[drewcon]

I still feel like these stories are missing a core distinction.

If these WSB folks rallied around GME because they were true believers of a beloved brand with faith in a turn around plan, god love em. I think that’s an interesting phenomenon that upgrades retail collective trading in much the same ways mutual funds behave on behalf of loads of retail investors.

But that’s not what happened. The brand is irrelevant. It’s just math and vengeance and in the end...a lot of retail folks are going to be left holding the bag as prices drop down to earth. That cannot be a good outcome for anyone. I don’t think we want a system to function like this.

[jakelazaroff]

Why is now when we start caring about that, though? I don’t think the current position of GME is a reasonable one, but neither is the situation in which 140% of its shares have been shorted. And it’s not just academic: that makes it difficult for the business to grow. The hedge funds are literally trying to suffocate it into bankruptcy.

And yet no one raised the alarm then. No one worried about retail investors with a long position in GME, or the workers who could be laid off. The truth is that almost no one at all cared about the market being detached from reality or the ordinary people left holding the bag when the hedge funds were set to profit. But now that they’re losing, suddenly everyone is beside themselves with worry.

[tom_mellior]

> now that they [=hedge funds]’re losing

Are they, though? Sure, some of them lost. But there are others that will only get stronger if some competitors are eliminated (a point also made by https://news.ycombinator.com/item?id=25957142). And even the ones that lost big so far can get back into the frenzy. Buying on the way up... or shorting near the top.

Here is my take on the "irony" of the situation: Hedge funds can make money off of stocks they believe to be overvalued. So the WSB activists handed them... a stock that everyone knows to be MASSIVELY overvalued. Yeah, that will show them.

[jakelazaroff]

Right, it's pretty easy to make the case that a lot of the winners are already big players on Wall Street. The biggest example seems to be Citadel, which got to play both sides by trading on Robinhood's order flow and also investing in Melvin at a steep discount.

My point remains, though: where was the concern before the r/wallstreetbets saga? GME was at ~$4 last summer and made it up to ~$20 by the end of last year. If the hedge funds were right and it was massively overvalued, where was the concern for retail investors taking out long positions back then? And conversely, if the hedge funds were wrong, where was the concern for the GameStop workers?

We can go back and forth about the winners and losers, but it's pretty clear that no one really cared about the "ordinary people" before some hedge funds got caught with their pants down.

[UncleMeat]

I disagree. The brand isn’t everything but it isn’t nothing. Look at the targets so far. Companies for which there is a nontrivial amount of 90s and 00s nostalgia. If wsb is driven by 20-30 year olds, a narrative involving a fondly remembered company is going to stick better than one that nobody knows. I don’t think people truly believe in GameStop as a long term success, but the story travels faster if people can remember the name.

Look at Tesla. Musk’s cult of personality is clearly a component of the interest in the stock. I don’t think these are just abstract objects made of balance sheets.

[spiderfarmer]

I think you don't understand what wallstreetBETS is all about.

It's not investments. It's playing the casino. They are betting. And proud of it.

And this is one of the first times they have an advantage over the rest of the table. Because a couple of hedge funds overplayed their hand on a stock small enough to be influenced by the people active in that sub.

They are ready to lose it all just for the lulz. It's entertaining. Expensive, but thrilling.

The same counts for BTC "investments". There are no fundamentals. It's all irrational bets. Bad for the solvency of some, but that's what all casino's are.

[paradox242]

This is what so many people who aren't familiar with the WSB culture are missing. They wring their hands and worry that the "retail investors will be caught holding the bag". True, someone will, but even for those too slow to move on the eventual reckoning I think they are already more than okay with any losses. There has been enough publicity now that it's pretty clear that this stock is a battlefield and any casual observers had best stand back until the dust settles. For the most part the only people getting hurt here are combatants who are ready for this sort of thing.

[drewcon]

No I do understand that. And I’m suggesting that is a bad thing.

It’s also illegal, which seems to have been left out of all the conversations.

“ The rush by short sellers to cover produces additional upward pressure on the price of the stock, which then can cause an even greater squeeze. Although some short squeezes may occur naturally in the market, a scheme to manipulate the price or availability of stock in order to cause a short squeeze is illegal.”

https://www.sec.gov/investor/pubs/regsho.htm

[maxerickson]

What's the standard for manipulation?

