Reddit's GameStop, AMC surge is the new Occupy movement
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Because this will create a good crash, dont fool about it. It will harm everyone, but at least this Century will be less focused on speculation and more on actual earnings.
And for the few /r/wsb guys and girls making a killing there are a lot more late comers who will lose big, and can't afford to.
Not a move I'd make with my retirement funds.
Stock price was never supposed to closely mirror company's financials, that's a meme pushed by socialists that want to portray the stock market as wrong ("out of reality"). The financials are merely a indicator. It's stock market and what matters are the dynamics of that market, and the company itself is only a small part of that.
This chart says it all:
Inflation doesn't affect all professions equally. Differentiated professions (those where there's only a limited supply of workers, and a limited number of positions) can bargain for higher wages, because there's nobody else that can take the job if you don't. The common people can't, because that's what it means to be common: you are easily replaceable. Hence when inflation hits, the upper classes capture the vast majority of the new money and new wealth created, while the lower classes get stuck with the same nominal wage, which purchases far less.
Bretton Woods system collapsed between 1971 and 1977
how does lower taxes incentivize moving money out of businesses? What investments were they moving into?
Basically, an extra incentive for companies to hire more people and do more research instead of do things like stock buybacks.
It's a vicious cycle, and if we just use the benefits of a wealth tax to build a larger federal government, that apparatus will only be used against the poor/middle class and for (most of) the wealthy. We have to redistribute this wealth back down to the individual and community level for it to have an effect, since it's harder for ultra-wealthy to co-opt thousands of communities and millions of free-thinking individuals than to co-opt centralized gov power (although manufacturing consent can come into play here).
errr.... no? It won't. At all. How?
What will happen is that a few hedge funds will lose a bit, a few hedge funds will make a bit, lots of retail investors will lose a bit (maybe more than they can stomach, individually), and a few retail investors will make a lot.
For the middle and lower classes to receive fair compensation from the system, you need political action (and definitely not the "more tax cuts for the super rich" Trump type).
Regarding your proposed solution, I fear that thanks in part to Citizens United, the wealthy and powerful have such a strong hold on our government, that any increased taxes will only be funneled back to them through corruption, regulatory capture, and big gov contracts.
Ideally, a large wealth tax on the super-wealthy would simply result in a "citizen's dividend" where each of us would get X amount as a citizen. Using the benefits for government spending will just be used to build a larger federal apparatus that will be used against the middle and lower classes. This should be clear by now.
Yeah that's the whole damn point. Some normies figured out how to play their fake little game.
It's far more likely that this would lead to narrowly-targeted regulations than some sort of collapse in global finance, as much as some people would like to see the latter.
0. https://www.pgpf.org/blog/2021/01/what-to-know-about-the-sec...
1. http://www.crfb.org/blogs/how-much-would-2000-checks-cost
2. https://mitsloan.mit.edu/ideas-made-to-matter/heres-how-much...
3. https://en.wikipedia.org/wiki/Troubled_Asset_Relief_Program
Government or the people working for the gorvernment?
As a side note, as it has been painfully obvious this past year, the stock market is not the economy - however, it seemed like the government focused on saving the stock market instead of the economy.
I still don't understand how Tesla is valued so high when they're still figuring out panel gaps.
It's overpriced, unquestionably. But the bull case is Amazon.
What if "panel gaps" weren't the most notable thing about Tesla's accomplishment, impact and opportunity?
Although there are way more horror stories in dealing with service than there should be. They are really hard to contact and communicate with.
If you interacted with a vast majority (including the majority that doesn't post on internet forums) of Tesla owners, this extrapolation might be valid. But I really feel like it's safe to assume that you don't.
I work in the industry. There are less people to do this than you think. Talk to anyone at GM and there is a good chance they at some point in their career worked for Ford or Chrysler or Toyota or Diamler or Tada or Fiat etc. There is a lot of employee and information exchange that goes one. Tesla is very small and outside of MI/IL/OH and miss a bit of this. Plus I suspect that Tesla wants their own way of doing things and “the guy that handled fog lights” from Ford Trucks for 15 years only knows TeamCenter and CATIA and that might not fit well at Tesla (I have no idea really, just assuming Tesla doesn’t use the same systems as legacy mfgs).
I think the biggest issue most people overlook is that “it’s hard to build cars”. That there is a ridiculous amount of “boring” engineering in boring cars to make sure they wont be service costs until the warranty is up. Tesla came in building an electrical system that had seats and a steering wheel, so they are just getting around to doing those little mundane things like fundamentals of modern vehicle body assembly.
That effect is amplified in countries that have import tariffs on automobiles, because the secondary market is large.
