The quote from that caller is pretty amazing. There are just so many things wrong his statement that it's hard to even know where to start.
1. A 7% weekly loss isn't really anything that a buy and hold investor should be worried out. Yes losing money sucks, but are you really so afraid of volatility you would rather earn practically nothing from 3 month T-bills?
2. It's super easy to call shorting GME risky after the fact.It's incredible what people call "obvious" and "risky" once a particular situation has blown up. Captain Hindsight strikes again.
3. He claims he is worried about "market manipulation", but I doubt he would be complaining or have his faith shaken in the markets if he just realized a 7% gain this week.
This guy is looking to blame someone and hedge funds are a convenient populist target.
On an aside, it seems the market can't ever get a break. If it crashes and unemployment skyrockets, it was due to some fat cats gambling. If the market skyrockets and unemployment is high, now the fat cats are making money off the backs of everyone else. If the market skyrockets and unemployment is low, well, everyone isn't sharing in the gains equally.
I can hear the remaining 99% of the world that doesn't invest financially, but whose lives are often very negatively affected by the financial market, ask the same: "Give me a break".
Like many, I'm tired of being told the economy is broken and we will all have to "sacrifice" something to make it better, when we have no responsibility in a financial crisis.
We are asked to pay for someone else's gambling gone bad, but when their gambling is successful we don't get any of the rewards.
Collectivized risk, individual rewards AKA "Socialism for the rich and Capitalism for the poor". Sounds like a great incentive to keep an economy healthy.
The problem is a perception that the stock market continues to go up, yet the lot of the average person is either stagnant or getting worse. It isn’t an impossible double standard. The frustration is with the ever increasing wealth inequality.
> 3. He claims he is worried about "market manipulation", but I doubt he would be complaining or have his faith shaken in the markets if he just realized a 7% gain this week.
That's Bernie Madoff in a nutshell. As long as people kept putting money in, it was fine. It was when people pulled their money out during a financial crisis when Madoff was exposed.
It's also a favorite scheme of con-men, that is, to make you feel like you are winning, when in fact, you're losing. You'd only know that until after it's too late.
Shorting is riskier than going long by definition of what an equity is. Equity in a company means in a worst case scenario you go to 0 when you are long. If you flip that, when you are short, your loss potential is infinite.
Last year when the Dow dropped from 28K to 18K all my friends were selling off their holdings. I was going to do the same but spoke to my father, he told me selling off at 18K does nothing but guarantee my losses. I decided to take his advice and am up 115K on the year.
I don't think the gamestop story is over and just because these hedge funds are showing a loss right now, they still have the opportunity to milk that stock all the way down to zero, and they will.
What is really unfair (but good for me) is from my investments and house value increase, I have made more in one year doing nothing than I did the 1st 15 years of my post school employment.
I don't know how a young person can make it in these late stages of capatlism let alone support a family, maybe that's why there are so many riots.
My question is, how long can we have hedge funds AND loads of people who blindly hate hedge funds?
The same question applies to pretty much anything that's a bit opaque, complex and useful (most of finance, recently international trade, alliances like nato, even elections recently).
I worry that we have a real issue here. If we can't maintain complex social and economic structures, we're at a massive disadvantage to less democratic countries that can.
Thanks for the voice of reason. It appears that, as always, people are interested in free money and not in learning how to invest. There's good advice worth millions out there for free, but people would rather pay YouTube 'gurus' to fluff their egos and then claim to be poor because of 'the establishment'.
At least Thanksgiving forces Americans to be thankful once a year.
> Yes losing money sucks, but are you really so afraid of volatility you would rather earn practically nothing from 3 month T-bills?
Isn't the market's current valuation actually not that expensive given the fact that it isn't only 3 month T-bills that earn practically nothing? 1, 5, and 10 year bonds are equally bad in terms of ROI at the moment, right?
Don't you think this straw-manning is just a little bit excessive?
Also, point #2 seems flat out wrong. Short interest accounting for 140% of all outstanding stock is extremely reckless. It's like the Beirut port authority storing tons upon tons of explosive fertilizer in a warehouse so they could shake down a ship owner for some port fees. Sure, it didn't seem so bad for years when nothing happened, but the giant crater (not to mention human carnage) says they've got a much bigger problem than port fees.
> On an aside, it seems the market can't ever get a break. If it crashes and unemployment skyrockets, it was due to some fat cats gambling. If the market skyrockets and unemployment is high, now the fat cats are making money off the backs of everyone else. If the market skyrockets and unemployment is low, well, everyone isn't sharing in the gains equally.
Guess what: people complain about all sorts of things. It's a human thing.
Financial markets would appeal to more people if they didn't appear biased, particularly biased in favor of the wealthy. I think if the players in the '08 crisis had at least gone into disgrace running gas stations in Middle America (I'm not even asking for jail time, unlike some), some of these populists might think there's some form of justice. But that didn't happen. The big banks got bailouts, and millions of people lost homes and jobs.
