference. The purpose of her attendance is neither to talk policy with the industry nor to learn about issues. She's there to shop her resume and "monetize" her govt experience.

This happens in almost every federal agency and is why most bureaucrats serve insiders rather than the general public.

In other words, our government will quickly mobilize to protect the hedge funds rather than you and I.

Kai Akker said...

@Freeman Hunt: I doubt the 100% figure. If you can still find ways to dodge the borrowing regulations, though, it could be possible to have sold-short more than 100% of the shares outstanding. But these positions can change radically and go through multiple levels during any one trading day, so the exact counting gets murky.

The opposite of the Robinhood "long" pools was the naked shorting groups where they would hammer down a target stock, selling on top of each other's sells. It was done through dubious brokerage firms and fast-dodging of the regulations. They would especially be happy if they could knock the price down enough to trigger margin calls on longs and force longtime holders to dump shares on the market at lousy prices, too.

But pools are illegal stock manipulation. It's only legal when the Federal Reserve calls up its buddies and does it.

GDI said...

Robinhood moves the goalposts by changing the rules midstream so the so-called casino stocks are no longer supported ... analogous to how D's moved the goalposts by manipulating the election midstream.

Ann Althouse said...

"Too slow on the crowd sourcing: How Trumpism explains the GameStop stock surge."

At your link:

"What made Trump's argument so potent, politically speaking, is that he wasn't just calling out the elites. He was saying that Average Joes needed to rise up and actually show them how wrong they were -- that voting him for him was the best way to express their anger and frustration with the condescension of their alleged bettors. Donald Trump offered himself up as a collective middle finger to the elites. And he won."

That's a contribution, but surely, you can build on that.

tim maguire said...

wendybar said..."Meanwhile in other insider trading news, Pelosi bought options in Tesla just prior to Biden announcing the federal gov’t would be buying electric cars."

Now THERE is a scandal. Virtually every person in congress becomes rich through insider trading. They show up middle class or moderately wealthy, collect a comfortable paycheck for a few years, and leave worth many millions and not a single journalist says boo about it.

Ann Althouse said...

"Seriously, hedge funds are for dumb people. Their returns are below average, even before their ridiculous fees are factored in. I've had people tell me to invest 20% of my money in these things. No way! The fees suck, the returns suck and I have no idea what the hell these funds are doing. I stick with the index funds..."

That draws the snark: "Hedge funds are for dumb people. yeah, that's why they're all millionaires and billionaires. Also, why the managers pay 15% on 100 million, and everyone else pays 34% on 500K. Yeah, they're real *DUMB*"

Speaking of dumb!

rehajm said...

Does the name George Soros ring a bell??

Guys like Soros and Druckenmiller and were major macro investors making money off both long and short positions. Their big money came in having positions large enough to influence market prices in a direction favorable to their position. Short squeezes sometimes, yes, but mostly currency pegs and other kinds of sovereign economic intervention. The hubris of government actors believing in their own experimental economics makes for compelling investment opportunities...

Sound like current events? It should. Now is one of those times...

Spiros said...

MUST Asset Management Inc. just sold 3.3 million shares. So Redditors now know where about a billion or so of their stimulus checks went to.

Original Mike said...

If the stock market is a casino, how did I win?

tim maguire said...

Kai Akker said...
What tim maguire is describing is "naked" shorting. It is illegal, but it probably does still happen. It certainly used to. There used to be more ways to get around the requirement that the shares being sold short had to have been borrowed somewhere first.

But that is the law and at any reputable brokerage, it is the practice. Thus the notorious call-in that a short seller might receive, frequently at the worst possible moment. The owner of the stock finds it is highly priced enough that he wants to sell it.


If that were the case, the short sellers would have been out long ago. You really think there is a significant number of long-term holders (the people who would have loaned the shares the shorters borrowed) who haven't sold already? Of course not. These "loaned" shares don't exist and never did.

Narayanan said...

It is The Federal Reserve and US Treasury Department who have turned markets into casinos with their own roles as croupiers + special bail out chips for their inside groups

Skeptical Voter said...

Biden made "some choices" And one of those choices was cancelling the already completely permitted and under construction Keystone Pipeline. That decision cost more than ten thousand of those "good paying union jobs" that Shufflin' Joe is always nattering about.

When a reporter asked Biden's Climate Czar, "What about those lost jobs", Jean Fraud Kerry, the nation's most successful gigolo, rose to the challenge of proving, once again, that he is an arrogant condescending buffoon. "Those workers should have made better choices."

So for that matter should have the wealthy widow Teresa Heinz.

Joe Smith said...

"I despise Charles Schwab."

Saw him buying a shirt at Nordstrom ten or fifteen years ago.

Seemed kind of odd that he was out shopping, but even rich guys need shirts.

There is an under-the-radar billionaire that I see every week or so at my grocery store (you would know his companies).

He's around 80 now. Drives a Toyota Camry hybrid and buys his own groceries.

I alway's say 'hello' and he's always very nice.

Oso Negro said...

Blogger Original Mike said...
If the stock market is a casino, how did I win?

1/28/21, 9:37 AM


The bet least in favor of the house is the Pass Line at the craps table. There, the advantage is 51-49 in favor of the house. That means 49 winners, but 51 losers. That pays just fine over time.

rehajm said...

Hedge fund is a catch all term that generally describes the less restrictive rules that allow the fund to take short positions and/or invest in multiple markets but is covers a wide spectrum of strategies. Some funds resemble an equivalent of high turnover day traders while others represent conservative, Buffett style, disciplined value investing.

Places like Baupost are the latter and have made extraordinary returns for investors net of fees for a long period of time...

dreams said...

You know, it might be some big players in there pretending to be little guys sticking it to the man, but looking to make a big score. That's what Arthur Cashin is suggesting might be happening...and the stock market could suffer the consequences.

Original Mike said...

How to make $100,000 trading cattle futures.

Take a position in cattle futures. Have someone who wants to influence your governor husband take the opposite position. Have an unscrupulous broker wait to assign your two positions until after it is clear which was the winning position.

rehajm said...

If the stock market is a casino, how did I win?

Heh heh. Yes. I bet I know how you did...

wild chicken said...

"Short selling doesn't do that. It just allows insiders to make $$$"

So, just let big fat tired old companies get fatter and more complacent?

Price discovery is your friend.

hawkeyedjb said...

From the comments at NYT: "We have an economic system where people scheme to make money without creating anything of value."

Yeah. Some of them run hedge funds, some of them become diversity and inclusion managers.

Danno said...

rcocean said...Hedge funds are for dumb people. yeah, that's why they're all millionaires and billionaires. Also, why the managers pay 15% on 100 million, and everyone else pays 34% on 500K. Yeah, they're real *DUMB*

The long-term capital rates are 20% on high amounts and the Obama 3.8% surtax is there also. And remember what you are seeing in the GameStop situation is short-term trading and shorting so the ordinary income rates would apply.

Wince said...

You want allegory? The reaction by the establishment to one of their own being threatened.

Like after an oh-hum summer of riots that destroyed the homes and businesses in poor neighborhood, an incursion of the Capitol is the new national security threat, not China or Iran.

How far behind can social media censorship and figuratively sending the National Guard to Wall Street be?

Hunter Biden's tax payer funded Hooker said...

Hedge Fund Managers - "They’re the worst people on earth...they have no talent, they don’t make money, they just have a pot of money and they manipulate markets to make their pot go up with other people’s money and they get bailed out by the government anyway. They’re the worst people in the world."

