Gamestop?

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Ego
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Re: Gamestop?

Post by Ego »

white belt wrote:
Sat Jan 30, 2021 6:19 pm
...in the case of GME it was deepfuckingvalue, who has since been identified as a former financial advisor).
Actually I believe someone else suggested the idea four months ago.
https://www.reddit.com/r/wallstreetbets ... e_century/

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Mister Imperceptible
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Re: Gamestop?

Post by Mister Imperceptible »

I have no envy of people who took honorable risks. That DFV guy that has made eight figures, he took a risk, and if he lost it all, he could not socialize and impose the losses on everyone else.

Freezing the markets so you can get on the right side of the trade while the retail peon gambling his blood money gets force liquidated is not honorable risk taking. I cannot call the Federal Reserve or the market makers and brokerages to halt trading and bail me out of when trade goes wrong. I cannot take so much borrowed money and put it in to a leveraged short such that when it goes wrong it threatens to collapse the entire system.

They built a tottering jenga tower and now they want to blame it on a strong gust of wind.

white belt
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Re: Gamestop?

Post by white belt »

@Ego

Well DFV/RoaringKitty/Keith Gill originally bought his GME YOLO position back in June 2019 as a value play because he felt the stock was undervalued and that that the company would turn around. He's technically not a leader of the WSB community and only posts pictures of his portfolio performance on Reddit. However, he has achieved legendary status within WSB because he hasn't sold any of his GME even as his portfolio has increased in value from 5 figures to 8 figures. I'm not sure who first suggested the short squeeze dynamics so you might be right.

I really like the idea of the SLV squeeze because I already allocate 20% of my portfolio to precious metals, so even if it doesn't happen I can just buy and hold over the long term. I still think gold and silver are weirdly underpriced given the fiat currency debasement that is almost certain to happen due to macro dynamics over the next decade. Also I think SLV is easier for the common man to wrap his head around since precious metals have value in typical society compared to an overpriced company like GME.

suomalainen
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Re: Gamestop?

Post by suomalainen »

@whitebelt - he's sold $14MM worth of GME (mostly options), last I checked.

suomalainen
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Re: Gamestop?

Post by suomalainen »

@MI - If you are referring to margin calls, that seems like a straightforward contractual arrangement, nothing nefarious there. If you're referring to the trading limits at certain brokerages, that can be explained by a straightforward application of existing rules, nothing nefarious there either, even if the rollout looks bad and/or was poorly thought out / implemented / explained. Note that not all brokerages instituted trading limits. If you're referring to systemic risk of "too big to fail", that has been debated endlessly, and although there are many valid criticisms of the current system, what replacement would you suggest? As to this last one, be specific. (Also note that although a large institution (and its equity holders) might hope for a government bailout if SHTF, any given institution would be foolish to have that as its Plan B since a bailout might not come, or the terms might not be acceptable. See, e.g., Lehman and Fannie/Freddie).

I dunno, I hear the frustration in comments on these boards and elsewhere, but the narrative built around it just doesn't hold up.

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Mister Imperceptible
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Re: Gamestop?

Post by Mister Imperceptible »

The exchanges allowed sales of the stock but not purchases. That is utterly absurd. Of course that causes the price to drop and for margin calls to be hit. Unlike Melvin Capital, the retail traders do not get a bail out when their margin calls arrive. They get force liquidated.

As for replacing the system, I think that is not the right question to be asking. The real question should be, if the current system has created a legion of people now willing to kamikaze themselves to break the system, how am I going to position myself if I think being short volatility is untenable?

suomalainen
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Re: Gamestop?

Post by suomalainen »

Mister Imperceptible wrote:
Sat Jan 30, 2021 7:51 pm
The exchanges allowed sales of the stock but not purchases. That is utterly absurd.
Couldn't agree more. But it wasn't exchanges, it was certain (and only certain) brokers.
Unlike Melvin Capital, the retail traders do not get a bail out when their margin calls arrive. They get force liquidated.
You're mixing entities. Melvin Capital had to get bailed out BECAUSE its risk-taking got out of hand. I don't know the exact mechanics of their trade, but I suspect their broker called for more collateral and/or closed out their positions, requiring the infusion of capital by third parties. On the retail side, this also occurs, but what it looks like is asking mom and dad for a bail out.