The just, ethical thing to do would be to end too big to fail. If a bank makes too many promises it can't keep, it should go under. The most the government should do is supervise a swift and orderly bankruptcy. If I were a lawmaker today, I'd be doing that exact thing: make these "too big to fail" companies keep meticulous records of exactly which assets they have, which liabilities, and let the thousands of smaller banks bid on them like vultures in the event of a failure (which is inevitable, given a decade plus moral hazard).
Here's another thing (more related to the GME situation): when the repo market started showing weird signs in 2019, the Fed stepped in and added massive liquidity. Fair enough, a financial crisis is something the Fed is supposed to prevent (ancillary to its somewhat silly dual - actually triple - mandate for high economic growth, low unemployment and steady long-run interest rates). However, when we were supposedly minutes from a financial crisis on Thursday, the Fed was nowhere to be found to inject cash into these brokerages and clearinghouses to secure retail trades. Are people on Robinhood trading repos or commercial paper or something? Of course not. That's for the big boys, the ones who get bailed out because they're "too big to fail." (Please spare me in advance with comments about how this violates X, Y or Z rule or something. Rules and norms have clearly not constrained the Fed much since September 2008, so why should the GME situation stop them now? The Fed has been creative - ingenious, even - at figuring out how to expand its balance sheet and take other policy actions - interest on reserves, anyone? - that were have novel effects.)
It's easy to make straw-man arguments against populist comments from an Internet blog, especially ones that were somewhat ignorant (I happen to agree with you about the comment betraying some ignorance about buy-and-hold). But that does not mean such a comment is representative. Does there exist a version of the story of what happened with GME that is much tighter in terms of facts but has the same "I don't trust the system!" sentiment? If there is, shouldn't the defenders of the market take it seriously, particularly those who do HFT for market makers?
he's diagnosing the issue wrong but he's not wrong to feel like the game is rigged. very few people own stocks and the "people" that do own a disproportionately larger amount that everyone else.
Also if someone "came into money" and the market is at an all-time-high (during a pandemic, no less!) why not roll it into the stock market over a one- or two-year period? Same dollar amount each month for two years.
>On an aside, it seems the market can't ever get a break. If it crashes and unemployment skyrockets, it was due to some fat cats gambling. If the market skyrockets and unemployment is high, now the fat cats are making money off the backs of everyone else. If the market skyrockets and unemployment is low, well, everyone isn't sharing in the gains equally.
I mean...this was due to fat cats gambling. Illegal gambling in fact. What else do you call shorting 140% of a company's stock?
Also, this might just be me, but it feels disingenuous for you to not mention a disclaimer while posting this that you're a quant trader at a market maker.
EDIT: As others have pointed out I seem to be misinformed about the legality of it, but my original point does stand. This IS happening due to fat cats gambling, and retail investors catching wind of it and blowing it up on social media (to be clear I'm aware that the majority of GME holders are still institutional)
Institutional traders (hedge fund, i-banks, prop traders, hft) have the advantage of deep pockets and the financial literacy to be able to execute strategies which create easy returns. Many of these strategies are easily scalable to turn a small edge into a big one, using leverage. Oftentimes these strategies have an asymmetric risk profile, with low probability of losing a lot of money (sometimes with unlimited downside potential), for example:
- writing out of the money options for the premiums
- shorting stocks with leverage
- '08s frenzy of selling credit default swaps
- forex trading with spreads so low that they take 100x+ leverage
Usually, when these strategies work, it's easy money and they get addicted to the easy returns. They scale the strategies up to a level of risk they can't handle. Like having 140% short interest relative to GME's float. When these strategies blow up in their faces, it wipes them out completely, to the level of requiring bailouts.
Main street (retail investors, taxpayers) have had enough of this, and a lot of anger is directed at institutional investors for always getting the easy money and the bailouts at their expense. They want to see the game applied fairly, such that when the bets go sour, they go bankrupt and don't get bailed out like in 2008. In the 2015 CHF forex crisis, many brokers went bankrupt overnight. That's what should happen to Melvin, and to anyone who takes the stupid risky bets that don't work out.
>Everyone from Ted Cruz to AOC to Aaron Rodgers sided with Main Street against Wall Street.
Apart from the media, of course. For example, Newsweek is calling GME investors "far-right extremists"[1] while The Washington Post is comparing the situation to the Capitol riots[2].
One of the things I really appreciate about HN is its ability to get beyond "sound-bite arguments" to really get to a deeper understanding of what can be complicated arguments. Which is why I really disliked your comment, because your primary sentence includes two lies where you take some words out of context, but hey it must be true because you provided links.
1. Going to your own link, Newsweek did not call "GME investors "far-right extremists"". The article clearly states that far-right extremists were instead using the "stick-it-to-the-man" ethos driving a lot of the GME investor chatter to recruit. There is a huge difference.