Not everyone in the world buys cars to pleasure themselves. For most people, automobiles are a tool and their dependability is more important than their excitement factor.
Also, anyone who buys a Tesla because they like SpaceX rockets is an absolute dunce. That's like subscribing to the Washington Post because you like the navel oranges that Amazon Fresh delivers.
You're not getting it. Musk is running Tesla as a tech company, NOT a "car" company. That's why he's been able to build the company through years and years of unprofitability, as Bezos did with Amazon.
You're also not understanding the stock market (which is timely). Once that stock is sold to the market, the stock price only affects people's bonuses. It doesn't have any impact on the company's production or revenue.
People buy (or sell) stock based on whether they think the price is going to go up or down. It's that simple. Tesla doesn't pay a dividend, and doesn't confer any meaningful voting rights (as Musk has secured a supermajority). There is LITERALLY no other reason to hold Tesla stock than to think it will go up. There's no other value to it.
Why would it go up? Because of good press. Good press comes from a lot of events. The company doing well, financially, is great news! But rockets and satellites are just as good, if not better, than reports of high-quality automobiles.
There's a very, very thin relationship between non-voting, non-dividend-paying stock, and a company's fundamentals. It's mostly a shared illusion that it's based on financials which makes the stock market work at all.
>That effect is amplified in countries that have import tariffs on automobiles, because the secondary market is large.
This is the exact same naive logic people use to justify Tesla's valuating.
On one hand you have yuppie fanboys bindly harping on about Tesla's magical engineering in the face of an Impala interior topped with a big tablet and panel gaps from the 80s.
On the other hand there is another yuppie fanboy harping about "muh hilix" despite the fact that Toyota has lied through its teeth about rust in North America for ~30yr, the Hilux/LC aren't outstandingly (in the literal sense) popular in Asia and people in Africa/ME will bolt a machine gun to anything that runs regardless of brand.
Camrys and Priuses are popular in the 3rd world because they are popular among moneyed people (i.e. the people who trade in 10yo cars instead of selling private party) in the first world and because of how the used car export market works (basically vaccuming up "nice" trade-ins that are too old for first world lenders to finance) they wind up popular in the 3rd world. People act like this is special about Toyota but it's not. The 3rd world is chock full of examples of other cars those same demographics buy. Chile practically runs on the 2nd-4th Gen Honda CRV and the GMT900 Chevy Suburban may as well be the official vehicle of Mexico (these are but two examples).
My point is both brands have the same moat of moneyed first world delusion surrounding their stock. Toyota just isn't a meme-stock popular with retail investors.
> Toyota makes fairly boring products of the last century.
Toyota sells around 10mm cars a year. Only about a fifth of those sales take place in Canada, US, and Mexico. The demand picture for EVs and vehicles in general is not uniform across geography. Some places like small cars, others big; some places like EVs, others have no chargers; some places buy new cars, others can't afford it.
BTW Mexico has a different mix of vehicles because much of the first-world production happens within the country. And Chile has the highest median income of all Latin America. Extrapolating from some perception about the Chilean or Mexican auto market is a poor way to characterize LatAm in general.
> On the other hand there is another yuppie fanboy harping about "muh hilix" despite the fact that Toyota has lied through its teeth about rust in North America for ~30yr, the Hilux/LC aren't outstandingly (in the literal sense) popular in Asia and people in Africa/ME will bolt a machine gun to anything that runs regardless of brand.
OK so this is a bit more on topic. The Hilux is a great truck (even ISIS likes it) but I'm not talking about the Hilux and yuppies. I'm telling you that there are people who make $400/mo who are proud to buy a 10yo Toyota. They don't approach vehicle purchases the same way that an American would. The concept that a car is "last century" is absolutely ridiculous to that segment of the auto market. Those people don't buy these vehicles because of status, they buy them because the local mechanic tells them that the motors don't need to be rebuilt so often.
Case study: Ecuador. Import tariffs make autos cost approximately double what they cost in the US, perhaps more. A Ford Raptor costs US$150k. Income disparity means there isn't a vibrant middle class. Fuel is subsidized; the country produces a half-million barrels of oil daily and has three refineries. Much of the transit (including in the Quito metropolitan area) occurs through mountains where roads are poor quality. Road closures due to landslides are common. A used Suzuki Grand Vitara that costs $700 in the US might go for $4,000 in Ecuador.
You have this concept that people in the third world model their choices on the preferences of rich people. I don't believe that's true. Income disparity is so broad, and the middle class so narrow, that most non-rich people in LatAm just make do and try to survive.
It's also home to Toyota forklifts (TIEM), and, of course, lots of people at that company drive one.
