Bloomberg: How WallStreetBets Pushed GameStop Shares to the Moon

[techboy]

5 minutes ago, stevemcqueen1 said:

  I read this post on Reddit and think some of the points the poster made are worth keeping in mind:

 

I think that's spot on. This situation has all the hallmarks of a classic "pump and dump". Pump and dump is illegal because it usually involves fraud, and this situation is more murky since I'm not sure if anyone is actually lying so much as exploiting euphoria and a "stick it to the man" attitude, but I think in the long run it isn't "the man" that's going to be left holding the bag, and not necessarily because of any rigged legal systems or whatever.

 

That's also the somewhat benign explanation for why several brokerage houses froze new purchases (but not sales) of GME yesterday. They may well have been afraid that people buying in on the euphoria were going to lose their shirts trading things they didn't really understand, and there would be lawsuits under the (weak but existent) consumer protection laws around fiduciary responsibility. Still allowing sales prevents people from complaining they can't get their money out when they need it.

 

That was probably not the only reason, and Robinhood seems to have also had some pretty shady other motivations, but Robinhood was not the only platform that enacted restrictions, and I can see other reasons why beyond the shady.

[Llevron]

9 minutes ago, Barry.Randolphe said:

halted the stocks again....jesus christ

 

They know they have an on and off button now. Of course they are going to use it to their advantage 

[GoCommiesGo]

1 minute ago, Llevron said:

 

They know they have an on and off button now. Of course they are going to use it to their advantage 

There was an interesting post on Reddit that the theory behind the pause is a liquidity issue more than just a stop point for halting buying.  
 

The stop point is trying to counter massive liquidity issues in the entire market. I’m not sure I buy it, but the theory is not completely without merit. At some point liquidity will come into play for the short sellers, think Duke and Duke from Trading Places. 

[Going Commando]

1 minute ago, techboy said:

That was probably not the only reason, and Robinhood seems to have also had some pretty shady other motivations, but Robinhood was not the only platform that enacted restrictions, and I can see other reasons why beyond the shady.

 

Thanks for explaining that, and for also giving broader context to what's going on in your previous post.  Because to a neophyte and outside observer like me, halting the buying felt inexplicably corrupt.  It was demoralizing.  It's a bit of a relief to hear that there are legitimate pro-consumer reasons for what happened yesterday.

 

But it's also depressing to learn that the true losers of this fiasco could be middle class pension funds.

 

Do you think one of the reforms that could come about as a result of the scrutiny this squeeze will receive is that hedge funds will have to mitigate their risk way more?  And could you also see popular online investment advice communities like WSB being required to maintain some sort of fiduciary duty to their users, or is there just no way that could ever realistically happen?

[Going Commando]

15 minutes ago, techboy said:

This situation has all the hallmarks of a classic "pump and dump". Pump and dump is illegal because it usually involves fraud, and this situation is more murky since I'm not sure if anyone is actually lying so much as exploiting euphoria and a "stick it to the man" attitude, but I think in the long run it isn't "the man" that's going to be left holding the bag, and not necessarily because of any rigged legal systems or whatever.

 

Also wanted to ask you, if it's true that this bubble is a pump and dump utilizing an innovative type of fraud (and I think you are probably right that it is), then how do you go about protecting people from this?  We don't even know who is making the investment advice and we don't even know who is reading what.  The advice is packaged as jokes and political statements.

[Llevron]

3 minutes ago, stevemcqueen1 said:

 

Also wanted to ask you, if it's true that this bubble is a pump and dump utilizing an innovative type of fraud (and I think you are probably right that it is), then how do you go about protecting people from this?  We don't even know who is making the investment advice and we don't even know who is reading what.  The advice is packaged as jokes and political statements.

 

We are probably going to have to set up some kind of government agency to openly monitor the internet for things like this. I mean think about how much advice packaged as jokes and political statements have hurt this country in just the last 5 years, and imagine how much it will if we dont regulate it. Donald Trump did this regularly, now that I think about it. He would say some wild outlandish **** and everyone would say its a joke to cover for him, and then he would try his best to bend the system and do it. You can argue it literally lead to the (continued) attacks on the capital. 

 

And I hate every word I just typed but I dont know how else you do it without relying on people to be smart. And I personally have no faith in that. 

