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Comment by dkrich | Hacker News Reader

There’s a long history of similar occurrences that follow along a common line: whatever appears to support individual investors will be the path taken by politicians and regulatory bodies.

Right now it appears that the public wants to be able to trade on their terms because there is this narrative that the little guy is finally sticking it to the big bad hedge funds. In reality there is probably very little truth to this. However, support for the individual investor plays extremely well which is why you see politicians from both sides joining forces on this issue. A rumor makes it halfway around the world while the truth is still putting its pants on. Nobody is interested in the subtleties around these issues where there almost certainly should be regulations in place or at least warnings from those who do actually know better. But late in bull markets when speculation is running wild those who try to be the voice of reason are run over by the masses until they shut up and go away.

Galbraith wrote about this in the 1950’s and if you read his account of the 1929 crash the parallels are eerily similar. Nobody wants to be told they aren’t making money due to skill but because they’re caught up in a dangerous bubble. In the aftermath of a crash when tremendous sums are lost, nobody blames the speculators, they always find another scapegoat- the regulators, the brokerages, the hedge funds- whomever. It doesn’t matter so long as the speculator is held up as a victim. I expect this to end no differently.

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The FOMO is palpable.

There's a hurried rush of small investors hoping to turn their meagre savings into a big win, backed by the anxiety that if they don't try then they'll forever regret missing their one and only chance at a comfortable life.

This sort of event would be less likely if America's wealth disparity weren't so grotesquely skewed.

It boggles the mind people think hedge funds can't profit off a mad rush like this...

I mean do people really believe Robinhood traders are moving billions of dollars of stock a day? Most admit that they aren’t selling and buying at higher and higher levels. That translates to very little cash to buy more. There is absolutely no way that these moves can be attributed to retail traders or short squeezes. The narrative that these are retailers causing every significant move higher and with every move the shorts are losing more and more is actually causing this bubble.

Let's say the average bet is 1-5k into this the average Robinhood user invests around 5k), it only takes 200k-1M buying in to move $1B into the stock. When you start with a $200M market cap on a heavily shorted stock, you easily end up where we are today

And doing it every day? Even now that the stock is $350 a share? If they are able to do that I have to question the “little guy” tag.

Average bet being 1-5k feels optimistic by an order of magnitude...

The entire account value of normal RH users in the range of 1-5k

Most people just joining don't have 1k to just throw at a lottery ticket, and remember that until today RH allowed fractional shares of GME

But you know, that's not even it...

The other day GME did 20 Billion in volume in a single trading day. More than the S&P 500.

I don't understand how people think retail can account for that.

Matt Levine's email today estimates retail investors to be about 30% of total volume (with actual data from Citadel), but retail was net selling on Tuesday, Wednesday, and Thursday. So theoretically retail is enough to move the price if they were truly united, but that isn't actually the case. It's just not sexy to say "I bought in for a couple days and am taking my gains" in a public forum.

Why do you think "hedge funds" are not? The small ones that were caught in a bad position at the beginning? Sure, they probably didn't.

But most other funds, or trading desks, or market makers, or brokerages (etc) are most likely printing money right now.

... what? My comment is literally saying hedge funds (like Citadel...) are profiting off this.

You're right, I misread. My apologies.

‘People’ don’t know what hedge funds do.

> It boggles the mind people think hedge funds can't profit off a mad rush like this...

How exactly would they do it? Shorting it again would involve calling the top for a stock whose price recently has been unpredictable, but very high.

Writing options seems nuts for something this volatile. I guess they could "buy volatility" with a straddle but again what would the numbers have to be on this where they turn a profit? It's not like the rest of the market is underestimating the volatility, it's evident to everyone.

I would be completely out of my depth implying I understand all the creative ways different hedge funds make money, but there's a lot more tricks in the bag than "short it" and "write options"

Just look at Citadel... how much money do you think they've made off early access to majority of retail orders for GME as RH exploded?

And how much more money will they make on an ongoing basis after this from all the new users?

The volume has been insane, someone is making money besides retail investors, and they won't be the ones left holding the bag after the musical chairs stop...

Volatility makes the HFT's money. Hundreds of millions of shares are flying around the past few days. Thats not from a bunch of people buying and holding. They make money on fractions of a percent swings. They can make a lot of money on 50% swings.

The other thing is, the price WILL go down eventually. Even if not today. A fund with billions of dollars can afford to sit on a short of GME at $400 for a long time. Longer than the upward pressure will last. The narrative was that the short squeeze will happen today, and prices will skyrocket. You only had to be in it for a little while. Now the narrative is changing, and it will maybe be next week, or even farther out. Sure the meme is to hold forever, but anyone holding any amount that will maybe make a difference are going to see that life changing number and sell eventually.

One of my neighborhood friends is a HFT guy and he says he makes bank off fractions of a dollar. Not all trading is equal obviously. But he said sometimes it's like 3,4,5 decimals places deep that he is watching the stock prices and trading

hedge funds put in some money. They lost. Yeah. But automated trading solutions quickly flip things around. If they are smart. Losing money is literally part of what they do. Some they lose some they win. The success is winning a bit more than you lose, and very frequently.

Many just want to screw the hedge funds, finally it's their blood in the water.

I don't get this. I can't imagine the professional investor class is still blindly following their shorts. They're all out by now, aren't they? If the "little guys" are making money I tend to think it's coming from other little guys.

The "short" (haha) answer is that we just don't know what the funds have done during the last week. They're incentivized to mislead the public about closing their positions. But the technical reasons the gamma squeeze happened and possible short squeeze today could happen still make sense: the equity has oversubscribed short interest and a skyrocketing price.

I'm kind of amazed how little transparency there is in the stock market. Everyone seems to be guessing. The unequal amount of information for regular people is really unfair and seems like an easy situation for corruption to take place

No. Apparently other hedge funds got in line behind Melvin with even more aggressive shorts.

The truth of the matter is that hedge funds and institutions are quietly the ones actually pumping these stocks. Reddit likes to paint a narrative that they are in control, but when their messiah has 50MM max of securities and options, meanwhile single trades are going through worth over 700MM, the narrative just doesn't make sense. This is a battle of Wall Street vs Wall Street with some retailers playing along as pawns. Most likely, starry eyed retailers are going to be the ones holding the bag when it all comes down because they're playing a game without even knowing who they're up against.

As for the shorts, Melvin and Citron are out but new shorters get in every day. The higher the price goes the more incentive there is to short. Most will probably lose money as the bubble inflates. But a few will make out like kings when it pops.

Why would you short when you can buy a put option?

Your gain in delta (due to the stock moving) will be offset by your loss in vega (due to the volatility coming off after the impending crash). Option fair value is a function of both underlying price and volatility, which is currently at unprecedentedly high values.

IV crush

Believe it or not there is strong evidence that more shorts are being added.

Consider a potential attitude that Citadel is going to get away with this blocking. I mean, maybe ... just maybe ... they'll get an SEC fine of a few hundred million (while protecting many hedge funds from billions in losses). In a worst case scenario a sacrificial scapegoat or two goes to a minimum security country club or house arrest for 6 months/1 year. But that will take a few months/years to come to pass and public sentiment will be much less hot. So they're probably gonna force the price down to unwind existing shorts.

So, since there is a potential that the price will be pushed down due to the above ... doesn't it make sense to open a new short position?

The "their" in your sentence can be read as ambiguous as to which parties its referring to, aptly.

With crud like rwsb posters asking if letting their deep in-the-money calls expire unassigned will screw the funds more-- it may well be the case that it isn't fund blood in the water that you see in this feeding frenzy, at least not anymore.

Absolutely. Many view this as a donation to a political cause that has tangible outcomes. The ROI is watching hedge funds implode.

I bunged in $50 into GME this morning because why the hell not. If pubs ever reopen I can spend another $50 on a round of drinks with mates and legitimately say "we took on the wall street parasites". The truth doesn't matter, the end doesn't matter, the tale is the reward.

I can do that for half the price by skipping the first $50 and starting with tall tales in the pub.

But I bet the beer would not taste as good.