Me? I own 4 Hondas. ;-)
The availability of vehicles in the 3rd world is determined in large part by the used car market in the first world (with south America depending more to north America and Africa/ME depending more on Europe) Exporters buy from auctions just like the rest of the used car dealers. Everybody steers clear of vehicles that have been used hard. The used car dealers steer clear of cars too old for prospective buyers to get a car loan on. The lower down the economic ladder you go the harder people are on vehicles and the more likely they are to keep them until they are totally clapped our and the more likely they are to sell private party. This means that the cars the dealers and the exporters want to buy are the upper middle class trade ins that were never smoked in that were kept clean and maintained, etc with the importers erring toward 10yo+ ones that the dealers don't want as badly.
The net result is that the vehicles of the upper middle class are over-represented in the set of vehicles that exporters steer themselves towards.
If every dumb yuppie in the US and Europe woke up tomorrow and decided they would only commute in blue cars from now on then in 10yr we'd have morons on the internet making up reasons that blue cars are more reliable and using their prevalence in the 3rd world as evidence.
Of course there's market specific models and locally made stuff available too but I'm not talking about those and that's not the avenue from which cars that have a 20k+ MSRP appear in those markets.
The overvaluation of tesla is just an extreme example of the overvaluation of the whole market. Every stock has a decade or two of growth baked into the current price instead of people paying what it is worth today. Tesla probably will be worth its stock price in less than 20 years, but why are we paying for future gains? What happened to the time value of money?
Anecdotal - my neighbour has a 2019 Model X with some shenanigans going on with a sensor in the driver's side door. It has been going on more or less since the car was new, but parts are in short supply as it is (understandably, as long as the market lets them get away with it) more profitable to put the part in a new car than it is to perform a warranty repair.
On my 20-year old Land Cruiser, I recently had to replace the multi-function switch for adjusting the power mirrors. My local Toyota garage (on a small island off the Norwegian coast) didn't have it in stock, but next morning at 0851 a SMS ticked in, stating the part was ready for pickup - at a cost of less than $100 for the complete unit.
That kind of logistics organization is what Tesla will need in the long run. Building it is going to be very, very costly.
Toyota Tsusho has engaged in the renewable energy business for more than 30 years, from development to operation of power stations, with a focus on wind power and solar power generation. The company plans to make use of its expertise in management of such business in this project in order to foster the transition to a low-carbon society.
The point isn't the press release, it's that Toyota has spent decades doing what you say they don't do.
Tesla, on the other hand, are growing >50% each year, and it's going to continue for at least a couple more.
Institutional investors bet against TSLA and TSLA retail stock holders kicked them back.
Toyota, GM, VW, Ford, etc have spent most of the past 10 years telling us that EVs are a joke. Why would you want to invest in management that missed such a pivotal industry turning point?
They weren't just slow to move to EVs, they mocked them.
People have been saying for years that these companies can pivot, but it turns out to sell EVs you also need to invest in infrastructure and right now that infra (at least in the US) is a shambles.
So right as we're on the elbow of the adoption hockey stick, Tesla is the only company really positioned to capture that growth well.
I'm not fully convinced that this is true unless it's true in the same fashion as "everyone wants to buy a Ferrari".
Most people I've come across just want to buy a cheap car that gets them from place to place.
There are a lot of gas car manufacturers who make something that lots want to buy, but in 5 years people won't want those products. And it is unclear whether they will successfully make the transition to what is coming. (Based on the history of disruptive innovation, they mostly won't. No matter the public pronouncements to the contrary.)
This comment reads like "I don't understand Apple is valued so high when they still have the exact same basic bugs in production for over 10 years".
And they do! Some bugs are just never going to get fixed in a system of that size and scale.
(I am ambivalent towards Tesla.)
I've seen Tesla chargers at more than nine gas stations here on the east coast. I drive a lot of highways. Sometimes it's just one or two, sometimes it's a row of several. It certainly does seem like there are hundreds of Supercharger stations in the US.
1- Oil companies pressured the industry/government to keep supporting their platform 2- Most car companies didn't consider themselves battery companies, which Tesla obviously is. They sell the product "cars" not so much the underlying technologies that make them function. Thinking of Tesla as a car company and not a battery/energy company is a misunderstanding of where they spend their energy. It's like thinking Google is a search engine and not an adverting/information brokerage company.
This is what people who don’t get OTAs don’t understand about OTAs. The car gets better every month. Literally faster acceleration, longer range, quicker braking, tighter suspension, fuller featured, more useful and overall more fun. Every month, just like magic.
