Gamestop?

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suomalainen
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Re: Gamestop?

Post by suomalainen »

My point re: hedge fund structure is that hedge fund investors are not "doing" anything. They give money to the GP and that's the end of their doing. Only the GP is doing the investing, regardless of whether its LPs like it or not. The only recourse for an LP who dislikes the investments a GP has made is to withdraw, with such withdrawal generally limited by lock-ups and gates.

RE: whether reddit is illegal, see https://www.bloomberg.com/opinion/artic ... stop-rally
But is it securities fraud?

If a lot of people on Reddit band together to drive the price of a stock higher, is that illegal? I have been asked that question a lot recently, and I want to be clear that:

[Moderator: Deleted crossposting/lengthy quote. See link above for the full text.]

On the other hand it is all pretty dumb? Like if you are a securities regulator, you can think of your job narrowly as preventing people from lying about stocks, or more broadly as encouraging capital formation and fostering confidence in markets and moving markets toward efficiency and perfection. And, you know, this is the opposite of that. A popular conclusion from the GameStop story is “well I guess the stock market is nonsense now,” and I’m not sure that conclusion is wrong. Seems like the sort of thing the SEC wouldn’t like. But what can they do about it?
edit: sorry - didn't realize how long it was
Last edited by suomalainen on Mon Feb 01, 2021 9:50 am, edited 1 time in total.

Lucky C
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Re: Gamestop?

Post by Lucky C »

I was lucky to have a decent amount of SLV in my portfolio before all this craziness, and am on the fence on whether to sell or not. On the one hand, let the trend ride, but on the other hand this isn't a normal trend and is more likely a short term overreaction. I didn't have a lot of confidence when initially buying SLV since the trend wasn't all that clear, and Burry has a negative view, so I'm leaning toward selling (maybe half today).
https://twitter.com/michaeljburry/statu ... 2759789568

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C40
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Re: Gamestop?

Post by C40 »

I think this new SLV interest is going to end very quickly.

I sold a couple GME shares at $318, which covers all my principle

Redo
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Re: Gamestop?

Post by Redo »

@white belt
Yes, the market cap is the biggest problem. Retail can't move a 1.4T market.
Also, the point made by Michael Burry. "A corner in the silver market has been tried before - and let's be clear, that is what is being attempted now. In 1980, a rule change by the government destroyed the corner. #silverthursday."
There's also the fact that new accounts on Reddit are being created to pump this. Why would these new accounts pump SLV? Because Citadel is long SLV. This is how they are trying to cover their losses.
The only argument for silver is there's a lot less physical silver than paper. From what I've seen, a lot of these physical stores are not taking any more orders. Do you expect retail investors to buy physical silver? You also have to pay a premium to buy physical silver. It's just not as convenient as buying GME.
Also, the media is pushing SLV, not physical silver.
Even if you assume that retail investors buy physical silver, what do you expect will happen? Won't Citadel just sell their SLV holdings? Isn't this a classic pump and dump?
If you're not buying physical silver, don't bother, unless you're just playing momentum. But don't expect a short squeeze. Buy physical silver to hedge against inflation, that's it.

Campitor
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Re: Gamestop?

Post by Campitor »

I listened to the Grant Williams podcast recommended by White Belt: https://www.grant-williams.com/podcast/ ... c-cohodes/

He had 2 successful and experienced short sellers (his words) on the show: Marc Cohodes and Bill Fleckenstein. In summary they explained the important and necessary services short sellers provide; they basically keep the plumbing in the market running as mentioned in this thread. They emphatically lay the problems in the market, including this GME situation, at the feet of the SEC. In their opinion the SEC slap-on-the-wrist punishments handed out for violations, the SEC attitude towards allowing over leverages, and the chumminess between the SEC and traders/hedge funds are the driving forces behind any stock market instability. A close 2nd in regards to blame is the Federal Reserve and their easy money printing attitude.

If the redditors continue to deliberately target short sellers, they will actually harm the market and probably invite SEC oversight that will only target retail investors with little oversight or controls for professional traders. They both claim there's lot's of fraud and disinformation in the market and it wouldn't be hard to uncover if the SEC was more diligent in their investigations and oversight.

All 3 claim that the opacity of the market and its rules makes it difficult for non professionals to make informed market decisions.

It's an interesting podcast. More interesting is how Grant Williams, Marc Cohodes, and Bill Fleckenstein seem to be especially disgusted at the SEC's poor oversight. And they call CNBC the cartoon network since they only serve to provide market disinformation which helps Wall Street at the cost of Main Street.

white belt
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Re: Gamestop?