Of course! Many are living hand-to-mouth in dismal conditions and unable to afford basic necessary expenses, while they see robber barons making a killing by putting thousands of already-poor people out of work.

Hating the hedge funds is rational, for many.

Irrational, but understandable.

It can be rational to hate those who actively seek to harm you. Emotion isn't necessarily irrational, so long as the reasons for emotion are well-founded.

When hindsight points out the opportunities that you overlooked which would have giving you that comfortable life it infects all future decision making.

Is there a spoiler tag on HN ? These ones still hurt:

There is a lot of thing one could have done "for the LULz" but decided to browse HN, Imgur or Reddit instead.

- Bitcoin. I heard about it when it was still possible to mint it on CPU, but chose to run SETI@Home instead.

- Bitcoin when it was at merely $9000.

- Ethereum when it was going under $1.

- Dogecoin like anytime before yesterday (up 6x or something today).

- #GME when options where pennies on the dollar, or even the stock at $20 in early January.

- $Tesla in January, February, March of 2020 or anytime before the split.

- $Tesla instead of putting down $1000 to reserve a slot to buy a model 3 at its announcement, put it in the stock, or even better, in long dated calls.

- $Amazon or $Apple last march or anytime before that.

- $SPCE after it crashed in March (a WSB hyped stock)

Dogecoin is ... Just _why_?

There's no limit on the number of coins. Mining is designed to be forever-easy. The coin is _designed_ for rapid deflation.

Why are people treating it as anything other than the joke it was intended to be?

You can still make money of a joke if you are quick enough! Just @-mention Elon and here you go.

I really have no idea, but your question suggests its own answer: fiat currencies are also designed for eternal inflation (I think you swapped inflation with deflation) and many people consider that a boon.

The problem is the word inflation vs deflation.

When too much fiat is printed, it decreases its value and is called inflation.

But when assets lose value, it is called deflation.

So, do you call cryptocurrency a fiat currency or a speculative asset? Because falling value will happen, it will be just termed inflation or deflation.

> There's no limit on the number of coins. Mining is designed to be forever-easy. The coin is _designed_ for rapid deflation.

Yes, but the increase in coins is constant. So as a percentage of available supply, the inflation rate approaches 0%.

Right now, there are 128,000,000,000 DOGE in circulation. The block target for Doge is 1 minute, with a reward of 10,000 DOGE, which gives a yearly minting of 5,256,000,000 doge, which gives and inflation rate of 4.11%. Next year, another 5.256T gets added, which is an inflation of 3.94%.

And of course, since it's a cryptocurrency, there are bound to be permanent losses in the supply because of people losing their wallet files. This is difficult to track because even with a public ledger, there's no way to be sure if unspent DOGE is simply not being spent, or if the private key to spend it was lost.

At least Doge has a small transaction fee. 2¢ For Doge vs like $7 for Bitcoin. Might actually be useful as a currency like Satoshi intended in his paper (lower transaction cost than credit cards). But of course those low fees are because it’s not popular.

Live long enough and there'll be plenty more. I'll have more regret over that girl I never spoke to.

Yeah, but (don't) think about where your life would be today if you had done those thing earlier. It's like you knew the winning numbers to the Powerball and just didn't tick the numbers at the shop. It just sometimes when life gets you down these thoughts just poke at you.

Same thing with the girl one never talked to.

The key to managing this FOMO for me is really committing emotionally to the concept of hindsight bias.

We remember the winners we missed way more than the losers, because the winners are still present in our lives today, whereas the losers never became noteworthy (because they lost).

But it’s extremely difficult to tell them apart ahead of time. So current me needs to give past me a pass... past me failed at something that is very difficult; no shame in that. Wistful regret, maybe, in a “what if...” kind of way, but I think everyone has those in their life, and not just about money.

A mental exercise I do to manage FOMO is to try and remember duds that I pondered might be the next BTC. Admittedly, it's hard because the brain really tries to forget about those. Keeping a diary is probably the key here.

And then you get the ones like Dogecoin that were supposed to be a dud, and it's still around more than 5 years later and just had a massive spike today until RH decided to restrict the use of instant deposits to buy it.

Can't have the poors making money!

I have this unsupported idea that after I get a win I won't be as hard on myself for past errors. Like the 3 BTC I had to sell when it was at $3k.

You can rest easy knowing that most of these things provide practically no utility to anyone (or even negative utility), and they are simply speculative bubbles.

I feel $SPCE still has a lot of potential upside.

I wonder what's the optimum sizing of FOMO. 1% ? 0.1 ? 2% ?

The Kelly criterion tells you how big your bet should be.

My Facebook feed is filled with people talking about this. These are friends I have know for years who have never mentioned stocks before but now are talking about "holding the line".

It is FOMO for sure, but the real emotions I get from talking with people are outrage and revenge. Everyone feels like the system (economic and political) is rigged against the public. The dopamine hit from sticking it to the man is palpable.

That would be useful if they were actually sticking it to the man. But that isn't what's happening here. What's happening is a big bubble where most of these regular people are gonna lose lots of money while the hedge funds end up closing out their position for a manageable loss and come out just fine.

For sure. This is a terrible way to "stick it to the man" and i've encouraged everyone i've talked to about this to stay far away. Unfortunately emotions have really taken hold. Greed is a hard one to talk people down from but doable. Anger and outrage pretty much impossible.

... not to mention the few smarter hedge funds and mutual funds that quickly jumped in an out of this and made substantial gains, leaving everyone who thinks they are "holding the line" even more "on the line".

Ehh, the short ratio is still over 100%, and I guarantee you those aren't retail investors. So plenty of institutional investments to stick it to left.

You don't know when those shorts got in. The price is clearly too high now, so it makes sense that sophisticated investors (probably other hedge funds) would be entering short positions at the recent prices. And those recent entrants will not be squeezed unless the price goes up by another ludicrous amount, which it is less likely to do now that the initial surge of enthusiasm is running its course. So lots of retail traders who got into the frenzy late with normal stock purchases at these absurd prices will get screwed during the inevitable crash, while the recent shorters will make a killing.

I don't think the initial surge of enthusiasm has run its course. Most are stuck trying to find another place to buy in due to RobinHood closing off purchases.

We'll see won't we?

It strikes me that the outrage is free-floating and waiting to be weaponised by whoever finds the words to trigger it and point it at a target. Until very recently this was the pro-Trump faction; having stormed the Capitol and got some of their leaders arrested that has gone quiet. So there must be a new disinformation magnet on the internet - and this is it.

> These are friends I have know for years who have never mentioned stocks before but now are talking about "holding the line".

That's what radicalization sounds like.

Radicals aim for the root of the problem.

In these times it’s revealing that there seems to be a severe lack of solidarity and trust. In a crisis it is paramount that everyone does their best and that the strong carry the weak. That’s a very fundamental property of a community. But instead the inequality rises and many fear for their livelihoods. This erodes trust and can turn fear into anger.

At some point in the future there will be the last straw. It might be the financial crisis, the environment, war or everything at the same time. The kinds of problems cannot be explained away; excuses and lies won’t help. Only a sharp turn towards solidarity and sustainability can avert it.

I see it too and I think the idea of making money is mixed up in the concept of revenge, like “finally I’m going to trick Wall Street out of some money instead of the other way around.” But it’s not going to happen that way for most people.

I see the idea parroted a lot that if everyone holds the line, the shorts will have to buy every outstanding share of GME stock at whatever inflated price it’s at. They won’t, though. The bubble will pop.

Even if it was true, much of the anti-Wall Street sentiment is a scapegoat for their avarice.

Everything on WSB states this is a bad investment plan and is more to bankrupt Melvin because they tried to bankrupt Gamestop. Short sellers have been using the down turned economy to collapse struggling companies that hire everyday people.

What's funny is how the HN community tries to defend the firms they've whined about for years. Is what's going on irrational? Yup. But it pulls back the curtain of what the financial firms do to the economy and their own manipulation tactics.

