Stocks and Trading Thread - Channeling your inner Mono

[alfred russel]

Smaller investors are legally excluded from forming hedge funds. If they folks on reddit were able to meet the wealth requirements to form a hedge fund, they could have done so and run up the price of Gamestop with their collective money, and it would all be legal (assuming of course that they are really driving Gamestop, which I don't believe).

That is not a sound assumption. Hedge funds and their traders are subject to regulations and funds owe contractual and other legal duties to investors. For example, hedge funds cannot (as one of the reddit leaders did) follow a trading strategy with the express objective of losing money.

One dude claiming (almost certainly falsely) he was trying to lose money is a red herring.

Reality:
Wealthy investors can form a hedge fund that pools their money, and buys up a stock to force a short squeeze and then sell.

Small investors are prohibited from joining a hedge fund, and if they try to coordinate their activity on reddit so that their collective money is used to buy up a stock to force a short squeeze and then sell, they face sanctions for manipulating the market.

[The Minsky Moment]

Reality is that any hedge fund who tried to pull what the subredditers did here would get hit with multiple lawsuits, face gov't investigations for market manipulation and would be dragged before Congress.

I can't think of an example of a hedge fund trying something like this.  The closest analogy I can think of was the Hunt Brothers corner, which resulted in them sustaining terrible losses, and SEC investigation, and eventually bankruptcy from the follow on civll suits.

[Tamas]

For what's worth, Jim Cramer from 2006 touches on how as a hedge fund manager he'd prioritise quarterly results over sticking to the rules: https://youtu.be/QFfjX8dW-QQ?t=554 Specifically he explains it is not allowed to "foment" but it is profitable and the SEC won't enforce it anyhow.

[Admiral Yi]

Reality is that any hedge fund who tried to pull what the subredditers did here would get hit with multiple lawsuits, face gov't investigations for market manipulation and would be dragged before Congress.

I can't think of an example of a hedge fund trying something like this.  The closest analogy I can think of was the Hunt Brothers corner, which resulted in them sustaining terrible losses, and SEC investigation, and eventually bankruptcy from the follow on civll suits.

Is it against SEC rules to buy lots and lots of a stock while it is being shorted?

[The Minsky Moment]

Stock shorts can harm companies who might otherwise seek to finance changes to their business through equity offerings.

Equity capitalization is either done through a formal offering process or through a private placement.  The pricing is set based on the buy interest in the market - if the shares are priced artificially low, that should drive buy interest, not suppress it.

Not only does it look different.  It is different.  The Lilliputians are the market and the folks who are used to the concentration of information in the hands of the few are feeling the effects.

The "market" is an abstraction.  The Lilliputians are actual identifiable people that are involved in real conduct that if done by people on Street would lilkely end with people banned from the industry or put into handcuffs.

This has nothing to do with concentration of information. The information about Gamestop is well known and public. Trading activity in the stock is also public and known.

Here is the big disconnect.  Now we are try to judge what a stock is really worth, when has that been a thing in recent years.

Gamestop is not Tesla.  One can argue if the stock is worth $0 or $5 or $10 but is it NOT $500.  Gamestop is not a $30 billion business - it has steadily declined in revenue for a decade and has a solid track record for hundreds of millions of negative net income. Derrida himself would not argue for a reality so indeterminate that it could give Gamestop a $30 billion valuation.

[The Minsky Moment]

Reality is that any hedge fund who tried to pull what the subredditers did here would get hit with multiple lawsuits, face gov't investigations for market manipulation and would be dragged before Congress.

I can't think of an example of a hedge fund trying something like this.  The closest analogy I can think of was the Hunt Brothers corner, which resulted in them sustaining terrible losses, and SEC investigation, and eventually bankruptcy from the follow on civll suits.

Is it against SEC rules to buy lots and lots of a stock while it is being shorted?

Not in itself, it depends on context

The SEC defines manipulation as including  "conduct designed to deceive or defraud investors by controlling or artificially affecting the
price of securities" or "intentional interference with the free forces of supply anddemand" and it includes "practices  that are intended to mislead investors by artificially affecting market activity." and the courts have held that trading activity alone can constitute manipulation. 

So it is going to depend on the reasons  and purpose for the trading activity and the methods used.

[Tamas]

Reality is that any hedge fund who tried to pull what the subredditers did here would get hit with multiple lawsuits, face gov't investigations for market manipulation and would be dragged before Congress.

I can't think of an example of a hedge fund trying something like this.  The closest analogy I can think of was the Hunt Brothers corner, which resulted in them sustaining terrible losses, and SEC investigation, and eventually bankruptcy from the follow on civll suits.

