Redditors vs Wall Street

[Free]

So much for don't be evil.

Google Removes 'Don't Be Evil' Clause From Its Code of Conduct

Google’s unofficial motto has long been the simple phrase “don’t be evil.” But that’s over, according to the code of conduct that Google distributes to its employees. The phrase was removed sometime in late April or early May, archives hosted by the Wayback Machine show.

gizmodo.com

Spring of 2018...

 

[bubblesort]

Robin Hood allows rich people to guy as much GME as they want, after a quick phone call to the account manager.

Plebes like you and me are limited to buying 5 shares, total. You can buy 5 shares once, then sell them, then buy them again, but you can never own more than 5 new shares of GME on Robin Hood.

 

[Innula Zenovka]

The pension fund that gets/takes my money (there is no free choice in NL) is one of the biggest in the world: ABP (the fund for people who work in public services in NL) and of course they spread capital. Only a percentage is at the stock market.
But government bonds don't bring enough or even nothing these days. Or you have to buy the ones from more risky countries like Italy and Greece. In countries like the NL, the treasury departments fills their money orders with offering negative interest.

This current Reddit trick will be used by every idiot with a few coins to spare if it turns out to be succesful in the end. So then we will have a few thousands of those Robin Hood Cowboys clubs very soon worldwide. And then all stocks will be at risk at the same time. That will make long term investors very nervous and when they decide to leave on masse to keep the money safe, that could result in a deep financial crisis IMHO.

Obviously I don't know how the NL public services' pension fund works, but I cannot imagine they're interested in high-risk, short-term, highly speculative derivatives trading.

This article from Investopedia describes how US pensions funds invest, but I can't imagine British or NL funds follow different strategies, and they're all highly regulated anyway, to protect people's savings.

Where Do Pension Funds Typically Invest?

Pension funds have moved beyond traditional investments in bonds and stocks. The new order includes private equity and other alternative asset classes.

www.investopedia.com

And I really can't see why long-term investors would be nervous about this sort of activity -- they're looking for stable, long-term, investments, not short-term, highly volatile, speculative ones.

 

[bubblesort]

This whole caper has revealed what most of us already knew, but was never talked about outloud in the media, that capitalism is a rigged game. And the House is the top 1%.

I've been seeing a lot of people comparing this to OWS, talking about the 1% and all that... and I was super active in OWS. I physically ran materials, intelligence, and contact information between a half dozen occupations across Pennsylvania. So I know what OWS was about, and at first, these comparisons annoyed me. These reddit traders aren't the every man. They are at least upper middle class to be able to afford to play the stock market casino like this, especially considering how aggressive their strategies are. They are so aggressive, only rich people could afford to play the stock market like them without going bankrupt. Also, I think most of the money in GME is actually from real 1%ers and their institutions, who watch /r/wallstreetbets for investing ideas, and ride the wave of useful idiots.

At the same time... I have to admit that, sadly, OWS wasn't actually a movement of the common people, either. This pains me to say, because we really did do everything we could to reach out to minorities. It just didn't work. No matter how much we tried to change, in the end, we were a very white, suburbanite movement. In our defense... how are you going to convince poor people to take a day off work at Wal Mart or McDonalds to camp out like homeless people over something as abstract as Glass-Stegal? You can't. Maybe get them fired up to increase the minimum wage? They're skeptical. The poor don't have time for this kind of thing. We were tilting at windmills.

So yeah, this is like OWS... warts and all.

 

[Veritable Quandry]

Shorts don't expire like that. You are thinking about options, which are a part of this, kinda on the sideline, but the shorts are the main attraction. The metrics reddit is using to decide when to pull the trigger are the % of shares shorted, and days to cover. Those have not budged yet, so the shorts are not squeezed.

If reddit pulls out now they are just taking money from each other, which is not that much fun. Redditor pockets are shallow. Hedge funds have much deeper pockets to rummage through. So they are waiting until the shorts squeeze and send the price through the roof, so reddit can empty their pockets. These hedge fund assholes are still holding their short positions, and doing everything in their power to not close out of their short positions, even as interest payments from volatility bleed them dry.

Personally, though, if I somehow got mixed up in this (which would never happen), I'd absolutely sell at least half the shares in a long position around $300. In any arrangement like this, the larger the conspiracy is, the more profitable it is to betray your fellow conspirators.