Here's what oh-so-many people are missing: the gigantic volume in these stocks is no longer coming from the WSB YOLO bros who know they'll lose money but think that's worth it to stick it to hedge funds. That may well be who was getting into the stock on Monday and Tuesday. But now it is people who saw the story on Good Morning America, having never previously heard of WSB or Robinhood, who don't care about hedge funds or any of that, but just got the impression from the news that hey this stock is going way up and that must mean it is a way to make a quick buck. And those are the people who are actually going to get screwed, not the hedge fund managers, who will be just fine.

So it's WSB fault that the news outlets spun the narrative to confuse people?

Sorry, but hasn't the news spinning and generally misconstruing news stories to the benefit of their advertisers and financiers agendas been the issue the past few years?

The news has a long history of prevaricating. “Remember the Maine.” It is only recently that folks are waking up to what Chomsky spent a lifetime explaining. The awakening is accelerating. Assange and Snowden, the naked media lying in the 2020 election, and now Wall Street manipulation is being exposed. We never had a reckoning after 2008. If this becomes an infinite runaway squeeze. Who will get bailed out?

What about my comment seems to say that it is WSB's fault? I didn't comment on whose fault it is and I don't care, I just think pretty much everyone is acting like the only two parties involved are WSB memers and hedge funds. And maybe that was true for awhile. But it isn't now, there are lots of unsophisticated people who have bought into the frenzy and in a few months all the stories will be about how those people got screwed. Meanwhile, both the WSB folks and the hedge funds will be doing just fine.

Nobody cares about the people who are "unsophistocated people who have bought into the frenzy", especially if they get screwed. Further, they shouldn't care about them because anyone who doesn't understand what's going on deserves to get whatever happens to them. Stock trading is high risk, high reward, and that should be clear to everyone.

The problem is that hedge funds constantly benefit from a much lower risk due to market structures designed to stabilize the market. Many of the WSB people are willing to risk a big large loss in order to reveal this flaw of the system. Many of them will not be fine, and, if they're successful, some hedge funds will be bankrupt and all of them will be scared moving forward.

> Nobody cares about the people who are "unsophistocated people who have bought into the frenzy", especially if they get screwed.

This is in fact exactly who most people care about, in this situation. It may not be who the extremely-online people that this board is mostly comprised of care about, but they are not most people.

> Further, they shouldn't care about them because anyone who doesn't understand what's going on deserves to get whatever happens to them.

This is directly at odds with how markets are regulated, because there is a long history of this thinking leading to widespread scams and cons.

What narrative? I've seen every possible article on the topic in the last two days. Every single narrative exists. Brilliant retail investors. David and Goliath. Idiotic YOLOing. Claims that Robinhood, etc are in cahoots to sabotage people. Claims that this isn't about the money and actually it is about screwing the rich. The squeeze is illegal/legal. The trading halts are illegal/legal.

There is clearly no coordinated agenda among news agencies here. It is a compelling story and a bunch of people wrote their hot takes on the topic.

That's quite plausible, but where could we look to see if that was true?

One point of evidence is the massive influx of members to /r/wallstreetbets

The volume in the stock since this became the big news on Wednesday, and the performance of the Robinhood app in app stores.

When you discover something like this on a nationally syndicated talk show, it is probably too late for you to get in on the action.

Yes exactly, but many people who discover things like this in mainstream media don't know that.

And what about all the people who watch MSNBC and CNBC and Cramer, do they need to stop pushing stops as good or bad too? They tell lots of people "who don't care about hedge funds or any of that, but just got the impression from the news that hey this stock is going way up and that must mean it is a way to make a quick buck" too.

None of this could have happened if they weren't shorting GME at 143%+ of float. They were greedy, this is the consequence. In 2006-2008, they ALL were greedy and so the government had to bail them out. No lessons were learned. If the SEC wants to do something, remove these instruments that allow infinite leverage and collapses.

They were greedy, they over leveraged their positions, and when the market called them out on it exactly like it’s supposed to, they just turned the market off. Im almost surprised someone hasn’t been arrested for that move yet.

Greed is really only a problem when your actions ultimately hurt someone else.

In general, shorting stocks is a beneficial action because it helps prevent shares from becoming overvalued.

So, yea, the fact that GME had 143% of its shares shorted is a function of greed. But, no, greed in this case was not a problem so long as GME's share price was fairly valued.

Is "fair value" an objective metric in this context?

Yea, it's objective in the sense that it's the net present value of all future cash flow. Many unknowns in that formula, of course.

You're mushing together two separate issues. Shorting GME at 100+ is not in itself a problem. (There's an argument that it dilutes the stock, makes it harder for the underlying company to turn around, because market sentiment is already against them, see investment reflexivity theory, etc.)

There's a problem with bailing out big companies again and again. While not bailing out small investors (directly).

The other problem is that there's no real defense against CNBC/Twitter amplified end-user stupidity: https://www.youtube.com/watch?v=lMUtU0tOmNE

Every stock trading app/site/service requires submitting tons of "risk declaration" forms. (Sure, all of it is next next finish. It's the EULA/TOS all again, but with money.) And that's the problem.

CNBC / Cramer type stuff is pretty bad too IMO, but way less mainstream than network news talking about how a single stock is a rocket ship and making all these regular joes (just like you!) oodles of cash.

I haven’t watched Cramer regularly in a long time, but unless he changed, this isn’t what he does.

He has an entertainment component, but fundamentally encourages people to educate themselves and manage a portfolio of stocks who choose to do so.

The mob bullshit we’re seeing now is just the new normal - brigades of internet idiots, motivated by profit or ignorance to run around like a drunken monkey. It’s no different than the political drama we’ve seen fomented by irresponsible social media like Twitter, Facebook, Reddit, etc.

We let big players partake in risky things like shorting GME above 100% float because we don't care if they lose. It's the same reason we allow them to invest in companies like Theranos. They know the risks they were getting into and will still be fine without a extra 0 in their bank account. Regular followers of WSB are aware of the risks as well, so I'm fine with them attempting a short squeeze. The problem is that they're encouraging regular people to join their crusade against hedge funds who are most likely going to time the market incorrectly. What's worse is that most of the world, including politicians are cheering them on.

Except hedgefunds only trade money from accredited investors, i.e. people who can afford to lose a lot of money. They also typically aren't swayed by TikTok videos and short explainers of how shorts work designed to hype up GSE. The point is that Robinhood investors are being exploited.

Can you explain how you're disagreeing with me?

I disagreed with the statement about WSB users knowing what they're doing. Upon closer reading I think our larger points are the same. All over the internet I'm seeing sleazy promotions for GameStop stock targeted at young people who are inexperienced with trading. Anyone left holding GameStop stock when this ends will lose a lot, i.e. most of WSB.

Then you haven't been paying attention to WSB. WSB knows full well they will lose everything. We call it Loss Porn and it gets us going. When you see 5,6,7 figures in losses you get desensitised to it. It's a casino, yes we sometimes make money, we call that the first time, you know, the first one is free.

Besides the jokes and the memes, Chamath went on CNBC and argued that WSB provided very good due diligence in some instances. Yes a lot of it is utter garbage, no doubt, but when there are specialists there able to call each other out, you get to see good analysis.

What a lot of you are missing is that this isn't happening within your little WSB playground anymore. It's just a regular stock frenzy now, it's not even really all that relevant anymore how it started.

I agree, unequivocally, my comment was meant to point the parent comment is filled with ignorance.

Haven't been paying attention... It must not be in the news, right? This is more of a niche interest, not getting any attention. Hard to pay attention to. You really have to be focused on WSB subreddit to know what's going on, right? It's really a few key people understand it. Anyways, yeah, GameStop is a great company with a great stock and some evil hedgefund is going to lose billions for trying to manipulate the price!

And that is a straw-man, I never claimed any of what you are accusing. You have nothing to say, so you twist the words. Quite sad actually to see this in Hackernews of all places.

I claimed that if you have your information about WSB from anyone but yourself, you have most likely been duped in some way or another and that is evident by how you talked about WSB, full of ignorance.

> Anyways, yeah, GameStop is a great company with a great stock and some evil hedgefund is going to lose billions for trying to manipulate the price!

