Considering the author has worked as an investment banker, it seems strange that he's so surprised by this. The stock price of a publicly traded company has always simply depended on a single...
That’s cool but it’s also a terrifying proof of concept.
Considering the author has worked as an investment banker, it seems strange that he's so surprised by this. The stock price of a publicly traded company has always simply depended on a single thing: How many people want to buy it (demand) and how much of it is available to buy (supply). Of course the informed trader will want to buy the stock from the company which has proven long-term success by increasing profits every year (exponential growth is totally sustainable you guys).
But the thing is, the stock price is completely decoupled from anything the company does. The only thing controlling the stock price is supply and demand. The only thing that makes TSLA cost USD 880,80 (Jan 25th, markets closed) is the fact that that's the highest price people are willing to pay for it. Nothing else.
That’s cool but it’s also a terrifying proof of concept. If pure collective will can create a valuable financial asset, without any reference to cash flows or fundamentals, then all you need is a collective and some will. Just hop on Reddit and create value out of nothing. If it works for Bitcoin, why not … anything? Why not Dogecoin? Why not Signal Advance? Tesla Inc.? GameStop?
But that has been done time and time again. If we go back in time, it was printed money, because nothing speaks of the human will to create valuable financial assets like printing a piece of paper with a president on it for like 3 cents and declaring that it's worth ONE HUNDRED UNITED STATES DOLLARS. The only thing that makes that piece of paper valuable is our collective belief that it is valuable. It has to be, because otherwise nothing else is. It's basically religion. Want to go back further? Gold. Gold is fucking useless. So why is it so expensive? It looks pretty, and it's rare.
Something less metallic? Dye. No one needs dyed clothes. It's labour intensive to create dyes. The only thing you can do it with it is colour your clothes and show off how much money you have lying around so you can spend it on something as fucking useless as dying your clothes. Haha you poor cunts, I have MONEY.
The stock exchange is just the penultimate expression of this kind of thinking, it is peak capitalism, because you aren't even buying and selling useless shit anymore. You are buying and selling nothing, a potential for either more or less money in the future. That's what you are buying.
Gold isn’t useless, though. There are industrial applications (it’s a good conductor) and it also works well as jewelry. Probably that alone doesn’t justify the price, but there would be a price...
Gold isn’t useless, though. There are industrial applications (it’s a good conductor) and it also works well as jewelry. Probably that alone doesn’t justify the price, but there would be a price above zero even if people didn’t use it as a store of value.
Dollars are very useful for paying US taxes. Even if you found an alternative to use most of the time, you would still need them for that.
I don’t think Matt Levine is surprised by the existence of bubbles. He’s just marveling at a particularly pure form of it. It’s no longer surprising that a stock would go up due to mistaken identity, but usually it would go back down again pretty quickly.
All I know is what I gather from reading Matt Levine columns, and it seems like “market manipulation” is very hard to define. But saying nice things about stocks you own doesn’t seem to be...
All I know is what I gather from reading Matt Levine columns, and it seems like “market manipulation” is very hard to define. But saying nice things about stocks you own doesn’t seem to be unethical, let alone illegal, as long as it’s not lying and it's disclosed. Also, short sellers can say bad things about a stock. In some cases they may be doing something akin to whistleblowing, but for a profit.
Edit: he explains it better than I can in today's column, with appropriate caveats.
Honestly if we had enough gold and it was inexpensive, you'd see it everywhere. It wouldn't replace copper in electrical applications - it's got a higher resistance. It might do better than copper...
Honestly if we had enough gold and it was inexpensive, you'd see it everywhere.
It wouldn't replace copper in electrical applications - it's got a higher resistance. It might do better than copper (mixed with other metals to strengthen it) for heat distribution - imagine gold heatsinks in your computer rig. Plus, it's pretty, all those free electrons does make it glitter like nothing else. It'll get used in dollar store jewelry and ikea furniture if it's that cheap.
It's non-reactive, even to most (not all) acids. It doesn't corrode or degrade with age or exposure to the elements (which is why we used it as money in the first place). I have to wonder what unique applications we're missing out on due to the price of the metal, and how much research into what it actually is good for that we haven't done due to the expense. There's little point in the research if there's such a limited supply that it'll never become practical.
We won't have that much until we're mining asteroids for it on a large scale, though.
Back in the minicomputer era when computers were enormously expensive, circuit boards had gold contacts in the edge connectors, I assume because gold doesn’t corrode. My dad got old PDP-11’s that...
Back in the minicomputer era when computers were enormously expensive, circuit boards had gold contacts in the edge connectors, I assume because gold doesn’t corrode. My dad got old PDP-11’s that were being junked and gave my brother and I the job of breaking the edge connectors off all the circuit boards in a vise. He would take a jar of them to a recycler to sell the gold. He made cabinets out of the steel frames and drawers, and we had some fun playing with the enormous magnets from the disk drives.
I'm aware of the industrial applications of gold, however jewelry serves no use other than to display wealth and status, which is exactly what I was getting at in my post. You seem to have missed...
I'm aware of the industrial applications of gold, however jewelry serves no use other than to display wealth and status, which is exactly what I was getting at in my post.
You seem to have missed the point of my post. Taxes are just an extension of the monetary system.
That's not really true. Money is valuable because you can pay your taxes with it. Paying your taxes is valuable because society will incarcerate you if you don't. Money isn't just valuable because...
Taxes are just an extension of the monetary system.
That's not really true. Money is valuable because you can pay your taxes with it. Paying your taxes is valuable because society will incarcerate you if you don't. Money isn't just valuable because people think it is -- its value is backed by a state with a monopoly of force.
Okay, I'll try this again. Money is pieces of metal or paper, or bits today, that we have collectively agreed as a society, hold a certain value that is completely removed from the object...
Okay, I'll try this again. Money is pieces of metal or paper, or bits today, that we have collectively agreed as a society, hold a certain value that is completely removed from the object representing it. A hundred Euro note holds a lot of buying power, but a piece of A4 blank white paper doesn't, even though they are (more or less) the same thing.
I'm not saying money isn't real, simply that it's something society has willed into being because well agreed to believe in it, like super-religion. The State is just made out of people too, and if they all believe in it, the state can back that belief with force.
Since the author seemed to have been so surprised by this I was bringing it up, because as an ex-investment banker, he should've known that.
I think we're talking in circles here. Yes I agree, money and gold (and stocks and bitcoin and etc.) have subjective value that far exceeds the value in just physically acquiring them. I'm just...
I think we're talking in circles here. Yes I agree, money and gold (and stocks and bitcoin and etc.) have subjective value that far exceeds the value in just physically acquiring them. I'm just responding to your earlier line of reasoning:
The only thing that makes that piece of paper valuable is our collective belief that it is valuable. It has to be, because otherwise nothing else is.
Unlike gold or bitcoin, there is a floor of tangible value in a state's currency that you can pay taxes in. If tomorrow we wake up and there is a new world order requiring everyone to donate 1 toe nail clipping a day or face a life in prison -- toe nail clippings become immediately valuable. Not subjectively valuable, just valuable (for people that value their freedom, at least).
Admittedly it's a status thing and I'm not into jewelry myself, but the artistic and decorative use of materials seems more real to me than Internet points. People do wear cheap jewelry and still...
Admittedly it's a status thing and I'm not into jewelry myself, but the artistic and decorative use of materials seems more real to me than Internet points. People do wear cheap jewelry and still prefer dyed clothing when it's cheap, therefore it seems like it has some value that's not entirely tied to status. So I'm not on board with saying art and decoration are useless, even if it often does turn into a way for the wealthy to display their status.
Things can serve multiple purposes. Even food can also be used as a status symbol (like eating in high-end restaurants).
The value of many goods and services is often pretty nebulous and culture-specific, which is why it can be gamed. I don't think the cost of production or even the price has much to do with value, necessarily. The air is free, but it's still pretty valuable.
When we're looking at asset prices, I ask what prevents the price from dropping to zero when the bubble pops? It's nice if there's a good answer to that question, and taxes count as an answer. A share being a claim on future income of a company is another answer.
I think this is a remnant from the times when neither of them were cheap. Industrial times have helped cheapen a lot of such products, so more people could afford them. Suddenly what was expensive...
People do wear cheap jewelry and still prefer dyed clothing when it's cheap, therefore it seems like it has some value that's not entirely tied to status.
I think this is a remnant from the times when neither of them were cheap. Industrial times have helped cheapen a lot of such products, so more people could afford them. Suddenly what was expensive once wasn't anymore, so everyone bought it, but then it lost its status symbol because everyone bought it, and now you have to buy it or society thinks you're weird because you aren't doing what everyone else is doing.
Admittedly my argument is a tad simplistic, because it overlooks the people who wear jewelry, intricate clothing etc. for themselves, but I think most people do it for everyone else too. There's nothing wrong with wanting to look good, as long as that desire doesn't cause harm. Just like you said, things can have multiple uses, and it's mostly rarity dictating what gets to be a status symbol.
I ask what prevents the price from dropping to zero when the bubble pops? It's nice if there's a good answer to that question, and taxes count as an answer.
How do taxes stop asset price plummeting to zero when a bubble pops?
This is when thinking about a currency as an asset. A currency has a price (in other currencies) and what reasons are there to use it? The most important reason is because everyone else does, but...
This is when thinking about a currency as an asset. A currency has a price (in other currencies) and what reasons are there to use it? The most important reason is because everyone else does, but besides that, even if the people in a country partially switched to a different currency, they would still need to pay their taxes.
I do the same, although I do have to say, it's extremely funny seing a bunch of idiots shitposting ending up so successful.
And while I don't think I'd be comfortable dropping thousands into GME, I—perhaps hypocritically—do feel comfortable going long on certain stocks and ETFs because I feel the perceived value of those products will rise in the long-term based on fundamentals about the sector and the companies behind the tickers; as opposed to buying a stock because everyone else on a shitposting forum said it's valuable.
I do the same, although I do have to say, it's extremely funny seing a bunch of idiots shitposting ending up so successful.
Given some of the blatantly /r/teenagers-like bragging I have seen in /r/wallstreetbets, I would be taking any claims of fantabulously massive gains with a huge pillar of salt.
Given some of the blatantly /r/teenagers-like bragging I have seen in /r/wallstreetbets, I would be taking any claims of fantabulously massive gains with a huge pillar of salt.
If I were using Robinhood, this would make me never use it again. Why would they do this? Is this all a response to pressure from hedge funds to stem their losses? This should be a death blow to...
If I were using Robinhood, this would make me never use it again. Why would they do this? Is this all a response to pressure from hedge funds to stem their losses? This should be a death blow to Robinhood.
The "UI Bug" aspect of that story is overblown. The UI did what it should have. Now, whether or not Robinhood should let inexperienced traders operate with complex financial instruments is another...
The "UI Bug" aspect of that story is overblown. The UI did what it should have. Now, whether or not Robinhood should let inexperienced traders operate with complex financial instruments is another question.
To elaborate, the user had an option spread (which involves both a short and long leg - essentially you're hedging by both betting the stock will go up and the stock will go down, reducing your gains but also your risk) and had the short leg exercised before the long leg did. So yes, at one point he had a -73k balance, but
I mean, he did, in the same way if you own a store, after you buy merchandise and before you sell the merchandise, you'll have -100k on your balance sheets.
Ostensibly, they're trying to protect their customers. I'm sure there is an absolute floodgate of people with no idea what they are doing who would have tried to buy in at $400. Maybe just locking...
