Stocks and Trading Thread - Channeling your inner Mono

[alfred russel]

For all the hype from those like Yi who defend the market with the mantra that if left unregulated it is efficient and prices are set by the price one is willing to pay yada yada yada,  this shows the need for regulation.   For the first time the market insiders didn't have the advantage they normally do.

Not sure why this shows the need for regulation. You have a bunch of gamblers gambling, and in the meantime giving an actual company an opportunity to raise capital, while employees with stock or stock option (or normal investors) get a winning lottery ticket.

Probably a bunch of speculators are going to get burned, and a smaller group will win, but if they want to gamble that isn't skin off our backs.

[The Minsky Moment]

Goddamn you're smart Joan. 

It's just that over the years I've been involved in lots of cases involving Wall Street one way or another: I haven't seen it all but I've seen a lot.

[alfred russel]

the regulators are used to ferreting out schemes hatched by related individuals (e.g. in the same firm or industry)

There are several people with enough capital to do this on their own.

For example, if rather than a bunch of reddit users, Elon Musk decided to teach the shorts a lesson and make them back off, he could do this unilaterally. Regulators wouldn't be able to pursue that.

[alfred russel]

America today: I see antifa people trying to burn the system down in the streets, and the MAGA people trying to burn the system down in the stock market. What if they really mad at the same group at the top, and this group at the top is focused on making sure the other two groups hate each other more? 

[Tamas]

There are plenty of regulation being considered to protect people from undue risk

[The Minsky Moment]

There are several people with enough capital to do this on their own.

For example, if rather than a bunch of reddit users, Elon Musk decided to teach the shorts a lesson and make them back off, he could do this unilaterally. Regulators wouldn't be able to pursue that.

What you describe is not unknown - the CEO of overstock tried something like that a couple years ago. He got hit with a class action suit, but managed to get it dismissed last year.  It's a risk that shorts face but unless there is a real motivation why would the individual bother?

[crazy canuck]

I bought 3 GME at the start of the week. Just sold 1, so I'm in profit for the lot, won't be losing anything. Now I can relax with the other 2 and see what happens.

You should sell them and enjoy your profits and never do this again.

This is beginning to feel a lot like the time just before the 90s tech boom collapse.

Beginning? Where have you been the last three years? 

Fair point.

America today: I see antifa people trying to burn the system down in the streets

You really need to stop watching FOX

For all the hype from those like Yi who defend the market with the mantra that if left unregulated it is efficient and prices are set by the price one is willing to pay yada yada yada,  this shows the need for regulation.   For the first time the market insiders didn't have the advantage they normally do.

There is regulation; the SEC brings plenty of manipulation enforcement cases and has plenty of authority; the exchanges also have some power to address manipulation. It's just that this manifestation is novel, the regulators are used to ferreting out schemes hatched by related individuals (e.g. in the same firm or industry) not an anonymous group of people on a subreddit.

And it's not like the US is the only country in the world that has an options market.  It's just a lot bigger than most of the others.

Of course there is regulation.  And of course regulators try to regulate.  But we have both been involved with enough securities cases to see there are deficiencies.

[alfred russel]

What you describe is not unknown - the CEO of overstock tried something like that a couple years ago. He got hit with a class action suit, but managed to get it dismissed last year.  It's a risk that shorts face but unless there is a real motivation why would the individual bother?

Because it would be awesome?

If you have $150 billion, why not?

[Josquius]

America today: I see antifa people trying to burn the system down in the streets, and the MAGA people trying to burn the system down in the stock market. What if they really mad at the same group at the top, and this group at the top is focused on making sure the other two groups hate each other more? 

MAGA people?

But ja, that's long been observed as a problem with the alt right. Many of them are decent guys, and their eyes are open enough to realise there's something rotten in the world....
They've just been fed a bunch of counter productive nonsense about what that problem is and how to fix it.

[The Minsky Moment]

There are a few relevant factors contributing to gamestop and the other short squeezes.  One is the "gamma squeeze" that exploits the fact that the securities markets rely on institutional market makers to make a liquid and fair market. Because the market makers want to stay neutral and hedge their risk, they can become heavy buyers when out of the money call options get close to being in the money, and that buying can precipitate a short squeeze and a scramble for shares.  This phenomenon is a by-product of a trading system that uses market markers - and IMO the presence of market markers is a desirable feature of the system.

If the price rise that precipitates the squeeze occurs based on fundamentals/market news/market trends, then again it's WAD and if the shorts lose their shirt it's because they took that risk.  But if the price rise is based on some variant of pump-and-dump style manipulation, then it's not WAD and the regulators should act.

Another factor I think Tyr raised is that securities lending rules permit the same shares to be lent more than once (albeit subject to some limits).  I've never been able to figure out the purpose of allowing that from a market regulation standpoint.  My understanding is that it is permitted because brokerages make significant income from rehypothecation.

[The Minsky Moment]

Another thing worth mentioning in this context is that there is a common narrative that views short sellers very negatively as skeevy unethical vultures.  No doubt there are and have been unethical shorts just as there are and have been unethical people in every other nook and cranny of the Street.  It's also true that shorts don't have the same social cachet as (say) VC fund managers or boutique investment banks.

My own opinion based on some experience is that short sellers have a useful role to play in a healthy market system - technically they contribute to price discovery and liquidity and more substantively it is often the short sellers that do the deepest substantive analysis into companies, sometimes finding weaknesses and frauds that would otherwise go undiscovered.  The recent Wirecard scandal is a good example - it was the shorts that first identified the problem.  The reaction was telling as well - the well connected insiders predictably attacked the shorts very aggressively, to the point of convincing the market regulator that instead of investigating the very real massive fraud on the heart of the company, they should instead investigate the shorts and the newspapers that reported the allegations.  So my experience is to be skeptical when you see a lot of people with vested interests attacking shorts.

[alfred russel]

MAGA people?

Didn't wall street bets get shut down ostensibly because of hate speech rather than market manipulation?

[Habbaku]

So, uh. I'm seeing reports that RobinHood is forcing sales of GameStop held by its users because the owner of RH is also pretty deeply connected to some of the hedge funds getting fucked over by what's going on.

[Tamas]

MAGA people?

Didn't wall street bets get shut down ostensibly because of hate speech rather than market manipulation?

It's a usual Internet cesspit of juvenile humour, of course it is easy to find hate speech there. But it is not some kind of Trumpian Internet community, jeesh.

[Admiral Yi]

Didn't wall street bets get shut down ostensibly because of hate speech rather than market manipulation?

My understanding is it was hate speech against short sellers.