As to your last question, I'm not smart enough to think about that let alone answer it. If you're able to make money in $GME or otherwise, good luck!

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Seppia
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Re: Gamestop?

Post by Seppia »

suomalainen wrote:
Sat Jan 30, 2021 7:58 pm
Couldn't agree more. But it wasn't exchanges, it was certain (and only certain) brokers.
Brokers who promise “free trades” and that value user growth above everything else because they have to IPO.
Brokers who make money selling the order flow to the very same people the wsb are supposedly trying to “stick it” to.
I could buy and sell GME through my HSBC account if I wanted.

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Mister Imperceptible
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Re: Gamestop?

Post by Mister Imperceptible »

I think that misses the point because at this point all brokers have fee free trading but most GME buyers are on RH and so the broker freeze was targeted. HSBC members are not going long GME to break the system.

We will see if the WSB crowd moves to other brokers, and then, if they do, if all the brokers in kind continue their market rigging in concert.

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Re: Gamestop?

Post by jacob »

Mister Imperceptible wrote:
Sat Jan 30, 2021 7:51 pm
The exchanges allowed sales of the stock but not purchases. That is utterly absurd.
In fact, it's utterly normal practice.

Insofar you're trading on margin (e.g. because your cash deposit has not settled yet), positions will have a "margin to open" and a "margin to maintain". For a professional account (like what the broker is maintaining with their counterpart) this may be something like 10% and 5% respectively, perhaps lower. E.g. to put a $100 position on, they need to commit $10 of the settled cash position they have with their counter part or regulatory organ. However, should that $100 position fall to ($100-$10)/(1-0.05)=$94.73, they'll get a "call to maintain" and have to immediately (within 5 to 10 mins) either exit the position to reduce exposure or wire in more money.

If margin requirements suddenly go up because of volatility or volatility goes up on its own, there can be a lot of margin calls.

That absolute easiest way to deal with this on a mass scale (as opposed to calling customers directly or sending them a literal telegram delivered by courier for $50) is to change a few lines of code/hit a switch and prevent people from putting on more risk position. Hence, strike all buys on that platform. In a way that is way more benign albeit crude than what would happen to a hedge fund even if they would get the courtesy of a phone call.

An active trader really should be smart enough to have multiple redundancy both in terms of brokers, settled cash, and cable/phone lines.

So yeah, what happened was perfectly normal. It's not "market manipulation" when one or more brokers get out or prevent their customers from getting in. https://en.wikipedia.org/wiki/Market_manipulation has a good list of them. In practice, with markets, this stuff usually runs "after the fact" because everything is always new in an adaptive system. It may be in retrospect that retail brokers shutting off access when a social media herd being almost the exclusive driver of a stock price might be deemed manipulation ... however, it could also be that the onus falls on those who are trading it up or the social platforms where the discussion is happening.

Back when I signed up for my first retail broker account I received a 30 page letter-sized folder with terms and conditions having to sign to the effect that I had read and understood it. I worry that many of these traders just hit the "OK" button on "ready player one?" after they downloaded an app and put in a credit card number or whatever. There's actually a lot of trader behavior that is illegal even as someone who hasn't read the SEC rulings might think they just found some "clever" way to make money.

Calls about "market manipulation" is a bit like reading the naive complaints/understanding of how the banking system worked when NIRP was introduced at the client level with people believing that banks literally held your savings in their vault or lend them out to other clients for the carry. What goes on under "the hood" is rather more complicated than that.

Seppia's twitter link was good.

Loner
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Re: Gamestop?