Ostensibly, they're trying to protect their customers. I'm sure there is an absolute floodgate of people with no idea what they are doing who would have tried to buy in at $400. Maybe just locking out new accounts would have been a better option?
I mean if there actually is a short squeeze tomorrow then the people who have already bought in should be fine and Robinhood is making a huge mistake. But if it crashes today then we know the squeeze already happened and they just saved a bunch of people their grocery money. Hindsight will be 20/20 but I don't think its an unconscionable decision.
Even if Robinhood is truly doing it purely out of the goodness of their hearts, that's not their decision to make. The WSBer /u/deepfuckingvalue, who went from $50K to $50M on GME over the last...
Even if Robinhood is truly doing it purely out of the goodness of their hearts, that's not their decision to make. The WSBer /u/deepfuckingvalue, who went from $50K to $50M on GME over the last year, would've also been advised by every rational person to not open/keep holding the positions he had.
I mean I definitely agree it's a bit hypocritical of them given how much money they've made off people gambling. However: How is it not? Not only is it their platform, these people aren't even...
I mean I definitely agree it's a bit hypocritical of them given how much money they've made off people gambling. However:
that's not their decision to make.
How is it not? Not only is it their platform, these people aren't even paying customers -- they're the product.
They're subject to pretty stringent SEC regulations - preventing stock purchases while allowing sales would be strongly expected to sway the price. A full pause at the exchange is one thing, but a...
They're subject to pretty stringent SEC regulations - preventing stock purchases while allowing sales would be strongly expected to sway the price. A full pause at the exchange is one thing, but a one-sided pause that only affects retail customers trying to buy is treading dangerously into manipulation territory.
Whether anything will come of that theory, who knows? I'm actually finding it a little scary how quickly the large investors, media, and trading companies all seem to have closed ranks in favour of the status quo.
I think it's crazy people try to mince words about market freezes (one sided or not) being literal market manipulation. Like, no, it is not "treading dangerously into manipulation territory". It's...
I think it's crazy people try to mince words about market freezes (one sided or not) being literal market manipulation. Like, no, it is not "treading dangerously into manipulation territory". It's just straight up manipulation. Sometimes manipulation can be for good reason, like if someone is committing a fraud. But I wish people wouldn't pretend like any kind of coordinated effort to intentionally make the market do something it doesn't normally do could possibly not be "manipulation".
I just think it's frustrating, because nobody with any power ever is willing to mince words when it comes to "market manipulation" in an effort to house the poor and feed the hungry.
I can definitely relate to that, and I wasn't trying to "call you out" or anything. Just drawing attention to this double standard that I wish more people would notice.
I can definitely relate to that, and I wasn't trying to "call you out" or anything. Just drawing attention to this double standard that I wish more people would notice.
Yea, that's an interesting point. I think a full pause would have drawn even more of an outcry though. I really don't understand this whole culture war thing. People are just trying to make a...
They're subject to pretty stringent SEC regulations - preventing stock purchases while allowing sales would be strongly expected to sway the price. A full pause at the exchange is one thing, but a one-sided pause that only affects retail customers trying to buy is treading dangerously into manipulation territory.
Yea, that's an interesting point. I think a full pause would have drawn even more of an outcry though.
I'm actually finding it a little scary how quickly the large investors, media, and trading companies all seem to have closed ranks in favour of the status quo.
I really don't understand this whole culture war thing. People are just trying to make a quick buck. I don't think the success or failure of a handful of hedge funds is something Wall Street as a collective really cares about and people are now looking for dark patterns that "they" are colluding to keep the price down. Do people not realize there are hedge funds who are long GME to take advantage of Melvin's mistake?
There were a few pauses in the last few days - they're common and affect all traders, large or small, equally. A buy side only halt that affects retail investors only is a whole different thing....
There were a few pauses in the last few days - they're common and affect all traders, large or small, equally. A buy side only halt that affects retail investors only is a whole different thing.
As for the rest, @tindall hit the nail on the head. Institutions are given carte blanche to gamble with almost total impunity, to the significant detriment of individuals, but individuals apparently aren't afforded the same privilege in reverse.
I meant if Robinhood was to freeze buying and selling of particular stocks as to avoid the optics of manipulation. I think that would likely be (more?) illegal? Circuit breakers are just part of...
There were a few pauses in the last few days - they're common and affect all traders, large or small, equally. A buy side only halt that affects retail investors only is a whole different thing.
I meant if Robinhood was to freeze buying and selling of particular stocks as to avoid the optics of manipulation. I think that would likely be (more?) illegal? Circuit breakers are just part of the market.
Institutions are given carte blanche to gamble with almost total impunity, to the significant detriment of individuals, but individuals apparently aren't afforded the same privilege in reverse.
What institutions are we talking about here? There are several competing institutional interests here. Its possible that Robinhood is colluding with short sellers here, but that would draw the ire of other hedge funds and market makers etc. I just don't see that being something they would risk.
I see what you meant now - having Robinhood freeze both may indeed have been worse, although perhaps actually less directly manipulative as it's just removing players from the market entirely...
I see what you meant now - having Robinhood freeze both may indeed have been worse, although perhaps actually less directly manipulative as it's just removing players from the market entirely rather than strongly pushing them to sell. Honestly, this kind of conflict and complexity is exactly why they shouldn't be pulling unilateral moves like this, surely?
As for the second part of your question, that gets more interesting. Which institutions was I talking about in that quote? All of them. Whether they're winning or losing on this week's shenanigans, pretty much the entire industry has been allowed to gamble with increasingly obscure and disconnected options and derivatives, with relatively little regard to what that means for the companies being traded or the people who work for them. Institutional players resist regulation at every turn, politicians literally exempt themselves from insider trading laws, and the consequences of these enormous and deliberate gambles are brushed off almost like irrefutable laws of nature.
Now, to be more speculative: would Robinhood defend Melvin? Highly unlikely, and as you say, others stand to gain just as much. So why would they take the risk of such an unpopular, seemingly manipulative move?
Perhaps it was just a straightforward bad decision.
Perhaps it was a deliberate decision to shut down the very idea that retail investors can squeeze a hedge fund dry - a threat to one is a threat to all, and they'd rather close the store entirely than let the workers unionise. Either way, the upshot is the institutions keep trading while the individuals are shut out: a prime example of the skewed rules that a lot of people are so angry about in the first place.
I don't want to be conspiratorial. But I do know the history of union busting, even to the point of toppling whole regimes, and how insane it would sound if it weren't documented to be true. I see the parallels here. So when the press, several brokers, and multiple institutional investors team up with this speed and ferocity, I get a little twitchy.
I'm trying hard to not come off as pro-Wall Street over here because I'm really not. Wall Street is amoral -- which is regrettable but in this case is preventing them from sensibly doing what...
Perhaps it was a deliberate decision to shut down the very idea that retail investors can squeeze a hedge fund dry - a threat to one is a threat to all, and they'd rather close the store entirely than let the workers unionise. Either way, the upshot is the institutions keep trading while the individuals are shut out: a prime example of the skewed rules that a lot of people are so angry about in the first place.
I'm trying hard to not come off as pro-Wall Street over here because I'm really not. Wall Street is amoral -- which is regrettable but in this case is preventing them from sensibly doing what you're proposing. The bigger threat to Melvin at this point isn't retail investors -- its other hedge funds who have no problem eating their lunch. I have a hard time seeing the industry as a whole take collective action like you're suggesting when it involves leaving money on the table. The media is blowing this up into a huge David vs Goliath drama because its generating clicks like you wouldn't believe but I don't think the framing of that narrative is accurate.
I quite understand - and in the same way, I don't want to come off as a conspiracy theorist, because I'm really not! I do consider it at least a possibility that there's a concerted effort going...
I quite understand - and in the same way, I don't want to come off as a conspiracy theorist, because I'm really not! I do consider it at least a possibility that there's a concerted effort going on to maintain the status quo. It does sound like we're going to disagree on the likelihood of that, and that's fine - it's an interesting discussion either way. At the very least, I hope you can somewhat agree that the individuals and the institutions are playing by quite different sets of rules, and they're not set up in the individual's favour.
In terms of leaving money on the table, I'll say two things: firstly, I used the "closing the store to prevent the union getting off the ground" analogy very deliberately - companies will take a significant short term loss in order to head off something they see as a long term or existential threat. I see every chance that they'd rather lose out here than risk being "Melvined" themselves, or even replaced entirely, by an unpredictable crowd of redditors in future.
Secondly, that only applies if it were an either/or situation. If they can discredit and shut out retail investors but leave trading open for themselves, which is precisely what they've done, they can eat their cake and still have it.
It's definitely an interesting discussion, thanks for the back and forth! I'm fully prepared to be wrong here -- its certainly possible that RH is picking favorites and colluding with someone. And...
It's definitely an interesting discussion, thanks for the back and forth! I'm fully prepared to be wrong here -- its certainly possible that RH is picking favorites and colluding with someone. And yes, I agree the deck is definitely stacked but I think your premise is flawed:
If they can discredit and shut out retail investors but leave trading open for themselves, which is precisely what they've done
Wall street wants more retail investors. We're not looking at any meaningful transfer of wealth or power out of the investor class to the "retail investors" (many of whom are millionaires themselves) -- just more trading activity that drives more volume for market makers. Risk is ingrained into the culture of wall street and no real rules have been broken here -- there are several major players who were long GME well before the hype took off. I don't think what's happening to Melvin even required retail participation -- it boosted the signal and thus scale of the event but its plausible all this happens without WSB.
I agree with the gist of what you're saying because its true but we don't know that is really the case here. There are as many institutions that are being hurt by this as being helped by this. I...
the point @Greg, and many others, are making here is that the resources exist to move money around and change the rules to protect institutions and organizations from individuals, but those resources are rarely used to protect even large groups of individuals from those same institutions and organizations.
I agree with the gist of what you're saying because its true but we don't know that
change the rules to protect institutions and organizations from individuals
is really the case here. There are as many institutions that are being hurt by this as being helped by this. I would guess Robinhood is really trying hard to avoid a NYT front page of "Grandma, forced out of retirement" when she signed up for Robinhood.
Most retail investor trading platforms seem to be commission free now, so Robinhood is on par with other platforms. Robinhood makes money (I believe) from interest earned on the liquid cash people...
Most retail investor trading platforms seem to be commission free now, so Robinhood is on par with other platforms. Robinhood makes money (I believe) from interest earned on the liquid cash people have in their accounts, so it's not really the same as non-financial platforms where people really are the product. People forego interest on their cash and Robinhood makes it instead.
People park their money at Robinhood with a certain expectation that the platform will conduct trades on their behalf and not actively interfere. To me, this behavior on their part really is beyond the pale.
They actually make most of their money from payments for order flow. They don't execute the transactions they sell them to market makers.
Most retail investor trading platforms seem to be commission free now, so Robinhood is on par with other platforms. Robinhood makes money (I believe) from interest earned on the liquid cash people have in their accounts, so it's not really the same as non-financial platforms where people really are the product.
They actually make most of their money from payments for order flow. They don't execute the transactions they sell them to market makers.
To be fair, that makes it sound way more nefarious than it necessarily should. That's also what TDA, Fidelity, etc. do. Brokers don't execute trades, that's what market makers are for. And...
To be fair, that makes it sound way more nefarious than it necessarily should. That's also what TDA, Fidelity, etc. do. Brokers don't execute trades, that's what market makers are for. And practically all of them engage in some amount of payment for order flow.
Matt Levine's Gamestop Blog made an excellent counter point. What were they thinking would happen?
Matt Levine's Gamestop Blog made an excellent counter point.