If retail investors publicly coordinate buys is that manipulation?

What if they pool their assets and appoint a controller? ("make their own managed fund").

[gajotron]

the standard (as a regulated person) is intention - you don't even have to succeed at moving the price in order to be guilty of market abuse/manipulation

[heliodor]

What is illegal or not in finance feels more or less arbitrary.

[flatfilefan]

I’m sorry if I’ve just missed that in your linked text but doesn’t sec text concern only short selling and not actual buying?

[briefcomment]

I'm pretty sure bringing up fundamentals is intentional FUD. Nobody is investing in any of these because of fundamentals. It's the public vs hedge funds and GME et al is the battlefield.

The more people take part and have strong hands, the more the losses will be democratized, on the way to the real desired outcome against naked shorting hedge funds. I don't mind losing a couple hundred bucks investment for this.

[jakelazaroff]

I get furious whenever I hear the talking heads say “fundamentals”, as if 140% of the stock being held in short positions makes sense.

It’s a credentialist argument. Whatever we say the stock is worth is fundamentally correct, and if you disagree, well, you’re just an unsophisticated investor who shouldn’t be allowed to participate in the market.

[drewcon]

I don't think it's credentialist. It's not short for no reason. Even a layman can piece together GS business model doesn't have much life left and so the stock ought to have downward pressure. Hedge funds are pursing that strategy. You may disagree but it's a rational argument with a rational arbitrage. They may be wrong, but such as life.

On the other hand, WSB is basically saying, "So what? We don't care about the argument, we don't care about the true value here, we're just exploiting a market dynamic (probably illegally), and collectively interfering with the ability of hte market to price this efficiently, and we just want the number on the price to move so we can cash out."

The history of financial markets is littered with the bodies of unsophisticated investors participating for non-fundamental reasons. Tulips, .com, real estate bubble. Every mania in history follows this pattern of being driven more by the emotion and inertia of the game vs. the underlying fundamentals, this looks no different to me.

[jakelazaroff]

You don't take a position based on a company's business model, you do it based on whether you think a stock will go up or down. That's it. Business model is one signal, as is the current stock price.

Hedge funds took short positions because in their model, given GameStop's business and whatever other factors, the stock was due to drop. That's valid, but it's no more valid than the WSB model that the price would skyrocket because overexposed hedge funds would be forced to close their short positions. What is the fundamental argument that GME was overpriced at $20?

Also, "unsophisticated investors" are not the only ones participating for non-fundamental reasons. When Citadel pays for order flow from Robinhood and then gets out in front of those trades, they're not trading based on fundamentals, they're trading based on momentum. Is that not also interfering with the ability of the market to price GME efficiently?

[selimthegrim]

I mean binary options are called a scam for a reason...

[gajotron]

If 140% of the market cap is sold short, it means the longs own 280% of the market cap - that makes no 'sense' either.

[jakelazaroff]

I only have a casual knowledge of this so sorry if these are dumb questions — doesn't it mean the longs own 240% (original 100% + 140% short sold)? Also, isn't it the case that the longs will own >100% if there are any short positions?

[tosser0001]

I'm sure there is some core set of people that want to "stick it to Wall Street" but the vast majority are probably just along for the ride.

The irony is, once this stock finally comes crashing down, it will be the small retail investors losing a lot of money, and a different set of Wall Street investors will be the ones reaping the reward.

[briefcomment]

Probably. Those small retail investors should be responsible for their actions though right? This is obviously a highly risky trade, and it takes just a couple minutes to see that's the case.

[bilbo0s]

It’s not really public v hedge funds, because the vast majority of both of them will be on the losing side. The reality is that market makers are probably gonna be the only winners here.

[briefcomment]

If this is successful, hedge funds will suffer, some retail investors will make a huge return, and some other retail investors will suffer losses at the end, much more than otherwise would have. Obviously not ideal, but no situation is perfect. The losses to the retail investors can be minimized if more join in and they take smaller positions on average.

How do market makers get outsized benefits from this? I'm uninformed.

[jakelazaroff]

Here’s a good explanation: https://twitter.com/toxic/status/1353890766800621569?s=21

TL;DR Citadel sees Robinhood order flow and can get in front of it, and also bought a chunk of Melvin on the cheap when they got squeezed out of their short position.