Post by Loner »

I'm clueless about the market mechanics, and I'm sure all the technical info that everyone has posted here is true. Nonetheless, RH CEO's interview on CNN was less than solidly convincing on that front, to say the least. If the one and only factor pushing him to block trading had been a mere, arcane technicality by which all platforms are limited, I believe he would have been more comfortable saying so clearly over and over, and engaging the interviewer instead of avoiding his questions. In the interview, he was avoidant and sounded like he'd been solidly briefed by the PR machine on what to say, and most importantly, what not to say. I do not necessarily believe anything wrong has been done, but I thing there's a reasonable case for believing it might be so. We'll see.

white belt
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Re: Gamestop?

Post by white belt »

It is absolutely the case that most traders on RH do not read any sort of user agreements and do not understand the underlying mechanisms at play, as Jacob pointed out. I really think most people think of it like a casino where they walk in and throw their money on the table to bet that GME is going to go up. I actually think RH didn’t do anything wrong from a legal standpoint and they were in survival mode for all the reasons we’ve talked about.

However, I also think this is a huge black eye on RH and their business model as a whole. I mean this is kind of the unintended consequence of democratizing and gamefying trading for the masses. It seems the underlying systems can’t handle the traffic of the masses bidding on popular stocks, especially in the backdrop of an exceedingly volatile environment that is at least partially caused by the enormous passive forces that need to buy or sell to rebalance their exposure when the stock is part of an index (which is what we saw with TSLA and to an extent GME since it’s part of the Russell 2000).

I also think it is likely that Citadel, Goldman et al have participated in all sorts of market manipulation, but so far we haven’t seen a smoking gun to prove that it occurred in this instance. That could change if more information comes out in the investigations. RH ran into liquidity problems, but what about places like Etrade who are larger and also blocked transactions? Is this going to just turn into a game of whack-a-mole with blocking whatever the hot meme trend is as the masses become more and more frustrated?

Maybe the issue is that RH is just too small and all the traders are about to migrate to Fidelity and Vanguard, who have the liquidity to better absorb such transactions. But I don’t see the economic conditions changing anytime soon so the stock market as casino trend is going to continue for a long time.

Edit: It will be interesting to see if the other traditional brokers revamp their app interfaces to steal some of the RH customers and profit from this trend.

white belt
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Re: Gamestop?

Post by white belt »

Here’s an article on Reuters recapping the week: https://www.reuters.com/article/BigStor ... SKBN2A00NI

I’ll pull out one interesting quote that highlights the narrative at play here:
Several hedge fund managers said the idea to short GameStop had long been a favorite at exclusive “idea dinners”, where fund managers swap their best trades.

Managers also noted traders, many of whom who work at multi-strategy funds that employ pods of portfolio managers, traders and analysts, often know each other well and may compare notes.Gabe Plotkin’s Melvin Capital, one of the funds gored most by GameStop’s gains, took a $2.75 billion bailout from his one-time mentor Steve Cohen and Citadel’s Ken Griffin.
So the mainstream audience is going to perceive those idea dinners and traders comparing notes as no different than what the WSB crowd is doing by sharing tips online. Just adding fuel to the narrative that this is Wall St hypocritically screwing over the little guy when he tries to play their same game. Whether the Wall St guys actually did anything illegal doesn’t matter as much as the perception for the masses.

Grant Williams was right in saying this whole episode is a spark near a pile of dry kindling because the masses are starting to wake up to the fact that they’ve been screwed over with an example that even Joe Sixpack can understand on the surface (regardless if the truth is more complex).

suomalainen
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Re: Gamestop?

Post by suomalainen »