What were they thinking would happen?
Yeah, look, I sympathize. If you keep letting people in, some of them are going to get in at the top, and then some of them are going to say, unfairly, “why did you let me in at the top?” Though of course when you stop letting people in, that might be what ends the fun—the stock plunged this morning after Robinhood’s move—and so whoever you last let in will necessarily have gotten in at the top and will sue you even more. (“Why did you let me in at the top, and why did you then cause the crash?”) Also I have to say that if Robinhood stops letting people gamble on meme stocks, that is going to hurt its ability to attract customers who want to gamble on meme stocks.
Yea I agree with Levine's opinion. To be clear, I don't really support Robinhood's decision and I think it will end up being a mistake. I also don't think, however, that it's part of some larger...
Yea I agree with Levine's opinion.
To be clear, I don't really support Robinhood's decision and I think it will end up being a mistake. I also don't think, however, that it's part of some larger conspiracy to suppress GME. I'm also not naive enough to think they care about trying to protect anyone -- I think they are trying to protect their bottom line by avoiding negative press.
Robinhood's decision has ended their business. Absolutely no one will trust them after this, so everyone will move to their competitors as soon as possible. The same will continue to happen to...
Robinhood's decision has ended their business. Absolutely no one will trust them after this, so everyone will move to their competitors as soon as possible. The same will continue to happen to anyone who displays favoritism like this. Once the trust is lost, it's game over. There won't be a Robinhood this time next year.
Guess what we overhead today? Vladimir, yes founder Vladimir, and the C-Suite, received calls from Sequoia Capital and the White House that pressured into closing trading on GME etc. I guarantee you the same took place at E-Trade and the others who closed trading.
I'll be interested to see if the mods confirm this guy's story.
I think it will hurt them but ended is a bit premature at this point. That has to be the one of most obvious LARPs of all time. It's almost at "The Pope has been arrested!" levels...
Robinhood's decision has ended their business.
I think it will hurt them but ended is a bit premature at this point.
I wonder about this thread as well.
That has to be the one of most obvious LARPs of all time. It's almost at "The Pope has been arrested!" levels...
Some of the hysteria is definitely getting a little crazy. I remember at one point the top thread on /r/all was "The Hedge Fund CITADEL pays Robinhood for their order flows" That is not how hedge...
I also don't think, however, that it's part of some larger conspiracy to suppress GME.
Some of the hysteria is definitely getting a little crazy. I remember at one point the top thread on /r/all was "The Hedge Fund CITADEL pays Robinhood for their order flows"
That is not how hedge funds work lol, although I can see why it's confusing when there's two separate entities, Citadel (securities) the MM and Citadel the hedge fund. Same LLC, but there is a Chinese Wall.
Yea Twitter is wild right now. People are out for blood for reasons they don't seem to understand very well. You seem like you might work in fintech or adjacent so maybe you can explain this one...
Yea Twitter is wild right now. People are out for blood for reasons they don't seem to understand very well.
You seem like you might work in fintech or adjacent so maybe you can explain this one to me: how do Chinese Walls work?
Their very existence to me seems like a mistake similar to electronic voting machines. Not necessarily because they don't work or are insecure but because their very existence invites all sorts of conspiracy theories.
It's not just a finance thing. For journalist, for instance, there's usually one between the staff who write sponsored articles and the ones that write their actual editorial content. I suppose...
It's not just a finance thing. For journalist, for instance, there's usually one between the staff who write sponsored articles and the ones that write their actual editorial content.
I suppose it's just difficult in many cases to not have any conflicts of interest in the company. In the above example, it would be hard to have a newspaper that's only sponsored content and it would also be hard to have a newspaper company without any sponsorships.
Although, that's not really true for Citadel vs Citadel securities, and actually after looking it up I'm pretty sure I'm outdated on this: they are just separate LLCs now, it seems.
That's true. Thinking about it, a Chinese Wall may actually draw more regulatory attention than two separate firms operating under the same ownership. But yea, ultimately we're talking about a...
I suppose it's just difficult in many cases to not have any conflicts of interest in the company. In the above example, it would be hard to have a newspaper that's only sponsored content and it would also be hard to have a newspaper company without any sponsorships.
That's true. Thinking about it, a Chinese Wall may actually draw more regulatory attention than two separate firms operating under the same ownership. But yea, ultimately we're talking about a tens-of-thousands year search to a question of human power-sharing and it's quite clear we haven't arrived at an answer. ;)
Or that undue influence from wall street onto robin hood prevented the squeeze from happening. To be fair, I've heard the really big firms at wall street are in on the squeeze too and are the...
But if it crashes today then we know the squeeze already happened and they just saved a bunch of people their grocery money.
Or that undue influence from wall street onto robin hood prevented the squeeze from happening.
To be fair, I've heard the really big firms at wall street are in on the squeeze too and are the actual drivers of it, so I don't think it'll prevent the squeeze. But you can't just manipulate the market (by allowing your users to only move the price one direction) and then tell them you protected them with your manipulation, because what happened because of your manipulation would have hurt your users. In other words: Damages should be calculated not by what happened, but by what would have happened.
This is not factual. It turns out that it was RH's inability to cover the risks involved in providing margin trading for a highly volatile stock. This is several degrees more sensible than a...
Or that undue influence from wall street onto robin hood prevented the squeeze from happening.
This is not factual. It turns out that it was RH's inability to cover the risks involved in providing margin trading for a highly volatile stock. This is several degrees more sensible than a nebulous conspiracy theory.
Better excuse than "protecting their customers", which is outright bullshit. Ok, so why did they also block people from outright buying the stock with their actual money, no margin involved?...
Better excuse than "protecting their customers", which is outright bullshit.
Ok, so why did they also block people from outright buying the stock with their actual money, no margin involved? Unless they completely lack the option to block the GME&Margin option and thus disabled GME... I mean, that's a plausible-ish fuckup.
The thing that really gets me here though is that several companies had the same kind of reaction "You can now only sell GME and not buy", in several places, all at once. Several companies having the same fuckup independently at the same time? Implausible. Several companies having different fuckups with the same effect? Even less so. I dunno, I feel this is one of those times where there might actually be something to these theories. Not necessarily a hedge fund cabal, but I feel we're being bullshitted by RH and the likes.
It's been explained many times over the last couple of days, it's because of how stock settlement works along with clearinghouses, high-volatility stocks, and required levels of collateral. A good...
Exemplary
It's been explained many times over the last couple of days, it's because of how stock settlement works along with clearinghouses, high-volatility stocks, and required levels of collateral. A good one is the "Why did Robinhood stop them?" section of Matt Levine's newsletter today. I'll quote one section of it (which is actually a quote from a different Bloomberg article), but you should go read the whole thing:
One key consideration for brokers, particularly around high-flying and volatile stocks like GameStop, is in the money they must put up with the DTCC while waiting a few days for stock transactions to settle. Those outlays, which behave like margin in a brokerage account, can create a cash crunch on volatile days, say when GameStop falls from $483 to $112 like it did at one point during Thursday’s session.
“It’s not really Robinhood doing nefarious stuff,” said Bloomberg Intelligence analyst Larry Tabb. “It’s the DTCC saying ‘This stuff is just too risky. We don’t trust that these guys have the cash to be able to withstand settling these things two days from now, because in two days, who knows what the price could be, it could be zero.’”
The trouble on Thursday began around 10 a.m., when after days of turbulence, the DTCC demanded significantly more collateral from member brokers, according to two people familiar with the matter.
A spokesman for the DTCC wouldn’t specify how much it required from specific firms but said that by the end of the day industrywide collateral requirements jumped to $33.5 billion, up from $26 billion.
Brokerage executives rushed to figure out how to come up with the funds. Robinhood’s reaction drew the most public attention, but the firm wasn’t alone in limiting trading of stocks such as GameStop and AMC Entertainment Holdings Inc.
Brokerages had to come up with $7.5 billion more in collateral yesterday to be able to support continuing to sell these stocks. That's not the sort of thing that can happen instantly, especially for ones without massively deep pockets (Robinhood in particular, and that's why they had to raise $1B more in a hurry).
In situations like this one with so many complicated systems involved, it's really only worth paying attention to experts in the industry that actually know what they're talking about, not random people on Reddit/Twitter/etc. that are mostly just repeating things they saw others say without any actual knowledge. It usually takes the experts longer to release their explanations (because they're busy actually doing things and not just refreshing social media), but that's why it's important not to jump onto the first explanation someone tweets 30 seconds after the event, no matter how much it's getting spread around.
I'm working through that and am just now getting to the juicy part. I'm not sure my mental model of the stock market is up to snuff, but that t+2 stuff seems to be the rub: Robin Hood has your...
I'm working through that and am just now getting to the juicy part. I'm not sure my mental model of the stock market is up to snuff, but that t+2 stuff seems to be the rub: Robin Hood has your cash. You tell em to buy GME for it. Robin Hood goes to whoever wholesaler, promises to hand over your cash at today's price, in exchange for stock. This puts the wholesaler in a pickle, because if they stand there in two days, ready to hand over, and robin hood lacks the cash, the wholesaler has bought the stock at a possibly stupid price and the wholesaler would eat the difference in stock price of those 2 days, which could be substantial.
But robinhood has my cash... They could immediately drop the complete cost of the stock as collateral, leaving the wholesaler/clearinghouse with no risk at all.
That still leaves us with an outrageously shitty PR job from a ton of brokers. Just a "Too much volatility. (Protect Investors.) We closed" from a lot of companies, at pretty much the same time. I can only assume that german brokers work with different clearinghouses than the US ones, and yet they fail at the same time, with similarly shitty explanations. Thursday wasn't even notably more volatile than the rest of the week, was it?
This also fails to explain (to me anyway, and you have no obligation of fixing that) why some brokers continued working while others didn't. One third of brokers had outages that are extremely correlated (see e.g. a summary in german here - broker name; technical difficulties; trading stopped - Nein means no) - unless there's about three clearinghouses, and one of them decided to stop trading, which would explain the correlation of outages.
And while the article is on the topic of "shorts are important for market plumbing reasons", is there a particular reason why shorts aren't organized like horse race bets? You put money in a pot, I put money in a pot, in X days the price will be < Y means I get the pot, else you get it. No unlimited risk, no margin calls, no bullshit. Also not a self-fulfilling prophecy because it doesn't affect the price of the stock.
It's been explained many times over the last couple of days,
curiously, this is the first time I'm reading an actual article on this, and I tend to browse the more calm boards on this, though only loosely. Ya know, the boards that push monthly ETF investments. And they were similarly up in arms about this, and still no rational explanation 2 days after the fact... So thank you, Deimos.
Also, who does PR for these brokers? How do you fuck that up? A blog post by RH 6 hours ago, and not a single hint at a credible, rational explanation beforehand?
P.S.: While writing this I discovered a bug with the editor: If you expand the editor frame to beyond the sidebar, the corner that lets you do that might disappear behind the sidebar. This is quite inconvenient, but recoverable by putting the cursor to the longest line all the way right to get the corner into view again.
It's a pretty bad look, but in terms of driving users from the platform I don't think it will, mostly because the "traditional" platforms like TDA also halted trades or at least buy orders on GME...
It's a pretty bad look, but in terms of driving users from the platform I don't think it will, mostly because the "traditional" platforms like TDA also halted trades or at least buy orders on GME right now. So not much to run to.
Yet, you can still buy highly volatile cryptocurrencies... The hypocrisy is astounding. I had shares for AMC and NOK queued up for purchase last night but it was cancelled.
Yet, you can still buy highly volatile cryptocurrencies...