Versus tradition auto which forgets you exist as soon as you make the down payment, and if you want something better you have to buy the latest model.
Free upgrades to your car and always having the latest model features is actually really freaking cool. Then they go further an even support 1st party hardware upgrades for late model vehicles to get the newest MCU or AP hardware, which is also unheard of in the industry.
I'm not saying that there's definitely something nefarious there, just that there were some perverse incentives that make the situation feel a little bit suspicious.
But Tesla was also another "meme stock" that /WSB has loved to promote.
It would be like me saying to another automaker, how can I trust your brakes when the entertainment computer routinely crashes? Or how can I trust your suspension when your CVTs don't last as long as they should?
These things don't correlate that way.
Except one of those solved problems very clearly isn't "solved." This is something that stops assembly lines in other manufacturers. That it doesn't with Tesla signals that other assembly-line-stopping issues may also be ignored.
They matter much more when consumers choose between different EVs from competing marques.
I'm planning to get short TSLA delta later this year. I think their build quality issues are going to become more relevant as traditional automakers get involved in the space. I also think their ZEV credit profits will disintegrate when traditional automakers no longer need to buy them because they make their own EVs.
These short-sellers that Reddit is going after, would swamp the media with FUD articles to drive Tesla stock down. They bet on Tesla to lose, and when Tesla didn't lose, they tried to drive them out of business by manipulating the media.
The media coverage (I don't want to use the pejorative word "manipulation" and I have no reason to believe the coverage was intentionally biased) largely favored Musk and his companies, at that time and in the present day.
#1 Driving is a big part of the culture and big cities are often pretty far apart.
#2 The electric charging infrastructure sucks. Tesla is seemingly the only network where you can drive 500 miles and be confident when you stop that a charge will actually take 20 minutes.
#3 Americans like big ass cars because ???
Most of the EV competitors here in the US are small cars and most have ranges which are far lower than Tesla's. Even though most people rarely drive more than 50 miles a day, a lot of people are sketchy about getting into a car with 150 mile (320km) range. There are newer cars which are coming out that are closer, but many are either more expensive than the Teslas, have shorter range, or both.
And I expect a lot of people are going to buy those non-Tesla options for $60-80,000+, and have a really unpleasant road trip the first time they get out and can't find a decent charging station.
The result is the Tesla is pretty dominant here for EVs and frankly I don't see that changing for some time unless the charging situation changes.
My point is, "the short sellers are all fucked if we keep buying this and we will make money" and "Tesla is run by a godbrain and can't fail" are the same thing: speculations, not spreadsheets.
Yes, it's absolutely (informed) speculation.
This is how the stock market works. Amazon, Apple, Microsoft before them, Google... people said exactly what you are saying about how they were valued at some point in time.
Every single stock is valued based on how stocks will perform in the future. Last year's performance is only interesting for informing investors of what the next 10 years will bring.
I do think Tesla is a risky stock to own (I do own some shares), but it always has been. Likewise Apple was. And Amazon. If you want big returns you often hang on to the riskier stocks for longer than you are comfortable. (Not always and you cash out)
Your first post was trying to differentiate GameStop from Tesla. Neither have assets that support their price or that there is something inherent in the company to support that value. They don't. They have projections(Tesla) or excitement(GS).
Throwing up a bunch of survivor-biased stocks to prove that sometimes people make winning bets (or rather, that some best win) doesn't mean anything. Amazon, Apple, MS all eventually moved past speculative and most people in the market would assume that they're pretty stable blue chips (in fact, that's why we have terms like "blue chip" in the first place) with assists that support the price.
I'm not talking about how to make big money on stocks, I'm talking about the idea of inherent vs projected value. You said you think Tesla is risky, and that's my point. It seems much more likely that someone (car companies, energy cos, the government) would come in and kick the legs out from under Tesla than any FAANG company at this point (except maybe FB but I might just be projecting there)
Stocks are not valued based on what they earned last year. They are valued based on whether people think owning them will earn them a profit in the future.
You can certainly wait until a company has proven itself to invest in them. The problem with that is you will never get more than marginal returns. If you waited until Amazon was fairly valued, you'd probably still be sitting on the sidelines. Likewise with Apple.
If you want guaranteed returns, you buy boring things like utility stocks and accept your 4% dividend and 5-10% growth. If you want bigger returns, you absolutely have to invest in things which some people consider over-valued. There is no other way. You just have to be good at picking which companies are going to be successful.
Tesla, the jury is still out. I'm playing with the house's money at this point though. I am confident they aren't going to crash and burn entirely though.
Comparing them to Gamestop doesn't make sense. Outside Reddit, there is no story with Gamestop. Tesla has products and growth, it's just a matter of finding where that growth ends.