2. As other's have pointed out, WaPo published an Op Ed, this was not something under their Editorial Board or a news article. Saying "The Washington Post is comparing the situation to the Capitol riots" is deliberately misleading.
The media’s behavior is why I became cynical about the system: moralize everything for no particular facts. You don’t like someone, label that person far-right. This is how transparency is lost. With transparency gone, so is trust.
And we stopped the trade for your own good. Yeah, right.
Your summary of the Newsweek article is pretty misleading. They're not accusing r/WSB or GME investors as a whole of being far-right extremists (which would be false), they're referring to actual alt-righters talking about GME.
Jimmy Kimmel said "and maybe even some Russian Disruptors," for no apparent reason in his opening monologue talking about the people buying $GME last week.
Why "sticking to the man" resonates with me, and why I took pleasure in this incident is because students from the mid-2000s realize that hedge fund managers for the most part are not as smart as they think they are. Their bungling significantly set back the dreams of several students of my generation. I am not far right by any means, just was far gone and sad for 2010-2015.
I suspect that the truth is closer to "Wall Street" than we care to admit. Insider information is still the key, not stochastic differential equations, Ito's formula and portfolio balance theories. Melvin putting all their leveraged eggs in one basket is considered above board, and is not being questioned.
The Post article is an op-ed, not something written by the editorial board. I’d prefer that newspapers feel free to publish a wide range of views without readers ascribing those views to the paper (I.e., the newsroom or editorial board).
Ted Cruz is literally married to a Managing Director at Goldman Sachs - if people think his sanctimonious Tweets were a principled stance “against Wall St” then we’re in worse shape than I thought.
Of course politicians will rally behind the populist narrative. They don't care that regular people are throwing away their money buying into conspiracy theories.
All the focus on racism and divisiveness within the media (all the woke sjw BS) really started around after occupy Wall Street. Now why would they want that to happen? So maybe we fight with each other instead of with them and their profits?
People really don't seem to understand the concept of the op-ed. Maybe publications need to do a better job of making the distinction clear.
For reference, this is from an article from the newsroom:
But of course, what the Reddit cabal did to inflate the stock of bygone-era companies like GameStop, AMC Entertainment and Bed Bath & Beyond simply mirrored what the hedge fund sharpies had done in conspiring to “short” those same stocks and drive down the prices
Where is the evidence that “nontraditional investors beat the crap out of hedge fund speculators at their own game” or that “hedge funds pressured the brokerages to disallow new stock purchases of GameStop”?
This is the narrative, for sure, but how is this anything more than conjecture? Have the hedge funds publicly said “you got us!”, and even then why should we believe them?
The story is fuelled by a subreddit and celebrity hot takes on Twitter. The news coverage I might actually trust also happens to be extremely weak — it’s all on the periphery rather than at the center of the story and I’m deeply skeptical anyone knows what’s actually going on. Why should they? Without a leak from an institution that’s how it should be when private entities trade on a public market.
I have seen the mansplaining of what a short position is or what a short squeeze is or how someone can be 150% over shorted — originally 138%, then inflated to 140% for impact, then inflated again. The explanations aren’t wrong but knowing the mechanics of a theory doesn’t differentiate between an internet fantasy and the real world. That kind of self-fulfilling logic is one step away from the world of conspiracy theories.
As I’ve said before, on the face of it this just looks a lot like some folks pumping a cheap stock. Potentially the first round of these had good reason to — the actual squeeze — but now the second, third, fourth and upcoming fifth daily cycles are pumping it for the sole reason because the last one did and we need an exit. It could well by pyramid shaped — I’d put money on it if I were you.
Honestly, if the only winning move is to invest for the long term then why even bother with capital markets at all? Sounds like a waste of time when what we really want is for people to own the means of production.
Dump 100% of federal tax revenue into index funds and let it grow faster than the interest on T-bills issued for expenditures. Churn for ~50 years and start paying UBI from the massive profits. Would the government even need to pay interest on the T-bills in USD? Why not just issue more T-bills as interest because after all the long term pretty much guarantees the government would be swimming in cash in 50 years and have no trouble repaying it all. Incidentally the federal government would also become the majority shareholder of every company in the world.
If the market can magically let everyone with enough money invested in their youth retire happily then it follows that letting the government own all the stocks and issue UBI would result in roughly the same outcome.
>Honestly, if the only winning move is to invest for the long term then why even bother with capital markets at all
Because they are gamblers, that's why. Most (reasonable) people only invest long-term.
>Sounds like a waste of time when what we really want is for people to own the means of production.
Yup.
>Dump 100% of federal tax revenue into index funds and let it grow faster than the interest on T-bills issued for expenditures. Churn for ~50 years and start paying UBI from the massive profits.
Tax revenue is not 'profit' by the state. That's not how tax nor money issuing works. But to the topic at hand: There are countries that put money into investment funds that will invest into infrastructure and safe long-term assets. But usually not for UBI, but for retirements (e.g. Denmark).