Post by white belt »

@Campitor

If you really want to go down a rabbit hole, check out the Endgame series of Grant Williams podcast where him and Bill Fleckenstein interview a variety of big names in finance on how they think the macro trends we’ve seen since the Greenspan Put might finally unwind.

Campitor
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Re: Gamestop?

Post by Campitor »

I looked into the Redditors' side to see why they are so enthused about trashing Wall street. This post I guess summarizes it the best: https://i.reddit.com/r/wallstreetbets/c ... omers_and/

The source of their anger is the 2008 crash and its impact on their lives; it appears they suffered through a great depression. Below is a snippet of the post.
To Melvin Capital: you stand for everything that I hated during that time. You're a firm who makes money off of exploiting a company and manipulating markets and media to your advantage. Your continued existence is a sharp reminder that the ones in charge of so much hardship during the '08 crisis were not punished. And your blatant disregard for the law, made obvious months ago through your (for the Melvin lawyers out there: alleged) illegal naked short selling and more recently your obscene market manipulation after hours shows that you haven't learned a single thing since '08. And why would you? Your ilk were bailed out and rewarded for terrible and illegal financial decisions that negatively changed the lives of millions. I bought shares a few days ago. I dumped my savings into GME, paid my rent for this month with my credit card, and dumped my rent money into more GME (which for the people here at WSB, I would not recommend). And I'm holding. This is personal for me, and millions of others. You can drop the price of GME after hours $120, I'm not going anywhere. You can pay for thousands of reddit bots, I'm holding. You can get every mainstream media outlet to demonize us, I don't care. I'm making this as painful as I can for you.

jacob
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Re: Gamestop?

Post by jacob »

The SEC budget for 2021 is <$2B. What do people expect is the result when regulatory budgets are cut? The people get the diligent oversight they're willing to pay for---and that is not very much.

IlliniDave
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Re: Gamestop?

Post by IlliniDave »

suomalainen wrote:
Mon Feb 01, 2021 9:28 am
My point re: hedge fund structure is that hedge fund investors are not "doing" anything.
What they are doing is turning over their money to be managed collectively as a larger, more influential pool of assets, which is then put to use doing things that aren't universally perceived as cricket (irrespective of SEC action or lack of action).

Campitor
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Re: Gamestop?

Post by Campitor »

jacob wrote:
Mon Feb 01, 2021 1:02 pm
The SEC budget for 2021 is <$2B. What do people expect is the result when regulatory budgets are cut? The people get the diligent oversight they're willing to pay for---and that is not very much.
Such a small budget for a critical oversight agency smacks of an intentional desire to throttle oversight. It's not like the SEC hasn't spoken frequently about its inadequate budget and its impact on investigations; they once proposed having their budget funded by the fees they collect which is greater than their budget. In light of how money seems to magically appear when a pet project is wanted by congress or the president, there's no excuse beyond intentional throttling for the SEC to be underfunded. Neither party has been bashful about ballooning the deficit or spending.

suomalainen
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Re: Gamestop?

Post by suomalainen »

IlliniDave wrote:
Mon Feb 01, 2021 1:02 pm
What they are doing is turning over their money to be managed collectively as a larger, more influential pool of assets, which is then put to use doing things that aren't universally perceived as cricket (irrespective of SEC action or lack of action).
Sorry to be technical at you Dave, but that isn't considered collective action under the law.

suomalainen
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Re: Gamestop?

Post by suomalainen »

Campitor wrote:
Mon Feb 01, 2021 1:29 pm
Such a small budget for a critical oversight agency smacks of an intentional desire to throttle oversight.
All hail the GOP.

chenda
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Re: Gamestop?

Post by chenda »

jacob wrote:
Mon Feb 01, 2021 1:02 pm
The people get the diligent oversight they're willing to pay for---and that is not very much.
I don't think the people have much say or normally make much consideration of regulatory oversight. It's certainly not hard to have some sympathy with the sentiments expressed by the Reddit poster @capitor linked to.

Campitor
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Re: Gamestop?

Post by Campitor »

suomalainen wrote:
Mon Feb 01, 2021 1:44 pm
All hail the GOP.
If you look at the SEC budget history (https://www.sec.gov/foia/docs/budgetact.htm), the subpar budget seems to have been a bipartisan effort despite the increases in budget under both parties.

Chart of yearly party control by branch of government: https://en.wikipedia.org/wiki/Party_div ... Congresses.

Campitor
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Re: Gamestop?

