Stock market drama llama: GameStop shares dramatically rise in price from some Reddit users' trading in it

[Gun Nut]

As to what the proper response to shorting is, I expect the response OUGHT to be to outlaw selling that which you do not own.

Again, recall that shares sold short have been borrowed from another stockholder who has (in principle) loaned the shares knowingly. To ban that would be akin to making it illegal for me to drive an Avis rental car despite whatever contract Avis and I agree to. Sure, brokerages might not offer the service to all customers, but what's to prevent big players from arranging to borrow shares personally? (Indeed, isn't that how very big short sales are usually arranged?)

No, to ban that would be akin to banning you from SELLING a rental car.

ya, not the best analogy... I think a better one would be as if it were to be made illegal to provide compensation for products or services not yet rendered or transfered... in other words, "credit" would be illegal.

 

[lpetrich]

The House had a hearing on the GameStop issue, and AOC participated in it.
Rep. Alexandria Ocasio-Cortez on Twitter: "Robinhood owes their customers more than an apology. @RepAOC asked their CEO to give his customers the commission Robinhood makes off the sale of their customers' stock trades. His "no" reveals that their business model is based on hidden costs to customers. Robinhood isn't free.(vid link)" / Twitter

 

[Lumpenproletariat]

If you want less of it, then why not tax it?

Wouldn't Bernie's tax on Wall Street be a simple solution to all this (assuming a "solution" is needed)?

Why not just have a simple tax on every transaction (buy/sell) every day. Probably only .1% would be enough. Even .01%. This would discourage some excess buying and short-selling by players trying to outguess other players. And those transactions not discouraged would bring in some revenue to the govt., which isn't bad, because everyone agrees that something has to be taxed anyway, so why not this? This tax would then take advantage of this "predatory" short-selling phenomenon, and so increase tax revenue and help with the high budget deficit.

Such a tax would not discourage legitimate trading, because the tax would be too low. If you want to increase your folio with another $10,000 or $100,000 investment, the tax on that would be negligible, as a one-time investment, rather than to be resold in a week or two.

Why doesn't anyone ever take this proposal seriously? I asked this question a year or 2 ago, and there was only one argument against a Wall St. tax -- i.e., that it would not bring in the 300 or 400 billion annually which Bernie Sanders claimed, but less than half that much.

What a stupid argument! So what if it brings in only 100 billion, or even only 50 billion? Every extra billion helps reduce the federal deficit by that much more, every year. What's wrong with reducing the deficit from 1.5 trillion down to 1.4 trillion? Is there something sacred about the federal deficit that it must be driven up as high as possible?

Why is Bernie's crusade (maybe his only good idea) used only as a weapon by Blues and Reds to hammer each other, for speechmaking only? Reds accuse Bernie of being a communist, while Blues accuse Wall St. of being dirty capitalist pigs, and so they both kick the Wall St. tax back and forth to score points with their idiot fanatic disciples and totally ignore it as anything serious to put up for a vote in the Congress.

(My Bad -- If someone already mentioned this earlier in this thread which I didn't read very far. Yet even if they did, it's getting little or no response, because the only interest seems to be that of the pro-capitalist and anti-capitalist crusaders bashing each other back and forth, like the Red vs Blue barroom brawl.)

 

[Derec]

The House had a hearing on the GameStop issue, and AOC participated in it.
Rep. Alexandria Ocasio-Cortez on Twitter: "Robinhood owes their customers more than an apology. @RepAOC asked their CEO to give his customers the commission Robinhood makes off the sale of their customers' stock trades. His "no" reveals that their business model is based on hidden costs to customers. Robinhood isn't free.(vid link)" / Twitter

Robin Hood offers free (as in no fee for trades) stock trades. Robin Hood has expenses and is also a for profit business. That they are getting their revenue from somewhere has apparently only been a surprise to this Boston College edumcated economist cum barmaid.

 

[Derec]

GameStop Investors Who Bet Big—and Lost Big

Salvador Vergara was so enthusiastic about GameStop in late January that he took out a $20,000 personal loan and used it to purchase shares. Then the buzzy stock plunged nearly 80%.
[...]
“I thought it could go up to $1,000. I really believed in that hype, which was an awful thing to do,” Vergara said.
[...]
[Patrick Weslowski] “lurked” on WallStreetBets, reading about other investors’ wild bets but not posting much himself. “It’s like reading ‘Florida Man’ news headlines with a Wall Street twist,” he said.
[...]
“If I lose it, I lose it. I’m OK. It’s like going to Vegas,” Wesolowski said. If he still had that money, he said, he might have put it toward a personal splurge like a vacation.
[...]
For many, GameStop represented more than just an investment. When Tony Moy bought about $1,200 of the shares, two at $379 and two more a few days later at $228, “I knew it was, intrinsically, the wrong move,” he said.

Moy wasn’t surprised when the stock quickly lost much of its value. A casual reader of WallStreetBets, he was mostly excited about the push to stick hedge funds with losses. Some hedge funds that shorted the stock—betting the price would fall — suffered big losses, though others managed to make money during the turmoil.
The trade was an outlet for Moy’s frustrations after an abysmal year, a “virtual protest” of sorts, he said.
[...]
One of Moy’s most recent works of art is inspired by “diamond hands,” a phrase used on Reddit to describe hanging onto your position, no matter what. He is keeping his GameStop shares as a memento.