Is it against SEC rules to buy lots and lots of a stock while it is being shorted?

Not in itself, it depends on context

The SEC defines manipulation as including  "conduct designed to deceive or defraud investors by controlling or artificially affecting the
price of securities" or "intentional interference with the free forces of supply anddemand" and it includes "practices  that are intended to mislead investors by artificially affecting market activity." and the courts have held that trading activity alone can constitute manipulation. 

So it is going to depend on the reasons  and purpose for the trading activity and the methods used.

See these are typically the kind of rules that are made as a tool in the game - obviously these things are done all the time (if nothing else just check out the quote from Cramer I linked - he talks about this very stuff as par de course), and you only get caught by it if you are not part of the circle or if you really overreach.

[The Minsky Moment]

For what's worth, Jim Cramer from 2006 touches on how as a hedge fund manager he'd prioritise quarterly results over sticking to the rules: https://youtu.be/QFfjX8dW-QQ?t=554 Specifically he explains it is not allowed to "foment" but it is profitable and the SEC won't enforce it anyhow.

There is a lot of bad behavior on Wall Street.  I'm not defending the conduct of hedge funds generally.  I'm also not shedding many tears for the pro short sellers that are taking hits, that's part of the risk one takes.  Never take a position if you can't afford to deal with a loss.

But from a market integrity standpoint, it is not a good thing if internet vigilantes can easily manipulate prices of targeted stocks.  I think that is an uncontroversial point but it's one that risks being lost in the populist narrative and the undeniable pleasures of schadenfreude at the expense of hedge fund shorts.

Hedge funds definitely need more regulation especially given the relative pass they got over the last 4 years. But regulation needs to be done according to rules enforced by authorized regulators, not roving bands of reddit vigilantes.

[The Minsky Moment]

See these are typically the kind of rules that are made as a tool in the game - obviously these things are done all the time (if nothing else just check out the quote from Cramer I linked - he talks about this very stuff as par de course), and you only get caught by it if you are not part of the circle or if you really overreach.

The US isn't Orban's Hungary, at least not yet.  The SEC and the US attorneys in NY can be accused of many shortcomings, but over-solicitude to the powerful on Wall Street is not one of them.  The enforcement guys love hunting big scalps; big cases can make careers. One the biggest manipulation cases in recent years has been the LIBOR benchmark cases; the defendant firms are like a roll call of the Street elite.

[Sheilbh]

The US isn't Orban's Hungary, at least not yet.  The SEC and the US attorneys in NY can be accused of many shortcomings, but over-solicitude to the powerful on Wall Street is not one of them.  The enforcement guys love hunting big scalps; big cases can make careers. One the biggest manipulation cases in recent years has been the LIBOR benchmark cases; the defendant firms are like a roll call of the Street elite.

I always think of Oliver Bullough's line that from an anti-corruption/anti-dodginess perspective the best situation would be UK style transparency and US style enforcement. One day, hopefully.

[Oexmelin]

Hedge funds definitely need more regulation especially given the relative pass they got over the last 4 years. But regulation needs to be done according to rules enforced by authorized regulators, not roving bands of reddit vigilantes.

Sure. But the growth of vigilantism in so many spheres of our society should alert us to a crisis of confidence about the capacity of our institutions to produce just outcomes, and to punish adequately certain kinds of people - who always seem to be winning, regardless of the sort of behavior they engage in.

[alfred russel]

Reality is that any hedge fund who tried to pull what the subredditers did here would get hit with multiple lawsuits, face gov't investigations for market manipulation and would be dragged before Congress.

I can't think of an example of a hedge fund trying something like this.  The closest analogy I can think of was the Hunt Brothers corner, which resulted in them sustaining terrible losses, and SEC investigation, and eventually bankruptcy from the follow on civll suits.

A hedge fund would never do what subredditers did because it is epically stupid. But I'll consider you to be conceding:

-rich people can pool their money in hedge funds, poor people can not,
-it is not explicitly illegal for a hedge fund to try to squeeze shorts, while it is illegal for redditers to organize collectively to do the same.

Which seems to me to be a way the rules really are tilted toward the wealthy.

[Josquius]

Which Vaux - Vaux Breweries. Don't expect it to be well known outside of The North. Just one example of stock market games screwing over a viable business that happens to be close to me. Plenty of more well known and objectively dodgier examples out there.


Nothing illegal is happening on reddit.
"I've done my research and figured out gamestop is actually a great buy because it's massively over leveraged by short sellers, if it reaches a certain level the price will shoot up and short sellers will be fucked. Here's details of my reasoning. "
Is the kind of stuff tonnes of websites do. This has been brewing for a long time (though I and most of the world only became aware a week ago). It has only become a problem suddenly when it is working.