Kai Akker said...

Without short-selling, you'd have tulip mania on a more regular basis. And someone, many someones, would be left holding the bags at the end. Shorting is an important part of markets setting prices. There are buyers, there are sellers. It's just not always that rational in the short term.

To shut off one half of the market function is not wise policy. For that matter, I believe every market maker in a stock, including NYSE specialists, is short at one time or another. It's part of the job of providing trading liquidity.

Francisco D said...

rcocean said...The private ones, closed to the public, make the most $$. Its a rigged system. Its not that the average person can't make $$, its that the rich and powerful are protected from losing.

The aforementioned private investment firm that I consulted to guaranteed a minimum 8% investment return, but usually did better. I had CDs coming due (early 90's) and asked a managing partner if I could invest with them. The CDs were worth about $50k. He was amused. They advertised a minimum investment of $5 million, but in reality it was $15 million. "I will have to get back to you on that," I replied.

Michael said...

Lucid

Normal people can short stocks. Not sure where you got the idea they couldn’t.

Ken B said...

Here is a good thread on what is going on with these stocks. https://twitter.com/MrBrownEyes2020/status/1354517067240771584

This over leveraging smells fraudulent too.

hawkeyedjb said...

"Pelosi bought options in Tesla just prior to Biden announcing the federal gov’t would be buying electric cars."

Kerry...rose to the challenge: "Those workers should have made better choices."

For people like Pelosi and Kerry, money is not a worry. You need some, you go marry it.

Temujin said...

Do not look for 'expertise' on the financial markets from TV talking heads, or worse- Journalists! who took 5 times as many courses in Social Justice as they did economics or history.

Here's a larger view from someone who spent his career in it: Points & Figures

robother said...

Breaking news: Ann hates shorts.

Lucid-Ideas said...

@Kai Akker
@Tim McQuire

https://www.sec.gov/investor/pubs/regsho.htm

It was 'naked shorting' that I was referring to. What I was also referring to was the inumerable 'circuit breakers' and the literal blind eye with which the SEC and other regulators turn in letting the big boys do it while calling the street naked shorts.

They're just a bunch of men in shorts after all, eating tendies in mom's basement and doing what the big caps do. They learned it from watching you dad...they learned it from watching you.

DanTheMan said...

Gamestop is down $100/share so far today... and falling.

jaydub said...

I don't understand the "casino" comparison wrt the stock market. Exactly what casino game could you have bet your money on in 1970 and then realized an average 10 - 12% yearly gain over the next 40 years? That's what the S&P 500 did. Those who talk about having lost money in 2008 are the chumps who sold at near the bottom, then didn't reinvest until the market was fully recovered, i.e., they locked in their losses then ignored the recovery. They're the same ones who will repeat that mistake when the next bear market appears. The real issues with that type of investor are he doesn't diversify and he doesn't have a long term investment strategy. Mutual funds are the easiest way to diversify stocks, and index funds are the cheapest mutual funds. You also have to understand your risk tolerance and short term money requirements, i.e., never put money in the market unless you won't need it for several years and always have a reserve fund that allows you to avoid having to sell in a down market. Also, don't let the stock market have 100% of your investments - real estate and bonds often rise in bear stock markets.

It's ironic how people irrationally chase a single stock like AMC and then get bitter when it crashes. They're the greedy ones that they, themselves always complain about.

bagoh20 said...

Seems to me that the market worked just fine. Punished lazy greed, rewarded intelligent risk, and everything was done in the open.

This must be prevented in the future.

Yancey Ward said...

Look, if you want to ban shorting, then you also need to ban its reverse- buying stock on margin. I am willing to bet most people opposed to the concept of shorting won't want that.

bagoh20 said...

My comment above is my contribution to the Trump analogy. The left has decided a Trump must never happen again and has installed all kinds of new rules to prevent it, while punishing those who did it the first time.

rehajm said...

Another 'fun' Biden policy: cap gains rates are going away. Soon to be ordinary income and subject to all the other crap tax therein...

Yancey Ward said...

"Gamestop is down $100/share so far today... and falling."

The shorts got a good entry point this morning.

Michael said...

Mock
“The message to small bettors is: The casino is rigged and you will always lose in the end. If the high rollers don't stop you, the government will. Even so, the little skirmish showed that the emperor is dressed only in his underwear.”

Small investors do not always lose. Many, perhaps you, win through pension funds and 401ks.

Greg The Class Traitor said...

Ann Althouse said...
Me: "This is a lot like the Trump years, just compressed."

This sounds like a brilliant analogy. Can we crowd source its development?


Thank you!

To the best of my knowledge that formulation is original with me.

But I got my first news about it from the Ace of Spaces website, and from the places he linked to.

My jump was the realization that TD Ameritrade, by doing a favor for the big guys and working to cut the little guys out of GME, was making it so that I would never again trust that company.

And that I expect a lot of small investors feel the same. And the long term burn from that is going to nail them, hard.

Kind of like what Fox did to itself on 11/3/2020.

Then I saw that Schwabe was doing the same. And I realized that, despite being their customer for ~30 years, I'm done with them.

And I realized that was a common pattern over the last 4 years. I used to respect the CDC. I used to not have total contempt for the public health establishment. I used to have respect for the FBI. For West Point.

That's all been burned down

Original Mike said...

"Another 'fun' Biden policy: cap gains rates are going away. Soon to be ordinary income and subject to all the other crap tax therein..."

Talk about tanking the market…

Greg The Class Traitor said...

If you're going to ban shorting, you're going to have to ban calls, and puts, and pretty much all option trading.

Not going to happen

Gusty Winds (Elon Musk Fanboy) said...

This is such an awesome comeuppance. After locking us down, giving people $1200 to $1800, some video gamers figured out how to get some revenge. I’m really proud of these people.

And now the corruption continues. Hedge funds are working with trading aps to halt trading on GameStop, AMC etc…until they can figure out what to do.

Rigged elections. Rigged markets. The Biden American way. We're so fucked.

Howard said...

Blogger Amexpat said...

That's a cool story: a crowd sourced troll on big hedge.

Most likely there's some big, smart money manipulating the crowd. And they will get out of whatever stock the mob is short squeezing before it crashes and burns lots of small guys.


That makes sense

Michael said...

Rcocean
“The stock market has always been rigged. That's why Bush wanted to have people put SS payroll money in it. “

This is why many Americans cannot make a $700 emergency expenditure. The Dow was 13000 during Bush. It is now 30,800 under Biden. I am certain you made that return on the money under your mattress. Rigged. LOL

WisRich said...

DanTheMan said...
Gamestop is down $100/share so far today... and falling.
-------

Yep, now down $151 (-43%)

rehajm said...

Quick exercise: go find a ten year period where you would have lost principal investing in broad based index fund.

rhhardin said...

Short sellers provide liquidity and help search out the correct value of a company.

As for screwing people, the short sellers sell the stock at a lower price than the buyer would have had to pay otherwise.

It's just two sides of the same bet, with the odds of the other guy winning raised a little.

WisRich said...

I'm not sure, but I think they halted trading on it again just now.

Original Mike said...

"Those who talk about having lost money in 2008 are the chumps who sold at near the bottom, then didn't reinvest until the market was fully recovered,…"

I think, for some, the ignorance is even worse than that. They think they "lost" money even though they never sold.

rhhardin said...