We are not dealing with rational investors here.

Also, an earlier story.
As GameStop stock crumbles, newbie traders reckon with heavy losses

Evan Oosterink, a 19-year-old college student in the Netherlands, knew almost nothing about GameStop when in December he chose the company for one of his first big stock-market bets, calling it some kind of “American games shop where you can get all your games,” he said.

But his favorite Reddit forum, WallStreetBets, was increasingly obsessed with it, casting it as a way to crush billionaires, move the market and profit heavily in the process. Energized by its rising price, Oosterink said he invested another 8,000 euros last month — nearly $10,000, mostly from years of savings from his parents and some government college loans — leaving only about 30 euros in his personal account.

Evan Oosterink, a 19-year-old college student in the Netherlands, invested roughly $10,000 into GameStop stock — mostly savings from his parents and a government student loan — following energetic posts on Reddit's r/WallStreetBets forum. He said he has about $36 left in savings and is counting on the bet to pay off. (Evan Oosterink)
Had he sold last week, he could have pocketed a typical American’s annual salary. But as the stock has crumbled, he has turned to the forum for reassurance, posting a screenshot from his online-banking app showing the day’s losses, totaling about $9,000. He said he was “deep in losses but holding will prevail,” and included the emoji for a rocket and “diamond hands,” the forum’s lingo for not selling when a stock nose-dives.

He went on to describe the r/WallStreetBets community as a religion of sorts and there is an interesting discussion of the "loss porn" in that subreddit and how the community changed with GameStop frenzy. Interesting read.

 

[Derec]

Why not just have a simple tax on every transaction (buy/sell) every day. Probably only .1% would be enough. Even .01%. This would discourage some excess buying and short-selling by players trying to outguess other players. And those transactions not discouraged would bring in some revenue to the govt., which isn't bad, because everyone agrees that something has to be taxed anyway, so why not this? This tax would then take advantage of this "predatory" short-selling phenomenon, and so increase tax revenue and help with the high budget deficit.

Such a tax would not discourage legitimate trading, because the tax would be too low. If you want to increase your folio with another $10,000 or $100,000 investment, the tax on that would be negligible, as a one-time investment, rather than to be resold in a week or two.

I think you have something there. Even a 0.01% tax would make day trading and high frequency trading impractical while it would not affect the bottom line of longer term traders much and that of buy-and-hold investors even less.

 

[Gospel]

The House had a hearing on the GameStop issue, and AOC participated in it.
Rep. Alexandria Ocasio-Cortez on Twitter: "Robinhood owes their customers more than an apology. @RepAOC asked their CEO to give his customers the commission Robinhood makes off the sale of their customers' stock trades. His "no" reveals that their business model is based on hidden costs to customers. Robinhood isn't free.(vid link)" / Twitter

Robin Hood offers free (as in no fee for trades) stock trades. Robin Hood has expenses and is also a for profit business. That they are getting their revenue from somewhere has apparently only been a surprise to this Boston College edumcated economist cum barmaid.

They make money off of Gold Membership and uninvested cash which is deposited in an interest-bearing account. I agree, she doesn't know what she's talking about. If she said Robinhood should give every user the interest they earned on the cash they could not use to buy stocks during the buying freeze, that would make more sense. Doubt each account holder would get much, but just saying it would make more sense if AOC said that.

 

[Jarhyn]

The House had a hearing on the GameStop issue, and AOC participated in it.
Rep. Alexandria Ocasio-Cortez on Twitter: "Robinhood owes their customers more than an apology. @RepAOC asked their CEO to give his customers the commission Robinhood makes off the sale of their customers' stock trades. His "no" reveals that their business model is based on hidden costs to customers. Robinhood isn't free.(vid link)" / Twitter

Robin Hood offers free (as in no fee for trades) stock trades. Robin Hood has expenses and is also a for profit business. That they are getting their revenue from somewhere has apparently only been a surprise to this Boston College edumcated economist cum barmaid.

They make money off of Gold Membership and uninvested cash which is deposited in an interest-bearing account. I agree, she doesn't know what she's talking about. If she said Robinhood should give every user the interest they earned on the cash they could not use to buy stocks during the buying freeze, that would make more sense. Doubt each account holder would get much, but just saying it would make more sense if AOC said that.

They also make selling trade data to Citadel. Citadel can then use that data on trader positions to position themselves to profit off the data.

 

[Elixir]

All that drama, and GME seems to be pretty flush for the moment. Is their management going to try to make a go of it, or cut and run?

 

[Gospel]

Nah, ain't over. A bunch of damage mitigation in the form of back alley can-kicking is still going on. I'm certain management has been on conference calls with "shareholders" to determine the next move. Whatever the move it won't involve kicking cans so loud they alert authorities. Thank heavens for them the authorities have AI the likes of Cyberpunk 2077 NPC's and will fall for a soldier hiding in a teleporting cardboard box (see the conference with Robinhood).