Depends on the contract. They can be open ended or for a set date. They generally require a maintenance fee. And they can usually be called in on short notice. But most people who are owed shares would be hesitant to call them in right niw knowing that it will lead to bankruptcy of the funds wiping out their debts.

The bigger point is that most of the gains and losses are still theoretical until people have to buy or sell to realize their position.

 

[Sid]

Obviously I don't know how the NL public services' pension fund works, but I cannot imagine they're interested in high-risk, short-term, highly speculative derivatives trading.

This article from Investopedia describes how US pensions funds invest, but I can't imagine British or NL funds follow different strategies, and they're all highly regulated anyway, to protect people's savings.

Where Do Pension Funds Typically Invest?

Pension funds have moved beyond traditional investments in bonds and stocks. The new order includes private equity and other alternative asset classes.

www.investopedia.com

And I really can't see why long-term investors would be nervous about this sort of activity -- they're looking for stable, long-term, investments, not short-term, highly volatile, speculative ones.

For the first time in many years I feel my English isn't good enough to discuss a matter properly.
To many English technical terms and idiom make it a bit to complicated for me, to transform my views in Dutch into English.
So I tip tiptoe out of this thread, into read only mode.
Interesting subject though.

 

[Dakota Tebaldi]

The reason that the Robinhood app is imposing these restrictions on trading isn't because they're trying to protect "wealthy Wall Streeters". I know the running narrative is that all of Wall Street is up in arms and scared/angry because a hedge fund trader lost a lot of money to this bubble; but in reality, this isn't the first time it's happened, and nobody else in Wall Street except hedge fund traders actually cares about or is affected by this.

The real problem is that a whole bunch of poor newbie investors are about to lose everything when this bubble pops, and Robinhood doesn't want to be liable for enabling that and having no protections in place.

 

[Free]

The reason that the Robinhood app is imposing these restrictions on trading isn't because they're trying to protect "wealthy Wall Streeters". I know the running narrative is that all of Wall Street is up in arms and scared/angry because a hedge fund trader lost a lot of money to this bubble; but in reality, this isn't the first time it's happened, and nobody else in Wall Street except hedge fund traders actually cares about or is affected by this.

The real problem is that a whole bunch of poor newbie investors are about to lose everything when this bubble pops, and Robinhood doesn't want to be liable for enabling that and having no protections in place.

That does sound like the excuse they'll use.

 

[bubblesort]

The reason that the Robinhood app is imposing these restrictions on trading isn't because they're trying to protect "wealthy Wall Streeters". I know the running narrative is that all of Wall Street is up in arms and scared/angry because a hedge fund trader lost a lot of money to this bubble; but in reality, this isn't the first time it's happened, and nobody else in Wall Street except hedge fund traders actually cares about or is affected by this.

The real problem is that a whole bunch of poor newbie investors are about to lose everything when this bubble pops, and Robinhood doesn't want to be liable for enabling that and having no protections in place.

I disagree. To understand what is happening, you need to understand how Robin Hood makes money.

They don't charge commission fees, because they make their money selling order flow from their customers to brokerages, who fulfill the orders for Robin Hood users. Payment for order flow is a bit counter intuitive, but investopedia has a good article on it. Basically, if something is free, you are the product. This scheme is full of conflicts of interest, which shouldn't be surprising when you realize that the practice was pioneered by Bernie Madoff.

Anyway...

The biggest purchaser of order flow from Robin Hood is Citadel. Citadel made truck loads of money processing redditor's GME orders, which were tearing down Melvin Capital. Then Citadel invested something like $3 billion in Melvin to keep them solvent. It's like they are selling torches to an angry mob, who are burning down a house, then buying the burning house at a fire sale price. I've seen some noise that they are doing this with other firms, too, running around and buying up hedge funds that reddit is burning to the ground.

Now Citadel needs reddit to stop setting hedge funds on fire so they can make some money. They sold the torches, but now they need to douse them. How do they do that? They start refusing buy orders from redditors, and hide behind names like Robin Hood, Think or Swim, and other similar apps that gamify stock investing to take advantage of normal people who have fantasies of being wall street tycoons.

So it's not really about liability. They have no liability for investors making stupid trades. If they did, the NASDAQ would instantly collapse. It's about the profits of rich people coming before the profits of everybody else.