>If the market can magically let everyone with enough money invested in their youth retire happily then it follows that letting the government own all the stocks and issue UBI would result in roughly the same outcome.
Generally the idea of not having to work at all is still heavily controversial within science. Some believe in UBI, some in job-guarantees and others just in relatively high minimum wage and very strong retirement plans.
> I understand that it feels like the odds are stacked against you. But I’m asking you to please reconsider... [ followed by table of great S&P outcomes ]
I think the author misunderstands the threat here, and it's much graver than they think. Remember the U2 album Apple pushed to everybody's iphones?
Same thing here. What happened last week is the cracks showing, people being forcibly reminded that they are not in control. In Apple's case it was iphone owners being jolted out of the pleasant fantasy that their phone is a little piece of territory they alone control. In GME's case, it's people thinking of the stock market as something that exists for them to use, like a supermarket. And the jolting reality is that the stock market has become a vast and incomprehensible playground for billionaires to gamble with derivatives, in which the retail investor is incidentally allowed to participate only insofar as their money is helping to push up prices.
So the threat to the market is not what the author seems to be speaking to (a hypothetical investor who will buy in late, lose money, and get sore about it). The threat is people getting the general feeling that the stock market is shady, and deciding to buy a rental property, start a small business, etc.
> Seeing my wife lose money as a result of the hedge funds foolish shorts and inability to adapt to a new wave of social media – as well as the frightening thought the trading can be halted at any time as the brokerages see fit – has caused me to become extremely disheartened toward investing in the future.
Just checked, and after all these shenanigans, S&P 500 was set back to... where it was one month ago. This actually sounds like a strong evidence in favor of index funds plus long-term investing.
Know what bugged me the entire time through all of this?
The big money guys on the big money shows kept referring to themselves as "the investor class."
As if by the very nature of their jobs, they were set aside above and apart from those of us who have to earn our livings by doing useful things. I'd love to know how much of the brainpower in the US is set aside for the purpose of doing nothing more than extracting wealth from the markets.
Additionally, I've long held the opinion that if your primary method of earning a living is by extracting wealth from the market, then your "capital gains" are just a fancy way of earning a living and you should be taxed at the exact same rate that everyone else is. You don't deserve to pay half the taxes just because your earnings are derived from stocks.
Hedge funds, as a class, underperform the Dow. Hedge fund managers, as a class, do very, very well.
"Except Japan", the author puts in a footnote. The stock market in Japan peaked in 1990 and never came back. The Nikkei peaked at 19590 and is now at 1740.
If you are scared out of the market by a little ripple like this, investing in equities may not be a good fit, behaviorially. If you are thinking about taking it out now, are you really sure you'll be able to stay in when the market drops 40%? If not, better to cut your losses now, reduce your equity holdings, and probably find someone to manage your money for you.
I self manage for the most part, but I also have at least some discipline and an awareness that the market could drop at any given time. It's only over the 5 year plus time horizon that I actually expect to make money.
I've said it many many times on HN and elsewhere. It wont be popular to say this again now - but I dont care: Trading stocks on RH is gambling - it is no better than trading in a casino. The SEC should step in and regulate them like a casino, in the name of investor protection (aka NOT day-trader protection)
RH is the social media of trading. Its all about the quick hit of dopamine via a mobile-first experience. Any conceptual inkling of educating their customers around long term investing is out the window. Why? Because thats not their business model. They profit when you trade a lot because they get paid by HFT. So investing is not in their mantra. Only ridiculous day trading as we have now.
This isn't a story about market stability, price formation, RegNMS, margins, collateral. Thats all a distraction.
This story is about the "autists" at r/wsb sticking it to wall street. Which is fine, its all good and entertaining. But random punting isn't going to create wealth.
> And the fact that Janet Yellen, the new Treasury Secretary, got paid hundreds of thousands of dollars in speaking fees from Citadel doesn’t help either.
I think there is an opportunity for a service that allows the logistics of ordering/distributing large quantities of books written by such people that can be used by banks/funds for distribution to their employees and such to avoid the bad-light of direct speaking fees. Order the books, target gets paid (the cut the publisher takes can be considered an acceptable collateral cost of avoiding the exposure) and everyone looks nice - "we were just sharing knowledge - books are good!". Best part is, some people might actually read the books.
All these traders are playing in a casino. Yes, the casino favors the house. Yes, people have figured out how to make big bucks by counting cards. The rules will probably change so the house keeps on winning.
To me, all this indicates that the only way to win is to not play. Passively investing in the market as a whole is the only way to win long term.
Disclosure: I work at a robo-advisor specializing in long term passive investing. My views are my own, and in no way associated with the views of my employer. This is not investment advice.
Did people had faith in financial institutions after 2008 crash anyway, if so who are those people?