I don't really have an opinion on it, but that's the case.
Bear in mind all but a few of these small investors haven't made a single penny. They only make money when they actually sell, and as soon as a significant number of them do sell the price will fall and the money the others think they have made will vanish. And then some.
So a few hedgies might lose a few bucks, but all the WSB people piling in are not a cuddly gang of friends, and not all on the same side and the savvy among them surely know that. The smart ones will sell and leave the rest holding the can. It's the poor saps piling in at $300+ who genuinely think they are sticking it to the man that I worry about.
The people who have actually made money so far are the ones who already had stock and have ben selling on the way up, because the stock being bought must have come from somewhere, not the ones who have gone long now and will end up long when it collapses again. It's amazing how many journalists and commentators get this so badly wrong.
The big issue, is that the shorts on GME surpass the total outstanding shares... Melvin went 140% short on GME and they should pay the price for that stupidity.
I totally get the emotional value of these stocks and the hit they took due to the pandemic. This just feels that they are used as pawns and somehow this recent emotional tension is being harvested for some other than the proclaimed purpose (to support the stocks).
Their market cap 19x'd up to ~19B. Having a 1B cash infusion into the business isn't crazy. Imagine what 1B of investment into Gamestop could achieve.
That would, however, crash the price.
Yeah I'm not sure GME is exemplifying a new regime of market focus on actual earnings instead of speculation...
We are dumb, our emotions and instinct get the better of us, and we need to come to terms with that if we want to be less vulnerable to manipulators.
And while I'd agree making a "quick buck" is a driving factor, arguably "the" driving factor, that term is also relative. The average time between trades for a high-frequency trading investment firm is 40 seconds. It's out-of-place to talk about these folks making a quick buck when average trade times are measured in seconds and money is made based on having a PHYSICAL location that enables faster trades by nanoseconds.
You don’t get much more class warfare than that.
And let’s be honest no one was talking about stoping buying in any names the hedge funds are collectively long
Why shouldn't someone be allowed to pay to borrow something, and then rent it out? How is that manipulative in and of itself?
It can easily go over 100% if the person you sell it to also lends it to someone to short (and they have no clue that the share they bought was involved a short, already).
Note - this is why it's possible to lose your shirt when you are shorting. Eventually you will need to return that stock you've sold, which means buying it at whatever the price is. So if it goes WAAAY up, you lose a lot of money. In contrast to buying a stock, where you can only lose your position.
What happens if you don't?
There's no way of making it comparable without making some kind of derivative contract against the deed to the property but then it's back to traditional shorting.
Tickets are sold at 100$. But the show is extremely popular, so the tickets are traded, and the price shoots up to 300$. You think the price is still going to go higher, so you buy a ticket for 300$. The price goes up to 400$, you sell the ticket, and you made 100$. (You were long, and the price went up - you made money.)
Now, the price goes to 5000$. You think, well, that's way too much - you're sure the price is coming down. So, what to do? Well, your friend Mike is going to go to the concert, he has a ticket, and he wants to keep it. He doesn't care what the price is, he's going to the concert. So, you say, listen, Mike, can I have the ticket for a week or so? I'll give it back before the concert. He says, sure, and hands you the ticket.
You go and sell the ticket for $5000. A week later the ticket price has come down to a more reasonable $4000. So, you go buy a ticket for $4000, and hand it back to Mike. You received $5000, spent $4000, and made $1000, because you were short, and the price went down.
That's the basic mechanic of short selling.
Now, assume the price is going up though. The price could go up to $100000. The date of the concert is coming closer. Mike wants his ticket back. Dang, you have to go out and buy the bloody ticket for $100000. You lost your shirt, because the price went up while you were short a ticket.
Ok, price is back at $5000. You think the price is going to fall, and want to short. You put an ad in the paper saying that you have a ticket to sell. Joe calls and wants to buy the ticket. However, Mike is out for lunch. You tell Joe to transfer the money, you'll mail him the ticket. When Mike comes back, you ask Mike to borrow the ticket. He might or might not give it to you - if he doesn't then you either have to buy it from someone else, or you're stiffing Joe.
That's a naked short.
Now, price is back at $5000. You want to go short, but big time this time around.
You're going to Mike and borrow the ticket, and to Steve and borrow his ticket, and all your 8 friends (MSetc), and borrow their tickets and sell them to Anna, Betsy, Charlotte, etc (ABC). Now you're short 8 tickets, you'll have to buy back 8 tickets later to give back to your friends (SMe).