Nobody said GME is a great company. What are the odds the proletariat on reddit throwing money into the fire pit in an attempt to hurt the rich is attempting to con you, and what are the odds somebody who stands to lose billions and already lost is?

gmedd.com, or you know, do your own DD.

No one who has been in WSB for a while wants the publicity, believe me. No one who has been around views this as some noble moral crusade. But WSB went from <1M subs in 2019 to 2M by end of 2020, to 6M now. We didn’t magically orchestrate it, they flocked to WSB after every media outlet in the world mentioned it for a week+ straight since Gamestop happened. Its an open forum and we don’t decide who joins, or when, or what they post. When 4M new people show up in a sub of 2M in a week, its Theseus’ ship twice over at warp speed.

Yep, this is my point, not that it's necessarily WSB's fault that a bunch of regular people are jumping on a bandwagon and going to get screwed, just that it is happening and is bad. I think it is more the fault of mainstream news editors and Elon Musk than of WSB regulars.

I know people at work joining Slack conversations about this and asking how to set up an account and how to buy the stock, while fully admitting they don't know anything about stock and have never bought any before. From their comments, it seems like they just want to throw their money at this since it seems like a good bet.

Yep, of course that's what is happening. There is a story all over the news that reads to most people as exactly this: "this stock is going up and making everyone rich, you are missing out".

> But now it is people who saw the story on Good Morning America

Most of those people don't own stock and don't know how to buy stock.

And I would guess most of them tune out stories about stocks going up or down like they tune out commercial breaks or the business segment of news shows.

They don't know how to buy stock until they see the mainstream news say "download this app called Robinhood in order to buy this stock that will make you rich", which is why Robinhood rocketed to the top of the app store charts this week.

Most people do not tune out stories of the form "do this simple thing to get rich". It's the same reason endless coverage of the lottery gets good ratings.

Your mental model of how stock bubbles work is not accurate.

Why would shorting Gamestop mean making it to go bankrupt? The falling stock price of a company doesn't cause a company to go bankrupt, the causality is in the other direction. Putting downward pressure on price is useful only if you want to do a hostile takeover.

Because Gamestop is a business that is in the process of adapting to changing market conditions, which generally requires capital, and when market analysts go big on shorting in public it depresses stock price, and issuing stock is a major common method by which businesses raise capital.

As another example, lots of people assume Elon Musk got mad at short sellers because he took it personally, when in fact they were fucking with his ability to raise money he needed to ramp up production and meet manufacturing goals.

These things don't happen in a vacuum. Large funds making public bets against a company have a material impact on that company's liquidity.

Short-sellers are part of the free market. They are how the equation balances itself when trying to find the "true value" of a concern, or at least an approximation thereof.

Obviously the person who owns stock, or is set to earn billions when the share price reaches a certain level is going to be adversarial to someone whose actions result in the share price being depressed - even if that is the fair value.

> Large funds making public bets against a company have a material impact on that company's liquidity.

There are always bigger fish - and if the public bet is wrong, someone can, and will earn money at the funds' cost.

Edit: shareholders dislike shorts the same way employers dislike employees sharing salary information; it's a losing proposition for them, but a fair one.

> Short-sellers are part of the free market

Not when they get to simply turn off the half of the market moving against them they aren't.

I would like you to show me where this free market is, because it certainly isn't NYSE. The minute anything unexpected happens we're hit with trading halts, brokers riding the line of insolvency, SEC investigations, and congressional freakouts.

This narrative that GameStop is actually a good company and it's turning around despite all the short interest is pure bologna. Worse, it's intentionally misleading and often espoused by people who have a financial interest in the company. It's crazy to see people in this forum, who are typically tech forward, hype up the business model of selling physical copies of video games.

This is a common reaction to people who haven't followed Gamestop for a while. Cohen and RC Ventures bought in a while ago and have been pushing for the company to pivot out of the brick-and-mortar focus. This is why 'people who have a financial interest' are talking this way. Everyone involved recognized this would be an expensive proposition. Then the short sellers showed up.

I think focusing on how it hurt GameStop isn’t the right perspective here. I think it’s more about how greedy and over-leveraged the short holders were. When average Joe goes crazy over-leveraged, the entire world says “well duhh, you took a risk and now you have to pay.” But when a hedge fund does it, they get to just make a call to turn the market off for a few hours and try to bail out their shorts? The hypocrisy is stunning.

"Over leveraged" typically means you traded too much on credit in proportion to how much collateral you have, not that the trade is risky. A very large short position is reasonable for a company that is likely to go out of business.

I understand what over leveraged means. This was /also/ an incredibly risky short to start. I’m not convinced that GameStop was ready to go out of business. Struggling, sure, pandemic and all that, and that would justify a put position, but the market also reacted exactly how it’s allowed to and called out a short positions bluff.

I think what really turned up the anger level on this specific instance is that they just turned the market off when it didn’t go their way. That’s just such a colossal breach of trust.

I noticed this recent trend of stuff turning annoying political in that sub. There is so much trash being posted now drowning out useful DD. I think at the end of the day, the original WSB crowd cares way less about political statements and solely making money.

Correct me if my understanding is wrong, but more than a political statement, this seems to be indeed a way to make the most money possible. Political tones are a satisfying sprinkle for many, but what everyone understands there is the more they hold, the higher the value gets. We will be able to judge by the result shortly.

> What's funny is how the HN community tries to defend the firms they've whined about for years.

Aren't you over-generalizing just slightly? Even in a post with many comments, only a small number of community members (if this is a community at all) post anything. And not a huge number vote, either.

According to the best evidence, Melvin has no short position (they may even actually be long now). So the entire WSB narrative is a lie being used to pump up the stock. The subtleties matter here.

We are going to find out what will happen soon. As looking at the trade volumes people seem to have stopped selling or buying looking at the stock prices and the trades it looks like hf traders rather than retail

The rally will continue as long as there are buyers given the price and the neural pathways have been fully mapped out.

What I'm worried about is that there were more than one Melvin Capital with several banks now involved who do not own enough shares to cover the shorts.

Which means we are literally witnessing a money printer go brrr situation where as long as there are people buying in due to FOMO or some us-vs-them politics, the prices will rally.

The most shocking part is how exposed not only the brokers are but now the banks are also exposed. We are literally seeing a repeat of 1929.

https://www.history.com/news/1929-stock-market-crash-warning...

It's kind of depressing when you look at these crazy success stories of lottery winners. You realize even a small bet at the right time could be life-changing.

Let's say instead of buying a Latte every working days at starbucks over the last five years you had invested it in tesla stocks. Or maybe for every starbucks latte you drank, you invested the same amount in ETF and in Tesla (pay 3 latte, drink one). Where would your life be? Would you still be at your 9-to-5 or would you go work for that non-profit? Or would you just be lazing around on the sofa or at the beach sipping pina-coladas?

Anyway, sometimes it takes a lot of energy to deal with the KIMO (Know I Missed Out).

The best analysis is always against the company itself:

- SBUX instead of buying Starbucks

- MO instead of buying cigarettes (see The Millionaire Next Door for this analysis)

- LVMH instead of buying LV, M, or H

- NVDA instead of buying video cards and AAA games

- CVS instead of shopping at convenience stores

This doesn't seem to be saying anything about those companies though. It's just that you will do better financially if you invest money instead of spending it.

Well...yeah.

Totally know what you mean. What I do is just assume I'm going to have to work until I die, and keep angling toward work I tolerate better. I try to invest wisely, maintain a few months of cash savings, etcetera, but don't think about it otherwise. Money is imaginary and anything could happen to it at any moment.

If once in a while I want to use some of my disposable income to spin a roulette wheel or buy GME, and can keep it under control, I see no problem. If I win, it's a nice surprise. But if I don't feel like playing, of course I won't win anything.

Despite having watched it since Monday or before, I don't think about what I could've won on GME this week any more than what I could've won at some dog track. I decided not to play, and that's that. My life continues on as normal.

It's funny, because I was visiting Gamestop's website last November trying to find a Pink 3DS and remember thinking, 'oof, Gamestop's website is in bad shape'.