The hypocrisy is astounding. I had shares for AMC and NOK queued up for purchase last night but it was cancelled.
I keep coming back to the nihilism thesis. We talked recently about how the stock of a micro-cap company called Signal Advance Inc., which shot up 5,100% after Elon Musk tweeted something about an unrelated app named Signal. The error, as it were, was quickly corrected: Lots of news stories, and a tweet from the “real” Signal, clarified that Musk was not talking about Signal Advance. The stock kept going up. (It’s still trading at roughly 10 times its pre-tweet price, weeks later.) Perhaps the buyers were impenetrably ignorant, but I suggested another possibility: There is a mass of retail buyers who like to all buy the same stock, and Musk’s tweet gave them a Schelling point to coordinate around. They weren’t confused about what Musk meant; they didn’t care that much about what Musk meant. They just like to all have fun together, pumping some stocks. You don’t actually need a Schelling point to coordinate around. You can just go on Reddit and talk about what stock you’re all going to buy.
When I wrote about Signal, I got a few thoughtful emails from readers about Bitcoin. Bitcoin is a financial asset with no cash flows. It has value purely because people think it’s valuable. Bitcoin is worth $34,000 because other people will pay you $34,000 for it, and they’ll pay you $34,000 because other people will pay them $34,000, etc. There is no underlying claim; there is just a widespread acknowledgment that people think it’s valuable.
I do not say this to be negative about Bitcoin. This is fascinating! It is an amazing collective accomplishment to create a new thing, from scratch, that is valuable just because we collectively agree that it’s valuable. It is amazing to find a way to create that collective agreement from nowhere. Once you have it, you can actually do useful things with Bitcoin—as a store of value, a currency, whatever—that you couldn’t do before. Bitcoin created real financial value out of, essentially, the human imagination.
That’s cool but it’s also a terrifying proof of concept. If pure collective will can create a valuable financial asset, without any reference to cash flows or fundamentals, then all you need is a collective and some will. Just hop on Reddit and create value out of nothing. If it works for Bitcoin, why not … anything? Why not Dogecoin? Why not Signal Advance? Tesla Inc.? GameStop?
In my opinion the root cause (of the nihilism) is lack of buy-in to democratic institutions / society that's driven largely by growing inequality and lessening opportunity. This is being...
I keep coming back to the nihilism thesis.
In my opinion the root cause (of the nihilism) is lack of buy-in to democratic institutions / society that's driven largely by growing inequality and lessening opportunity. This is being compounded by other implosions of meaning and a growing sense of postmodernism in society. Reality TV star President. Fake news. Anti-vax. Qanon. Etc etc. It's been a bit of a slow boil, but the world is very different than it was 15 years ago. It's not really a shocker to me that people look at this and go "Yup, makes sense to me."
Is anyone on Tildes playing this game? I arrived late and put some dosh in just to see how this plays out, for fun. To anyone concerned, no I did not dump my 401k into it or anything like that.
Is anyone on Tildes playing this game? I arrived late and put some dosh in just to see how this plays out, for fun.
To anyone concerned, no I did not dump my 401k into it or anything like that.
They are manipulating the ever living hell out of this stock unlike anything I've ever seen. High speed algo trading in between circuit breaker halts to mimic a sell-off and scare retail investors...
They are manipulating the ever living hell out of this stock unlike anything I've ever seen. High speed algo trading in between circuit breaker halts to mimic a sell-off and scare retail investors who are only able to sell and not buy more due to their brokers dicking them over. RH has done massive damage to their reputation today.
I woke up this morning ready to buy more stock only to find out RH killed anymore trading. This is bullshit. They say retail traders are manipulating the market but it’s so naked that the big...
I woke up this morning ready to buy more stock only to find out RH killed anymore trading. This is bullshit.
They say retail traders are manipulating the market but it’s so naked that the big financial institutions are the ones manipulating here to fuck over regular people because they’re mad they’re cleaning up on this mess. It’s obscene and a real pull down of the legitimacy veil over the economy...no wonder it’s all going volatile. It’s all bullshit! Only the “right people” are supposed to make money.
A lot of people are very angry about this. Rashida Tlaib, AOC, even Ben Shapiro have all now publicly criticized Robinhood for halting buy orders. I think there is probably going to wind up being...
A lot of people are very angry about this. Rashida Tlaib, AOC, even Ben Shapiro have all now publicly criticized Robinhood for halting buy orders. I think there is probably going to wind up being a class action lawsuit about this. You can increase the chances that happens by filing a complaint with the SEC.
It really is bullshit. They had halted trading 17 times so far today when I checked an hour ago. Yea I'll make some decent money on this, but I'm mostly thankful we're having a moment where the...
It really is bullshit. They had halted trading 17 times so far today when I checked an hour ago. Yea I'll make some decent money on this, but I'm mostly thankful we're having a moment where the average person gets to see how blatantly manipulated the stock market is to benefit billionaires. Especially during a pandemic that has exposed the flaws in nearly every aspect of our society except the stock market, which continued to reach new ATHs while people suffered.
Also being late to the game, the only broker that allows you to get in right away seems to be Vanguard (which has a terribly outdated site for this style of trading) which will let you trade on...
Also being late to the game, the only broker that allows you to get in right away seems to be Vanguard (which has a terribly outdated site for this style of trading) which will let you trade on their fund. You can't do options, so you'll have to go all in buying the actual stock, but everywhere else is taking days to verify new accounts.
It should take days to verify accounts. It means (at least ostensibly) they are doing their due diligence of identity verification. If a platform lets you in instantly (such as RH), that is a huge...
It should take days to verify accounts. It means (at least ostensibly) they are doing their due diligence of identity verification. If a platform lets you in instantly (such as RH), that is a huge red flag that they don’t care to vet their users. I understand that some people are frustrated because they have money tied up in RH or other brokers that have frozen buying of some stocks, but it worries me that people think opening a trading account with a broker should be as easy as signing up for a newsletter.
I don’t believe it is possible to automatically verify a human identity with the level of confidence that we should expect for things like this. Brokers have a responsibility to ensure that they...
I don’t believe it is possible to automatically verify a human identity with the level of confidence that we should expect for things like this. Brokers have a responsibility to ensure that they are operating within guidelines, and they are also audited by FINRA etc. We should not just shrug it off if fraudulent accounts slip past automated identity checks. Nor should we tolerate false positives where legitimate requests to open accounts are denied due to false positives. The only feasible solution is some level of manual review and adjudication on top of automated analysis. And depending on volume of requests, that requires time.
I don’t know, but as a floor, at least as good as what it takes to get on a passenger airplane or cross an international border? Probably better than that?
I don’t know, but as a floor, at least as good as what it takes to get on a passenger airplane or cross an international border? Probably better than that?
It doesn’t, though. Both of those things are gated by a significant amount of time waiting, and you have to be there in person. How can you virtually, instantaneously cross a border or board a plane?
It doesn’t, though. Both of those things are gated by a significant amount of time waiting, and you have to be there in person. How can you virtually, instantaneously cross a border or board a plane?
Well if we're going to put forth logical fallacies, crossing a border is less than is required to trade stocks as I can push a single button on my VPN and for all intents and purposes I'm on the...
Well if we're going to put forth logical fallacies, crossing a border is less than is required to trade stocks as I can push a single button on my VPN and for all intents and purposes I'm on the other side of the world.
But if we address your concern as if it was made in good faith I'll ask this: So since you believe that an individual person should be unable to participate in the stock market unless they can physically be in a place to do so, will you now tell me your position on mail in voting?
You are not on the other side of the world. You may appear to be using a computer on the other side of the world, but you, the corporeal human being, are not. And this goes to the crux of identity...
I can push a single button on my VPN and for all intents and purposes I'm on the other side of the world.
You are not on the other side of the world. You may appear to be using a computer on the other side of the world, but you, the corporeal human being, are not. And this goes to the crux of identity verification. Is an IP address equivalent to an identity? In most jurisdictions it is not. Any jurisdiction that deems them legally equivalent is making a mistake, IMO.
So since you believe that an individual person should be unable to participate in the stock market unless they can physically be in a place to do so ...
“The stock market” is not precise enough for me to categorically deny this. There are many markets and to have access to any particular one requires going through a broker. And each broker should verify the identity of traders according to the policies and guidelines set forth by their regulating authorities and jurisdictions they operate within. For traditional, centralized markets like those in the US, yes, I do believe that stringent identity verification should be in place. For decentralized markets, where there is some proof-based mechanism to prevent fraud, maybe such identity verification is unnecessary. I’m not aware of any such platforms for trading GME, though.
will you now tell me your position on mail in voting?
I think mail in voting is fine, after you’ve registered with the government in which you are democratically participating. And that registration process should, again, diligently vet registration applications, and require them to show up in person (or send out agents to register those with physical disabilities etc.).
I don’t see how believing that identity verification is a difficult problem that requires significant effort to solve makes my argument unfaithful.
And each broker should verify the identity of traders according to the policies and guidelines set forth by their regulating authorities and jurisdictions they operate within.
Well, then that raises the question, do all brokers have the same policy/process? Because, if so, why does RH let applicants in instantly and Fidelity, Schwab, etc., don’t? Your belief is that the...
Well, then that raises the question, do all brokers have the same policy/process? Because, if so, why does RH let applicants in instantly and Fidelity, Schwab, etc., don’t? Your belief is that the ones that aren’t instantaneous are gating applicants because? Why?
I believe RH is not actually responsibly vetting applicants thoroughly, and therein lies the difference.
They do. If they didn't they wouldn't be brokers. Do some have their own more extensive vetting process? Possibly, but that's not the point. The point is the identity verifications required by the...
And each broker should verify the identity of traders according to the policies and guidelines set forth by their regulating authorities and jurisdictions they operate within.
They do. If they didn't they wouldn't be brokers.
Do some have their own more extensive vetting process? Possibly, but that's not the point. The point is the identity verifications required by the regulating authorities do not take long, can be done entirely electronically and instantly.
I recommend TD's ThinkorSwim platform for desktop and mobile. I moved all my money out of RH a long time ago because they have minimal features and don't even trade OTCs.
I recommend TD's ThinkorSwim platform for desktop and mobile. I moved all my money out of RH a long time ago because they have minimal features and don't even trade OTCs.
Are you familiar with options? If you ended up as deep in the money as I think you did, typically you are better off rolling into stock as the upside delta is almost the same but the downside can...
Are you familiar with options?
If you ended up as deep in the money as I think you did, typically you are better off rolling into stock as the upside delta is almost the same but the downside can be significant.
Vanguard, despite their archaic interface, is allowing immediate buying of shares. Just saying.
I can't just open another brokerage account somewhere either, because each I've tried so far is giving me issues (presumably there's a bunch of people fleeing Robinhood, and others).
Vanguard, despite their archaic interface, is allowing immediate buying of shares. Just saying.
What is your typical options strategy? ThinkOrSwim (TDAmeritrade) has a fantastic set of tools. InteractiveBrokers had the best execution but wants $100k or a monthly fee last time I looked. It's...
What is your typical options strategy?
ThinkOrSwim (TDAmeritrade) has a fantastic set of tools.
InteractiveBrokers had the best execution but wants $100k or a monthly fee last time I looked.
It's going to take a while to sign up, transfer $ and get authorization for options.
I trade on TD Ameritrade's ThinkorSwim platform. I use Schwab where I do all my banking as a backup. RH was trash before this mess, but they have completely ruined their brand in the last 3 hours....