[The Minsky Moment]

-rich people can pool their money in hedge funds, poor people can not,
-it is not explicitly illegal for a hedge fund to try to squeeze shorts, while it is illegal for redditers to organize collectively to do the same.

Which seems to me to be a way the rules really are tilted toward the wealthy.

Poor people are shut out of the market entirely - 45% of Americans own no stock and many of those that do own small, employer controlled 401K plans. This isn't about poor vs rich b/c the poor arent even in the conversation.

For the relatively affluent minority of Americans that do have non-de minimus stock holdings over which they can exercise meaningful control, it is arguably a golden age. Individual investors can trade a vast array of products unimaginable a few decades ago, quickly and conveniently, and without commissions. They even can access hedge and PE funds indirectly through fund-of-fund type vehicles but why would they want to?  The alternative fund industry does not generate alpha, at best it can claim to some degree of non-correlated beta.  An individual investor will almost always be best off buying Vanguard-type funds and ETFs with a standard asset allocation, something that is pretty cheap and easy to do.  That will perform as well over the long haul  as 99+% of the actively managed strategies out there.

What the WSB sub is doing has nothing to do with democratization or finance of evening the playing field.  It is as many have noted just the gamification of finance, applying to the stock marked the tropes, vocabulary and tactics of mobile gaming and reddit "culture". The point is not to do what real hedge funds do, the point is to thumb one's noses at hedge funds and burn a few greedy Wall Street fingers.  The point is fun, the fun of the old medieval carnivals.  And it is fun; I read enough of the sub to see that.  But there are real world consequences to this brand of fun.

If you really wanted to democratize finance you'd have to find a way to give everything HFT tech or get seats on commodities trading exchanges or give everyone their own team of 10 math and compsci PhDs to create investing algos for them.  To say the highly capitalized players have an advantage over ordinary Joes in finance is just to say we live in a capitalist system.  An ordinary Joe that decides he wants to start up his own chip foundry is going to find quickly he is not on a level playing field with Intel and Samsung.  You don't fix that problem by giving Joe the right to commit arson against the competing foundries.

If you think capitalism produces inequitable results, the two options are to abandon it for socialism or keep the system but use the power of the state for redistribution.  Anything else is a mirage.

[Admiral Yi]

The company was founded in 1806 by Cuthbert Vaux (1779–1850),[1] producing several popular brands including Vaux's Stout, Maxim, Double Maxim, and Sunderland Best Bitter. For nearly 200 years, it was a major employer in the city.[2]

In 1972, the company bought the Sheffield-based Wards Brewing Company, which it retained as a separate subsidiary.[3] In 1981, it attempted to establish a foothold in the U.S. with the purchase of the New York-based family-owned Fred Koch Brewery.[4]

By the 1990s, the Vaux Group had expanded into hotels. Despite the brewing business being profitable and an offer to buy it having been received from management, in March 1999 the Board accepted the advice of the Corporate Financier, BT Alex. Brown, a subsidiary of Deutsche Bank, and decided to close both breweries.[3] This caused Chairman Sir Paul Nicholson, who disagreed with the closure decision, to resign.[5] The company changed its name to Swallow Group plc, and in July sold its tenanted pub estate to a client of the corporate financier, concentrating on Swallow Hotels business and incorporating the former Vaux-managed pub estate under the Swallow Inns & Restaurants brand.[6]

The company was taken over by Whitbread in 2000, following which most of the hotels were rebranded as Marriott and the larger pubs were brought under other national brands, such as Brewers Fayre.[7] Later, 10 hotels unsuitable for Marriott conversions were sold off, forming the nucleus of the current Swallow Hotels chain.[8]

In 2000, two former Vaux directors and the former head brewer formed what is now called the Maxim Brewery, buying some of the beer brands and recipes. They resurrected the former Samson and Double Maxim lines.[9]

The Sunderland brewery was later vacated and the buildings were demolished for redevelopment.[10] In November 2014 a partnership between Carillion and Sunderland City Council was formed to redevelop the site.[11] However, Carillion collapsed into liquidation in January 2018. After a six-month delay, redevelopment resumed in July 2018, with Tolent as the main contractor.[12]

In April 2019 a Sunderland-based company announced their intention to resurrect the Vaux brand.[13] In March 2020 the new Vaux Brewery announced plans to open a new brewery and bar in the centre of Sunderland. [14][15]

From Wiki.  I don't see stock market shenanigans here.  I see a contested decision to close two breweries.