Post by Campitor »

suomalainen wrote:
Mon Feb 01, 2021 1:42 pm
Sorry to be technical at you Dave, but that isn't considered collective action under the law.
I think this falls under the aegis of "the wording of the law defeating the spirit of the law", i.e., 10k redditors manipulating the market by buying 1000 shares a piece versus hedge fund buying 10,000,000 shares. Both actions have the same effect despite one being collective versus a hedge fund that can purchase as many shares as 10k retail investors. To overlook the effect on both sides is somewhat selective.

Should supercomputers be barred from trades because they can easily simulate the activity of thousands of users acting in unison? The aforementioned is an argument being formulated by lawyers who may want to defend the reddit users that may be charged with collusion. I don't envy the SEC right now.

IlliniDave
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Re: Gamestop?

Post by IlliniDave »

suomalainen wrote:
Mon Feb 01, 2021 1:42 pm
Sorry to be technical at you Dave, but that isn't considered collective action under the law.
Okay, technical is fine, that's sort of what I was after. I didn't realize you were addressing the question as a lawyer in this domain.

IlliniDave
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Re: Gamestop?

Post by IlliniDave »

Campitor wrote:
Mon Feb 01, 2021 2:12 pm
If you look at the SEC budget history (https://www.sec.gov/foia/docs/budgetact.htm), the subpar budget seems to have been a bipartisan effort despite the increases in budget under both parties.

Chart of yearly party control by branch of government: https://en.wikipedia.org/wiki/Party_div ... Congresses.
Yep. I don't think the taken-for-granted assumption that the red team is more deeply in bed with Wall Street than the blue team has much merit.

suomalainen
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Re: Gamestop?

Post by suomalainen »

@campitor - I don't really understand the letter vs spirit of the law thing. A redditor and a hedge fund are both free to purchase or sell shares (provided they don't have a shitty broker - ha!). Neither have the freedom to "manipulate" the market. I'm not sure what "effect" you're referring to. I don't think anyone argues against the idea that the act of buying or selling by definition affects the market price or that bigger buys (and sells) have a correspondingly bigger affect on the market. If redditors wanted to start a "social justice fund" with the sole stated purpose of "fucking over short sellers", someone could certainly do that*. Then you have 10,000 redditors give their money to 1 guy and that 1 guy gets to make all the decisions with ZERO accountability to the redditors (other than fraud and similar laws). That's how these things work. It's all perfectly legal.

@ID - yeah, think of it this way: if you and a million people own shares of IBM stock, no one thinks that "a million people decided to get together and fund the such-and-such product launch" even though you could squint and sort of draw a line from here to there. When you invest, you typically give up control over what the recipient does with "your" money (hint: no longer "yours"). Typically, your only recourse if you disagree with what is being done with "your" money is to sell out of such investment. Pretty sure that's how it works with the government too, amirite???**

@ ID and campitor - I don't know the details; I was just going by the talking points (red team is for "deregulation" and blue team is for "more regulation"). Whether supported by size of budgets or number of regs added/pruned or other metrics, I have no idea, but that's how those teams sell themselves to the public.

* ignoring for purposes of the thought experiment the technicalities and costs associated with starting up a fund that can accept retail (i.e., non-accredited-investor) money. Or, shit, just start a "go fund me" page that says "Give me all your money and I will buy and hold stocks in short targets in hopes of at least causing some hedge funds to lose some money before I lose all of yours."

** joke

IlliniDave
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Re: Gamestop?

Post by IlliniDave »

suomalainen wrote:
Mon Feb 01, 2021 5:02 pm
@ID - yeah, think of it this way: if you and a million people own shares of IBM stock, no one thinks that "a million people decided to get together and fund the such-and-such product launch" ...
You're losing me. We obviously are having communication problems with this. Try it this way. If someone pays a hit man to off his rival, has he taken no action? So if I'm a fat cat and I want to participate in the seedy side of wall street and so throw big $ into a hedge fund, am I really uninvolved (morally) with what happens from there? I've long been extremely mistrustful of hedge funds and don't side with them in this case. For a moment they got beat at their own game. Fortunately for fans of theirs they might have the law on their side, or at least the legal system.

jacob
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Re: Gamestop?

Post by jacob »

The morality is essentially between you and your gods, similar to how you may or may not feel morally liable for having parts of your index funds invested in weapons, oil companies, tobacco, or private prisons. However, legally and financially you're not. Even if such a company was to break the law, you would not go to prison. That's what limited liability means.

One might of course imagine a legal universe where shareholders were liable for their investments and could be e.g. sued for damages beyond their initial investment. E.g. you invest in a car company which makes a car that ends up killing a lot of people. Consequently, you'd lose not only your investment but also your house and you get sent to prison for being one of the shareholders in that company. I'd imagine investors would do a lot more due diligence if that was actually the case.

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