[The Evil Genius]

A fool and his money are soon parted applies to both gambling and investing. I feel no sympathy for either.

 

Also, **** wall street and bravo to all the reddirors who made bank on driving the Gamestop stock through the roof. As ****ty as their stores have devolved into, they still provide competition to other videogame sellers. 

Edited January 29, 2021 by The Evil Genius

[DCSaints_fan]

32 minutes ago, techboy said:

 

I think that's spot on. This situation has all the hallmarks of a classic "pump and dump". Pump and dump is illegal because it usually involves fraud, and this situation is more murky since I'm not sure if anyone is actually lying so much as exploiting euphoria and a "stick it to the man" attitude, but I think in the long run it isn't "the man" that's going to be left holding the bag, and not necessarily because of any rigged legal systems or whatever.

 

That's also the somewhat benign explanation for why several brokerage houses froze new purchases (but not sales) of GME yesterday. They may well have been afraid that people buying in on the euphoria were going to lose their shirts trading things they didn't really understand, and there would be lawsuits under the (weak but existent) consumer protection laws around fiduciary responsibility. Still allowing sales prevents people from complaining they can't get their money out when they need it.

 

That was probably not the only reason, and Robinhood seems to have also had some pretty shady other motivations, but Robinhood was not the only platform that enacted restrictions, and I can see other reasons why beyond the shady.

 

What I don't understand is how youc an allow sales but not buys.  If there's a seller, there has to be a buyer in order for a trade to happen.

[GoCommiesGo]

5 minutes ago, stevemcqueen1 said:

 

Also wanted to ask you, if it's true that this bubble is a pump and dump utilizing an innovative type of fraud (and I think you are probably right that it is), then how do you go about protecting people from this?  We don't even know who is making the investment advice and we don't even know who is reading what.  The advice is packaged as jokes and political statements.

I think the issue of a pump dump would be hard to really litigate. Institutional investors have been betting against short sellers since short selling became a thing. The big issue is that people are doing it out loud and not in a board room. Institutional investors have been shorting stocks and providing reports and other methods to deflate stock prices down to the point of profitability. 

 

Participation in the market is an at will and endeavor, in the end you can't protect people from this. At some point people need to have the base line understanding of personal finance and how the market works (irrationally). As said above, picking individual stocks is playing roulette and unless you can get the mass of people to understand that you can't do anything. This is just my opinion, a more robust education in finance is required in school. I doubt that even becomes a thing on the table but it should be. 

 

Most people barely understand what an APR is or how compound interest works let along going long or short on a stock. You need to invest into the understanding, not try to remove the ability of people to participate. 

1 minute ago, DCSaints_fan said:

 

What I don't understand is how youc an allow sales but not buys.  If there's a seller, there has to be a buyer in order for a trade to happen.

Buys are not allowed to retail investors, the buys are being used to hedge the shorts already put in place. 

 

Don't think of it as a two way street for everyone, institutions have a bypass that runs both ways. 

[Llevron]

2 minutes ago, DCSaints_fan said:

 

What I don't understand is how youc an allow sales but not buys.  If there's a seller, there has to be a buyer in order for a trade to happen.

 

This was that I was trying to figure out. Who did I sell my shiz too when no one was allowed to buy it??

[Fergasun]

Hedge funds and other financial platforms could still buy.  Only some retail platforms turned off the ability to buy.  

[techboy]

24 minutes ago, stevemcqueen1 said:

Do you think one of the reforms that could come about as a result of the scrutiny this squeeze will receive is that hedge funds will have to mitigate their risk way more?  And could you also see popular online investment advice communities like WSB being required to maintain some sort of fiduciary duty to their users, or is there just no way that could ever realistically happen?

 

I'm not sure what if any new regulations/laws will come out of this... there are pretty powerful people that very much like our current system that privatizes gains and socializes losses. How much meaningful reform followed the 2008 financial crisis? Elizabeth Warren will have more clout now, though, so who knows?

 

One thing I could see happening is along the lines of what the post you quoted suggested... there are already legal provisions around what's called a "qualified investor", and certain things regular retail investors just aren't legally allowed to buy. I could see that being expanded to things like options trading, where people have to establish they're qualified/knowledgable (and can afford it). 