If the stock market is rigged, the odds of your being on the winning side are 50%. It's hard to see how you lose on fair odds.

Hunter Biden's tax payer funded Hooker said...

Isn't Chelsea Clinton's husband and just about every democrat party elite family member a "hedge fund manager"
?

Ken B said...

Hard to doubt that Robinhood took a bribe. Investigation is in order.

Hard to believe TD Ameritrade was not acting to manipulate outcomes. Investigation is in order.

Diane Feinstein was just in the news for insider trading. She offered to pay a fine. Jail is in order, for her and her husband. Investigation.

Good times for forensic accountants!

Original Mike said...

Blogger rehajm said..."Quick exercise: go find a ten year period where you would have lost principal investing in broad based index fund."

2020 - 2030.

Rusty said...

I applaud the retards (self-described) on Reddit putting the screws to the big hedge funds, but some of the more-millenial comments there raging against the 2008 mortgage crisis are like "I had to wait a year after graduating college before getting a real job!"
I love this. The big guys thought they owned the field. Then an away team full of runts show up and hand them their lunch. Either the market is available to all players or the game is rigged. These guys saw a market to exploit and ran with it. Just like the people at Melvin would have done. Run it up to $450.00 and drop out. Melvin forgot at the end of the day the books have to balance. There will be winners. There will also be losers.

NorthOfTheOneOhOne said...

dreams said...

You know, it might be some big players in there pretending to be little guys sticking it to the man, but looking to make a big score. That's what Arthur Cashin is suggesting might be happening...and the stock market could suffer the consequences.

Possibly. Everyone keeps attributing it to redditors with their stimulus checks, but there's at least one investor who sunk $50K into GME shares. I'm wondering if this isn't like Peter Thiel bankrolling Hulk Hogan's lawsuit against Gawker so he could burn Gawker to ground.

Mr Wibble said...

Greg The Class Traitor said...
This is a lot like the Trump years, just compressed.



Trump won because he saw the weaknesses in the political system, and realized that the political class had taken on a massive amount of "risk" in 2016 by running Hillary. His win exposed the so-called experts as frauds, incompetents, and nitwits. WSB is doing the same for finance.

There's an argument that all our institutions, academic, financial, political, cultural, basically leveraged the good will and social capital built up after WWII in order to amass greater power. This went on for a while, but by the late 90s they were so overleveraged that they become incredibly brittle. 9/11, the Iraq/Afghanistan wars, the rise of China, and the Great Recession were all events which they had promised us they could handle, but when the time came, they couldn't.

rhhardin said...

Scott Adams explains it all today, and gets everything wrong.

Temujin said...

Again, Mr. Wibble nails it.

Michael said...

RcOcean
Hedge funds are for dumb people. yeah, that's why they're all millionaires and billionaires. Also, why the managers pay 15% on 100 million, and everyone else pays 34% on 500K. Yeah, they're real *DUMB*

Who pays these returns/fees? Don’t think you know what you are talking about.

rehajm said...

Those who talk about having lost money in 2008 are the chumps who sold at near the bottom, then didn't reinvest until the market was fully recovered...

...Barack Obama being one of the most vocal at that time, boasting about not having Americans invested in that 'risky' stock market. Way to pick a bottom, Barack....

Mike (MJB Wolf) said...

Great now “progressive” companies are openly rigging the market against little investors at the command of whiny hedge fund managers (picture the old Mitt Romney in your mind). The result of bringing this game-rigging out in the open so blatantly, these progressive ruthless capitalists have become the caricature “Republican” defenders of Wall Street. Another mask ripped off. Another statist elitist “win” that will, probably sooner than later, burn down the very stock market they are saving. I’m using my gains during the Trump years to buy a house before the coming run on the market. Another fucking “progressive” Pyrrhic victory. Great Depressions are not boring, Althouse and these idiots are asking for one good and hard.

rehajm said...

Original Mike said...
Blogger rehajm said..."Quick exercise: go find a ten year period where you would have lost principal investing in broad based index fund."

2020 - 2030.


Heh. I'll take that bet, too. Also betting money isn't going to be my biggest problem...

Deevs said...

I have to admit that I'm pretty baffled by this whole story. I woke up yesterday and learned I was supposed to hate hedge fund managers. Is there something I don't know about how hedge funds are hurting me and the rest of the American public? Serious question. It seems most people are doing this as a symbolic war of the common man on the elites, whoever they are. Which, okay, but I'm still not sure of the utility.

Maybe some of the more financially savvy can help me understand other questions I have. In my limited understanding, the hedge funds will lose all their money due to the inflated stock price if they're required to return the shares they've borrowed at the inflated stock price. But can the borrowers just say, "Hang on for a bit until this bubble inevitably bursts"? If that happens, won't the Redditors lose their money while the hedge funds just return to business as usual? Or am I wrong that a GameStop stock crash is inevitable? If that's at least partially right, would all the intervention that's being proposed actually prevent fewer regular people from blowing their money on this situation?

It seems a lot of people feel the hedge funds are getting their just desserts for being greedy, but the Redditors et al seem to be doing this out of spite and malice. I'm not sure that's setting a great precedent. So, is this actually doing any real good or is it just financial arson?

rcocean said...

"This is why many Americans cannot make a $700 emergency expenditure. The Dow was 13000 during Bush. It is now 30,800 under Biden. I am certain you made that return on the money under your mattress. Rigged. LOL'

ONe reason I make money is because of dummies like you. you always swallow the Kool-aid, and think you're "Super-smart" because you believe everything the MSM and the WSJ tell you. People like you can't think outside the box, which is great for me.

rcocean said...

Shorter RH. Everything is "Muh Free Market" and its all good. Always.

Michael said...

Ken B
Believe Ameritrade’s system was overwhelmed. Or perhaps you could explain how it was n their interest to “manipulate” “outcomes”. To stop investors from buying the stock when it is their business to execute trades? Does Ameritrade own a position in GameStock because making investments is not their business.

rcocean said...

RH thinks outside the box, except the box was made in 1965.

Original Mike said...

"Heh. I'll take that bet, too. Also betting money isn't going to be my biggest problem..."

Ditto.

Amexpat said...

I despise Charles Schwab.

Don't know much about Schwab in recent years, but he helped make the market more accessible to the average investor in the 80's by lowering commissions on the trading of stocks. Thanks to Schwab and other discount brokers there is now no commission on trading stocks and the spread is very small on regularly traded stocks.

All this talk of the market being rigged against the little guy sounds like nonsense that AOC and like minded leftists sprout. As others have pointed out, if an investor sticks to a broad based index fund they will, over any 10-year period, have a very high chance of getting a good return.

In fact, small investors never have had it better today in the US, than any other time in history, if they stick to index funds. Where the small investor gets burned is getting into speculative plays where the big players have more information and smarts.

Mike (MJB Wolf) said...

Dreams at 8:59 sees it too. I hope I’m wrong.

Michael said...

Rcocean
So the Dow rise was a fiction and you have been a better investor in other asset classes? And you make money off me? LOL. Thinking outside the box are you? Har

Original Mike said...

How much did your mattress return, rcocean?

mccullough said...

A country that measures its worth based on stock prices.

Birches said...

link.

Here's another point for the MAGA parallel.

Young men are trying to blow another thing up in America, figuratively.

LA_Bob said...