However, your hedge fund buddy (HFB) also thinks the price is too high, and wants to sell. He goes to Anna, Betsy, Charlotte etc. and asks whether he could borrow their tickets. Well, why would they give him their tickets? Well, he'll give it back in time, and he'll throw in a 2$ borrow fee for every day he has the tickets borrowed. Sure, they say, and he goes out and sells those 8 tickets to Redditors.
However, turns out that it's an Indy band, and they had only sold 15 tickets in total, 8 to your friends, and 7 to random other people (ROP).
There's a net supply of 15 tix.
Your friends SMe have 0 tickets, have lent 8 tickets, so are long 8 tickets.
You have 0 tickets, have borrowed 8 tickets, so are short 8 tickets. (Replace "borrow 8" by "lent -8", if you want.)
ABC have 0 tickets, have lent 8 tickets, so are long 8 tickets.
HF buddy has 0 tickets, has borrowed 8 tickets, so is short 8 tickets.
Redditors have 8 tickets, haven't borrowed or lent, so are long 8 tickets.
All of the above have a total 8 tickets (Redditors) = 24 long position (SMe, ABC, Redditors) minus 16 short position (You, HFB).
Random other people have the remaining 7 tickets.
Total ticket supply = 15. Total long = 24+7 = 31. Total short = 16. And, 31-16 = 15 net.
This is how short interest (16) can exceed net supply (15).
If the price goes up 10$, the total price of the tickets (=market cap) goes up 150$. The longs win 310$, the shorts lose 160$.
If the price goes down 10$, the total price of the tickets (=market cap) drops 150$. The longs lose 310$, the shorts win 160$.
Ok. Penultimate step.
Now concert comes closer. You owe SME their 8 tickets, and HFBuddy owes ABC their 8 tickets. However, Redditors are not selling their tickets. So, you and HFBuddy go out to random other people (who have 7 tickets in total) and want to buy back 16 tickets! They might give it to you, but when they realise what's going on, they might want $20000 per ticket. Or more! You have to pay up, and what you need is more than what's available on the market!! They won't sell it! Price rises!
That's a short squeeze.
ROP, Redditors, ABC, SME get rich (31 long), and you and HFbuddy lose (16 tix). Hey, you wonder, how can so many people get rich, nearly twice as many as lose? Well, they don't really - remember, 15 people will go to the concert. They won't sell the ticket. They don't care about the price. There is a 15 net supply. Someone ends up with the ticket, with the concert. Not 31 get rich, but 16 get rich, and 16 lose. 15 end up holding the tickets, going to the concert (= being long term share holders.) They might still sell the ticket, then they might win or lose.
Ok. Now, final step.
The Redditors are a fine bunch. They won't sell, and they won't lend their tickets to evil shorters! They like the band, and they will prevail.
But you know, one of the ROP is not that keen on music, and when HFBuddy offers him $5100 for the ticket he bought for $5000, yeah, he sells it. HFBuddy loses a bit, but hey. He gives the borrowed ticket back to Anna, closing this short. So, now he asks her, "would you sell it back to me? $5100 dollars." She is not as keen as the Redditors, and sells it to him. HFBuddy loses a bit, but hey. He gives the ticket back to Betsy. So, now he asks her, "would you sell it back to me? $5100 dollars." .....
Ok, you see where this is going. After a while, he can give back the ticket to Henrietta, and he is out of the short position. Bought 1 Ticket from a ROP, and closed out all his short positions, by buying from the people he had just returned it to. HFBuddy is out of his short, with a bit of a loss.
So, Redditors have 8 tickets left, and they're HODLing, ROP have 6 (since one of them sold out) - and Henrietta has a ticket. You ask Henrietta whether she'd sell it. She does. You take that one ticket and give it to Steve, ask whether he'd sell it back to you. He does. You go to all the other friends MSe friends (except Mike), close out your shorts, and buy it back. Finally, you give the last ticket to Mike, closing out your entire short position.
Now, who has tickets? Mike 1, ROP 6, and Redditors 8. Together 15 tickets. You and HFBuddy are out of their short position, even though 6 ROP and all 8 Redditors held on to their tickets and their long position for dear life.
Price had gone up from 5000 to 5100, so both you and HFbuddy have lost 800 each on their short, total of 1600, (while ABC and MSE (minus Mike plus one ROP)) each made 100, being long, total of 1600.
Now the hype dies down. Nobody wants the tickets anymore, and now Mike, 6 ROP, and the 8 Redditors have to go to the concert.
The Redditors don't really want to go to the concert, they were in it for the LOLs. So now they're trying to sell. Couple of original MSE and ABC say, yeah, I'd be willing to see the band, but I'll only pay 100$ for the ticket.
Redditors lose their shirt, or go to see the concert.