I feel like huge majority of the people already know that system is rigged but what can they do? Most of them got very limited options against the system.
If the SEC or any government agency steps in to help Wall St hedge funds at the expense of $GME shareholders, I wouldn't be the least bit surprised to see the entire millennial generation revolt against the current financial system. They could easily trigger it by a crowdsourced agreement to liquidate 401k's and all stock holdings.
If we see any govt agency step in, I'd imagine them trying to pity sell us on lost teacher pensions, etc being managed by the hedge funds...but they'll leave out the part that says those teacher pensions have been financially weaponized against average investors for years.
I'm not going to lie, the idea of the 401K kinda scares me now. We were always told to keep it safe, invest in index fund, let compound interests do its thing with your pretax money. But during the financial crisis, most "commoners" took a heavy hit that took a very long time to recover and it felt like we were the last on the priority list to recover and the WSB saga really shows how unfair it is. But my big question is what is the alternative? Real estate?
The irony of educating the average Joe about the long term investment mindset when the hedge funds people despise for getting rich while Main St suffers are anything but long term thinkers.
> Hedge funds have idea dinners in private behind closed doors.
I appreciate however the slightly obtuse admission that there's lots of behind the scenes private conversations. Interesting more so in this environment when everyone is a market manipulator depending on who you ask.
A post to consider as to why buy (and not sell) orders were cancelled. This does not address however the face that SEC fined Robinhood for not providing best execution to customers.
https://stu2b50.dev/posts/why-robinhood-d3580b
[+] [-] smabie|5 years ago|reply
1. A 7% weekly loss isn't really anything that a buy and hold investor should be worried out. Yes losing money sucks, but are you really so afraid of volatility you would rather earn practically nothing from 3 month T-bills?
2. It's super easy to call shorting GME risky after the fact.It's incredible what people call "obvious" and "risky" once a particular situation has blown up. Captain Hindsight strikes again.
3. He claims he is worried about "market manipulation", but I doubt he would be complaining or have his faith shaken in the markets if he just realized a 7% gain this week.
This guy is looking to blame someone and hedge funds are a convenient populist target.
On an aside, it seems the market can't ever get a break. If it crashes and unemployment skyrockets, it was due to some fat cats gambling. If the market skyrockets and unemployment is high, now the fat cats are making money off the backs of everyone else. If the market skyrockets and unemployment is low, well, everyone isn't sharing in the gains equally.
Give me a break.
[+] [-] pietrovismara|5 years ago|reply
I can hear the remaining 99% of the world that doesn't invest financially, but whose lives are often very negatively affected by the financial market, ask the same: "Give me a break".
Like many, I'm tired of being told the economy is broken and we will all have to "sacrifice" something to make it better, when we have no responsibility in a financial crisis.
We are asked to pay for someone else's gambling gone bad, but when their gambling is successful we don't get any of the rewards.
Collectivized risk, individual rewards AKA "Socialism for the rich and Capitalism for the poor". Sounds like a great incentive to keep an economy healthy.
[+] [-] oivey|5 years ago|reply
[+] [-] bb88|5 years ago|reply
That's Bernie Madoff in a nutshell. As long as people kept putting money in, it was fine. It was when people pulled their money out during a financial crisis when Madoff was exposed.
It's also a favorite scheme of con-men, that is, to make you feel like you are winning, when in fact, you're losing. You'd only know that until after it's too late.
[+] [-] anonu|5 years ago|reply
[+] [-] sigmaprimus|5 years ago|reply
I don't think the gamestop story is over and just because these hedge funds are showing a loss right now, they still have the opportunity to milk that stock all the way down to zero, and they will.
What is really unfair (but good for me) is from my investments and house value increase, I have made more in one year doing nothing than I did the 1st 15 years of my post school employment.
I don't know how a young person can make it in these late stages of capatlism let alone support a family, maybe that's why there are so many riots.
[+] [-] LatteLazy|5 years ago|reply
My question is, how long can we have hedge funds AND loads of people who blindly hate hedge funds?
The same question applies to pretty much anything that's a bit opaque, complex and useful (most of finance, recently international trade, alliances like nato, even elections recently).
I worry that we have a real issue here. If we can't maintain complex social and economic structures, we're at a massive disadvantage to less democratic countries that can.
[+] [-] sombremesa|5 years ago|reply
At least Thanksgiving forces Americans to be thankful once a year.
[+] [-] MuffinFlavored|5 years ago|reply
Isn't the market's current valuation actually not that expensive given the fact that it isn't only 3 month T-bills that earn practically nothing? 1, 5, and 10 year bonds are equally bad in terms of ROI at the moment, right?
[+] [-] prepend|5 years ago|reply
This is one of my main reasons for not trying to consciously invest as my urges are pretty dumb and shouldn’t be followed.
This caller’s message is so bizarre as to make me wonder what their long term plan is.