"Meanwhile in other insider trading news, Pelosi bought options in Tesla just prior to Biden announcing the federal gov’t would be buying electric cars."

She needs to have a talk with Obama. You know, How much money do you really need?

Mary Beth said...

I'm sure Robinhood saw record numbers of their app being downloaded yesterday and will see many of those people deleting it today after they announced that they shut down the buying feature for Gamestop, AMC, Blackberry and a few others.

I wonder if this all would have gotten as much support if it hadn't seemed like the short sellers were trying to damage a company that was a big part of the childhoods of lots of the r/wallstreetbets crowd.

Amadeus 48 said...

Trading financial instruments is a tough way to make money.

For all his folksy clap-trap, Warren Buffett has some real insights that he only shares in retrospect--remember Warren is always talking his book, as they say. He talks a lot about what he did, but never that much about what he is doing. And he has made some real mistakes. Look at how he changed his story on Netjets over time. That Dexter Shoe purchase went bad fast. He bought into an oil producer when oil was at $142/bl.

He looks for things he thinks are mispriced.

It is the rare little guy investor who can trade successfully. I don't trade. I buy things and hold them. Generally, I buy common stocks that pay regular dividends of at least 2-1/2% of the purchase price and have a history of increasing them. Morningstar has a Dividend Investor newsletter that is very good and costs $200 per year.

Although I have made plenty of mistakes, the good buys far outstrip the bad ones.

pacwest said...

It reminds me of the 90's when the internet was busting out. A lot of guys would take a position in a worthless penny stock, create an investment site touting the stocks they bought a .03, watch it run up to 4.00. Sell, rinse, repeat. The early redditors probably made a small fortune, but a lot of them are left holding the bag.

tam said...

Read any history of the early 20th century before the SEC and you'll read many instances of "pump and dump" where speculators would buy shares of a stock, pump up talk by spreading rumors and then dump their shares after it had risen. This sounds disturbingly similar with the early traders ready to make a killing and anyone jumping in now simply setting themselves up for a loss.

As a one-time thing is was at first amusing to me. But now that I read of people talking about doing this on a regular basis, I do think it is ready for abuse and going to lose a lot of small investors' money.

Ken B said...

Freeman Hunt once asked, “Does no-one say ‘fuck off’ anymore?”

They do now.

mandrewa said...

Romanian TVee's explanation of this whole thing: Reddit vs Wall Street explained in less then 5 minutes

Now having promoted that video, which is entertaining and which is in some sense true, let me make one huge correction.

Most of the people involved in this are going to lose their money. This is true whether you are a short-seller or whether you are betting against the short-sellers. The math of it pretty much guarantees this. If one wants to give the Wall Street insiders a bloody nose, and as I understand it that is the motivation of many people of the people on Reddit, then it makes sense to put a very small portion of your assets into this, knowing and expecting that you are going to lose that money.

The other issue I wish to bring up, the larger question, is how extremely distorted the stock markets have become. The only reason the stock markets are not in free fall right now is because the federal government is pumping massive amounts of money into them all the time.

It's has become a staggeringly unfair system where some of the wealthiest people in the country are constantly, in effect, being given huge amounts of money, assuming they know how to work the stock market, by the federal government.

Che Dolf said...

"'JUST IN - Robinhood removes $AMC, $GME, $BB, and $NOK from their trading platform.' regime legitimacy crashes to a new all-time low during after hours trading"
- Duck

"trading was suspiciously stopped at 4AM and when it restarted $GME had mysteriously gotten 180,000 new votes for Joe Biden"
- Duck

AZ Bob said...

Rigged elections. Rigged markets. The Biden American way. We're so fucked.

Gusty, you've inspired a new expression:

It's as rigged as an American election.

Kai Akker said...

---So, is this actually doing any real good or is it just financial arson? [Deevs]

It is a look at the sausage being made at an extreme moment.

Crazy stories like this recur occasionally. IMO it is a symptom. May be worthwhile to think what that symptom is telling us.

PS to Freeman Hunt -- could that 100% figure you mentioned be 100% of the float? The float are shares that trade liquidly. A smaller figure than total shares outstanding.

LA_Bob said...

In the past, heavy "public" buying was generally considered a sign of an approaching market top. I suspect Wednesday's decline was a warning.

Looks like we might be back to "buying the dip". Which works until it doesn't.

The little guys might eat Wall Street's lunch occasionally, but Wall Street will beat the beef out of the little guys over and over in the long run.

Greg The Class Traitor said...

Blogger rhhardin said...
Short sellers provide liquidity and help search out the correct value of a company.

As for screwing people, the short sellers sell the stock at a lower price than the buyer would have had to pay otherwise.


That's the theory.

The reality is that putting a lot of shorts on a stock tends to drive the stock price down, because it creates fear among investors that causes them to get out of a stock they otherwise wouldn't have dropped.

The reality is that brokers will go to favored clients, say "buy this" or "sell that", they get their price locked in, then the broker / "investment advisor" / whatever announces "this is a buy" or "this is a sell", pushing the stock price to reward the favored people.

In this case, the big guys decided that GME was going to go down. They made a big bet. The little guys (perhaps with some big guy help) noticed that the big guys had over leveraged themselves, and decided to make some money screwing them.

https://finance.yahoo.com/quote/GME?guccounter=1&guce_referrer=aHR0cHM6Ly9kdWNrZHVja2dvLmNvbS8&guce_referrer_sig=AQAAAKpBrn1tyC3vskvQ7rEoHMbffRlABENE9ZLjM3e0n_89j0u_W3KOmw4GbAEBgCEOQor1hhfJJNmcK_l6F3tjW8AWHTy0zfRrKwnjJeoyx-BwdnTKOj4p1rPQTkaIONCKmy0DIu4xnqPDf95q06c92CwYrRQmcwVhjU9FnPrkWsjQ

5 Days ago GM# was in the $40 range. A month ago it was in the $30 range. in August in was in the $5 range.

As I write this it's in the $230 range.

Which means the people who jumped in last week to screw the hedge companies are making out like bandits.

And It means that, to the extent that TD Ameritrade and Schwabe haven't been letting their customers short the stock today, they've been locked out of the chance to catch that >$100/share downswing.

Greg The Class Traitor said...

AZ Bob said...
Gusty, you've inspired a new expression:

It's as rigged as an American election.


I'm stealing that.

Or is that "I'm stealing that like Philly steals votes"?

Michael said...

GameStop now off $74. So some latecomers are getting a lesson.

NorthOfTheOneOhOne said...

Mary Beth said...

I wonder if this all would have gotten as much support if it hadn't seemed like the short sellers were trying to damage a company that was a big part of the childhoods of lots of the r/wallstreetbets crowd.

Nah, that would be like getting sentimental over Blockbuster Video's demise.

Greg The Class Traitor said...

mandrewa said...
Most of the people involved in this are going to lose their money. This is true whether you are a short-seller or whether you are betting against the short-sellers. The math of it pretty much guarantees this.

Disagree.

With minimal intelligence, the people who started this rolling aren't going to lose a penny. now, if you jump in after the stock's already gone up 10x, your'e an idiot, but let's consider the people who started this revenge fight.

1: Buy 1000 shares @ $43 share
2: Put in the following sell orders:
100 shares @ $99 -> $9,900
100 shares @ $199 ->$19,900
100 shares @ $299 ->$29,900
100 shares @ $399 ->$39,900
100 shares @ $499

This person owns 600 shares, and has $53,000 in profit on their total investment so far

(Why $99? Because investors aren't rational, and those 00 numbers are a big deal to people. So things hit 99 a lot more often than they hit 00.)