When I get the FOMO urge I think about how BBY just sucks as a store, how much better Netflix is than AMC, and how airlines regularly go bankrupt.

I believe that GameStop has a future as they have a lot of mind share and goodwill. But they need to get rid of their brick and mortar stores.

The idea behind buying those companies wasn't that they had a lot of a future, it was that they had more of a future than their price estimated.

That's not the sense I'm getting at all. Oh im sure there are those involved who fit the description. But for most, it isn't about making money at all. Its about financial warfare with "the man".

The overwhelming majority of examples I have seen so far are only concerned with causing hedges funds to collapse and to put brokers out of business, personal losses be damned.

And I see little reason to doubt this. Everyone knows Gamestop is a company with an obsolete business model, a bad reputation and little chance of turning things around. Everyone knows that there is little to no chance of making any money on holding. But $500 isn't a lot of money. 3 million people each putting $500 in to GME is. Obviously there are some who are putting in far more. Current market cap is $24 billion. Its coming from somewhere. I suspect once this is all over we will find that some major players got involved as well and put a lot of money into GME to topple their rivals. But that isn't the main narrative and most of the people buying in are doing so to make a statement.

This has started a discussion. A lot of people are getting a 101 education on how the stock market really works and they are learning just how little it actually has to do with real value and the economy. I predict there will be serious public pressure for regulatory reform. People are going to want to make shorting and high speed trading illegal.

> A lot of people are getting a 101 education on how the stock market really works and they are learning just how little it actually has to do with real value and the economy.

I don’t see how you can draw this conclusion from these events. If this level of price volatility was commonly caused by market participants, then it would be such big news when it happens. They’re not common at all, they represent a small number of events where a small number of shares were traded overvalue for very short periods of time. Nobody is concerned that stocks are overvalued because short squeezes are just happening all the time. Squeezes are also short sellers getting punished for trying to profit off somebody else’s losses, which as far as I can tell most people think is very morally righteous. The only time they’re controversial is when intervention occurs to rescue the short seller.

"That's just, like, your opinion man"

> This sort of event would be less likely if America's wealth disparity weren't so grotesquely skewed.

Highly unlikely. It doesn’t matter how rich the rich are if you’re poor and want to gamble your way out. The problem is with poverty, which is completely unrelated to wealth disparity.

One you can fix by making life worse for everyone, the other you can fix by making life better for the poor.

WSB is trying to create a short squeeze by buying call options to crush the shorters.

RoaringKitty found the stock underpriced in 2019 and then managed to turn 50k into 13M in 1.5 years + and is still holding 22M in stock and calls.

> This sort of event would be less likely if America's wealth disparity weren't so grotesquely skewed.

Maybe, but I'm pretty well off (at least compared to the rest of the country) and I still feel the same way. It's primal if you ask me.

Re: Subtleties.

I disagree. I think a big part of why this whole thing is fascinating is the depth. Yesterday morning, financial press were blathering generalities pinning WSB as market manipulators and calling for regulation to stop them. That is, stop retail investors trading at a scale that moves markets. IE, the stuff that insiders get away with regularly.

Between yesterday afternoon and now, millions of people have been catching up on the detailed mechanics of stock trade execution. There's a mad dash from reporter to get interviews with brokers, clearing house operators & such.

Note that the maneuver itself was analyzed in detail, and in public. That's what allowed big names like Cuban, Musk, various politicians and such to take a side and comment on it intelligibly.

Ultimately, whoever is holding these meme stock shorts needs to buys stock to cover their positions. I acknowledge that brokers had legitimate/legal/normative reasons to stop retail buys. But, it's also true that they created a window where short sellers could buy without competition from retail investors. Maybe brokers are covered legally against market manipulation charges because clearing houses were genuinely short on liquidity. But, (1) that doesn't change what happened and (2) Isn't this the regulator's job?

The reason people are cheerleading is because of these shenanigans. "Rigged" gets thrown around often, usually it's devoid of subtlety. This time, it's detailed. We can debate the details and construction of the rig. Truths fly around reddit for an afternoon, and are discarded the following day.

Few people cheerleading because they want a no regulation, pre-depression stock market. They just aren't willing to accept a rigged system. In any case, who are the speculators here? Short sellers like Melvin or Redditors? Short sellers future-sold 140% of the stock... hoping for a crash and potentially creating one. Redditors recognized this by looking at publicly available information and discussing it in the open.

Yesterday premarket when Robinhood announced the cessation of trading in these ultra volatile stocks, was there a deep analysis of what led them to that decision? A measured consideration of why they might do that?

Of course not. Immediately a false narrative was created that citadel forced them to do it under threat that they would stop their order flow. Had any politician or public figure merely suggested we let the CEO of Robinhood explain the decision, they would’ve been dragged by the Twitter mob. Just look at how Steve Cohen, Lee Cooperman and John Fortt were shamed for raising what I believed to be perfectly legitimate questions. But nobody is interested in legitimate questions when it’s hive mind mob rule which is what always takes hold in a bubble. In fact the vilification of naysayers is one of the tell tale signs of a speculative bubble.

To answer the last question who are the speculators here, shorts or wsbers? Both. But what I’m talking about are the speculators who are simply buying this up with the expectation they will make huge gains like deep fucking value. They can say all they want about how they don’t care about potential losses and this is something bigger. Total nonsense. Let’s see who gets blamed and who plays the victim if we get a crash.

It’s an interesting world when Mark Cuban and chamath palyhapitia can be portrayed as champions of the little guy when they have made billions of dollars at their expense. Chamath takes a SPAC public every Tuesday. Who do we think are buying these up? Warren Buffett? Didn’t Cuban make his fortune selling a worthless business to Yahoo? These guys are using this entire thing to build their own popularity.

> Just look at how Steve Cohen, Lee Cooperman and John Fortt were shamed for raising what I believed to be perfectly legitimate questions.

Leon got shamed not for his commentary on the speculation around the stock, but for the complete failure-to-read-the-room commentary on his taxes, commenting on marginal tax rates and "fair shares" as "bullshit":

> "This fair share is a bullshit concept. It’s just a way of attacking wealthy people, and I think it’s inappropriate," Cooperman said Thursday. “We’ve all got to work together and pull together.”

... He also blamed stimulus cheques. Especially nasty considering that the corporate stimulus, just prior, had a similar effect on market price inflation.

It was beyond "not reading the room." He literally believes that only the people like him are responsible enough to play the market, or even have money at all.

Of course mid-sprint reporting is all over the place. That said, so has the financial press and insiders. In fact, during an interview of NASDAQ's CEO, the suggestion was floated that this is the Russians or something. That rumour was dropped by professional journalists and insiders. In fact, the regular, non financial press had a far more curious response than the financial press... they even read reddit.

Going back to "Citadel rumour.." It certainly was off the cuff and certainly doesn't encompasse everything. That said, RH is financially dependant on Citadel and Citadel is in a position to benefit from RH's decision.

Whatever you think of Cuban, these people are being drawn in for the same reason you and I are talking about it. It's saucy.

I think your "vilification of naysayers" point is off-mark. This is not about whether or not GME bets make money. The whole saga is a naysaying of sorts. Naysaying to the rigging.

I suspect I'm probably on the same side as you regarding the larger point. Speculation, HFT, etc are negatives to be curtailed not expanded. But, the "me but not thee" way that financial markets have been structured is an outrage.

The "revenge for 08'" stuff is symbolic. But, the symbolism is fairly subtle. The firms being protected from long tail risk (right, wrongly or even essentially are, again, being shielded from long term risk on bets only they have access to. This includes clearing houses and market makers. The "systemic risk" is the risk that these guys lose money. Stability is premised on them not losing money.

Maybe if Robinhood had done literally anything to not appear like they were colluding with their customer Citadel people wouldn't have constructed "false narratives". Its some impressive mental gymnastics to see a broker lock out all of their retail investors (remember, you were completely free to liquidate your position) and offer almost no explanation, and blame the investors for being hasty and jumping to conclusions.

