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Lemon Drop wrote:
Did the reddit people violate any laws?
I think it’s illegal to intentionally manipulate markets. But when Wall Street (or rich assholes like the Hunt Brothers) do it, it’s hardly ever prosecuted. In fact, in the case of the Hunts trying to corner the silver market for gain (and screwing it up) a bunch of banks had to ride in to rescue them. Too big to fail sort of stuff.
They really should have gone to jail, but only got convicted on civil charges and paid fines.
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pdq wrote:
[quote=Lemon Drop]
Did the reddit people violate any laws?
I think it’s illegal to intentionally manipulate markets. But when Wall Street (or rich assholes like the Hunt Brothers) do it, it’s hardly ever prosecuted. In fact, in the case of the Hunts trying to corner the silver market for gain (and screwing it up) a bunch of banks had to ride in to rescue them. Too big to fail sort of stuff.
They really should have gone to jail, but only got convicted on civil charges and paid fines.
No, it's the Dukes trying to corner the Frozen Concentrated Orange Juice Market.
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I made a ton of money coin collecting when I was a kid. Everything I bought soared in value and I'd sell for a profit a little while later. I thought I was a genius! Turns out it was just the Hunt Bros doing my bidding.
I should have sent them a fruit basket...
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vision63 wrote:
[quote=pdq]
[quote=Lemon Drop]
Did the reddit people violate any laws?
I think it’s illegal to intentionally manipulate markets. But when Wall Street (or rich assholes like the Hunt Brothers) do it, it’s hardly ever prosecuted. In fact, in the case of the Hunts trying to corner the silver market for gain (and screwing it up) a bunch of banks had to ride in to rescue them. Too big to fail sort of stuff.
They really should have gone to jail, but only got convicted on civil charges and paid fines.
No, it's the Dukes trying to corner the Frozen Concentrated Orange Juice Market.
Funny, and sort of true.
Keep in mind, the only reason the 'mob' is even able to try to 'corner' the market is because short sellers started first. At some point, 25% of GameStop stock was shorted.
The hedge funds got greedy. If they had stayed under 5% of available stock, the 'mob' counter action would not have worked nearly as well.
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I'm in favor of government regulating financial and exchange markets to try to minimize economic activity that takes away from economic productivity. Overall, does short-selling lead to greater productivity of the economy or does it lead to less?
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Ted King wrote:
I'm in favor of government regulating financial and exchange markets to try to minimize economic activity that takes away from economic productivity. Overall, does short-selling lead to greater productivity of the economy or does it lead to less?
I am unaware of any deep analyses, but there are far more anecdotes of short-seller fraud than examples where they helped.
The latter IS represented by Nikola short-selling. That does appear to have been full of fraud, and the short-sellers genuinely released new data that helped the market properly recalibrate.
For every Nikola, you can counter with the list from the first few years of Tesla.
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sekker wrote:
Keep in mind, the only reason the 'mob' is even able to try to 'corner' the market is because short sellers started first. At some point, 25% of GameStop stock was shorted.
About 140% shorted last I heard.
https://www.fool.com/investing/2021/01/2...100-heres/
Yes, a Stock Can Have Short Interest Over 100% -- Here's How
In this latest short-selling controversy, many investors have been confused by the sheer level of exposure that short-sellers have to certain stocks. For instance, GameStop recently had short interest that exceeded 100% of its available shares. That left many investors completely gobsmacked -- but there's a simple explanation for how situations like the one we're currently in can come about.
...As an example, take a situation involving four investors. Annie owns shares of GameStop, and Annie and her broker have an agreement that allows the broker to lend Annie's shares to short-sellers. It lends them to Bob, who subsequently sells those borrowed shares short in hopes that GameStop's share price will fall.
An investor named Chris ends up buying those borrowed shares from Bob. However, Chris has no way of knowing that those shares have been borrowed from Annie. To Chris, they're just like any other shares.
More importantly, if Chris has the same kind of agreement, then Chris's broker can lend out those shares to yet another investor. Diane, another GameStop bear, can borrow those shares and sell them short.