At the current price of $265 they could dump the other 600 shares for another $159k of pure profit. Or, they can stay in an hope to squeeze the big boys even more, on the grounds that they're not playing with their own money.

This isn't a long term capital gain, so you're going to pay ordinary income tax rates on the $$$. But still a nice deal for a week's work.

The short sellers are severely over legeraged. The original buyers can take a good deal of profit without letting the bad guys off the hook

David53 said...

@jaydub

I totally get the casino comparison although I don't agree with it. If you were 35 when the market tanked in 2008 and had invested 35K so far in your short life you felt crushed. It’s hard to see 30 years down the road. It’s hard to imagine that your 35K that shrank to 15K will ever recover. It took them a long time to save that much. Most younger investors aren’t as educated about the market as you are. They had probably relied on some financial advisor who told them to just ride it out. They didn’t trust that guy anymore because they had just lost 20K. If you were older or just retired with what you thought was a nice nest egg, it probably really sucked. Timing. Like walking into a casino and buying into a craps game with $400 and some guy goes on a heater and you walk away with 10K.

A friend of mine worked for Charles Schwab several years ago after doing 30 in the military. He became frustrated with clients who would call him and complain about how some stocks or mutual funds they owned were losing money. He got tired of giving them the spiel about rebalancing or “being in it for the long haul.” He began telling them that investing in the stock market was akin to gambling. His boss didn’t like that. He only worked there about 6 months.

Gravel said...

Nah, that would be like getting sentimental over Blockbuster Video's demise.

GME is the MacGuffin.

Greg The Class Traitor said...

tam said...
Read any history of the early 20th century before the SEC and you'll read many instances of "pump and dump" where speculators would buy shares of a stock, pump up talk by spreading rumors and then dump their shares after it had risen.

Now what happens is that hedge fund short sellers short a stock, talk it down, close out their position making a lot of money while screwing over everyone else.

But that one is still legal.

As a one-time thing is was at first amusing to me. But now that I read of people talking about doing this on a regular basis, I do think it is ready for abuse and going to lose a lot of small investors' money.

Anything involving people is ripe for abuse.

If you don't know what you're doing? Put your money in an indexed fund and let it ride.

If you can do your own research?

Finding places where short sellers are severely over leveraged and making them pay for it? It's just an investment opportunity, same as any other.

The $$$ in it will go away when hedge funds stop making such over leveraged short plays.

Net win for America

Roughcoat said...

Quick exercise: go find a ten year period where you would have lost principal investing in broad based index fund.

I've been investing for years in Vanguard no-load index funds. I'm quite satisfied with the results.

Mr Wibble said...

I wonder if this all would have gotten as much support if it hadn't seemed like the short sellers were trying to damage a company that was a big part of the childhoods of lots of the r/wallstreetbets crowd.

Gamestop doesn't have a particularly good reputation among gamers. In any other situation they'd be willing to let it burn.

Danno said...

Rcocean said...“The stock market has always been rigged. That's why Bush wanted to have people put SS payroll money in it. “

Blogger Michael said..."This is why many Americans cannot make a $700 emergency expenditure. The Dow was 13000 during Bush. It is now 30,800 under Biden. I am certain you made that return on the money under your mattress. Rigged. LOL"

I didn't copy your latest exchange, but I believe Michael has a point. The market may have a lot of problems, but it is one of the ways for the common person to share in the long-term economic growth of the U.S. You don't have to be a rocket science guy to put money into the stock market (via index funds or other funds or in stocks) to set yourself up for long term rewards.

rhhardin said...

Rush is explaining everything wrong as well. He's baffled by mathematical systems but doesn't know it.

rhhardin said...

It doesn't damage the company to short its stock. The company doesn't own the stock. It sold it long ago to investors.

If the shorts try to drive down the stock, it's a good time for the company to buy back its stock, to the extent that it's not a real correction.

Calypso Facto said...

Mr. Wibble said ... "Gamestop doesn't have a particularly good reputation among gamers. In any other situation they'd be willing to let it burn."

Exactly. Or as the indispensable Babylon Bee puts it: "GameStop Announces That Due To Skyrocketing Stock, They Can Now Afford To Pay Up To 25 Cents For Your Used Games"

mandrewa said...

An impassioned rant from Louis Rossman: Brokers MANIPULATING MARKET to save hedge fund billionaires

mandrewa said...

"GameStop now off $74. So some latecomers are getting a lesson."

I'm not sure how real that number is. Many retail brokers, or in other words the brokers ordinary people use, are not allowing people to buy GameStop shares but they are allowing them to sell them.

When you can't buy a stock and are only allowed to sell it, then of course the price, or the alleged price is going to drop. But is this the real price? I don't think it is!

It may be that the real price is closer to $5000. That is $5000 may be the real price that desperate short-sellers are willing to pay for a share of GameStop.

Original Mike said...

"If you were older or just retired with what you thought was a nice nest egg, it probably really sucked."

If you had the oft-recommended 3 years of spending money in cash, you were fine.

It's not a casino and it's not rocket science.

mandrewa said...

With minimal intelligence, the people who started this rolling aren't going to lose a penny. now, if you jump in after the stock's already gone up 10x, you're an idiot, but let's consider the people who started this revenge fight.

I understand what you're saying, but the people I'm aiming the warning, you are probably going to lose money, are precisely the people jumping in now.

And even these people who started this can still lose their money if they don't time their exit right. That can easily happen. With any bubble, and this is a bubble, a stock can fall from the heights to the bottom very quickly. And even more quickly, if the powers that be are trying to engineer that fall to save their friends in the professional hedge funds.

Greg The Class Traitor said...

I hate blogger

Splitting this into two

Deevs said...
I have to admit that I'm pretty baffled by this whole story. I woke up yesterday and learned I was supposed to hate hedge fund managers. Is there something I don't know about how hedge funds are hurting me and the rest of the American public?

1: They give lots of money to Democrats
2: When they win, they keep the $$$. When they lose, they stick it to the taxpayers (see 2008 crash and its aftermath).
3:The vast majority of their $$$ are made from creating market distortions and then profiting from them. They take something that should be dropping a little bit, and do their best to twist things so it drops a lot (or rises).

They are sharks who prey on the rest of us. Currently they are getting preyed upon. This strikes a lot of us as justice.

Maybe some of the more financially savvy can help me understand other questions I have. In my limited understanding, the hedge funds will lose all their money due to the inflated stock price if they're required to return the shares they've borrowed at the inflated stock price. But can the borrowers just say, "Hang on for a bit until this bubble inevitably bursts"?

No.
What they are essentially doing is "selling on margin".
When you "buy on margin" you give your broker say, 10% of the price of a stock, and they buy that stock for you. If the price drops 10%, your broker is now holding a stock where they're on the hook for it if it drops any more. So they're going to have given you a "margin call" where they tell you have to pony up more money to keep their exposure down, or they're going to sell the stock and you're out of luck.

When you sell on margin, you borrowed a stock from them, and sold it. So, either they borrowed that stock from someone else, or they had purchased it, and were holding it in their account.

The price doubles.

You borrowed $100 million worth of the stock from them.

They're now out $100 million (because the stock is worth $200 million).