(That's being long term share holder. :)
Not totally familiar with all this, just trying to understand.
Also subletting is not selling..
2) You can view renting as a sale -- the renter buying the utility of the space in exchange for a series of cash flows (but not paying for the economic upside/downside). Financial markets have the ability to separate components of assets (ex. voting vs non-voting shares) and value them; there's no reason to not do the same here.
In that structure a sublet is simply a rent on a rent.
Point taken on how subletting is not selling.
The former seems fine, and yah, I guess I do think that the latter should be illegal, because it only benefits some wealthy jerk who can afford to corner a market.
Can you explain this more? More efficient on what axes? How does that translate to societal benefits that aren't just on paper?
* When a firm decides whether to take on new projects, they look at the projected profit of that project, and compare to their cost of capital. Only projects whose profit exceeds the cost of capital should be executed.
* Stock prices influences a firm's cost of capital, eg when raising more money.
* Relative stock prices also influence, in mergers, say, who takes over whom.
* Via all these levers and more, stock prices help select which projects of all possible ventures are realised, and who manages them.
* All of this is aimed at funding those projects that produce the highest output relative to the resources dedicated to them.
* All of this only works if stock prices are a somewhat accurate reflection of the prospects of a firm; in other words, if the share price reflects the fundamental value of the firm.
* Short sellers (and long buyers) that analyse firms and trade when they perceive a discrepancy between share price and fundamental value can trade upon that insight, which will have two effects: a) it will tend to bring the share price closer to the fundamental value, and b) it will be profitable for the firms that are correct in their assessment.
That's basically the big picture story.
There's a lot of fun Matt Levine articles on Bloomberg about this dynamic.
Eg from https://www.bloomberg.com/opinion/articles/2020-05-29/you-ca... (https://outline.com/atF74W):
> The thing about inflating your revenue by pretending that you sold more coffee than you did is that people can go to your stores and watch you sell coffee. It is a reasonable bet that they won’t do that, because it’s incredibly boring. “Who is going to send 1,500 people to our stores to watch us sell coffee all day, count how much we sell and compare it to our financial statements,” Luckin could reasonably have thought. But the answer was “short sellers”! They actually hired people to sit around watching the coffee get made, so they caught the fraud.
I also warmly recommend his "Everything is securities fraud" rant that follows this paragraph. (note: I know nothing about stock markets (or reddit or gamestop for that matter) so someone let me know if I'm just a noob eating up some slightly smarter noob's nonsense)
The GME heavily-shorted position specifically has directly led to significant manipulation on the parts of investment firms that are now endangered by the very positions they created. If the end game of the stock market is an unregulated free-for-all, then it can't be manipulated by definition and there's going to be short cycles of calm punctuated by terrifying chaos like 2008 and today; if people want to avoid that chaos, then they have to accept the regulation of chaos-causing behavior.
The sooner we prohibit these terrible exploitative practices (lending money with interest being the first to go), the better and stronger and more fair the economy will become. Unfortunately most people don't know, and they jump to things like "tax the rich" which has no meaning really.
So people might tell themselves they are doing a workaround, but it is not really valid from the point of view of the organized religious body.
No. Islam bans all these workarounds. What you describe is still a money for money exchange. Interestingly enough, Islam does not just ban interest, it has a concept of Riba, which includes interest/usury, but encompasses other transactions as well. What you describe falls squarely under Riba.
In general, you're correct. People invest their money, with the possibility of profit or loss. One reason interest is prohibited is that the lender is contractually obligated to a profit regardless of the outcome.
generally there are 2 types of loans,
1. Kharz Hasan (Loan of goodwill) given out to people/institutions without any collateral, sometimes even without a term limit. Its up to lender to decide if they want their money back or forgive the loan which then turns this loan into a "Sadqah" (charity).
2. Loan with a collateral: this is the standard loan where the two parties agree on a collateral and lend money based on that.
Neither of these above loans involve any kind of interest.
(My) Islamic Understanding of Mortgages: The risk profile is different compared to normal. Normally what happens is that institutions loan the amount of money and you buy the property and pay interest on the money. In the Muslim Model, the institutions BUY the property and you pay money. The money you pay goes partly towards buying the property and the partly towards paying "fees" to use the property that you don't completely own.
You can see why people would say things like, "oh, they are skirting the rules by changing the name from interest to fees". However, a "proper" implementation would put more burden on the banks in case of a crash.
Hope that clears up few things.
Check out what the Companions Ibn Abbas and Ibn Mas'oud said about such a transaction. It's still Riba (usurious) because the price of the house or asset is raised in exchange for postponing payment. It's only relatively recently with the heavy influence of Western banks that this "model" has gained some traction, but it remains a usurious transaction and many scholars have spoken against it.