In this example, the same shares end up getting borrowed and sold twice. The short interest volume these transactions add to the total is twice the number of shares actually involved. You can therefore see that if this happened throughout the market, total short interest would eventually exceed the number of shares outstanding and approach 200%.
...Given this ability to multiply the number of available shares into massive short positions, a short squeeze could have a cascade effect. When GameStop's share price goes up, both Bob and Diane are under pressure to cover their positions. Yet to do so, they each have to find available shares they can buy and return to Annie and Chris, respectively. When sellers aren't readily available, they'll have to pay through the nose to entice them. That's how the short squeeze accelerates.
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Wow! I had not followed the latest, just knew that at 25% the Hurt Was On.
There will be tighter rules on what you can leverage forthcoming.
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hal wrote:
[quote=sekker]
[quote=hal]
It appears that 100s of people joining together can dictate the market. If this is allowed to stand, these groups will grow to 1000s then millions. Then there will be no marketplace at all. If this isn't illegal collusion, it should be.
I don't see an equivalence of this group and a hedge fund. This is a mob against a single entity.
Non-sense. There is no law that requires hedge funds to be financially viable. Most of the 'mob' would lose money if there were no short sellers.
I have a simple test - if the retail traders who bet against the company did not exist, would the 'mob' lose money? If so, there is no reason for laws as the market will protect most against this behavior.
Simple - if banks or fund managers don't want to lose money betting on failure, they can just stop shorting stocks.
Oh, you're anti short selling....
what if this group pulled the opposite move - sold short until the hedge fund going long goes bust? Or what if a bunch of hedge funds colluded and did the same thing the redit group did?
I don't like the idea of large groups colluding to change the marketplace to their advantage (short or long). This is bad...
Doc gives an *excellent* explanation of over-shorting the float. With a smaller company like Gamestop, the little guys can smack the big guys. On the flip side, the market is not set up to let enough little guys band together to short enough stock to make a dent in the hedge funds. That's a losing game before it starts.
The hedge funds do collude and do what the reddit group did. ALL-THE-F'ING-TIME.... but that's their business model. The thing that has to change, is the taxpayers ultimately bailing out the highest lobbied businesses' failures. There needs to be regulations that protect the individual taxpayers from big biz corruption; until then we'll all keep getting screwed.
Let the hedge funds short AAPL at $140, and buy it back at $131 and make 6.5% (gross) on the trade. When a $3 stock like Gamestop is run up to $20, and the hedge boys are shorting the hell out of it.... KNOWING they can close that POS stock short out at $7, and make orders of magnitude more, percentage wise on that trade.... Well, they're setting themselves up for what just happened because of their greed. The difference is, that big time institutions and retirement funds, and the like own AAPL, and the hedgies deal w/ the same big brokerage houses that own the AAPL, and with AAPL being (very) well capitalized, it's market fluctuations are much more stable than a pissant like Gamestop. Gamestop isn't a blue chip stock like AAPL, and its stock isn't as readily available, so when it gets caught in a short squeeze, it'll make the financial news in a big way.
There's a lot more to it, especially when factoring in the options market, but this fiasco, and a few others going on, do highlight the issues. A simple 10% short close out/pay out regulation would go a long way... Your broker/dealer should have to disclose whether or not you're buying shorted stock. There should be a check box on your screen when you buy a stock if you want to buy shorted stock. If you buy shorted stock, the seller will have to incrementally pay you every time the stock goes up a 10% increment of the purchase price, until your stock is delivered to your broker/dealer. That means every 10% uptick, regardless of any whipsawing like we saw with Gamestop. IOW, you'd effectively cut out greedy Gamestop plays, and limit shorts to big time stocks only because of the greater risks involved.
Protect the individual taxpayers.
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Seems to me the hedge fund gambled, and got burned. It will get its due punishment. It deserves no protection or bail out. The buyers also gambled--they knew they were buying a shorted stock and were intentionally doing so with the intent of exploiting or punishing the short seller. If they somehow get burned, well, that's the stock market and they don't deserve a bailout either.
It's still not clear to me why I should care.
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