 

[Beebo Brink]

What disturbs me most about this kerfuffle is nothing new that's happened. I've always been disturbed by people who create wealth out of thin air, without contributing in any meaningful way to the economy or the good of the country. Anyone who "wins" in this play on the stock market is basically just skimming money from the transactions of companies and products that other people have created.

Wall Street has created the mechanisms -- such as allowing the borrowing of stocks -- that treat our economy like a slot machine. There is no need for these tricks, they are not integral to the overall financial system. The overhead costs on all this chicanery is leached out of truly productive activity.

 

[Isabeau]

Also, If anyone gambles with money they can’t afford to lose, they only have themselves to look at. I can’t think there are many “poor newbies” who put up their house just so that they could teach a lesson.

 

[Dakota Tebaldi]

Now Citadel needs reddit to stop setting hedge funds on fire so they can make some money. They sold the torches, but now they need to douse them. How do they do that? They start refusing buy orders from redditors, and hide behind names like Robin Hood, Think or Swim, and other similar apps that gamify stock investing to take advantage of normal people who have fantasies of being wall street tycoons.

I disagree.

This a bubble. It's going to collapse on its own; there's no way to prevent that, and Citadel surely knows that too. I don't think there is the urgency to end it that you suggest. Plus, surely Citadel isn't too dense to realize that if they (somehow) forced Robinhood to stop making buy orders on these stocks that customers would just use a different broker.

 

[Cristiano]

GameStop Stock Explained: Robinhood, Short Squeezes, And Reddit

After years of poor performance, GameStop's stock has surged to record highs in the last week.

www.gamespot.com

 

[bubblesort]

I disagree.

This a bubble. It's going to collapse on its own; there's no way to prevent that, and Citadel surely knows that too. I don't think there is the urgency to end it that you suggest. Plus, surely Citadel isn't too dense to realize that if they (somehow) forced Robinhood to stop making buy orders on these stocks that customers would just use a different broker.

Maybe it's a bubble. I mean, this kind of makes me think about what a bubble is. I'm probably splitting hairs now, but...

Gamestop is overvalued right now, sure, but it's not as worthless as, say, the bad mortgages that caused the 2008 financial crisis, or pets.com, which had no fundamentals. If you look into Gamestop, they have surprisingly good fundamentals, because they haven't really been able to borrow, partly because every institutional asshole on Wall St is shorting them.

The thing that really defines a bubble, to me, is the unpredictability. You never know when or how it will blow up, so it takes investors down with it when it goes. With GME, there is an exit strategy. We don't know exactly when the shorts will abandon their positions, but we know that they eventually will, and when they do, reddit will sell, as hedge funds buy. So we know how it will fail, and most people think that will happen within 1-2 weeks. Then again, if hedge funds get their way, it will pop unpredictably. Seems like the hedge funds are the ones who really want a bubble pop here, not reddit.

I think the hedge funds who shorted GME are the real bubble, and it's already popped.

I will agree that GME is a bubble. I just think it's not nearly as bad as other bubbles.

As far as the citadel situation goes, i don't know what to tell you. That's just objectively what's happening. It's not just Robin Hood that is blocking GME buys, but not sells. Interactive Brokers, TD Ameritrade, Webull, E Trade, Charles Schwab... the list goes on. They are not all deciding to block GME orders on their own. That decision is coming from upstream order flow processors, who are blocking buys, because of conflicts of interest. All these firms are trying to stonewall, act like they made this decision on their own, and not admit that their business model relies on firms with conflicts of interest like this, but that's just how the market works. Robin Hood just lost a big lawsuit last month for trying to deceive customers, by hiding where their money comes from.

 

[Dakota Tebaldi]

As far as the citadel situation goes, i don't know what to tell you. That's just objectively what's happening. It's not just Robin Hood that is blocking GME buys, but not sells. Interactive Brokers, TD Ameritrade, Webull, E Trade, Charles Schwab... the list goes on. They are not all deciding to block GME orders on their own. That decision is coming from upstream order flow processors, who are blocking buys, because of conflicts of interest. All these firms are trying to stonewall, act like they made this decision on their own, and not admit that their business model relies on firms with conflicts of interest like this, but that's just how the market works. Robin Hood just lost a big lawsuit last month for trying to deceive customers, by hiding where their money comes from.