 

11 minutes ago, stevemcqueen1 said:

 

Also wanted to ask you, if it's true that this bubble is a pump and dump utilizing an innovative type of fraud (and I think you are probably right that it is), then how do you go about protecting people from this?  We don't even know who is making the investment advice and we don't even know who is reading what.  The advice is packaged as jokes and political statements.

 

I have no idea. Typically "pump and dump" is done with thinly traded penny stocks, and involves actual fraud, lying about underlying fundamentals or whatever. I'm not even sure this qualifies, since I haven't followed super closely, but it sounds like the people pushing this from the Reddit side are selling this as a short squeeze, which is absolutely legal and something that hedge funds do to each other all the time. The danger is that they're encouraging uneducated people to do it that don't understand the system, the method, or the consequences. That's probably unethical, but I'm guessing the legality is murky at best.

[bearrock]

Yeah, I don't know that this situation calls for a regulatory reform (other than prohibiting discriminatory access to the market, while also insulating brokers like Robinhood from risky investments gone bad).

 

Victims of ponzi schemes deserve protection.  People who lose their shirts in a highly risky and speculative investments do not.  No one should go into these cat and mouse investment without their eyes wide open.  There will be major winners and major losers.  But don't pretend like that wasn't obvious from the get go.

[GoCommiesGo]

10 minutes ago, techboy said:

One thing I could see happening is along the lines of what the post you quoted suggested... there are already legal provisions around what's called a "qualified investor", and certain things regular retail investors just aren't legally allowed to buy. I could see that being expanded to things like options trading, where people have to establish they're qualified/knowledgable (and can afford it). 

I was under the impression the requirements were simply income / cash based. Knowledge wasn't a requirement it was a more pay to play thing. 

[techboy]

1 minute ago, GoSkinsGo said:

I was under the impression the requirements were simply income / cash based. Knowledge wasn't a requirement it was a more pay to play thing. 

 

That's probably true in practice, but in theory firms have to ensure that qualified investors are knowledgable as well. 

 

https://www.upcounsel.com/qualified-investor

[Going Commando]

28 minutes ago, bearrock said:

Victims of ponzi schemes deserve protection.  People who lose their shirts in a highly risky and speculative investments do not.  No one should go into these cat and mouse investment without their eyes wide open.  There will be major winners and major losers.  But don't pretend like that wasn't obvious from the get go.

 

That's unsatisfying to me.  People should be protected from fraud and exploitation in the many forms that it takes.  Anyone can get swept up in something like this, and I'm exhausted by every single interaction with the economy that the average American has, from healthcare to housing to education to finance, being so predatory.  This is just no way to live.

[tshile]

1 hour ago, Mooka said:

 

And millions of people right now are learning about how the stock market works; shorting/buying stocks, etc. 

i think this is an overly optimistic view

 

the vast majority of these people, I would guess, have no idea what they’re doing and are just trying to ride a wave

 

the same is going on with crypto. 

[techboy]

32 minutes ago, bearrock said:

Yeah, I don't know that this situation calls for a regulatory reform (other than prohibiting discriminatory access to the market, while also insulating brokers like Robinhood from risky investments gone bad).

 

Victims of ponzi schemes deserve protection.  People who lose their shirts in a highly risky and speculative investments do not.  No one should go into these cat and mouse investment without their eyes wide open.  There will be major winners and major losers.  But don't pretend like that wasn't obvious from the get go.

 

I'm torn on this. 

 

On the one hand, I absolutely agree that people should be allowed to risk their own money in order to achieve a reward. That's a basic freedom, particularly in a capitalist democracy.

 

On the other hand, we have things like seat belt laws for a reason. We impinge on the freedom of individuals, but it's because otherwise people would hurt themselves, and if you want to be purely calculating, when they hurt themselves they end up using our society's resources as well. This is true unless you want to descend into a purely libertarian hellscape where people that make a bad decision are allowed to suffer and die with no support. I'm not willing to go that far.

 

I think I might support a law similar to the qualified investor provision we have now in other areas, requiring people to "prove" that they are knowledgable and financially able to trade. Probably for options, and maybe even for purchasing/selling individual stocks. The masses can buy index funds.