It's weird to think that this entire piece of morality, which was taken seriously in the past, has just been erased from western culture.
The Catholic Church prohibited usury across Europe until the invention of the contractum trinius, allowing the economic revolution that powered the Renaissance and the transition to modernity.
As opposed to the Western world and its traditional decennial world-threatening financial crisis?
And the ever-widening gap between rich and poor?
And the gap between rich and poor is ever-shrinking, not widening, as poor countries develop by adopting modern technologies and institutions.
Look up Iraq during Umar II's rule, how there were no people left to take Zakat because there was a proper economic system.
Fix one mistake with another mistake? Plus, it's the other way around, interest rates cause more inflation (how else is the government going to pay its debts?). It's a cyclic phenomenon. Without interest, inflation would be a much less problem.
Secondly, freeing currencies from gold is another mistake because it allows the government to devalue its currency at will, we've see the chaos that comes out of it. Hopefully bitcoin and gang will fix that mistake, but we're already seeing the big banks not liking it because it will take away their power to control the people.
> We found that the Great Moderation promoted speculation in real estate, causing the GFC,
Which would have never happened if we were following proper economic laws which we've literally known about for over 1400 years. Mortages and selling debt for debt are both prohibited Islamically. We already know it's wrong, yet people keep engaging it it because a few rich and powerful will benefit at the expense of everyone else.
The solution is to go back to a sound economic system, not to anticipate the next crash because it's built in to how the modern system works.
The laws of millennia ago were appropriate for their time but would be hilariously ill matched to today's world. Look at Turkey to see where that takes you.
They work in tandem with the government obviously.
> Raising interest rates reduces the stock of viable projects thereby reducing lending and money creation, which halts inflation. This is trivial stuff.
Setting interest rates to 0 also heavily reduces lending because no one would be incentivized anymore to lend as they're not getting any benefit. This is why in Islam, lending is purely an act of charity since the lender can in no way shape or form be contractually owed any sort of benefit, monetary or otherwise.
This is proven to work up to even recent times before everyone was forced by the West to succumb to their dangerous economic practices. Claiming that these ideas are only suitable for millenia ago is outright false.
If you look at Iraq during the Ummayad dynasty (Umar II), there was a period of time when there were no poor people left to take charity (Zakat). Would be nice to see that again in "modern" financial economies.
I looked a little but couldn't find a longer article explaining it in more detail, but it should be easy enough to search out for interested parties.
Humans gunna human.
Won't anyone shed a tear for the masters of the universe?
Aren't these 2/20 "investment managers" supposed to hedge their positions with other derivatives (i.e. options.) ? So much for risk managers and the VaR metric (I know that has fallen out of favor since the last crisis' 10 sigma event.)
Lots of finance firms are loving this (Citadel for instance used this as an opportunity to get in on a distressed asset, Melvin, cheaply). This Korean fund made a billion dollars on a 12 million dollar investment https://www.google.com/amp/s/www.marketwatch.com/amp/story/l...
Even Melvin didn’t take an existential beating. They are likely going to end their fund date positive which is good for the endowments they manage especially if they got there via a more diversified position than other options.
Tesla's current stock price is very much a result of some very public shorts, which led to a series of short squeezes. Now it doesn't fall because the people who pulled the short squeeze can't unwind their trade quickly without loosing everything.
Funny how starting 2020, Tesla was awesome and a solid investment again. I guess some people are too impatient to wait for stocks to bring profits the way they were meant to.
That seems way over wrought.
Well, funnily enough, the earliest 1% of the 99% will reap massive gains, while the majority will lose their shirt when the stock finally collapses.
First rule of politics, kiddo, never let the truth get in in the way of a good story.
But if you're saving for retirement by putting x% of your income into an index fund? That's pretty conventional, most people with retirement savings do something along those lines.
There is little deception. Funds that take crazy risks will say so in their prospectus. There's no chance your S&P500 index fund is taking a huge Bed Bath And Beyond short position when no one is watching.
For reference, the Norway Oil Fund [1] holds almost 1% of the world's stock which amounts to somewhere in the neighbourhood of 1 trillion dollars. So the overall size of the investable asset universe for pension funds is really large (real estate, private equity, hedge funds, venture funds, stocks, credit/bonds, etc.) and pretty much all well run pension funds have a diversification mandate so there's no concentration in one asset class.
[1] https://en.wikipedia.org/wiki/Government_Pension_Fund_of_Nor...
I can't.
People shouldn't be trusting stocks simply because they are stocks.