Anyone else following the GameStop situation?
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Iād love for this to be a moment when people look at the obvious hypocrisy that the SEC operates on and say āThis shit has to change.ā
But, I think we already know how this will play out.
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Another title for this thread, which will become obvious as it lengthens, is āTen Thousand Reasons to Institute a Transaction Taxā.
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I have to respectfully disagree with that conclusion.
I got interested in investing in the late 80s, (Alex Keaton on Family Ties, and the wall street raiders using leverage to takeover megacorporations). Back then, you had to āknow a guyā, or hire a financial advisor to deal with the brokers. Every transaction had a fee. At one point later I looked and it was only $20 per transaction. No big deal if youāre investing tens of thousands or more.
But to a working class person who wants to invest but has only $100 left after paying bills or whatever? Thatās a huge deal. $20 to buy and then another $20 to sell would mean youād have to get a 40% return just to break even. You would be throwing money away investing like that. Similarly, mutual funds had a minimum buy-in of like $5000. Those were barriers that blocked out normal people from investing, but the wealthy didnāt have to care about that.
Now times have changed and we can all easily invest even fairly small amounts. I think thatās a good thing. And that is what made the Gamestop situation blow up and brought the over-shorting problem to light. Itās also what screwed Robinhood and a few others, because they front the funds for new investors, and unexpectedly got millions of new investors overnight and couldnāt front that much.
Any fees or taxes tacked on to prevent ordinary people from investing would only serve the rich, and take us back to a worse situation. I think this is one case where the free market, being a bit freer now, can actually be a benefit, both from allowing ordinary people to invest and also by calling out the manipulations of the wealthy.
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Fees are one thing. Private middlepeople are useless to the process and only serve to allow frontrunning through leaksā¦ or in the current environment by selling your trade data for the same purpose.
This is my point: if you donāt plan on covering at least fifty basis points (0.5%) (or 0.1% or whatever the tax ends up being) on a trade, you are doing a particularly brainless kind of speculation that opens the door to all the ills of the current markets. High frequency trading is the most obvious example, a short-term strategy that weaponizes computing and special rights to low latency connections.
Shorting is another issue. Breaking one short in protest isnāt going to change the system. Did ya notice how fast that got shut down? The people with the slush funds to do HFT have the funds to keep their speculative shorts going, and they have the institutional contacts to weasel out when they think they might get squeezed.
Without the ability to do so much brainless speculation, they lose the room to do their cockroach act when people start paying attention.
I donāt think a transaction tax directly fixes all ills, but some friction is good, especially when it leads an audit trail through both the SEC and the IRS.
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A good recap
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They are at over $300k in donations now.
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This whole long analysis is amazing. The previous posts are linked at the top.
The TLDR is that GameStop is at 140% shorts so anyone holding - the hedge funds will be scrambling to cover their losses.
Of course there will be some kind of intervention to stop all these hedge fund going under, but itās going to be a great time to have a big bag of popcorn and a few GME shares for ringside seats to watch the market burn.
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Iām surprised that itās still going on, and curious to see how long it will keep rolling. I imagine the hedge funds can keep kicking it forward for awhile, and so can the hundreds of thousands of people who just bought a share or two be in on it. But then there are also the unpredictable speculators. And the conflicting info. Apparently theyāre both only around 21% shorted, but it depends on where you look. And itās really all just speculation.
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Gamestop, though? Itās a business with no functional model. The controversy about shorting it sounds like a honeypot for bleeding small traders.
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Thereās a lot of manipulation of the market by the whales and hedge funds. If you follow the Reddit threads on a regular basis in r/wallstreetbets or r/wallstreetbetsnew or r/gme, there are people with access to trading dashboards who will share screenshots of days where you will see every hour a round number of shares being traded to drive up or down the price, or huge trades by whales. Itās quite complex all the ways that hedge funds can manipulate the market. Itās not just that there are x many stocks and x many shorts.
Gamestock is 140% shorted. This is one of the huge issues around it - they are selling shares and shorts that they shouldnāt, which donāt exist.