I trade on TD Ameritrade's ThinkorSwim platform. I use Schwab where I do all my banking as a backup. RH was trash before this mess, but they have completely ruined their brand in the last 3 hours. Over half of RH users have a position in GME, and now they've pissed off millions of users by not letting them buy more GME in order to help hedge funds they have relationships with manipulate the market.
I was discussing with my wife last night about "how much are we comfortable gambling away if we want to play this silly game". We decided on an amount but I had a hunch that it's probably too late...
I was discussing with my wife last night about "how much are we comfortable gambling away if we want to play this silly game". We decided on an amount but I had a hunch that it's probably too late given that this has exploded into the mainstream, and it's going to be far more unpredictable from this point out. Watching the tickers this morning seems to be validating that feeling.
I might still go play around, but I really hope people realize that this is literally gambling at this point. Probably worse than (legal) gambling, slot machines have to go through testing to ensure that they actually do produce a certain percentage of wins. No such guarantee here.
I bought a few put options. Here is why. I dislike put options, and I hate expensive options, but when my wife told me to buy GME I could not resist doing the opposite.
I'm brazilian and using avenue.us to buy. It was blocked earlier, but i managed to buy $80 when it was around $400. I lost half, and being brazilian, $40 is R$250 more or less. It's money i can...
I'm brazilian and using avenue.us to buy. It was blocked earlier, but i managed to buy $80 when it was around $400. I lost half, and being brazilian, $40 is R$250 more or less.
It's money i can afford to lose right now, but it's not a small quantity giving our economy and my salary, but i don't care. I just want to see how this goes so i'm not selling.
It's the first (and probably only) time i'm doing this. I only do buy&hold.
Robinhood resuming limited buy trades tomorrow Also, hilariously, Citadel and Citadel Securities put out a statement that they did not, in fact, tell Robinhood to stop trading GME. Idk, the fact...
That post being so highly upvoted reminds me of a cynical saying my fiancee's dad (a professor of business management) often repeats. It's something like "if you know so little about investing...
That post being so highly upvoted reminds me of a cynical saying my fiancee's dad (a professor of business management) often repeats. It's something like "if you know so little about investing that you hire a stock broker, you're too stupid to be left alone with one" and that's all I see with the outrage at Robinhood. So many people piled on the bandwagon but have zero idea what is really going on. It can certainly be explained in layman's terms, but the misunderstanding about what happens behind the scenes is playing out right now in these highly-ranked, and wrong, posts.
Apparently (according to a Salon jounalist) the NYAG is looking into Robinhood. Maybe they will find some evidence of wrongdoing. And obviously if they do the appropriate people should be...
Maybe they will find some evidence of wrongdoing. And obviously if they do the appropriate people should be punished. But even if they find nothing this is just going to end up being ammunition for people who want to sow discord:
Generate enough hysteria that investigators step in.
That was a pretty fast turnaround, about four hours from the reddit post. Seems like everyone who's anyone on wall street is lurking on wallstreetbets today.
Citadel and Citadel Securities put out a statement that they did not, in fact, tell Robinhood to stop trading GME
That was a pretty fast turnaround, about four hours from the reddit post. Seems like everyone who's anyone on wall street is lurking on wallstreetbets today.
Holy misinformation, what is going on on reddit right now. It's full of threads like https://reddit.com/r/ClassActionRobinHood/comments/l723kf/robinhood_insider_information/ Which is almost...
Holy misinformation, what is going on on reddit right now. It's full of threads like
Which is also complete hearsay. Although at least better than the prior one.
Well, I'm not particularly worried on behalf of hedge funds reputations, they can have that problem, but I have to worry about the degree to which people eat crap when it justifies what they're feeling. Not that that's anything new, but this is another example of that kind of behavior rearing its ugly head again.
The best thing to do at times like this is read Matt Levine's latest column. But I am thinking of this as a crowdsourced denial-of-service attack on the social purpose of the stock market. To the...
The best thing to do at times like this is read Matt Levine's latest column.
But I am thinking of this as a crowdsourced denial-of-service attack on the social purpose of the stock market. To the extent that the stock market is good for anything (debatable), it's supposed to be good at setting prices, and this only works if the people trading are actually trying not to lose money. Then a bunch of idiots come along who are perfectly willing to spend money to burn it all down, so it stops working.
I would like to see a tax on stock market trades. If it were, say, $1 a trade, it might not help much, but free trades don't seem good at all, and at least it funds the government a bit, sort of like a lottery.
Edit: On the other hand, I guess a good side-effect is that AMC will survive:
In talking about GameStop, I have occasionally tried to tie the goofy stock-price dynamics to corporate finance. I suggested that maybe GameStop could sell stock at these absurd prices and use the money to, you know, be a better company. It’s tricky, selling stock at these prices, but in theory that’s what the prices are for: People are telling you that they want to buy your stock to fund your projects, so you might as well sell them the stock and do the projects.
AMC has done that! On Monday it announced that it had raised $506 million of equity (and another $411 million of debt) in various transactions that “should allow the company to make it through this dark coronavirus-impacted winter.” Good work. Even better, that same day AMC launched an at-the-market offering to sell up to 50 million shares into the market at prevailing prices, allowing it to sell opportunistically to any redditors who wanted to buy. Yesterday it announced that it had finished the offering and raised another $304.8 million. That’s an average price of about $6.10 a share; AMC’s stock hadn’t gotten that high since September. Of course yesterday the stock closed at $19.90, so AMC would have done better to wait a day, but nobody’s perfect. When redditors are clamoring to buy your stock you should sell it to them before it’s too late; there’s no reason for the company to try to time the endgame perfectly.
Also yesterday holders of $600 million of AMC convertible bonds converted them into stock at a conversion price of $13.51 per share. Six hundred million dollars of debt, vaporized by Reddit enthusiasm. “In the absence of significant increases in attendance from current levels, there is substantial doubt about our ability to continue as a going concern for a reasonable period of time,” AMC warned investors on Monday; four days and a billion dollars later, there is somewhat less doubt. A week ago it was not crazy to think this company was doomed; now it is entirely possible that it will survive and thrive and show movies in movie theaters for decades to come because everyone went nuts and bought meme stocks this week. Capital formation!
AMC was trading around $9 at 11 a.m. today so I don’t really know what those convertible holders were thinking but there you go. Maybe they were thinking “wow redditors really want to buy this stock, we’d better get some stock to sell them.”
So I guess, if the company is ready and willing to sell stock at a time like this, it's very much like crowdsourcing?
In talking about GameStop, I have occasionally tried to tie the goofy stock-price dynamics to corporate finance. I suggested that maybe GameStop could sell stock at these absurd prices and use the money to, you know, be a better company. It’s tricky, selling stock at these prices, but in theory that’s what the prices are for: People are telling you that they want to buy your stock to fund your projects, so you might as well sell them the stock and do the projects.
AMC has done that! On Monday it announced that it had raised $506 million of equity (and another $411 million of debt) in various transactions that “should allow the company to make it through this dark coronavirus-impacted winter.” Good work. Even better, that same day AMC launched an at-the-market offering to sell up to 50 million shares into the market at prevailing prices, allowing it to sell opportunistically to any redditors who wanted to buy. Yesterday it announced that it had finished the offering and raised $304.8 million from that and a previous stock sale, at an average price of about $4.80 a share. Of course yesterday the stock closed at $19.90, so AMC would have done better to wait a day, but nobody’s perfect. When redditors are clamoring to buy your stock you should sell it to them before it’s too late; there’s no reason for the company to try to time the endgame perfectly.
Also yesterday holders of $600 million of AMC convertible bonds converted them into stock at a conversion price of $13.51 per share. Six hundred million dollars of debt, vaporized by Reddit enthusiasm. “In the absence of significant increases in attendance from current levels, there is substantial doubt about our ability to continue as a going concern for a reasonable period of time,” AMC warned investors on Monday; four days and a billion dollars later, there is somewhat less doubt. A week ago it was not crazy to think this company was doomed; now it is entirely possible that it will survive and thrive and show movies in movie theaters for decades to come because everyone went nuts and bought meme stocks this week. Capital formation!
Yeah there was zero proof in that first link. Why would someone "low-level" have heard anything that the execs discussed? It just makes no sense to me. I'd still be skeptical even with an employee...
Yeah there was zero proof in that first link. Why would someone "low-level" have heard anything that the execs discussed? It just makes no sense to me. I'd still be skeptical even with an employee badge, SSO page, any sort of access that isn't like source code (since that would be a particularly stupid thing to post as proof you work somewhere), but goes beyond a completely unverified story.
It sounds even worse when you realize... Robinhood is remote right now. How exactly does one "overhear" a secret C-suite meeting with the White House and Sequoa when it's on Zoom? Did the Zoom...
It sounds even worse when you realize... Robinhood is remote right now. How exactly does one "overhear" a secret C-suite meeting with the White House and Sequoa when it's on Zoom? Did the Zoom audio leak onto your weekly team meeting? Is that person the CEO's roommate?
Also, why is the White House and a VC firm asking them to do this?
I worked right across the hall from my C-execs, and I knew how the company was doing based just on when the door was closed, nevermind what I overheard - which was plenty. It's not that uncommon...
I worked right across the hall from my C-execs, and I knew how the company was doing based just on when the door was closed, nevermind what I overheard - which was plenty. It's not that uncommon for the tech guys to have knowledge the rest of the employees don't, given our responsibility to maintain and manage all the key infrastructure and all of the security/accounts. Being able to keep your mouth shut and not abuse that information is part of the job.
The fact that it's all remote right now is what smells fishy. There's no way anyone was in an office with a C-level executive in the middle of this pandemic. What was it, a house call to fix the guy's outlook and hearing him in the living room on the phone with the prez? I don't think so.
Exaaactly. Even if there was chatter about it through upper management, that chatter coming to a low-level employee is basically zero. I am a low-level employee. I barely know what my immediate...
Exaaactly. Even if there was chatter about it through upper management, that chatter coming to a low-level employee is basically zero. I am a low-level employee. I barely know what my immediate coworkers are doing today, much less the entire executive board!
Today's newsletter is mostly about GameStop again as well, including some discussion into whether this kind of activity is legal or not: GameStop Is Just a Game
Today's newsletter is mostly about GameStop again as well, including some discussion into whether this kind of activity is legal or not: GameStop Is Just a Game
Considering the author has worked as an investment banker, it seems strange that he's so surprised by this. The stock price of a publicly traded company has always simply depended on a single thing: How many people want to buy it (demand) and how much of it is available to buy (supply). Of course the informed trader will want to buy the stock from the company which has proven long-term success by increasing profits every year (exponential growth is totally sustainable you guys).
But the thing is, the stock price is completely decoupled from anything the company does. The only thing controlling the stock price is supply and demand. The only thing that makes TSLA cost USD 880,80 (Jan 25th, markets closed) is the fact that that's the highest price people are willing to pay for it. Nothing else.
But that has been done time and time again. If we go back in time, it was printed money, because nothing speaks of the human will to create valuable financial assets like printing a piece of paper with a president on it for like 3 cents and declaring that it's worth ONE HUNDRED UNITED STATES DOLLARS. The only thing that makes that piece of paper valuable is our collective belief that it is valuable. It has to be, because otherwise nothing else is. It's basically religion. Want to go back further? Gold. Gold is fucking useless. So why is it so expensive? It looks pretty, and it's rare.
Something less metallic? Dye. No one needs dyed clothes. It's labour intensive to create dyes. The only thing you can do it with it is colour your clothes and show off how much money you have lying around so you can spend it on something as fucking useless as dying your clothes. Haha you poor cunts, I have MONEY.