[+] [-] baryphonic|5 years ago|reply
Also, point #2 seems flat out wrong. Short interest accounting for 140% of all outstanding stock is extremely reckless. It's like the Beirut port authority storing tons upon tons of explosive fertilizer in a warehouse so they could shake down a ship owner for some port fees. Sure, it didn't seem so bad for years when nothing happened, but the giant crater (not to mention human carnage) says they've got a much bigger problem than port fees.
> On an aside, it seems the market can't ever get a break. If it crashes and unemployment skyrockets, it was due to some fat cats gambling. If the market skyrockets and unemployment is high, now the fat cats are making money off the backs of everyone else. If the market skyrockets and unemployment is low, well, everyone isn't sharing in the gains equally.
Guess what: people complain about all sorts of things. It's a human thing.
Financial markets would appeal to more people if they didn't appear biased, particularly biased in favor of the wealthy. I think if the players in the '08 crisis had at least gone into disgrace running gas stations in Middle America (I'm not even asking for jail time, unlike some), some of these populists might think there's some form of justice. But that didn't happen. The big banks got bailouts, and millions of people lost homes and jobs.
The just, ethical thing to do would be to end too big to fail. If a bank makes too many promises it can't keep, it should go under. The most the government should do is supervise a swift and orderly bankruptcy. If I were a lawmaker today, I'd be doing that exact thing: make these "too big to fail" companies keep meticulous records of exactly which assets they have, which liabilities, and let the thousands of smaller banks bid on them like vultures in the event of a failure (which is inevitable, given a decade plus moral hazard).
Here's another thing (more related to the GME situation): when the repo market started showing weird signs in 2019, the Fed stepped in and added massive liquidity. Fair enough, a financial crisis is something the Fed is supposed to prevent (ancillary to its somewhat silly dual - actually triple - mandate for high economic growth, low unemployment and steady long-run interest rates). However, when we were supposedly minutes from a financial crisis on Thursday, the Fed was nowhere to be found to inject cash into these brokerages and clearinghouses to secure retail trades. Are people on Robinhood trading repos or commercial paper or something? Of course not. That's for the big boys, the ones who get bailed out because they're "too big to fail." (Please spare me in advance with comments about how this violates X, Y or Z rule or something. Rules and norms have clearly not constrained the Fed much since September 2008, so why should the GME situation stop them now? The Fed has been creative - ingenious, even - at figuring out how to expand its balance sheet and take other policy actions - interest on reserves, anyone? - that were have novel effects.)
It's easy to make straw-man arguments against populist comments from an Internet blog, especially ones that were somewhat ignorant (I happen to agree with you about the comment betraying some ignorance about buy-and-hold). But that does not mean such a comment is representative. Does there exist a version of the story of what happened with GME that is much tighter in terms of facts but has the same "I don't trust the system!" sentiment? If there is, shouldn't the defenders of the market take it seriously, particularly those who do HFT for market makers?
[+] [-] op03|5 years ago|reply
[+] [-] brutal_chaos_|5 years ago|reply
[+] [-] animalgonzales|5 years ago|reply
[+] [-] fortran77|5 years ago|reply
[+] [-] ESTheComposer|5 years ago|reply
I mean...this was due to fat cats gambling. Illegal gambling in fact. What else do you call shorting 140% of a company's stock?
Also, this might just be me, but it feels disingenuous for you to not mention a disclaimer while posting this that you're a quant trader at a market maker.
EDIT: As others have pointed out I seem to be misinformed about the legality of it, but my original point does stand. This IS happening due to fat cats gambling, and retail investors catching wind of it and blowing it up on social media (to be clear I'm aware that the majority of GME holders are still institutional)
[+] [-] kenneth|5 years ago|reply
- writing out of the money options for the premiums
- shorting stocks with leverage
- '08s frenzy of selling credit default swaps
- forex trading with spreads so low that they take 100x+ leverage
Usually, when these strategies work, it's easy money and they get addicted to the easy returns. They scale the strategies up to a level of risk they can't handle. Like having 140% short interest relative to GME's float. When these strategies blow up in their faces, it wipes them out completely, to the level of requiring bailouts.
Main street (retail investors, taxpayers) have had enough of this, and a lot of anger is directed at institutional investors for always getting the easy money and the bailouts at their expense. They want to see the game applied fairly, such that when the bets go sour, they go bankrupt and don't get bailed out like in 2008. In the 2015 CHF forex crisis, many brokers went bankrupt overnight. That's what should happen to Melvin, and to anyone who takes the stupid risky bets that don't work out.
[+] [-] xeeeeeeeeeeenu|5 years ago|reply
Apart from the media, of course. For example, Newsweek is calling GME investors "far-right extremists"[1] while The Washington Post is comparing the situation to the Capitol riots[2].
[1] - https://www.newsweek.com/far-right-extremists-use-gamestop-c...
[2] - https://www.washingtonpost.com/opinions/2021/01/30/good-guys...