[josephorjoe]

It is fine to say "this is a bad situation and we need new regulations to prevent it".

What is not OK is bending and breaking the existing regulations to stop a group of individual investors who are individually doing nothing wrong in order to protect a hedge fund that was exploiting the existing (bad) regulations.

Also, it seems insulting to suggest that the only "good" reason for someone to buy a stock is faith in the fundamentals of the company when finance media has been yapping up the joys of derivative trading for decades.

[DennisP]

Nobody complains about hedge funds making short-term trades based on technicals. Momentum traders, swing traders, automated high-frequency traders front-running order flow, that's all kosher. But let a bunch of retail traders step outside of long-term fundamentals and beat the funds at their own game, and suddenly that's a problem.

People keep assuming the WSB crowd are idiots. I don't think it's a given that they can't do risk management, and in a short squeeze it's generally the short sellers who end up holding the bag.

Anyone who FOMOs in this week is probably in for a hurtin', but the ones who got in before this was all over the media have a good shot at significant profit.

[gabriel34]

This is a distributed movement, some people have been holding the stock for over an year+, others bought into it on the past few weeks. There are people who bought it as a meme stock, when it was relatively stable, as the devaluation from the market transition towards digital media had already mostly been factored into the price. Steam is not a new thing, after all. The fundamentals at the time supported the price, in hindsight it was about the lowest price the share has ever been at[1]. The CEO change precipitated other people to buy into the fad. This combined with the short overexposure counterbalanced the speculative attack from the hedge funds.

[1] https://www.nasdaq.com/market-activity/stocks/gme/advanced-c... select log scale, period=max

[cheph]

> But that’s not what happened. The brand is irrelevant. It’s just math and vengeance and in the end...a lot of retail folks are going to be left holding the bag as prices drop down to earth. That cannot be a good outcome for anyone. I don’t think we want a system to function like this.

Not sure what you suggest be done about it. Hopefully people learn their lessons but it is not like we can eliminate the possibility of doing dumb things, and doing so would be quite illiberal.

[S_A_P]

I agree with you, and on the flipside we need hedge funds and other “pro” investors to abide by the same rules. Big banks sure didn’t feel much pain in 2008...

[beefield]

I think there are two internally consistent approaches here.

Either you go full on Eugene Fama and claim that you do not even understand what market manipulation means as long as there is no hidden information, as markets are efficient and it is just market reflecting unidentified changes in the fundamentals or random fluctuation around the correct value or whatnot.

Or, you can say that yes, this is just exhibit N about how prices can be manipulated, which means that prices are not always correct. Which means that we can't trust blindly on markets to allocate resources efficiently, but we need to have careful discussion about in which circumstances it is prudent to restrict the market operations (including price, supply and demand).

What is weird, is how rare it is to find either of these approaches in public discussion. (For the record, I am in the latter camp. And no, I do not propose fullo on communism and regulated markets, but "to have careful discussion about in which circumstances it is prudent to restrict the market operations")

[xwdv]

I don’t know why people keep saying it won’t be a good outcome for anyone. That’s irrelevant.

This is like going to war, all will give some, but some will give all. At least we’re talking about money and not lives.

[heartbreak]

> At least we’re talking about money and not lives.

Are we?

https://www.businessinsider.com/robinhood-office-installed-b...

[bilbo0s]

The problem is that not all will give some. The market makers are raking it in hand over fist.

[ckastner]

> The brand is irrelevant. It’s just math and vengeance and in the end...a lot of retail folks are going to be left holding the bag as prices drop down to earth.

The hedge funds have retreated, yet WSB is doubling down on the frenzy.

The posts over there are just insane. QAnon levels of delusion against an enemy that has already retreated.

Wall Street is just a straw man now, and WSB is using it to cannibalize WSB.

[jakelazaroff]

Have the hedge funds retreated? Last I heard there were still >100% short positions in GME.

[heartbreak]

If you were a hedge fund on the sideline last week, wouldn’t you be quietly shorting GME @ 300? The outstanding shorts aren’t necessarily held by the same firms.

[bilbo0s]

They could game it all the way up, and collect all the way down. Lots of shorts could make enormous amounts of money right now.