They can give you the $100 million short term loan of not asking you for anything to cover your short position. but if they do that, they have to record it on their books. And if you go bankrupt, they may be out that $100 million, and having a long talk with regulators about why they gave you that loan.

So, instead, they're going to make a margin call on you, to make sure they're not the ones left holding the bag.

Because shorting stocks and hoping they drop is not their business. But that's what they're doing if they don't hit you up for $$$.

Even worse, if the price does tank, they don't get anything for the risk they took, the profit is all yours.

So, to the extent that they just let the hedge fund ride, they're giving a gift to the big guys that they'd never give to the little guys. Which is the whole corruption and cheating system thing.

To the extent that they require the short sellers to cover their positions, the short sellers are getting squeezed, driving the price up.

Greg The Class Traitor said...

2nd half:

If that happens, won't the Redditors lose their money while the hedge funds just return to business as usual? Or am I wrong that a GameStop stock crash is inevitable? If that's at least partially right, would all the intervention that's being proposed actually prevent fewer regular people from blowing their money on this situation?

The intervention would be the government / regulators saving the big guys when they lose, while letting the little guys get the shaft when they win.

It's evil

It seems a lot of people feel the hedge funds are getting their just desserts for being greedy, but the Redditors et al seem to be doing this out of spite and malice. I'm not sure that's setting a great precedent. So, is this actually doing any real good or is it just financial arson?

The little guys found a market opportunity. They're making bank, and hurting people they hate.

Regulatory or corporate intervention is not justified, warranted, or excusable.

At some point the price will go down. Some people will win, some will lose.

The justification for allowing hedge funds to trade and keep their winnings is that they're being rewarded for their efforts.

The justification for stopping this is that they people who win in this situation (who are not the hedge funds) shouldn't be rewarded for their efforts.

So, you can completely shut down Wall Street, or you can leave this situation alone.

There's no other legitimate choice

Original Mike said...

Addendum: Individual stocks are a casino.

Greg The Class Traitor said...

mandrewa said...
I understand what you're saying, but the people I'm aiming the warning, you are probably going to lose money, are precisely the people jumping in now.

"People who chase enthusiasm are idiots who get taken to the cleaners."

yes

And even these people who started this can still lose their money if they don't time their exit right. That can easily happen. With any bubble, and this is a bubble, a stock can fall from the heights to the bottom very quickly. And even more quickly, if the powers that be are trying to engineer that fall to save their friends in the professional hedge funds.

That's why you set your sell orders to trigger on the way up, not the way down.

Greg The Class Traitor said...

mandrewa said...
I'm not sure how real that number is. Many retail brokers, or in other words the brokers ordinary people use, are not allowing people to buy GameStop shares but they are allowing them to sell them.

We need a complete listing of those

Or, maybe, just a listing of those who are allowing their customers to buy.

Because the ones not allowing purchases need to be driven out of business

Todd said...

Original Mike said...

If you had the oft-recommended 3 years of spending money in cash, you were fine.

1/28/21, 11:55 AM


Three years of spending money?!? I have never heard that. I have heard "at least 6 months" of salary. Not that I don't think people should have more than that, it is just that is always the phrasing I have heard.

Pianoman said...

HEDGE FUND GUYS: We're making money hand over fist by shorting stocks.
DEPLORABLES: We want some of that action.
HEDGE FUND GUYS: Get your own software for that, you can't use ours.
DEPLORABLES: Okay.
ROBIN HOOD: Here you go, Deplorables.
HEDGE FUND GUYS: NOT LIKE THAT!

Gahrie said...

I think what is going on is dangerous and unhealthy for our economy. That being said, I completely align myself with what Charles Payne has been saying.

Original Mike said...

@Todd - I am not talking about a 6 month emergency fund. I am talking about management of your portfolio in the distribution or withdrawal phase (a.k.a. retirement). Have enough "cash" that you don't have to take money out of equities during a market downturn. Three years is a common recommendation.

William said...

I don't know that much about finance, but I'm fond of money. It ranks right up there with sex and BBQ among my favorite things....I've never taken the trouble to learn the ins and outs of the market. I'm buy and hold, and I buy and hold things like index funds and, even more conservatively, hybrid funds. This is the virtuous way to invest. It demonstrates prudence and moderation. One is not greedy like short sellers, day traders, and hedge fund managers....Over the course of a lifetime, I have done well. As everyone knows, God rewards the virtuous and God has seen fit to reward my virtuous behavior. Also, God likes America. I don't think buy and hold had such happy results in Japan and the UK.....I suppose a certain amount of rigging goes on in Wall St, but it remains the best game in town. If you put your money into a savings account, you will lose your money at a stately, dignified rate. Real estate? Real estate is good. You get to live in your investment. Kind of sucks if you bought the house of your dreams in Detroit back in the seventies though.

Left Bank of the Charles said...

This deserves the "men in shorts" tag. It's a brilliant short con. The Hedge Funds over-short the stock. The Smart Money comes in to squeeze the Hedge Fund shorts, uses the internet to drum up Dumb Money buyers so the Smart Money can exit at a profit, and drums up so many buyers that the trading platforms and markets regulators have to step in. The trading platforms and markets regulators will take the blame for bursting the bubble, and won't get any credit from the Even Dumber Money that might otherwise have been induced to take the loss from the Dumb Money.

Amexpat said...
This comment has been removed by the author.
David53 said...

If you had the oft-recommended 3 years of spending money in cash, you were fine.

Is 3 years of spending money in cash what they were recommending in 2008? I'm retired military and my wife worked 35 years for DoD. Our retirement advisor said keep 3-6 months of spending money in cash. I think the private sector thinks differently about these things.

daskol said...

This is the best thing to happen since Trump, and it's the "village idiots" vs. the oligarchs in the most direct possible confrontation, and the oligarchs are taking it in the nuts. I love these kids.

daskol said...

THESE DIAMOND HANDS WEREN'T MADE FOR THE SELL BUTTON FELLOW IDIOTS

daskol said...

(they call themselves a less polite word on their site, retards, but Howard Stern says that's not a nice word anymore).

William said...

Sex and money. In certain eras certain forms of sex and money making are celebrated, and others are considered scandalous.....In prior days, it was considered not just acceptable but desirable for a rich man to marry his slightly underaged niece or cousin. It kept the money in the family. In those times, there weren't many gay marriages except in Boston......The good people of Venice gave Shylock a hard time. Shylock loaned money at interest. This is now called banking, but back then it was referred to as usury. Usury was a primal and ugly sin. Venice had slave markets and brothels, but usury was the really dirty sin.....We put a lot of moral valence on money and sex. Most times that moral valence doesn't reflect any enduring, immutable value, but the concerns and fashions of the moment in which we live.

Nonapod said...

Robinhood has shut down trading after the billionairs squeeled and cried loudly enough I guess.

Gahrie said...

(they call themselves a less polite word on their site, retards, but Howard Stern says that's not a nice word anymore).

The irony being that the use of retardation in this manner was originally intended to remove the stigma of words like moron and imbecile, which in turn were originally dispassionate scientific terms. It's almost like the underlying condition causes the stigma instead of the word used to define it.

daskol said...