And for that matter, calling these narratives false seems premature. As far as I know there hasn't been any actual investigation by regulators into the reason Robinhood took those steps (although multiple politicians from across the spectrum have called for one). It seems many public figures would love to give Robinhood the opportunity to explain themselves

> Its some impressive mental gymnastics to see a broker lock out all of their retail investors (remember, you were completely free to liquidate your position) and offer almost no explanation, and blame the investors for being hasty and jumping to conclusions.

People don’t seem to realize that brokerages do this all the time to limit their risk. If you have less than $25k in a trading account for example, a brokerage is mandated by law to not allow day trading (that is entering and exiting the same position on the same day). Do you know what happens if you do? You are labeled a pattern day trader and you can only exit positions. Actually the fact that they were letting people exit trades was a big clue to me that this was risk mitigation while this collusion with citadel narrative was making the rounds.

The motivation is one thing, the end result is that it created a slanted playing field where one party was blocked from buying, but not selling, and the other party (the losing short side) could do either unrestricted. Not only that, but it was pre emptive. We can talk all day about GME, but the handful of other names like BB hadn't even reached that point. There was simply a risk of a short squeeze and we slanted the field here, too, enough time for the losing side to mitigate their risk.

Conspiracy or no, the end result is so far from your day trading 25K minimum example. Your example is a rule that already existed going in, rather than a rule that changed temporarily to convenience one side for a day.

But why did RH lie about it then? That's the smoke that most people see.

> Actually the fact that they were letting people exit trades was a big clue to me that this was risk mitigation while this collusion with citadel narrative was making the rounds.

Ok let's say I'm a retail investor using RH. Why should I need to divine what my brokerage is doing from Twitter posts and Reddit? My should I need to wait hours for their explanation that comes in the form of a handwavey blog post?

You shouldn’t, and I’m not defending RH’s handling of a PR crisis, which is never easy and one that every successful company eventually encounters at some point. I don’t use RH personally. My guess is they had problems with collateral obligations but didn’t have their arms around the problem so the immediate solution was to pull the plug until they could get their affairs in order. This by the way isn’t the first time they’ve had these problems. A lesser known story in wsb lore was ironyman who a few years ago opened so many box spreads before RH knew what was happening that he turned an initial $500 account into a $50,000 loss. That should never be able to happen obviously but RH was ill prepared. It’s clear in hindsight that something like what’s happening now or worse was almost inevitable. They seem to take move fast and break things to another level. The problem is that when you don’t dot your i’s in the stock market you can be fine for years and then one day get carried out in a casket. I surely would never consider using RH at any point.

My point was that a mob formed instantly with false narratives about what was happening. It’s clear now that these moves are entirely due to risk mitigation and that it had nothing to do with collusion with Citadel to cheat people. So the conversation has shifted from outright collusion to cheat retail investors to one of terrible communications.

>> (2) Isn't this the regulator's job?

Is the regulator in this case the SEC, the exchange, or some other party?

The narrative that retail investors have stuck it to hedge funds is laughable.

Who do they think is selling counter party is?

All they’ve managed to do transfer wealth from one hedge fund to another. And eventually when this pops they have transferred wealth from themselves to other winning hedge funds.

the enemy of my enemy is my friend, my friend.

> there is this narrative that the little guy is finally sticking it to the big bad hedge funds. In reality there is probably very little truth to this.

Which part has little truth to it?

The big hedge funds are apparently losing money (billions!) on Gamestop, unless that's being mis-reported. Some of the "little guys" (reddit people) definitely were a part of the reason for that.

Certain hedge funds are losing money. I am sure some others are having a great time with this.

(Disclaimer I do NOT know what I'm talking about, just repeating what I saw on Twitter)

It seems like they've all closed their shorts already, most of them did on like day 2 I believe.

In addition, other hedge funds have been on the winning side of this trade. Some of the orders for GME last few days have been absolutely massive, not coming from retail.

There was a CNBC post about Citron and Melvin closing shorts but it was retracted.

No, it wasn't. Melvin has definitely closed, although Citron may still be in partially.

Why are so many people repeating the same misleading talking points over and over?

> Melvin has definitely closed, although Citron may still be in partially.

Source?

The original CNBC article that was never retracted.

Do you mean this one?

https://www.cnbc.com/2021/01/27/hedge-fund-targeted-by-reddi...

"the hedge fund’s manager told CNBC’s Andrew Ross Sorkin."

So this is completely based on a phone call and Melvin Capital can just claim that Andrew Sorkin misunderstood them.

There's no public statement from Melvin Capital, which makes me suspect that they were indeed just trying to manipulate public perception, they could have just not talked to journalists about their positions, which is their official policy.

I believe the statements were worded in such a way to try to make people believe that the short squeeze was no longer in play, but the short interest in fact never changed and maybe even went up. I believe they were also worded in a way to be technically correct (for example if they had multiple short positions, e.g. naked short calls, if they "closed their short position" that could mean they chose their smallest/cheapest short position to close and it would be technically correct).

The data doesn't back up the broader (and presumably intended) interpretation of their statements.

In my (inexpert) opinion THAT is the definition of market manipulation.

> I believe the statements were worded in such a way to try to make people believe that the short squeeze was no longer in play, but the short interest in fact never changed and maybe even went up.

I've seen this "claim" all over the internet. It's not true. The statements released by Melvin Capital were unambiguous and of course short interest on Gamestop is going to go up when it surges to such high prices.

>> The big hedge funds are apparently losing money

Some are losing money. But that is nothing new. Hedge funds die every day ... on paper. But which brokerage houses are going under? Other hedge funds are doing fine, likely profiting on this. The fact that a few are held out as victims sounds, to me, like the other funds just stoking the panic. I don't see any non-paper houses closing over this. This is Gamestop, not the mortgage crisis.

> The big hedge funds are apparently losing money (billions!) on Gamestop, unless that's being mis-reported.

There are thousands of hedge funds, just because a handful have been caught with their trousers round their ankles doesn’t mean the others aren’t profiting from current volatility.

That retail is behind a massive short squeeze that is solely responsible for these moves. At this point shorts from significantly lower levels have almost certainly been covered, if for no other reason out of simple necessity. At this point what started as a short squeeze has ballooned into a false narrative that retail is sticking it to shorts when in reality it’s almost certainly HFT traders pushing this stock up and down by now. Retail simply doesn’t have enough cash to move a stock like this especially when by their own admission they aren’t selling any shares!

The big hedge funds are apparently losing money (billions!)

A few hedge funds (of different sizes) are indeed losing billions. A few other hedge funds have taken the opposite side of this bet and are making money. The vast majority of hedge funds have no position in this stock and are completely unaffected.

In addition a bunch of HFT shops and similar making a lot money off the volatility and order flow all this has caused.

I mean, some hedge funds are making money, sure. But the point is that, collectively, billions of wealth have so far been transferred from institutional investors to regular investors.

But the point is that, collectively, billions of wealth have so far been transferred from institutional investors to regular investors.

Perhaps, but for every dollar that gets transferred to a small handful of regular investor, I suspect at least 10, if not a 100, is probably being transferred to different institutional investors.

I just don't buy the Wall Street vs The People narrative. This is Wall Street vs Wall Street with The People picking up scraps from the battle field and hoping they don't get stepped on.

Not it hasn’t. Retails hasn’t yet sold and the market doesn’t have the demand to hold sell off at the current price. The billions paid by hedgefunds went as pure profit to the big FIs like blackrock. When all this done and financial disclosures come out. The winners will be the big financial firms who have already made their money selling stocks at this inflated price.

Also, how much of that has been realised vs just being paper gains/losses? I'm not convinced the original hedge fund shorters have really closed out all their positions at a loss. Or maybe they've closed out some of their shorts at a loss, then entered the short again at a higher point and are now poised to make even more money on the (inevitable) way down.

Conversely, a few investors that bought cheap might have made huge returns - if they sold at inflated prices (passing the hot potato to the next greater fool). If they didn't sell, then the paper gains will vanish.

> The big hedge funds

Which ones? Citadel/Melvin/Citron (is this all the same one?) and which others?

Not a financial expert however, Citadel is a market maker rather than just a hedge fund like Melvin.