hahaha. Cuomo in that interview was a total douchebag - petulant, combative and pursuing his own narrative rather than seeking truth and understanding. The CEO answered the question and then Cuomo says "and just one thing without getting in the weeds here... I know this stuff, but the audience doesn't need to." THE WEEDS ARE THE ENTIRE ANSWER TO THE QUESTION! I love it how everyone seems to think that Robinhood is in cahoots with other entities to benefit those other entities. First, there's no proof of that. There has been nothing but speculation based on a priori narratives. Second, there's no reason for them to do that. The employees and directors and owners of Robinhood have fiduciary duties to the firm and/or have their own personal capital tied up in the firm; why would they do something to benefit a third party without getting some direct benefit themselves? If there are kickbacks or whatnot, WHERE'S THE EVIDENCE?? Show me the receipts! In this instance, I have to agree with the Fake News Media narrative, jesus. Zero effort at understanding while slinging populist conspiracy theory allegations without a scintilla of evidence. What has happened to this country? And third, the very base of capitalism is every man looking out for his own interests. Instead, we have a whole generation that seems to think that "the good guys" are all rugged individualists trying to scrape two pennies together while "the bad guys" are all selflessly working for a socialist collective with "the good guys" as the target. Maybe, just maybe, retail investors are targeted because they're easy marks who don't understand the market to which they feel entitled?

That said, agree with the sentiments that the asymmetrical trading halt looks bad, such that people can start screaming "market manipulation" without understanding (or even feeling like they need to understand) the definition of "market manipulation" or to provide evidence of it. At base, RH was a victim of its own success. "Free trades" makes retail investors feel like they're entitled to free trades when trading costs money. All that infrastructure and regulatory costs have to be borne somewhere, somehow, creating these things that look like conflicts which ACTUALLY BENEFIT THE RETAIL TRADER, but nooooooooooooo, the retail trader is not only entitled to free trades, but he is ENTITLED to make money on his trades and if he doesn't, the system is rigged against him. TANSTAAFL.

This all reminds me of a part in a Dave Chappelle show where he talks about the "brittle spirit" of Americans these days.

edit: also remind me of this book that discusses, among other things, the growth of entitlement and resentment, and the decline of respect for hard work and education. Jesus, I am an old man now.

white belt
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Re: Gamestop?

Post by white belt »

suomalainen wrote:
Sun Jan 31, 2021 12:33 pm
And third, the very base of capitalism is every man looking out for his own interests. Instead, we have a whole generation that seems to think that "the good guys" are all rugged individualists trying to scrape two pennies together while "the bad guys" are all selflessly working for a socialist collective with "the good guys" as the target. Maybe, just maybe, retail investors are targeted because they're easy marks who don't understand the market to which they feel entitled?
You are absolutely right about capitalism. But let’s be honest, the US government has been paying lip service to true capitalism for 30+ years. Too big to fail and all that jazz.

Is this generation entitled? Probably. But this is what happens in societies with high wealth inequality combined with lower perceived standard of living than the previous generation. I’d like to think the US systems can adapt and weather the storm of something like this without the guillotine, but that remains to be seen.

suomalainen
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Re: Gamestop?

Post by suomalainen »

No doubt we don't live in a capitalistic society; it's a crony-capitalist society. BUT. Among the "winners" that have been selected by society (via structures/systems), there is fierce competition. There is not a chance in the world that Robinhood made decisions to fuck itself (by fucking its "customers" (or "product" if you prefer)) for the benefit of Goldman Sachs.

As to wealth inequality and the like, agree, we are facing big problems as a society. But let's not conflate that with Robinhood's dilemma of being poorly capitalized (in hindsight). Perhaps the one is a manifestation of the other, but if you focus too much on this ill-fitting manifestation, you'll miss the forest for the trees, and that's what I see happening here.

white belt
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Re: Gamestop?

Post by white belt »

I'm in agreement that I don't think RH would kneecap itself in such a way. However, they are reaping what they sowed by making the market appear like a casino or sports gambling platform through their entire business model in order to attract customers. Where are the videos and infographics to explain what actually happens when a user places a trade on RH? RH doesn't want to do that because they think that would intimidate customers and serve as a barrier.

suomalainen
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Re: Gamestop?

Post by suomalainen »

Agreed. And I would say buyer beware, but since RH's customers don't have to pay anything... they don't have to take responsibility either. What a world.

Campitor
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Re: Gamestop?

Post by Campitor »

If you don't like how Robinhood does business then you can open up your own... - sorry - couldn't help poking the bear.