 

In practice, this would probably mean people could just sign a disclosure agreeing that they know the risks, but that might give some people pause enough to think about what they're doing.

 

I don't know... it's complicated. 

[tshile]

40 minutes ago, bearrock said:

Victims of ponzi schemes deserve protection.  People who lose their shirts in a highly risky and speculative investments do not.  No one should go into these cat and mouse investment without their eyes wide open.  There will be major winners and major losers.  But don't pretend like that wasn't obvious from the get go.

The problem is what @techboyhighlighted earlier. 
 

the hedge funds and the people that make the decision to short GMe the way they did, will likely come out fine one way or the other. 
 

the teachers, police, etc that have their retirements being invested by them won’t

 

you can say the people running those unions should know better

 

but there’s a real issue of a 40 year old teacher/cop getting screwed over for simply exercising their only real retirement option. 
 

I don’t know what the answer is.  But I think techboy hit on the fact that it’s a little more complicated than “lol screw the hedge funds!”

5 minutes ago, techboy said:

 

I think I might support a law similar to the qualified investor provision we have now in other areas, requiring people to "prove" that they are knowledgable and financially able to trade. Probably for options, and maybe even for purchasing/selling individual stocks. The masses can buy index funds.

 

Why couldn’t feduciary laws cover this?

 

why can we not reduce overly risky practices from being barred with certain types of money?

 

It seems like a simple concept to me. If you’re acting on behalf of others assets then what those assets are should matter. A rich persons slush fund? Fine. Public workers pension? Absolutely not. 

[Fergasun]

1)  The reason GME was targeted is because "market participants" cheated by creating naked shorts from stocks that don't exist.  This is probably illegal.  They didn't have the stocks to borrow.  That is the only explanation for the price move.

 

2)  It's clear the market is broken and hedge funds aren't doing true analysis, because how come no other hedge funds jumped into this trade.  They aren't willing to screw each other.

 

3)  There are rumors of a liquidity event at clearninghouses.  I find that really hard to believe... but it could be possible that $200B in hedge fund losses do what Lehman did?  ie... triggered a series of cascading events?  Seems unlikely... but who knows. 

[Mooka]

7 minutes ago, tshile said:

i think this is an overly optimistic view

 

the vast majority of these people, I would guess, have no idea what they’re doing and are just trying to ride a wave

 

the same is going on with crypto. 

 

Yea probably. 

 

I'm just thinking that when these people learn the dangers of day trading, the people following along will see that too. 

 

But seriously, there are 16 year olds playing Call of Duty or whatever game right now, and they're reading/watching videos on the economy/stock market. That's gotta bleed into something. Some of those kids are about to major in business/economics? Hell, start their own investment firm even. (not really, but something other then playing Call of Duty)

[Destino]

this is Drudge Report right now.  We all saw this coming right?

 

[bearrock]

16 minutes ago, tshile said:

I don’t know what the answer is.  But I think techboy hit on the fact that it’s a little more complicated than “lol screw the hedge funds!”

 

I agree with you, @techboy, and @stevemcqueen1 that the problem is complicated and there is probably a nuanced appropriate balance somewhere.

 

I did want to clarify that my post wasn't lol screw the hedge funds (most hedge funds are perfectly capable of and will hedge their bets and won't go belly up just because one of their shorts caught the wave of a nihilistic internet movement.  If they didn't, yikes.  That fund probably has way bigger fundamental flaws to begin with). 

 

My point is more for people who say yolo and bet their life savings on being able to catch the crest of the wave rather than when it crashes.  Playing a little lol game with money you can live without?  Whatever floats your boat.  Sinking a big chunk of money you can't do without on this?  I'm not sure how much time society needs to spend coming up with a system to protect them from themselves.  If you came out winners, congrats.  If you lose all your bet, it's the same as rolling the dice at Vegas.  

[tshile]

1 minute ago, Destino said:

this is Drudge Report right now.  We all saw this coming right?

I’ve been talking about it through the thread. 
 

doge coin is a joke coin

 

the crypto markets are insane to follow.  
 

my buddy rode that wave last night. Turned 1k in to several k. Just by watching people pump a joke coin. 

[ClaytoAli]

Getting boxed out by Cash app right now, GME isn’t listed and can’t place a buy order for AMC.