The stock exchange is just the penultimate expression of this kind of thinking, it is peak capitalism, because you aren't even buying and selling useless shit anymore. You are buying and selling nothing, a potential for either more or less money in the future. That's what you are buying.
Gold isn’t useless, though. There are industrial applications (it’s a good conductor) and it also works well as jewelry. Probably that alone doesn’t justify the price, but there would be a price above zero even if people didn’t use it as a store of value.
Dollars are very useful for paying US taxes. Even if you found an alternative to use most of the time, you would still need them for that.
I don’t think Matt Levine is surprised by the existence of bubbles. He’s just marveling at a particularly pure form of it. It’s no longer surprising that a stock would go up due to mistaken identity, but usually it would go back down again pretty quickly.
All I know is what I gather from reading Matt Levine columns, and it seems like “market manipulation” is very hard to define. But saying nice things about stocks you own doesn’t seem to be unethical, let alone illegal, as long as it’s not lying and it's disclosed. Also, short sellers can say bad things about a stock. In some cases they may be doing something akin to whistleblowing, but for a profit.
Edit: he explains it better than I can in today's column, with appropriate caveats.
Honestly if we had enough gold and it was inexpensive, you'd see it everywhere.
It wouldn't replace copper in electrical applications - it's got a higher resistance. It might do better than copper (mixed with other metals to strengthen it) for heat distribution - imagine gold heatsinks in your computer rig. Plus, it's pretty, all those free electrons does make it glitter like nothing else. It'll get used in dollar store jewelry and ikea furniture if it's that cheap.
It's non-reactive, even to most (not all) acids. It doesn't corrode or degrade with age or exposure to the elements (which is why we used it as money in the first place). I have to wonder what unique applications we're missing out on due to the price of the metal, and how much research into what it actually is good for that we haven't done due to the expense. There's little point in the research if there's such a limited supply that it'll never become practical.
We won't have that much until we're mining asteroids for it on a large scale, though.
Back in the minicomputer era when computers were enormously expensive, circuit boards had gold contacts in the edge connectors, I assume because gold doesn’t corrode. My dad got old PDP-11’s that were being junked and gave my brother and I the job of breaking the edge connectors off all the circuit boards in a vise. He would take a jar of them to a recycler to sell the gold. He made cabinets out of the steel frames and drawers, and we had some fun playing with the enormous magnets from the disk drives.
I'm aware of the industrial applications of gold, however jewelry serves no use other than to display wealth and status, which is exactly what I was getting at in my post.
You seem to have missed the point of my post. Taxes are just an extension of the monetary system.
That's not really true. Money is valuable because you can pay your taxes with it. Paying your taxes is valuable because society will incarcerate you if you don't. Money isn't just valuable because people think it is -- its value is backed by a state with a monopoly of force.
Okay, I'll try this again. Money is pieces of metal or paper, or bits today, that we have collectively agreed as a society, hold a certain value that is completely removed from the object representing it. A hundred Euro note holds a lot of buying power, but a piece of A4 blank white paper doesn't, even though they are (more or less) the same thing.
I'm not saying money isn't real, simply that it's something society has willed into being because well agreed to believe in it, like super-religion. The State is just made out of people too, and if they all believe in it, the state can back that belief with force.
Since the author seemed to have been so surprised by this I was bringing it up, because as an ex-investment banker, he should've known that.
I think we're talking in circles here. Yes I agree, money and gold (and stocks and bitcoin and etc.) have subjective value that far exceeds the value in just physically acquiring them. I'm just responding to your earlier line of reasoning:
Unlike gold or bitcoin, there is a floor of tangible value in a state's currency that you can pay taxes in. If tomorrow we wake up and there is a new world order requiring everyone to donate 1 toe nail clipping a day or face a life in prison -- toe nail clippings become immediately valuable. Not subjectively valuable, just valuable (for people that value their freedom, at least).
Admittedly it's a status thing and I'm not into jewelry myself, but the artistic and decorative use of materials seems more real to me than Internet points. People do wear cheap jewelry and still prefer dyed clothing when it's cheap, therefore it seems like it has some value that's not entirely tied to status. So I'm not on board with saying art and decoration are useless, even if it often does turn into a way for the wealthy to display their status.
Things can serve multiple purposes. Even food can also be used as a status symbol (like eating in high-end restaurants).
The value of many goods and services is often pretty nebulous and culture-specific, which is why it can be gamed. I don't think the cost of production or even the price has much to do with value, necessarily. The air is free, but it's still pretty valuable.
When we're looking at asset prices, I ask what prevents the price from dropping to zero when the bubble pops? It's nice if there's a good answer to that question, and taxes count as an answer. A share being a claim on future income of a company is another answer.
I think this is a remnant from the times when neither of them were cheap. Industrial times have helped cheapen a lot of such products, so more people could afford them. Suddenly what was expensive once wasn't anymore, so everyone bought it, but then it lost its status symbol because everyone bought it, and now you have to buy it or society thinks you're weird because you aren't doing what everyone else is doing.
Admittedly my argument is a tad simplistic, because it overlooks the people who wear jewelry, intricate clothing etc. for themselves, but I think most people do it for everyone else too. There's nothing wrong with wanting to look good, as long as that desire doesn't cause harm. Just like you said, things can have multiple uses, and it's mostly rarity dictating what gets to be a status symbol.
How do taxes stop asset price plummeting to zero when a bubble pops?
This is when thinking about a currency as an asset. A currency has a price (in other currencies) and what reasons are there to use it? The most important reason is because everyone else does, but besides that, even if the people in a country partially switched to a different currency, they would still need to pay their taxes.
I do the same, although I do have to say, it's extremely funny seing a bunch of idiots shitposting ending up so successful.
Given some of the blatantly /r/teenagers-like bragging I have seen in /r/wallstreetbets, I would be taking any claims of fantabulously massive gains with a huge pillar of salt.
His shares are at 22 mill at this point, he posted a new update to the discord yesterday in the evening (EU time).
Robinhood is temporarily restricting transactions for $AMC, $BB, $BBBY, $EXPR, $GME, $KOSS, $NAKD and $NOK (and others?) to position closing only.
If I were using Robinhood, this would make me never use it again. Why would they do this? Is this all a response to pressure from hedge funds to stem their losses? This should be a death blow to Robinhood.
The "UI Bug" aspect of that story is overblown. The UI did what it should have. Now, whether or not Robinhood should let inexperienced traders operate with complex financial instruments is another question.
To elaborate, the user had an option spread (which involves both a short and long leg - essentially you're hedging by both betting the stock will go up and the stock will go down, reducing your gains but also your risk) and had the short leg exercised before the long leg did. So yes, at one point he had a -73k balance, but
I mean, he did, in the same way if you own a store, after you buy merchandise and before you sell the merchandise, you'll have -100k on your balance sheets.
Ostensibly, they're trying to protect their customers. I'm sure there is an absolute floodgate of people with no idea what they are doing who would have tried to buy in at $400. Maybe just locking out new accounts would have been a better option?
I mean if there actually is a short squeeze tomorrow then the people who have already bought in should be fine and Robinhood is making a huge mistake. But if it crashes today then we know the squeeze already happened and they just saved a bunch of people their grocery money. Hindsight will be 20/20 but I don't think its an unconscionable decision.
Even if Robinhood is truly doing it purely out of the goodness of their hearts, that's not their decision to make. The WSBer /u/deepfuckingvalue, who went from $50K to $50M on GME over the last year, would've also been advised by every rational person to not open/keep holding the positions he had.
I mean I definitely agree it's a bit hypocritical of them given how much money they've made off people gambling. However:
How is it not? Not only is it their platform, these people aren't even paying customers -- they're the product.
They're subject to pretty stringent SEC regulations - preventing stock purchases while allowing sales would be strongly expected to sway the price. A full pause at the exchange is one thing, but a one-sided pause that only affects retail customers trying to buy is treading dangerously into manipulation territory.
Whether anything will come of that theory, who knows? I'm actually finding it a little scary how quickly the large investors, media, and trading companies all seem to have closed ranks in favour of the status quo.
I think it's crazy people try to mince words about market freezes (one sided or not) being literal market manipulation. Like, no, it is not "treading dangerously into manipulation territory". It's just straight up manipulation. Sometimes manipulation can be for good reason, like if someone is committing a fraud. But I wish people wouldn't pretend like any kind of coordinated effort to intentionally make the market do something it doesn't normally do could possibly not be "manipulation".
I just think it's frustrating, because nobody with any power ever is willing to mince words when it comes to "market manipulation" in an effort to house the poor and feed the hungry.
Fair. I'm far from an expert in the field, and I prefer to hedge (heh) my statements a bit unless I feel totally confident in backing them up.
I can definitely relate to that, and I wasn't trying to "call you out" or anything. Just drawing attention to this double standard that I wish more people would notice.
Yea, that's an interesting point. I think a full pause would have drawn even more of an outcry though.
I really don't understand this whole culture war thing. People are just trying to make a quick buck. I don't think the success or failure of a handful of hedge funds is something Wall Street as a collective really cares about and people are now looking for dark patterns that "they" are colluding to keep the price down. Do people not realize there are hedge funds who are long GME to take advantage of Melvin's mistake?
There were a few pauses in the last few days - they're common and affect all traders, large or small, equally. A buy side only halt that affects retail investors only is a whole different thing.
As for the rest, @tindall hit the nail on the head. Institutions are given carte blanche to gamble with almost total impunity, to the significant detriment of individuals, but individuals apparently aren't afforded the same privilege in reverse.
I meant if Robinhood was to freeze buying and selling of particular stocks as to avoid the optics of manipulation. I think that would likely be (more?) illegal? Circuit breakers are just part of the market.
What institutions are we talking about here? There are several competing institutional interests here. Its possible that Robinhood is colluding with short sellers here, but that would draw the ire of other hedge funds and market makers etc. I just don't see that being something they would risk.
I see what you meant now - having Robinhood freeze both may indeed have been worse, although perhaps actually less directly manipulative as it's just removing players from the market entirely rather than strongly pushing them to sell. Honestly, this kind of conflict and complexity is exactly why they shouldn't be pulling unilateral moves like this, surely?
As for the second part of your question, that gets more interesting. Which institutions was I talking about in that quote? All of them. Whether they're winning or losing on this week's shenanigans, pretty much the entire industry has been allowed to gamble with increasingly obscure and disconnected options and derivatives, with relatively little regard to what that means for the companies being traded or the people who work for them. Institutional players resist regulation at every turn, politicians literally exempt themselves from insider trading laws, and the consequences of these enormous and deliberate gambles are brushed off almost like irrefutable laws of nature.
Now, to be more speculative: would Robinhood defend Melvin? Highly unlikely, and as you say, others stand to gain just as much. So why would they take the risk of such an unpopular, seemingly manipulative move?
Perhaps it was just a straightforward bad decision.
Perhaps it was a deliberate decision to shut down the very idea that retail investors can squeeze a hedge fund dry - a threat to one is a threat to all, and they'd rather close the store entirely than let the workers unionise. Either way, the upshot is the institutions keep trading while the individuals are shut out: a prime example of the skewed rules that a lot of people are so angry about in the first place.
I don't want to be conspiratorial. But I do know the history of union busting, even to the point of toppling whole regimes, and how insane it would sound if it weren't documented to be true. I see the parallels here. So when the press, several brokers, and multiple institutional investors team up with this speed and ferocity, I get a little twitchy.