[+] [-] hn_throwaway_99|5 years ago|reply
1. Going to your own link, Newsweek did not call "GME investors "far-right extremists"". The article clearly states that far-right extremists were instead using the "stick-it-to-the-man" ethos driving a lot of the GME investor chatter to recruit. There is a huge difference.
2. As other's have pointed out, WaPo published an Op Ed, this was not something under their Editorial Board or a news article. Saying "The Washington Post is comparing the situation to the Capitol riots" is deliberately misleading.
[+] [-] hintymad|5 years ago|reply
And we stopped the trade for your own good. Yeah, right.
[+] [-] ignoranceprior|5 years ago|reply
[+] [-] Benjammer|5 years ago|reply
[+] [-] sn41|5 years ago|reply
I suspect that the truth is closer to "Wall Street" than we care to admit. Insider information is still the key, not stochastic differential equations, Ito's formula and portfolio balance theories. Melvin putting all their leveraged eggs in one basket is considered above board, and is not being questioned.
[+] [-] freefal|5 years ago|reply
[+] [-] mikeyouse|5 years ago|reply
[+] [-] Aunche|5 years ago|reply
[+] [-] fourstar|5 years ago|reply
[+] [-] solipsism|5 years ago|reply
For reference, this is from an article from the newsroom:
But of course, what the Reddit cabal did to inflate the stock of bygone-era companies like GameStop, AMC Entertainment and Bed Bath & Beyond simply mirrored what the hedge fund sharpies had done in conspiring to “short” those same stocks and drive down the prices
https://www.washingtonpost.com/business/2021/01/30/financial...
[+] [-] gorgoiler|5 years ago|reply
This is the narrative, for sure, but how is this anything more than conjecture? Have the hedge funds publicly said “you got us!”, and even then why should we believe them?
The story is fuelled by a subreddit and celebrity hot takes on Twitter. The news coverage I might actually trust also happens to be extremely weak — it’s all on the periphery rather than at the center of the story and I’m deeply skeptical anyone knows what’s actually going on. Why should they? Without a leak from an institution that’s how it should be when private entities trade on a public market.
I have seen the mansplaining of what a short position is or what a short squeeze is or how someone can be 150% over shorted — originally 138%, then inflated to 140% for impact, then inflated again. The explanations aren’t wrong but knowing the mechanics of a theory doesn’t differentiate between an internet fantasy and the real world. That kind of self-fulfilling logic is one step away from the world of conspiracy theories.
As I’ve said before, on the face of it this just looks a lot like some folks pumping a cheap stock. Potentially the first round of these had good reason to — the actual squeeze — but now the second, third, fourth and upcoming fifth daily cycles are pumping it for the sole reason because the last one did and we need an exit. It could well by pyramid shaped — I’d put money on it if I were you.
[+] [-] benlivengood|5 years ago|reply
Honestly, if the only winning move is to invest for the long term then why even bother with capital markets at all? Sounds like a waste of time when what we really want is for people to own the means of production.
Dump 100% of federal tax revenue into index funds and let it grow faster than the interest on T-bills issued for expenditures. Churn for ~50 years and start paying UBI from the massive profits. Would the government even need to pay interest on the T-bills in USD? Why not just issue more T-bills as interest because after all the long term pretty much guarantees the government would be swimming in cash in 50 years and have no trouble repaying it all. Incidentally the federal government would also become the majority shareholder of every company in the world.
If the market can magically let everyone with enough money invested in their youth retire happily then it follows that letting the government own all the stocks and issue UBI would result in roughly the same outcome.
[+] [-] teraku|5 years ago|reply
>Honestly, if the only winning move is to invest for the long term then why even bother with capital markets at all
Because they are gamblers, that's why. Most (reasonable) people only invest long-term.
>Sounds like a waste of time when what we really want is for people to own the means of production.
Yup.
>Dump 100% of federal tax revenue into index funds and let it grow faster than the interest on T-bills issued for expenditures. Churn for ~50 years and start paying UBI from the massive profits.
Tax revenue is not 'profit' by the state. That's not how tax nor money issuing works. But to the topic at hand: There are countries that put money into investment funds that will invest into infrastructure and safe long-term assets. But usually not for UBI, but for retirements (e.g. Denmark).
>If the market can magically let everyone with enough money invested in their youth retire happily then it follows that letting the government own all the stocks and issue UBI would result in roughly the same outcome.
Generally the idea of not having to work at all is still heavily controversial within science. Some believe in UBI, some in job-guarantees and others just in relatively high minimum wage and very strong retirement plans.
[+] [-] sombremesa|5 years ago|reply
I don't come to HN for comic relief, but there it is.
[+] [-] imtringued|5 years ago|reply
[+] [-] Aunche|5 years ago|reply
So after 50 years... you basically end up with a corporate tax?