Money is lost when a retail investor holds onto their shares not just when the stock price rises.

Hedge funds are not homogeneous and the majority of them had no position whatsoever in any of the meme stocks. Some were long meme stocks.

https://www.google.com/amp/s/www.marketwatch.com/amp/story/l...

A Korean fund made a billion dollars on a 12 million dollar GmE investment and they were only the 7th largest holder of GME shares. The wsb narrative of this sticking it to Wall Street is just false.

I personally think it’s a narrative propped up intentionally by wsb insiders for their own gain. This is just a modern distributed boiler room. Retail traders always pay in those scenarios.

> it’s a narrative propped up intentionally by wsb insiders for their own gain.

Yes, in particularly the passionate pleas to buy in more and HODL, stick it to the man, stick it to the evil shorts. While enabling the early longs to cash out profitably.

Bit like Bitcoin, really.

It's the same hustle. I've been clicking through some of the usernames that are posting.

I've been noticing some interesting patterns. Accounts that seem to have been abandoned for months or years are commenting all of a sudden.

Makes me think some of these very similar looking frantic lunatic posts are part manufactured.

It'll take a good effort to show it conclusively

Interesting - who knows, could even be professional foreign trolls, only interested in encouraging volatility a.k.a. instability.

It's this false dynamic, as if the people working at funds don't browse the internet.

Who do you think is selling GME shares to retail investors for dollars on the penny?

This whole thing is disgusting. Once the euphoria had subsided, people will realize that the hedge funds have come out as bandits, having traded nickles for dollar bills.

Two hedge funds isn’t “the big hedge funds”. A lot more people are going to make money not by taking the right position, but because they are the market, and they get paid whenever a ton of retail investors decide to come in and buy GME based on memes.

As much as there's a backlash of "it's ok when hedge funds do it" the GME situation is still an absolutely massive distortion. The company is still worth the same $11/share it was a few months ago. Maybe $20 if you think the new leadership will improve sales. It's not better because it's little guys doing it. It's still abusive.

In 1929 a series of events took place, and some of it took a while to happen (like Ford shutting down for a few months) that pretty much (not completely) eliminated retail accounts from both the stock market and actually from banking. Much of the public swore off checking and savings accounts, never mind owning stocks.

It seems like the big money is changing its clothes to pose as children in order to get priority on the life boats ("Women and children first!").

The social circle of firms closely connected to this ruin of Robinhood and which had been short GME are the speculators. Short for longer than intraday == speculative. Short as a market maker for an hour or two is good for efficient clearing.

It's on the guys with the big money to gather their fortitude and ride this out in the most-trust-inducing ways they can. I think the big money is naive if they think it could be otherwise.

One more thing, I am reminded that a lot of the time, a retail investor will buy something, a weak stock, and ride it down to zero out of misguided optimism. Conducting margin calls on zero notice is going to be toxic to such people and I don't think the finance world really wants that money to leave the market for good.

I take much of what you say a reasonable wisdom, but the idea of retail investors buying weak stocks on margin and riding them to zero seems far fetched. They shouldn't be buying on margin anyway and if it goes to zero, they're going to get the margin call no matter what.

So they get the margin call partway down, they pay in to keep the stock because they have told all their friends they are long that mess, and out of pride continue to ride it down.

... so Citidel can make money up/down and sideways, front running like a real robbing hood.

The very high and very speculative participation by retail investors is scaring me. I'm reminded of the story of the hedge fund manager who was getting a shoe shine, and the shoe shine boy was giving him stock tips. He closed out his positions and correctly called the top of the bubble[1]. I don't know if the story is true, and it is just an anecdote anyway. But historically this kind of activity does mark the end of bull markets.

At the same time I keep hearing that the stock market is actually undervalued on average given current interest rates - and those aren't going to change anytime soon.

Definitely things are frothy and there are bubbles in some stocks, but maybe this market still has legs - at least while the fed is buying 120 billion of debt each month.

[1] I found it, it was Joe Kennedy in 1929: https://archive.fortune.com/magazines/fortune/fortune_archiv...

> In reality there is probably very little truth to this.

The whole premise of your argument is based on ‘probably’

What an excellent post.

Many might be FOMOing, but few want to be told that they're too dumb to be given this power. Clearly the experts themselves don't know when they bite too much (as seen in 2008) lets spare the common adult some decency and allow them to bankrupt themselves if they wish to do so. America was a great place precisely because of this freedom

Nope, the narrative has been building for the last two days that this was all perpetrated by fascist white supremacist deplorables... so it is no mystery which side Democrats will pick. Republicans will do the same for more classically stereotypical reasons.

>nobody blames the speculators

The hedge funds are the speculators in this case. They're playing a dangerous game where you can short more stock than what actually exists. Why this is allowed? Who the fuck knows.

Shorting more stock than what actually exists is not really that different from shorting less stock than what actually exist.

Imagine you short 50% of the outstanding shares.

Now there are 50% more long positions than outstanding shares.

It's not substantially different from having 100% or 150% more long positions than outstanding shares.

You could stipulate, though, that the outstanding short position mustn't exceed the net position, or equivalently that the total long positions can't exceed twice the net position. Why not? (This would require new regulation, but not be impossible, I think.)

If the total long or short positions exceed the underlying economics by a lot, you create all sort of weird incentives for manipulation, as can be seen in the CDS market sometimes.

You could stipulate whatever you wanted, but there is nothing special about that threshold in particular.

I fully agree that derivatives can create all sort of problems in many cases, including when the nominal amount of the positions is much higher than the actual amount of the underlying.

Agreed fully. The 2x long, -1 short limit is just a neat, natural limit that one could discuss, and might be easier to enforce than other (similarly arbitrary) limits.

I'm not against that, but it's not trivial to implement either.

Would require to set up a central registry or so, yeah. (Or finally a use case for blockchain!!!1!!! :-)

Not sure it would be worth it, I think historically excessive shorting has rarely been a problem, except for a few colourful episodes like these.

It's quite difficult to stop without blocking all shorts.

Why? My broker doesn't let me trade unsettled funds, even though I've made a sale and they're "in my account." How hard would it be to create a restriction that says you're not allowed to double-loan the obligation to return a share borrowed in a short sale?

Because when you buy a share on the market there is no notion of it being "a true share that someone sold to you" or "a borrowed share that someone sold to you". The only way to prevent double-lending is to prevent all lending.

How do you know that the stock was loaned in the first place? If there is a way to know is there a way I can buy the original non-borrowed one - this should be worth more money because I can borrow it to someone else.

It sounds simple, but the details make it hard.

Your broker lends your share out.

I borrow it.

I sell it to Tom.

I borrow the share from Tom's broker.

Tom's broker and I both have no idea it's "the" "same" share I borrowed.

Boom, 200% short interest on "that" share.

I think this "is allowed" for the same reason that I can borrow a book from you, sell it on Amazon, and when you ask for your book back, buy a copy of that same book on Amazon and give it to you - but in the meantime, the person who bought your book from me can lend it to yet another person, who does the same as me.

In other words, this works simply because stocks can be sold and borrowed, and they don't carry provenance with them. To stop this, you'd have to do the equivalent of DRMing books and revoking the first sale doctrine. Which I imagine would turn shorting into a much more complex market mechanic than it is today.

(Disclaimer: the extent of my expertise on stock markets is me knowing how to spell "stonks".)

Security ownership is the killer app for blockchain.

No. Way too little throughput (unless we slow down trading considerably, which is a good idea in itself, IMHO).

Re: throughput, I think nanosecond resolution for trades is bad policy. 5 or 10 minute windows are better.

End all speculative finance.

That’s where we ended up after 1929, until the current billionaire class removed all the guard rails.

Nobody deep on SV stocks and unicorn chasing wants to admit they’re in the bubble too. Why does society owe floating a coder bros data science project?

Anything not science is a meme. That billionaires should exist is a meme. This is social philosophy, not truth. And it’s gamed.

America is a bubble in time and it’s having a real (environmental) impact on the future.