In RobinHood's TOS you see this:

16. Restrictions on Trading.
I understand that Robinhood may, in its discretion, prohibit or restrict the trading of securities, or the
substitution of securities, in any of My Accounts.
I understand that Robinhood may execute all orders by
Me on any exchange or market, unless I specifically instruct Robinhood to the contrary. In the event of a
breach or default by Me under this Agreement, Robinhood shall have all rights and remedies available to
a secured creditor under all applicable laws and in addition to the rights and remedies provided herein. I
understand that Robinhood may at any time, at its sole discretion and without prior notice to Me: (i)
prohibit or restrict My access to the use of the App or the Website or related services and My ability to
trade, (ii) refuse to accept any of My transactions, (iii) refuse to execute any of My transactions, or (iv)
terminate My Account.
The closing of My Account will not affect the rights or obligations of either party
incurred prior to the date My Account is closed.
Further, Robinhood will not tolerate any foul or abusive language, physical violence, threatening behavior,
or other inappropriate conduct directed toward Robinhood, its Affiliates' officers, employees, contractors
or customers. If I engage in any such behavior, as determined by Robinhood in its sole discretion, I
agree that Robinhood is authorized to: (i) liquidate any securities, instruments or other property in My
Account, (ii) send Me the proceeds, and (iii) close My account. Robinhood will not be responsible for any
Losses caused by the liquidation of securities, instruments or other property pursuant to this paragraph,
including any tax liabilities.


So basically RobinHood at its sole determination and discretion can close an account for just about any reason. So if your success at security speculation costs RobinHood money, despite the fact you're using a particular medium (social media) that isn't normally used by Hedge Funds (Dinners/traditional media, private publications, etc.), you have no recourse.

So seeing how a bunch of internet users easily exploited a short squeeze why haven't private hedge funds done this to one another with any frequency? On the surface it wouldn't be a hard thing to do given their outsized access to market information. Perhaps hedge funds do their own collusion? It smacks of a "gentleman's agreement" a.k.a. smoke filled room backdealings.

Here's another short squeeze story from 2018: https://moxreports.com/vw-infinity-squeeze/. Porsche short-squeezed VW stock and profited. I wonder what was Wall Street's take on this?

Tidbits from the VW stock squeeze article:
As a result of its skillful financial engineering, Porsche netted itself more than $10 billion in profits in a matter of just a few short weeks. It was money that was badly needed by Porsche. Luxury car sales were plunging due to the crisis and Porsche was already saddled with significant debt.

Markets will always be full of surprises. But in 2008, the actions by Porsche should likely not have come as a complete surprise. In fiscal 2007 Porsche earned three times as much money from trading derivatives as it did from selling cars, and most of these derivatives were on shares of VW. Of Porsche’s €5.86 billion in pre-tax profits in 2007, €3.6 billion was from options trading, with only €1.05 billion from selling cars.
On a personal note, I was glad to see main street using information to increase their net worth even if it came at a cost to Wall Street. Perhaps, as Jacob mentioned earlier, there should be caps on short selling. Short selling, at least at my surface level of understanding, can bankrupt companies who may have survived absent any shorting activity. It's one thing to state a company will go bankrupt or decline in value and it's a completely different thing to profit off their bankruptcy or decline in value - it can create perverse incentives.

I'm sure the aforementioned activity comes with SEC interest and investigations but how many get slapped on the wrist versus criminally indicted? What went down with RH and GME is not a good optic despite the sound reason for RH shutting down any purchases of GME stock.
Last edited by Campitor on Sun Jan 31, 2021 2:46 pm, edited 1 time in total.

Campitor
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Re: Gamestop?

Post by Campitor »

suomalainen wrote:
Sun Jan 31, 2021 1:01 pm
As to wealth inequality and the like, agree, we are facing big problems as a society. But let's not conflate that with Robinhood's dilemma of being poorly capitalized (in hindsight). Perhaps the one is a manifestation of the other, but if you focus too much on this ill-fitting manifestation, you'll miss the forest for the trees, and that's what I see happening here.
Can you please elaborate on what is being missed. I'm genuinely curious to what you think is being overlooked.

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