[+] [-] imwillofficial|5 years ago|reply
[+] [-] ineptech|5 years ago|reply
I think the author misunderstands the threat here, and it's much graver than they think. Remember the U2 album Apple pushed to everybody's iphones?
Same thing here. What happened last week is the cracks showing, people being forcibly reminded that they are not in control. In Apple's case it was iphone owners being jolted out of the pleasant fantasy that their phone is a little piece of territory they alone control. In GME's case, it's people thinking of the stock market as something that exists for them to use, like a supermarket. And the jolting reality is that the stock market has become a vast and incomprehensible playground for billionaires to gamble with derivatives, in which the retail investor is incidentally allowed to participate only insofar as their money is helping to push up prices.
So the threat to the market is not what the author seems to be speaking to (a hypothetical investor who will buy in late, lose money, and get sore about it). The threat is people getting the general feeling that the stock market is shady, and deciding to buy a rental property, start a small business, etc.
[+] [-] yongjik|5 years ago|reply
> Seeing my wife lose money as a result of the hedge funds foolish shorts and inability to adapt to a new wave of social media – as well as the frightening thought the trading can be halted at any time as the brokerages see fit – has caused me to become extremely disheartened toward investing in the future.
Just checked, and after all these shenanigans, S&P 500 was set back to... where it was one month ago. This actually sounds like a strong evidence in favor of index funds plus long-term investing.
[+] [-] MisterBastahrd|5 years ago|reply
The big money guys on the big money shows kept referring to themselves as "the investor class."
As if by the very nature of their jobs, they were set aside above and apart from those of us who have to earn our livings by doing useful things. I'd love to know how much of the brainpower in the US is set aside for the purpose of doing nothing more than extracting wealth from the markets.
Additionally, I've long held the opinion that if your primary method of earning a living is by extracting wealth from the market, then your "capital gains" are just a fancy way of earning a living and you should be taxed at the exact same rate that everyone else is. You don't deserve to pay half the taxes just because your earnings are derived from stocks.
[+] [-] Animats|5 years ago|reply
"Except Japan", the author puts in a footnote. The stock market in Japan peaked in 1990 and never came back. The Nikkei peaked at 19590 and is now at 1740.
Could that happen to the US?
[+] [-] darkerside|5 years ago|reply
I self manage for the most part, but I also have at least some discipline and an awareness that the market could drop at any given time. It's only over the 5 year plus time horizon that I actually expect to make money.
[+] [-] anonu|5 years ago|reply
RH is the social media of trading. Its all about the quick hit of dopamine via a mobile-first experience. Any conceptual inkling of educating their customers around long term investing is out the window. Why? Because thats not their business model. They profit when you trade a lot because they get paid by HFT. So investing is not in their mantra. Only ridiculous day trading as we have now.
This isn't a story about market stability, price formation, RegNMS, margins, collateral. Thats all a distraction.
This story is about the "autists" at r/wsb sticking it to wall street. Which is fine, its all good and entertaining. But random punting isn't going to create wealth.
[+] [-] noisy_boy|5 years ago|reply
I think there is an opportunity for a service that allows the logistics of ordering/distributing large quantities of books written by such people that can be used by banks/funds for distribution to their employees and such to avoid the bad-light of direct speaking fees. Order the books, target gets paid (the cut the publisher takes can be considered an acceptable collateral cost of avoiding the exposure) and everyone looks nice - "we were just sharing knowledge - books are good!". Best part is, some people might actually read the books.
[+] [-] danfang|5 years ago|reply
To me, all this indicates that the only way to win is to not play. Passively investing in the market as a whole is the only way to win long term.
Disclosure: I work at a robo-advisor specializing in long term passive investing. My views are my own, and in no way associated with the views of my employer. This is not investment advice.
[+] [-] DethNinja|5 years ago|reply
I feel like huge majority of the people already know that system is rigged but what can they do? Most of them got very limited options against the system.
[+] [-] jb775|5 years ago|reply
If we see any govt agency step in, I'd imagine them trying to pity sell us on lost teacher pensions, etc being managed by the hedge funds...but they'll leave out the part that says those teacher pensions have been financially weaponized against average investors for years.
[+] [-] unknown|5 years ago|reply
[deleted]
[+] [-] loosetypes|5 years ago|reply
As in, it’s preferable to invest OPM. Could that be the definition of a hedge fund?
And in that regard, it’s basically the opposite of the ideals many of us are intimately familiar with - such as having “skin in the game”.
To share in winnings yet be insulated from losses must change one’s incentives and potentially reframe what “risky” means in practice.
[+] [-] syntaxing|5 years ago|reply
[+] [-] mrslave|5 years ago|reply
> Hedge funds have idea dinners in private behind closed doors.
I appreciate however the slightly obtuse admission that there's lots of behind the scenes private conversations. Interesting more so in this environment when everyone is a market manipulator depending on who you ask.
[+] [-] itsatrashcan|5 years ago|reply