Billionaires are not experts. They’re rich and can pay the fines and schmooze. That is not expertise. It’s selling “free market” and manipulating it based on a meme that speculative finance expertise is real. All it is is social engineering of the masses to accept deflation of their economic position.

Bad take. We need capital markets to effectively value and fund different business efforts (unless you want to do things Soviet-style). And no matter how much fundamental analysis you do, some things remain unknown; all finance is in some way speculative. There are rough patches, but you need to take the bad to get the good.

No, we don’t.

We need to let people build their communities without tethering agency to outsiders who control the flow of imaginary capital.

Pretending a value in a database is real ownership of something is insane and continues to lead humanity towards fascism to protect the oligopoly at the top of the meme pyramid.

You’re selling an appeal to authority that is a complete mirage, only existing in your head because of years of reinforcement.

People can seek capital from whomever they want. But it’s also true that outside capital is useful. If my community has lots of resources and no ideas about how to use them, then the world is better off if I take my resources and find an under-resourced entrepreneur in a less wealthy part of the world to invest in. That’s what capital represents.

...and then you have a bunch of money and resources, and your community has nothing because you took it all out. Then your community wants to redistribute the wealth (because they see how unfair the results were to them), you and your followers scream "COMMUNIST!" at them, and we wind up in a right-wing authoritarian situation instead.

That's what happens when capital runs amok.

Please stop believing you are telling me something that I do not already know.

I’ve been following finance for decades.

American communities are under financed because of capital extraction to improve margins. It’s a mathematical fact which carries far more weight than your hand wavy generalizations.

The extraction has decimated US communities, empowered slave labor across the globe, and entrenched power in hedge funds.

Do the actual research instead of parroting cable news sound bites.

The same pattern happened when manufacturing was pulled from cities to rural areas 100 years ago. This time the capital was pulled from rural areas and sent overseas simply to improve profit. We can decimate the planet on any continent. We do it in Asia to externalize real costs and boost financial margins.

You’re talking in a pure emotional abstract.

> "I’ve been following finance for decades."

But apparently not HN community. Your user was created 1d ago. :P

Building rep with you all is not a priority of mine

I’ve got positions in stocks that go back to the 90s, AAPL @ $5/share, etc.

I’m doing fine in real world terms. Rep in a database that can be shutdown whenever is not something to protect

Ok. Loook . If you have something constructive to share, then share it and everyone will benefit and discuss the merits of your opinions and facts.

.. What the point of being a poser? Applesauce for 5$ — don’t mean a hhhhill of beans to me.

Please don't post flamewar comments like this and particularly don't cross into making personal swipes.

https://news.ycombinator.com/newsguidelines.html

A serious outsider question - are shorts an essential part of capital markets? Or do they at least provide some valuable service to the markets?

They aren’t essential, but they are actually useful. There have been some experiments with banning shorts, but they lead to larger spreads on longs because market participants have to hedge by going risk-off on longs instead of shorting affirmatively. Shorts can create moments of volatility, but they improve overall trading liquidity and reduce frictional cost of capital.

Yes. A short is a way to tell the market you are wrong about value, and by doing so push the value down to more reasonable levels.

Of course they are. If you believe a stock is undervalued, you buy it. If I believe the same stock is overvalued, I sell it. That's how price discovery happens. If only people who already hold the stock are allowed to sell it, then price discovery is impeded.

> Right now it appears that the public wants to be able to trade on their terms because there is this narrative that the little guy is finally sticking it to the big bad hedge funds. In reality there is probably very little truth to this.

The fact that buying was limited yesterday is evidence that the little guy is actually winning here.

Trading was stopped to save the hedge funds, because if they go under or lose too much, the clearinghouse has to front that. If the clearinghouse goes under the whole market will crash.

I cannot stress this strongly enough -- the fact that buying was limited yesterday is not evidence that the little guy is actually winning.

As has been explained in multiple other places, the limitations were as a result of Robinhood et. al. being unable to cover the risks involved in providing instant trading capabilities for a stock as volatile as the ones that got restricted. That has nothing to do with "the little guy is winning" whatsoever, and in fact may indicate that "the little guy" is about to lose his shirt, due to lack of predictability.

Trading was not stopped "to save the hedge funds". This is an outright lie that needs to be squashed. Stop saying this. I don't mean to be rude, but the narrative you're spreading is actively dangerous and not supported by any of the facts we have available to us.

Some variation of "If you owe a bank thousands, you have a problem, but if you owe a bank millions, the bank has a problem" probably applies here.

If crazy retail investors can bankrupt Robinhood or other over-leveraged brokerage firms, that's also a win for the little guys.

I don't think many HN posters with their stable, extremely well-paid technology careers can truly empathize with the strain of aggressive nihilism on display at WSB.

"I'm only gambling with my future, so nothing to lose."

Here's the thing, though - and please correct me if I'm wrong: it's not just Robin Hood. Many other trading apps blocked GME buys yesterday and today, and some of them are blaming this on banks and brokerages upstream of the apps.

That to me looks like the clearing houses themselves are worried, which means the whole thing poses a risk (even if easily mitigated) to the greater market.

What you're saying may be true. But then I don't know why Robinhood wouldn't say that in their first statement addressing why they disabled buying [1].

[1]: https://blog.robinhood.com/news/2021/1/28/keeping-customers-...

They’re poor communicators, or thought saying nothing would be better than saying they’d run out of money to cover counterparty risk.

> limitations were as a result of Robinhood et. al. being unable to cover the risks involved in providing instant trading capabilities for a stock as volatile as the ones that got restricted.

Yes RH had to cover more, because the clearinghouse was also starting to be stretched by the risk from the violatility. If the hedge funds go down, the clearinghouse wouldn't have been able to front their cash, and they would've gone down as well.

You're also missing the point that the clearinghouse firms didn't just ask for more money from brokers. In many cases they told brokers to step selling these securities.

There's increased risk on both sides, but the long side is at least finite (and probably there's not much margin). The short side is not. The unknown risk the clearinghouse needs to worry about is the short (hedge fund) side.

> short (hedge fund) side.

The claim that "the hedge funds" operate in unison and/or are all short is probably the largest misconception about this whole situation. Very "us vs. them" and also very wrong.

If you broaden your understanding of WSB's definition of winning beyond "making a profit" or "maintaining value" to "taking a loss but having an entertaining ride along the way" then they're winning and have no way to "lose." Now the SEC or Professional Capitalists making easy money may not want WSB to turn corners of the market into a volatile form of entertainment but it's completely legal AFAIK and illustrates the disparity between what is claimed about the stock market by the wealthy and powerful and what the stock market actually is. If a Wall Street clique-member replaced WSB and behaved the same way it would be fine, at least from a hyperventilating "we have to think of the children/retail investors" standpoint.

Your "facts" are basically corporate PR statements from corporations that have a huge entrenched reason to distort the truth and have changed stories multiple times. I'd say your eagerness to accept RH's version of the truth as 100% credible is far more actively dangerous than what you responded to.

Then the clearinghouse should fail, rather than the private actors saved.

Once one accepts that "socialized risk and private profits" isn't acceptable, then one must also accept that either we must allow even the too big to fail actors to fail, or we must not accept any actor to be too big to fail at all.

If public money is used to rescue a bank or clearinghouse, then the public should own it. A government institution can buy any failing bank/clearing house/ if it's so vital, and then the public owns it. Buying a commercial bank or clearing house at cents for the dollar and then selling it again in better times isn't necessarily a bad idea. It's certainly a better idea in terms of moral hazard than simply "bailing out" banks without ownership.

There was no bailout here of the clearinghouses, and in fact your line of argumentation supports them. If you want institutions to be able to avoid getting liquidated for cents on the dollar or bailed out by the government, you need to also allow them to defend themselves in times of trouble. The clearinghouses are doing just that by forcing brokerages to get higher reserves.

This is not David vs Goliath. This is Goliath vs Goliath. A reddit mob armed with Macbook Pros and iPhone 11s does not equal 'the little guy.'

Interesting that you assign expensive Mac products to WSB members. The most that can be said is that they likely have a mobile phone of some time.

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