I'm trying hard to not come off as pro-Wall Street over here because I'm really not. Wall Street is amoral -- which is regrettable but in this case is preventing them from sensibly doing what you're proposing. The bigger threat to Melvin at this point isn't retail investors -- its other hedge funds who have no problem eating their lunch. I have a hard time seeing the industry as a whole take collective action like you're suggesting when it involves leaving money on the table. The media is blowing this up into a huge David vs Goliath drama because its generating clicks like you wouldn't believe but I don't think the framing of that narrative is accurate.
I quite understand - and in the same way, I don't want to come off as a conspiracy theorist, because I'm really not! I do consider it at least a possibility that there's a concerted effort going on to maintain the status quo. It does sound like we're going to disagree on the likelihood of that, and that's fine - it's an interesting discussion either way. At the very least, I hope you can somewhat agree that the individuals and the institutions are playing by quite different sets of rules, and they're not set up in the individual's favour.
In terms of leaving money on the table, I'll say two things: firstly, I used the "closing the store to prevent the union getting off the ground" analogy very deliberately - companies will take a significant short term loss in order to head off something they see as a long term or existential threat. I see every chance that they'd rather lose out here than risk being "Melvined" themselves, or even replaced entirely, by an unpredictable crowd of redditors in future.
Secondly, that only applies if it were an either/or situation. If they can discredit and shut out retail investors but leave trading open for themselves, which is precisely what they've done, they can eat their cake and still have it.
It's definitely an interesting discussion, thanks for the back and forth! I'm fully prepared to be wrong here -- its certainly possible that RH is picking favorites and colluding with someone. And yes, I agree the deck is definitely stacked but I think your premise is flawed:
Wall street wants more retail investors. We're not looking at any meaningful transfer of wealth or power out of the investor class to the "retail investors" (many of whom are millionaires themselves) -- just more trading activity that drives more volume for market makers. Risk is ingrained into the culture of wall street and no real rules have been broken here -- there are several major players who were long GME well before the hype took off. I don't think what's happening to Melvin even required retail participation -- it boosted the signal and thus scale of the event but its plausible all this happens without WSB.
I agree with the gist of what you're saying because its true but we don't know that
is really the case here. There are as many institutions that are being hurt by this as being helped by this. I would guess Robinhood is really trying hard to avoid a NYT front page of "Grandma, forced out of retirement" when she signed up for Robinhood.
Most retail investor trading platforms seem to be commission free now, so Robinhood is on par with other platforms. Robinhood makes money (I believe) from interest earned on the liquid cash people have in their accounts, so it's not really the same as non-financial platforms where people really are the product. People forego interest on their cash and Robinhood makes it instead.
People park their money at Robinhood with a certain expectation that the platform will conduct trades on their behalf and not actively interfere. To me, this behavior on their part really is beyond the pale.
They actually make most of their money from payments for order flow. They don't execute the transactions they sell them to market makers.
To be fair, that makes it sound way more nefarious than it necessarily should. That's also what TDA, Fidelity, etc. do. Brokers don't execute trades, that's what market makers are for. And practically all of them engage in some amount of payment for order flow.
Yes, I wasn't intending to imply it was nefarious -- just that Robinhood users are quite literally the product.
Matt Levine's Gamestop Blog made an excellent counter point.
What were they thinking would happen?
Yea I agree with Levine's opinion.
To be clear, I don't really support Robinhood's decision and I think it will end up being a mistake. I also don't think, however, that it's part of some larger conspiracy to suppress GME. I'm also not naive enough to think they care about trying to protect anyone -- I think they are trying to protect their bottom line by avoiding negative press.
Robinhood's decision has ended their business. Absolutely no one will trust them after this, so everyone will move to their competitors as soon as possible. The same will continue to happen to anyone who displays favoritism like this. Once the trust is lost, it's game over. There won't be a Robinhood this time next year.
I wonder about this thread as well.
I'll be interested to see if the mods confirm this guy's story.
I think it will hurt them but ended is a bit premature at this point.
That has to be the one of most obvious LARPs of all time. It's almost at "The Pope has been arrested!" levels...
Some of the hysteria is definitely getting a little crazy. I remember at one point the top thread on /r/all was "The Hedge Fund CITADEL pays Robinhood for their order flows"
That is not how hedge funds work lol, although I can see why it's confusing when there's two separate entities, Citadel (securities) the MM and Citadel the hedge fund. Same LLC, but there is a Chinese Wall.
Yea Twitter is wild right now. People are out for blood for reasons they don't seem to understand very well.
You seem like you might work in fintech or adjacent so maybe you can explain this one to me: how do Chinese Walls work?
Their very existence to me seems like a mistake similar to electronic voting machines. Not necessarily because they don't work or are insecure but because their very existence invites all sorts of conspiracy theories.
It's not just a finance thing. For journalist, for instance, there's usually one between the staff who write sponsored articles and the ones that write their actual editorial content.
I suppose it's just difficult in many cases to not have any conflicts of interest in the company. In the above example, it would be hard to have a newspaper that's only sponsored content and it would also be hard to have a newspaper company without any sponsorships.
Although, that's not really true for Citadel vs Citadel securities, and actually after looking it up I'm pretty sure I'm outdated on this: they are just separate LLCs now, it seems.
That's true. Thinking about it, a Chinese Wall may actually draw more regulatory attention than two separate firms operating under the same ownership. But yea, ultimately we're talking about a tens-of-thousands year search to a question of human power-sharing and it's quite clear we haven't arrived at an answer. ;)
Or that undue influence from wall street onto robin hood prevented the squeeze from happening.
To be fair, I've heard the really big firms at wall street are in on the squeeze too and are the actual drivers of it, so I don't think it'll prevent the squeeze. But you can't just manipulate the market (by allowing your users to only move the price one direction) and then tell them you protected them with your manipulation, because what happened because of your manipulation would have hurt your users. In other words: Damages should be calculated not by what happened, but by what would have happened.
This is not factual. It turns out that it was RH's inability to cover the risks involved in providing margin trading for a highly volatile stock. This is several degrees more sensible than a nebulous conspiracy theory.
Better excuse than "protecting their customers", which is outright bullshit.
Ok, so why did they also block people from outright buying the stock with their actual money, no margin involved? Unless they completely lack the option to block the GME&Margin option and thus disabled GME... I mean, that's a plausible-ish fuckup.
The thing that really gets me here though is that several companies had the same kind of reaction "You can now only sell GME and not buy", in several places, all at once. Several companies having the same fuckup independently at the same time? Implausible. Several companies having different fuckups with the same effect? Even less so. I dunno, I feel this is one of those times where there might actually be something to these theories. Not necessarily a hedge fund cabal, but I feel we're being bullshitted by RH and the likes.
It's been explained many times over the last couple of days, it's because of how stock settlement works along with clearinghouses, high-volatility stocks, and required levels of collateral. A good one is the "Why did Robinhood stop them?" section of Matt Levine's newsletter today. I'll quote one section of it (which is actually a quote from a different Bloomberg article), but you should go read the whole thing:
Brokerages had to come up with $7.5 billion more in collateral yesterday to be able to support continuing to sell these stocks. That's not the sort of thing that can happen instantly, especially for ones without massively deep pockets (Robinhood in particular, and that's why they had to raise $1B more in a hurry).
In situations like this one with so many complicated systems involved, it's really only worth paying attention to experts in the industry that actually know what they're talking about, not random people on Reddit/Twitter/etc. that are mostly just repeating things they saw others say without any actual knowledge. It usually takes the experts longer to release their explanations (because they're busy actually doing things and not just refreshing social media), but that's why it's important not to jump onto the first explanation someone tweets 30 seconds after the event, no matter how much it's getting spread around.
I'm working through that and am just now getting to the juicy part. I'm not sure my mental model of the stock market is up to snuff, but that t+2 stuff seems to be the rub: Robin Hood has your cash. You tell em to buy GME for it. Robin Hood goes to whoever wholesaler, promises to hand over your cash at today's price, in exchange for stock. This puts the wholesaler in a pickle, because if they stand there in two days, ready to hand over, and robin hood lacks the cash, the wholesaler has bought the stock at a possibly stupid price and the wholesaler would eat the difference in stock price of those 2 days, which could be substantial.
But robinhood has my cash... They could immediately drop the complete cost of the stock as collateral, leaving the wholesaler/clearinghouse with no risk at all.
That still leaves us with an outrageously shitty PR job from a ton of brokers. Just a "Too much volatility. (Protect Investors.) We closed" from a lot of companies, at pretty much the same time. I can only assume that german brokers work with different clearinghouses than the US ones, and yet they fail at the same time, with similarly shitty explanations. Thursday wasn't even notably more volatile than the rest of the week, was it?
This also fails to explain (to me anyway, and you have no obligation of fixing that) why some brokers continued working while others didn't. One third of brokers had outages that are extremely correlated (see e.g. a summary in german here - broker name; technical difficulties; trading stopped - Nein means no) - unless there's about three clearinghouses, and one of them decided to stop trading, which would explain the correlation of outages.
And while the article is on the topic of "shorts are important for market plumbing reasons", is there a particular reason why shorts aren't organized like horse race bets? You put money in a pot, I put money in a pot, in X days the price will be < Y means I get the pot, else you get it. No unlimited risk, no margin calls, no bullshit. Also not a self-fulfilling prophecy because it doesn't affect the price of the stock.
curiously, this is the first time I'm reading an actual article on this, and I tend to browse the more calm boards on this, though only loosely. Ya know, the boards that push monthly ETF investments. And they were similarly up in arms about this, and still no rational explanation 2 days after the fact... So thank you, Deimos.
Also, who does PR for these brokers? How do you fuck that up? A blog post by RH 6 hours ago, and not a single hint at a credible, rational explanation beforehand?
P.S.: While writing this I discovered a bug with the editor: If you expand the editor frame to beyond the sidebar, the corner that lets you do that might disappear behind the sidebar. This is quite inconvenient, but recoverable by putting the cursor to the longest line all the way right to get the corner into view again.
It's a pretty bad look, but in terms of driving users from the platform I don't think it will, mostly because the "traditional" platforms like TDA also halted trades or at least buy orders on GME right now. So not much to run to.
Yet, you can still buy highly volatile cryptocurrencies...
The hypocrisy is astounding. I had shares for AMC and NOK queued up for purchase last night but it was cancelled.
This thread may interest you: https://www.reddit.com/r/wallstreetbets/comments/l6x130/class_action_against_robinhood_allowing_people_to/
From Matt Levine's column today:
In my opinion the root cause (of the nihilism) is lack of buy-in to democratic institutions / society that's driven largely by growing inequality and lessening opportunity. This is being compounded by other implosions of meaning and a growing sense of postmodernism in society. Reality TV star President. Fake news. Anti-vax. Qanon. Etc etc. It's been a bit of a slow boil, but the world is very different than it was 15 years ago. It's not really a shocker to me that people look at this and go "Yup, makes sense to me."
Is anyone on Tildes playing this game? I arrived late and put some dosh in just to see how this plays out, for fun.
To anyone concerned, no I did not dump my 401k into it or anything like that.
They are manipulating the ever living hell out of this stock unlike anything I've ever seen. High speed algo trading in between circuit breaker halts to mimic a sell-off and scare retail investors who are only able to sell and not buy more due to their brokers dicking them over. RH has done massive damage to their reputation today.
I woke up this morning ready to buy more stock only to find out RH killed anymore trading. This is bullshit.
They say retail traders are manipulating the market but it’s so naked that the big financial institutions are the ones manipulating here to fuck over regular people because they’re mad they’re cleaning up on this mess. It’s obscene and a real pull down of the legitimacy veil over the economy...no wonder it’s all going volatile. It’s all bullshit! Only the “right people” are supposed to make money.