I haven't seen any evidence that every single one of these platforms uses flow processors that have a stake in a hedge that was shorting GameStop. Volatility pauses aren't a new thing that was invented because of GameStop, nor is this the first time they've been used.

Gamestop's stock is swinging up and down by over a hundred points daily now; a trading platform doesn't need pressure from "above" to consider that keeping its customers out of that dumpster fire is probably a smart thing to do.

 

[GoblinCampFollower]

What disturbs me most about this kerfuffle is nothing new that's happened. I've always been disturbed by people who create wealth out of thin air, without contributing in any meaningful way to the economy or the good of the country. Anyone who "wins" in this play on the stock market is basically just skimming money from the transactions of companies and products that other people have created.

Wall Street has created the mechanisms -- such as allowing the borrowing of stocks -- that treat our economy like a slot machine. There is no need for these tricks, they are not integral to the overall financial system. The overhead costs on all this chicanery is leached out of truly productive activity.

AGREED! I see a social value to being able to trade stocks and bonds as well as funds that group those together. I have heard of numerous other investment "tools" that seem to mostly exist to con people and gamble.

 

[bubblesort]

Just to show the kind of dishonest reporting that's happening here...

Reuters is claiming that GME shorts have dropped 8% in the past week, signaling that the shorts are squeezed.

They are not!

These are screen caps from the GME page on MarketWatch. On the right, you see a screen cap I took last night, next to a screen cap I took just now (around 20 minutes before market close, on 1-29-2021). Note that I circled and highlighted the % of float shorted metric, because that's the important metric here.

As you can see, the % of float shorted has INCREASED, not decreased.

That means a lot of people expect GME to tank over the weekend. It will be interesting to see how that works out for them. Personally, I think the shorts don't fully appreciate the power of the Streisand effect the big money has put in motion, with their shady approach to stopping buy orders on apps. People will irrationally, emotionally hold the stock now, just to fuck over the guys with EVIL tattooed on their foreheads at firms like Robin Hood. I don't think this will go away any time soon. Not in the next month, at least.

One aspect nobody is really talking about is how reflexivity works into this. Traditionally, we are told that the stock market follows the real economy. Soros, and others like him, advocate that the economy can be led to growth or contraction by the stock market. This is called reflexivity. Think about the great depression. Before Wall St tanked, the country was just having a normal recession. The depression didn't hit until Wall St led us there. That's a macro level example, but on the micro level... companies with stocks that perform well on Wall St. tend to use their stocks to perform well on Main St. How does this effect GME? I think for one, this is incredible free advertising for them. The people paying attention to this situation are exactly the educated people with disposable income that they advertise to. Also, they can leverage higher stock prices by purchasing other firms with stock shares, which could totally change the trajectory of the company, without diluting shares very much. Should they get a competitor or maybe look for a complimentary firm? Maybe a provider of cloud gaming services or something? Who knows. The possibilities for GME's trajectory at this point are endless.

In other words... even if the longs cut and run over the weekend, GME might not fall as hard as people think. I don't think anybody believes that it will hit $4-7 again, like it was doing 6 months ago.

 

[Casey Pelous]

AGREED! I see a social value to being able to trade stocks and bonds as well as funds that group those together. I have haven't heard of numerous any other investment "tools" that seem that don't seem to mostly exist to con people and gamble.

Helped that out a little.

 

[Free]

the Streisand effect

I get where this comes from but...we really need a better name for it.

 

[danielravennest]

Yeah except the rich have hammer the system in a way that there wasn't supposed to actually BE any risk. It was just supposed to be win everytime.becsuse too big to fail or some other bull shit.

It's not really that there is no risk. For example the S&P 500 index of large company shares dropped by 1/3 a year ago as the pandemic hit.

What is going on is corporations dodge taxes by various tax breaks, and the shareholders also dodge taxes through the capital gains tax. That's the tax you pay when you sell a stock and make a profit over what you bought it for. If you never sell, no tax is due, no matter how much the value of the stock has gone up. If you do sell, you pay about half the tax rate as ordinary paycheck income. So there are built-in advantages for the investing class.

For real estate there are different tax breaks than for corporations. That's how the Trump Organization was able to pay zero taxes about half the time.