One of the theories of the AMC pump this week, where it went up to $50 on Friday, is that the hedge funds are trying to get the retail investors to sell before the shareholder meeting. In advance of that, AMC has to count all the shareholders. And there are likely to be more shareholders than there should be stock. Which is why so many people are holding on to their stocks, no matter whether they gain money or not - to force real regulation on the stock market.
I really encourage you to read the threads I posted. It is draw dropping how terrible the computer code is that our stock market is built on, and how the funds use flaws in how the code is written to create a whole other set of rules they operate by.
@AndyHilmer did you see the testimony to the Senate by Keith Gill, who is the person who really started all this madness?
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I tried reading the threads, but trying to filter out any signal from the noise on wallstreetbets and the related subs is nearly impossible. It was challenging even before 10 million more people piled on due to this and all started babbling.
Pretty much whatās clear is that some institutional investors oversold naked shorts. Somebody noticed, and then everyone and all their illiterate cousins started posting random numbers, crackpot theories about what happened or might happen, and memespeak.
Iāll be interested to see the book/movie once it all plays out.
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I have mentioned how a transaction tax on markets would stop this shit cold.
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Many of us have set our floor (minimum amount of acceptable gains) at $20,000,000 per share, and you might think that is crazy, but in truth, we know we can pick our own price if we hold long enough.
See that kind of loopiness casts doubts on the rest.
Scenario:
- There are 10 shares of stock available at $1 each. I short-sell 14 shares. That means I owe 14 shares to people who loaned them to me at about $1 each.
- People pile in and buy almost all the shares, driving the price up as it goes, until itās $10 per share.
- Now somebody who bought in at $1 thinks theyād better sell now and get that profit while itās good, because thatās a great return and it could all vanish tomorrow. So I snap up that share at $10.
- When I return it to the guy I borrowed it from at $1, he sees the price now and thinks āthatās a great profit, better get it while I canā, and puts it up for sale. So I snag it again, and repay another one of my shorts.
- As long as thereās one share available, I can keep doing that 14 times and cover all 14 of my shorts with only 1 single share in play. And itās likely in the best interests of the shareholder to sell at 10x what he paid for it, so itās likely to happen.
- The people holding the other 9 shares, holding out for it to be worth $10,000,000 per share and refusing to sell, get nothing from that.
- But my positionās now totally cleared. I owe nothing. At a loss of $126+ dollars, which hurts, but Iām a big business with tons of money.
- Assuming others bought in on the upswing at an average of $4.50, when the price drops back to $1, theyāre out ~$35. And those are just average people, who canāt afford losses the way an industry investment corporation can.
The posters make a lot of the fact that more shares were shorted than exist, but nobody mentions that it would only take 1 liquid share to cover all of those shorts.
The idea that it must go to the millions is just fundamentally flawed and misleading.
That said, I do still think itās interesting, so Iām holding mine and seeing how it plays out. I do expect at least another spike, but not for long, and certainly not in the millions like people are claiming.
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I agree that the math is super simplified. If you look through the threads, there are a ton of very simple memes encouraging people to āhodlā and explaining that the only way the squeeze works is if everyone holds on to their stocks and doesnāt sell until its time for the hedge funds to start covering their shorts. Itās pretty fascinating the psychology of the Reddit threads, because they have these long explainers and then a lot of people who are like, āOk, I trust you, I got 1 share in the game - maybe I lose a little, maybe I gain a lot,ā or just so many posts reminding people to hold on to their shares. Each time the stock gets pumped up, people come in and explain, no, this isnāt the squeeze - donāt sell. Of course some people do sell, but a few small fish selling here and there donāt affect the whole situation.
Something like 80% of the AMC shares are now held by retail investors.
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I have a few of those AMC shares, on a lark, and they doubled in value this week. GME is down but only about 2%. It is a fun game to play for small enough stakes.
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BTW, re: shenanigans with manipulating short stonksā¦
Have yāall read Walter John Williams Hardwired? Itās something of a plot point.
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exactly. I got $45 invested and now that is about $300.
Yes! Itās on the bookshelf right behind my desk, but it has been some years since Iāve read it. I donāt remember all the details, so itās probably good for a re-read now.