Also, to all the fuddy-duddies worrying about the health of our markets and how this threatens them, get real. The only reason this is working is because GME was shorted to the tune of 130% of float. "Smart money" thought this was free money. The supposed infinite risk the small guy has to worry about in a short has always been moot for those big and aligned enough to make the stock do what it ought (or just whatever you feel like it). No more. This is what markets are for, and if this changes the way short strategies are implemented, good. And if this gets our market regulators to actually enforce the ban on naked shorting, even better. Of course the first instinct of the captured regulators is to go after the retail retards, but we can see a bipartisan consensus of folks who don't agree with that. This is going to get awesome.

daskol said...

Actually, what RobinHood did was MUCH worse than shutting down trading, and besides losing a ton of clients they need to get sued into oblivion. They allowed their platform users, > 50% of them who have a position in GME, ONLY TO SELL. They straight up tried to pluck Plotkin's nuts from the fire. The nice thing about a rapid escalation and a new tactic like this is the enemy--and this is a battle, not a pump and dump scheme--gets clumsy and overdoes it in their panic. And that is happening in all kinds of ways, with class action suits already filed. Even my high quality, somewhat populist themed broker Interactive Brokers limited trade in the options expiring tomorrow, allowing only liquidation trades, not further acquisition. Very disappointing, but will wait to hear their rationale before filing suit.

daskol said...

The best part is still going to be the gamma squeeze tomorrow when options expire. The retards are trying to keep the price at least above $320 which is the highest strike price of options that's been offered. If they can keep even those in the money, the squeeze tomorrow as those are exercised should make the last two days' price action look mild. Hedge funds and other big ballers do this kind of thing all the time, and Martin Shkreli did it famously to a pharma co he then took over, but besides his move I don't know that this has ever been done TO the hedgies outside of governmental collusion (e.g. the Porsche/German govt castration of America's most famous investors in 2008. Now, it takes a certain amount of hubris to short a state-owned and historically and strategically important company of an ally country, and hubris invites nemesis. Sort of like shorting 130% of a company's float.

NorthOfTheOneOhOne said...

The sickening irony of all this is that the guys who spend their days manipulating stock prices are now screaming that the /WallStreetBets "retards" are manipulating stock prices.

Yet again, another case of; "It's different when we do it!".

daskol said...

It's absolutely delicious. And it's going to cause a massive crack in the Dem Party because the establishment that actually holds the reins of power is in the hands of the oligarchs, and it's only the commies and terrorist lovers and others of the controlled opposition so beloved by the youths that are aligning with the upwardly mobile populist GOP types. It is, like a lot lately, very clarifying.

daskol said...

Let me ask of the Melvin traders and the rest: do you think, in retrospect, that covering your shorts around $3 might have been a good idea? Or was it "smart money" to keep the position and double down on it in this very, very crowded (illegally crowded!) trade to make that last $3/share and drive the company into bankruptcy?

Greg The Class Traitor said...

Left Bank of the Charles said...
drums up so many buyers that the trading platforms and markets regulators have to step in

As always, Leftie gets it wrong.

They didn't HAVE to step in.

They CHOSE to step in, because they like the people who were losing money, and don't like the people who were making money.

I expect the Democrats will be performing 20% lower in special elections this year, than they performed in Nov.

Because apparently it was the Biden Admin that stepped in and told the retail brokerages to screw over the little guys to help the big guys.

And yes: "hedge funds can buy to cover their positions, but retail customers can not" is screwing over the little guys to help the big guys

Original Mike said...

"Is 3 years of spending money in cash what they were recommending in 2008? I'm retired military and my wife worked 35 years for DoD. Our retirement advisor said keep 3-6 months of spending money in cash. I think the private sector thinks differently about these things."

Yes. This is a very old concept, not to mention just common sense. It looks like you are also conflating portfolio management with the "emergency fund" concept. These are two different things.

Original Mike said...

Emergency fund is something you do when you are earning a salary and might lose your job. Having 3 years (or more, if you like) not in the market is something you do in (or nearing) retirement.

AZ Bob said...

When a big hedge fund rides a self-fulfilling short sale bankrupting beatdown of a precarious company, it's called "creative destruction."

When Reddit shitposters do a short squeeze bankrupting beatdown of a big hedge fund, it's called "dangerous volatility."


David Burge aka @Iowahawkblog

jaydub said...

@David53 " If you were older or just retired with what you thought was a nice nest egg, it probably really sucked. Timing. Like walking into a casino and buying into a craps game with $400 and some guy goes on a heater and you walk away with 10K."

A couple of points: I actually retired on 28 February 2009, about 10 days before the market bottomed on 9 March. At that time my portfolio was down 32.3% from the high in 2008 (S&P was down 50+%,) and I believed that the market was seriously oversold. It turns out I was right and had recovered fully by January 2011. Was it a gamble? Partially, but looking at historical PE ratios across the whole market (less NASDAQ) it was not that much of a gamble. Actually, I believe the best time to retire is in an aging bear market, so long as you have an adequate reserve fund because the nearer term upside is so strong (I had three years cash cushion when I retired.) Secondly, as far as the craps game analogy, smart gamblers (if there is such a thing!) never bring more to the table than they can afford to lose. This applies to smart investors as well. The gambler might have the experience you described once in a lifetime because his game is all risk and luck, but the investor can count on long term market performance averages to mitigate his risk. Certainly the greater returns usually come with the greater risk, but I said before one needs to understand one's appetite for risk and as well as shorter term cash requirements. If he has that knowledge and properly diversifies then he's light years ahead of a casino gambler.

daskol said...

Emergency funds are for boomers. YOLOing everything into GME shares is how the youths do it. And it is glorious to watch.

Original Mike said...

What jaydub said…

Tomcc said...

I was looking at Instapundit a few minutes ago; that "top rated comment" shows up as a tweet from AOC. Did she originate it, or just endorse it?
Anyhow, is there a less sympathetic group (excluding lawyers) than hedge fund managers?

daskol said...

Further, the clearing houses and prime brokers that the retail trading platforms use shut down buying not only GME, but about 5 other stocks that are all heavily shorted, allowing only selling of positions to the retail clients. Meanwhile the shorts can drive the price down and try to unwind their trades at a much lower price point because of this suppressed demand. The more prudent ones, anyway. The most arrogant are shorting more.

This is the market manipulation we saw today, not a bunch of individual investors manipulating it, but the retail retards goading the major players into some truly monstrous and obvious market manipulation the legal implications of which will take years to play out. And if they don't pay heavily, well, I won't be that surprised because the rule of law is looking ever less robust. But they ought to be destroyed, most of them. And replaced.

D.D. Driver said...

"Emergency funds are for boomers. YOLOing everything into GME shares is how the youths do it. And it is glorious to watch."

The best part is the way WSB is just rubbing the elites' noses with "Buy and Hold" taunts. It's not just what they are doing, which is awesome in and of itself. The style points are off the chart.

Todd said...

Original Mike said...

@Todd - I am not talking about a 6 month emergency fund. I am talking about management of your portfolio in the distribution or withdrawal phase (a.k.a. retirement). Have enough "cash" that you don't have to take money out of equities during a market downturn. Three years is a common recommendation.

1/28/21, 12:16 PM


Ah, I am not there yet and have not yet been exposed to that "discussion". Makes sense.

boatbuilder said...

"Anyhow, is there a less sympathetic group (excluding lawyers) than hedge fund managers?"

Congress?

Deevs said...

Greg the Class Traitor:

Thanks for taking the time to answer my questions. Particularly, since this is the internet, thanks for doing so without any insults or condescension.

daskol said...

Blogger D.D. Driver said...
"Emergency funds are for boomers. YOLOing everything into GME shares is how the youths do it. And it is glorious to watch."