A lot of people are very angry about this. Rashida Tlaib, AOC, even Ben Shapiro have all now publicly criticized Robinhood for halting buy orders. I think there is probably going to wind up being a class action lawsuit about this. You can increase the chances that happens by filing a complaint with the SEC.
There’s already been one filed, there’s even a subreddit for it: r/ClassActionRobinhood
It really is bullshit. They had halted trading 17 times so far today when I checked an hour ago. Yea I'll make some decent money on this, but I'm mostly thankful we're having a moment where the average person gets to see how blatantly manipulated the stock market is to benefit billionaires. Especially during a pandemic that has exposed the flaws in nearly every aspect of our society except the stock market, which continued to reach new ATHs while people suffered.
What are you using for trading?
Also being late to the game, the only broker that allows you to get in right away seems to be Vanguard (which has a terribly outdated site for this style of trading) which will let you trade on their fund. You can't do options, so you'll have to go all in buying the actual stock, but everywhere else is taking days to verify new accounts.
It should take days to verify accounts. It means (at least ostensibly) they are doing their due diligence of identity verification. If a platform lets you in instantly (such as RH), that is a huge red flag that they don’t care to vet their users. I understand that some people are frustrated because they have money tied up in RH or other brokers that have frozen buying of some stocks, but it worries me that people think opening a trading account with a broker should be as easy as signing up for a newsletter.
Why?
There's nothing that is required to open an account that can't be verified electronically in seconds.
I don’t believe it is possible to automatically verify a human identity with the level of confidence that we should expect for things like this. Brokers have a responsibility to ensure that they are operating within guidelines, and they are also audited by FINRA etc. We should not just shrug it off if fraudulent accounts slip past automated identity checks. Nor should we tolerate false positives where legitimate requests to open accounts are denied due to false positives. The only feasible solution is some level of manual review and adjudication on top of automated analysis. And depending on volume of requests, that requires time.
What level of confidence and proof of identity do you believe should be required?
I don’t know, but as a floor, at least as good as what it takes to get on a passenger airplane or cross an international border? Probably better than that?
And since it already requires more than either of those things?
It doesn’t, though. Both of those things are gated by a significant amount of time waiting, and you have to be there in person. How can you virtually, instantaneously cross a border or board a plane?
Well if we're going to put forth logical fallacies, crossing a border is less than is required to trade stocks as I can push a single button on my VPN and for all intents and purposes I'm on the other side of the world.
But if we address your concern as if it was made in good faith I'll ask this: So since you believe that an individual person should be unable to participate in the stock market unless they can physically be in a place to do so, will you now tell me your position on mail in voting?
You are not on the other side of the world. You may appear to be using a computer on the other side of the world, but you, the corporeal human being, are not. And this goes to the crux of identity verification. Is an IP address equivalent to an identity? In most jurisdictions it is not. Any jurisdiction that deems them legally equivalent is making a mistake, IMO.
“The stock market” is not precise enough for me to categorically deny this. There are many markets and to have access to any particular one requires going through a broker. And each broker should verify the identity of traders according to the policies and guidelines set forth by their regulating authorities and jurisdictions they operate within. For traditional, centralized markets like those in the US, yes, I do believe that stringent identity verification should be in place. For decentralized markets, where there is some proof-based mechanism to prevent fraud, maybe such identity verification is unnecessary. I’m not aware of any such platforms for trading GME, though.
I think mail in voting is fine, after you’ve registered with the government in which you are democratically participating. And that registration process should, again, diligently vet registration applications, and require them to show up in person (or send out agents to register those with physical disabilities etc.).
I don’t see how believing that identity verification is a difficult problem that requires significant effort to solve makes my argument unfaithful.
Which they do.
Well, then that raises the question, do all brokers have the same policy/process? Because, if so, why does RH let applicants in instantly and Fidelity, Schwab, etc., don’t? Your belief is that the ones that aren’t instantaneous are gating applicants because? Why?
I believe RH is not actually responsibly vetting applicants thoroughly, and therein lies the difference.
They do. If they didn't they wouldn't be brokers.
Do some have their own more extensive vetting process? Possibly, but that's not the point. The point is the identity verifications required by the regulating authorities do not take long, can be done entirely electronically and instantly.
I recommend TD's ThinkorSwim platform for desktop and mobile. I moved all my money out of RH a long time ago because they have minimal features and don't even trade OTCs.
Are you familiar with options?
If you ended up as deep in the money as I think you did, typically you are better off rolling into stock as the upside delta is almost the same but the downside can be significant.
Vanguard, despite their archaic interface, is allowing immediate buying of shares. Just saying.
What is your typical options strategy?
ThinkOrSwim (TDAmeritrade) has a fantastic set of tools.
InteractiveBrokers had the best execution but wants $100k or a monthly fee last time I looked.
It's going to take a while to sign up, transfer $ and get authorization for options.
I am. Bought in the 60s, looking to sell by tomorrow.
What are you using to do that? Robinhood is all over the news, and not all in good ways.
I trade on TD Ameritrade's ThinkorSwim platform. I use Schwab where I do all my banking as a backup. RH was trash before this mess, but they have completely ruined their brand in the last 3 hours. Over half of RH users have a position in GME, and now they've pissed off millions of users by not letting them buy more GME in order to help hedge funds they have relationships with manipulate the market.
I was discussing with my wife last night about "how much are we comfortable gambling away if we want to play this silly game". We decided on an amount but I had a hunch that it's probably too late given that this has exploded into the mainstream, and it's going to be far more unpredictable from this point out. Watching the tickers this morning seems to be validating that feeling.
I might still go play around, but I really hope people realize that this is literally gambling at this point. Probably worse than (legal) gambling, slot machines have to go through testing to ensure that they actually do produce a certain percentage of wins. No such guarantee here.
Really fascinating to watch all of this though.
I'm in for a pretty small amount. I'd buy more if Robinhood wasn't pulling their stopping bullshit.
I bought a few put options.
Here is why.
I dislike put options, and I hate expensive options, but when my wife told me to buy GME I could not resist doing the opposite.
I'm brazilian and using avenue.us to buy. It was blocked earlier, but i managed to buy $80 when it was around $400. I lost half, and being brazilian, $40 is R$250 more or less.
It's money i can afford to lose right now, but it's not a small quantity giving our economy and my salary, but i don't care. I just want to see how this goes so i'm not selling.
It's the first (and probably only) time i'm doing this. I only do buy&hold.
Robinhood resuming limited buy trades tomorrow
Also, hilariously, Citadel and Citadel Securities put out a statement that they did not, in fact, tell Robinhood to stop trading GME.
Idk, the fact that this is one of the top posts on reddit right now is hilarious
https://old.reddit.com/r/WhitePeopleTwitter/comments/l73kgw/ill_take_things_the_sec_wont_do_shit_about_for/
Literally everything about it is wrong:
Citadel does not own Melvin, they bought non-controlling shares as a cash injection earlier this week
Melvin is a short seller and they are probably losing, although I would not be surprised if they closed already
Citadel does not own Robinhood. What?... What? wat?
No, Robinhood banned buys of GME
Citadel can refer to two companies, the hedge fund and the market maker, two different LLCs now, and it is almost certainly being mixed up here.
That post being so highly upvoted reminds me of a cynical saying my fiancee's dad (a professor of business management) often repeats. It's something like "if you know so little about investing that you hire a stock broker, you're too stupid to be left alone with one" and that's all I see with the outrage at Robinhood. So many people piled on the bandwagon but have zero idea what is really going on. It can certainly be explained in layman's terms, but the misunderstanding about what happens behind the scenes is playing out right now in these highly-ranked, and wrong, posts.
Apparently (according to a Salon jounalist) the NYAG is looking into Robinhood.
Maybe they will find some evidence of wrongdoing. And obviously if they do the appropriate people should be punished. But even if they find nothing this is just going to end up being ammunition for people who want to sow discord:
That was a pretty fast turnaround, about four hours from the reddit post. Seems like everyone who's anyone on wall street is lurking on wallstreetbets today.
Well, you had people like AOC and Ted Cruz tweeting about it - man this got big.
Interesting. I understand too little about the financial market to say if this is conspiracy or not, but it all seems sensible.
Holy misinformation, what is going on on reddit right now. It's full of threads like
https://reddit.com/r/ClassActionRobinHood/comments/l723kf/robinhood_insider_information/
Which is almost certainly a complete fabrication
Or https://reddit.com/r/wallstreetbets/comments/l747eg/citadel_reloaded_their_shorts_before_they_told/
Which is also complete hearsay. Although at least better than the prior one.
Well, I'm not particularly worried on behalf of hedge funds reputations, they can have that problem, but I have to worry about the degree to which people eat crap when it justifies what they're feeling. Not that that's anything new, but this is another example of that kind of behavior rearing its ugly head again.
The best thing to do at times like this is read Matt Levine's latest column.
But I am thinking of this as a crowdsourced denial-of-service attack on the social purpose of the stock market. To the extent that the stock market is good for anything (debatable), it's supposed to be good at setting prices, and this only works if the people trading are actually trying not to lose money. Then a bunch of idiots come along who are perfectly willing to spend money to burn it all down, so it stops working.
I would like to see a tax on stock market trades. If it were, say, $1 a trade, it might not help much, but free trades don't seem good at all, and at least it funds the government a bit, sort of like a lottery.
Edit: On the other hand, I guess a good side-effect is that AMC will survive:
So I guess, if the company is ready and willing to sell stock at a time like this, it's very much like crowdsourcing?
I found this particularly hilarious:
Yeah there was zero proof in that first link. Why would someone "low-level" have heard anything that the execs discussed? It just makes no sense to me. I'd still be skeptical even with an employee badge, SSO page, any sort of access that isn't like source code (since that would be a particularly stupid thing to post as proof you work somewhere), but goes beyond a completely unverified story.
It sounds even worse when you realize... Robinhood is remote right now. How exactly does one "overhear" a secret C-suite meeting with the White House and Sequoa when it's on Zoom? Did the Zoom audio leak onto your weekly team meeting? Is that person the CEO's roommate?
Also, why is the White House and a VC firm asking them to do this?
I worked right across the hall from my C-execs, and I knew how the company was doing based just on when the door was closed, nevermind what I overheard - which was plenty. It's not that uncommon for the tech guys to have knowledge the rest of the employees don't, given our responsibility to maintain and manage all the key infrastructure and all of the security/accounts. Being able to keep your mouth shut and not abuse that information is part of the job.
The fact that it's all remote right now is what smells fishy. There's no way anyone was in an office with a C-level executive in the middle of this pandemic. What was it, a house call to fix the guy's outlook and hearing him in the living room on the phone with the prez? I don't think so.
Exaaactly. Even if there was chatter about it through upper management, that chatter coming to a low-level employee is basically zero. I am a low-level employee. I barely know what my immediate coworkers are doing today, much less the entire executive board!
Today's newsletter is mostly about GameStop again as well, including some discussion into whether this kind of activity is legal or not: GameStop Is Just a Game
Speaking of games:
Elon just tweeted: https://twitter.com/elonmusk/status/1354174279894642703
It caused the stock to jump 30%. After hours
I think you’re ignoring the “whatever.” Levine isn’t all that serious about it.
Offtopic/Meta, tagging
I counted 4400 words on the article, shouldn't this be tagged as a long read?I've added that tag, thank your for your work. :)
You're welcome, although the work that was done was copy-pasting the main body of the article and pasting it in wordcounter.