The best part is the way WSB is just rubbing the elites' noses with "Buy and Hold" taunts. It's not just what they are doing, which is awesome in and of itself. The style points are off the chart.


Would you just look at the UNITY this is inspiring?! Joey Fuckin Biden could never make unity like this unity. It takes a couple million self-proclaimed idiot retards pantsing the hedgies to bring Americans together. There is hope yet for this country, and that hope has DIAMOND HANDS.

daskol said...

This is the biggest, most beautiful unity we've seen in so long. They're MUGA, making unity great again over at wsb.

Gahrie said...

Here's a thought experiment for all of those who voted for the Democrats or refused to vote against them:

What do you think it means when all of the intuitions start acting in concert to protect the hedge funds and screw the little guy, while at the same time politicians like Pelosi are busy buying up stocks whose value will increase once they implement their agenda?

Elections aren't the only thing that can be stolen.

reader said...

Hmm. Pelosi is buying the stock of the company her party is driving out of the state she represents whose stock may increase in value due to her party’s agenda

DavidUW said...

So many points on Althouse who doesn't like to think about finance (because she had a guaranteed job and now a pension). Fair enough. it's why i waste time on political blogs when my business is finance.

1) Framework. Hedge funds are not sympathetic, but to clear up a couple misconceptions. The management fees haven't been 2&20 for a long time except for a select few. Furthermore, if you have a losing year, most funds don't charge the fees, so yes, guys like me don't get paid (or used to be like me; I retired curiously the day after the election and unwound my stuff as part of my divestment of America plan as I posted here and is proceeding apace). Also, to the 20%, it only gets paid out if you go above the high water mark during the prior period. So if your fund had $1B at some point last July and now is down to $500M, you have to make all that back to start getting paid again. Many funds also have minimum return hurdles, like, say, 8%, so you need to get to $1.08B before you start getting performance bonuses. Then on top of it, most hedgies require employees to invest a chunk of their bonuses into the fund so they're eating their own cooking. I'd love to see more politics work that way.

Not saying that to complain, just saying. You have no idea what it's like to work for a year and have it blow up in your face and look at the prospect of not getting paid until sometime maybe next year. Might make you demand higher pay, no? When I look back, I spent roughly 25% of my working life of 16 years not getting paid. (speaking of emergency funds).

2) Shorting. Let's clear this up. Shorting is something anyone can do as long as you have a margin account. You can have a margin account as long as it's not your IRA. Period. You don't have to have one, but you can have one.

3) Naked shorting, shorting more than the notional value of shares outstanding. This is possible but I agree should not be.

4) Brokerages. They can impose any kind of margin requirement on any issue they want, effectively preventing you from borrowing to buy or shorting the stock. What Robinhood is doing here (only allowing sales to close) should be illegal. It's been awhile but I can't believe there isn't a SEC regulation against this. They can use the excuse that they can't execute a trade or even all (buying and selling) trades but to blanket stop only 1 side of a trade for all customers is not right.

5) Fundamentally the hedge funds got caught not managing risk, which is the basic point of running a hedge fund. Oops.


daskol said...

Like Althouse and women's sports, this populist short squeeze is proceeding exactly as James Poulos has foreseeon

We just need to make sure these bumbling oligarchs and their erstwhile all powerful masters of the narrative and discourse don't take us all down with them.

Poulos is a McLuhan scholar and very interesting thinker and writer, having "updated" McLuhan concepts for the digital age. Highly recommended, and this is't a bad place to start if you like jumping into the deep end of the pool.

daskol said...

DavidUW, you seem like a nice and intelligent guy for a greedy bloodsucker. While it's impossible to simply describe all of private capital as one thing, since it is diverse and massive, the PR problem for this sector is not just a PR problem. The manipulation engaged in by some of the bigger players or less scrupulous assortment of smaller players is real and punishing to retail investors and many times the companies and brands people love. More broadly the socialization of losses in an environment of private profits kind of pisses people off--really pisses them off. The hubris displayed by a handful of the bigger names in private capital may not characterize the industry as a whole, but it grates. I've both solicited investment from private capital and invested some with it, so been on both sides a bit, enough to know there are loads of conscientious and more or less scrupulous players, that they may even predominate in terms of numbers. But they are not the big swinging dicks in the industry, and they're coming for you all. COVER YOUR SHORTS, man.

Clyde said...

Sebastian said...

Take it from Buttigieg to Keystone workers: just get another job.


Only problem is that under Biden*'s new equity policies, 40% of those other new green energy jobs will be reserved for people of color. If you're a straight white male, good luck with that.

Oh Yea said...

https://twitter.com/charliespiering/status/1354880524796485641?s=21

“Jen Psaki won’t say whether Sec of Treasury should recuse herself from Robinhood mess after receiving more than $800,000 in speaking fees from the Citadel hedge fund. Calls her a “world renowned expert” on markets“

Nonapod said...

Now some users are claiming that the Robin Hood app is selling their shares against their will. If that's true then... ooohh boy, that's some evil right there.

daskol said...

Example: the theoretical infinite risk in a short position (unless you buy deep OTM calls to manage that risk) really only applies to retail investors. That makes shorting a much less attractive proposition, inherently less profitable. The big guys don't need calls to cover because they are not worried about infinite loss. They can and often do make the stock do what they think it ought to do. That's a regular practice, with many crowded short trades out there representing guaranteed money for money managers. That's why this particular comeuppance is so grand. It involves some of the big stars in the private capital firmament. The only other example where the big names got gored like this that I can think of is when Porsche conspired with VW and the German govt to take our biggest investors to the woodshed on a massive short squeeze, buying up the remaining float to the tune that 99% of it was unavailable to those trying to exit the trade. And then dismissing all the lawsuits around that obvious case of massive market manipulation, which cost these funds something like $30B.

This is just like that, except done by a bunch of self-proclaimed idiot retards a fractional share at a time. You've got to find a way to enjoy this.

D.D. Driver said...

It takes a couple million self-proclaimed idiot retards pantsing the hedgies to bring Americans together.

Ya think? What do you call it when Tucker Carlson and AOC agree?

DavidUW said...


Now some users are claiming that the Robin Hood app is selling their shares against their will. If that's true then... ooohh boy, that's some evil right there.
>>
If that's true, people are going to jail.
You can never trade your customers' accounts without explicit permission.

DavidUW said...

They can and often do make the stock do what they think it ought to do. That's a regular practice, with many crowded short trades out there representing guaranteed money for money managers.
>>
Which is why no fund ever has a losing year?
Get a grip.
Hedgies are not all powerful. Their buying/selling power is nothing compared to Fidelity or American Century or the Capital Group managing a few Trillion $.
Hedgies just play around with rich people's money for the most part ("accredited investors).
They're nothing compared to private equity asset strippers for negative externalities (Mittens larding up companies with debt, stripping the assets, shipping jobs overseas, and reselling the carcass, after paying themselves dividends, to the public).

Again I'm not defending the hedgies here, they got caught overloading on a crowded short. Squeezes happen all the time, this is just bigger than most.

daskol said...

Ya think? What do you call it when Tucker Carlson and AOC agree?

This happens a lot, actually. Assange, certain economic and regulatory measures, etc. If AOC would just drop the race-hustling, America-hating, terrorist-coddling bullshit, and conceal a bit better her contempt for half this country, they'd be totally simpatico.

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