 

[Swammerdami]

They also make selling trade data to Citadel. Citadel can then use that data on trader positions to position themselves to profit off the data.

Am I correct that their order flow is directed through Citadel? So Citadel sees the data before the order is executed?

Much behavior of Wall St. players strikes me as a violation of fiduciary responsibility, and should be illegal. In this example, is this violation of trust only legal because of an "⊠ I agree" box clicked on when the RobinHood user creates his account?

There are a lot of practices that would be prosecuted if one customer were cheated out of a $1 million, but ignored if a million customers are cheated out of $1 each.

 

[Jarhyn]

They also make selling trade data to Citadel. Citadel can then use that data on trader positions to position themselves to profit off the data.

Am I correct that their order flow is directed through Citadel? So Citadel sees the data before the order is executed?

Much behavior of Wall St. players strikes me as a violation of fiduciary responsibility, and should be illegal. In this example, is this violation of trust only legal because of an "⊠ I agree" box clicked on when the RobinHood user creates his account?

There are a lot of practices that would be prosecuted if one customer were cheated out of a $1 million, but ignored if a million customers are cheated out of $1 each.

That would be correct to my understanding.

Yes, it is filthy.

 

[Loren Pechtel]

Why not just have a simple tax on every transaction (buy/sell) every day. Probably only .1% would be enough. Even .01%. This would discourage some excess buying and short-selling by players trying to outguess other players. And those transactions not discouraged would bring in some revenue to the govt., which isn't bad, because everyone agrees that something has to be taxed anyway, so why not this? This tax would then take advantage of this "predatory" short-selling phenomenon, and so increase tax revenue and help with the high budget deficit.

Such a tax would not discourage legitimate trading, because the tax would be too low. If you want to increase your folio with another $10,000 or $100,000 investment, the tax on that would be negligible, as a one-time investment, rather than to be resold in a week or two.

I think you have something there. Even a 0.01% tax would make day trading and high frequency trading impractical while it would not affect the bottom line of longer term traders much and that of buy-and-hold investors even less.

The problem with this approach is that you would also hurt the arbitrage traders--and some aspects of the market are going to break without the arbitrage traders keeping things in balance. I like the general idea but it needs refinement to not break things.

 

[lpetrich]

Congress Disappoints In Its Blockbuster Robinhood Hearing

"I Waited Five Hours for AOC to Ask the Robinhood Guy a Question, and This Is What I Got"

It seemed like some of the Congresspeople may have had some good questions to ask.

And yet, we got an epic bipartisan shit show.

Over 50 Congress members attempted rapid-fire five-minute interrogations while battling an experimental noise band of moving furniture, clinking cups, and ambient yelling. Present were the major GameStop squeeze characters: Robinhood CEO Vlad Tenev, Citadel CEO Kenneth Griffin, Melvin Capital CEO Gabriel Plotkin, and unofficial WallStreetBets CEO “DeepFuckingValue” aka Keith Gill. (And, for some reason, Reddit CEO Steve Huffman.) For all of the chaos, delight, comedy, parody, boredom, rage, and rage-inspiring boredom this produced, our elected representatives’ loose command of the mute button quickly got depressing.

Republicans argued that the Democrat-led hearing was political theater, via political theater. We veered into breathtakingly delusional meta-questions about why Robinhood CEO Vlad Tenev isn’t monitoring all of social media for trustworthy investment advice. One representative spent the whole of his time talking about TikTok and the Chinese Communist Party, and others lobbed righteous but scattershot protests against class inequality to hedge fund CEOs. Some prompted the thought: “You’re on the Financial Services Committee? That’s terrifying!” And many demonstrated the potential value in ceding time to a fellow party member.

It was like when Michael Cohen showed up early in 2019. It was also a big disappointment. Many of the Congresspeople preferred making speeches and denouncing MC as a liar, but there were a few exceptions toward the end. Katie Hill asked him about what he might have on his former boss's relationship with Stormy Daniels, and AOC asked him some very good questions about possible tax and insurance fraud, noting that some of Trump's properties jump up in valuation for insurance purposes and down in valuation for tax purposes. She was also careful to ask who might know if MC didn't know.

 

[lpetrich]

More:

Many, including Elizabeth Warren, would like to better understand whether these relationships pose the kind of conflict of interest that might, for example, incentivize Robinhood to stop its own users from trading.

The relationship deserves inspection because Robinhood doesn’t make money directly from users on its commission-free trades. When you tap “buy” or “sell” on Robinhood, your order doesn’t go straight to the New York Stock Exchange; instead, Robinhood sends your order to high-frequency trading firms, primarily, Citadel Securities, in what’s called “payment for order flow” (PFOF). Citadel then executes both sides of the trade internally (called “internalizing”) and pockets the difference between the rates at which the seller sold and the buyer paid. Because I am not a financial journalist, I defer here to the brilliant Matt Levine:

The wholesaler [eg Citadel Securities] does the thing I just said: It pays the sellers more for their shares than the exchange offers, charges the buyers less for shares than the exchange would, and keeps 5 cents for itself. Well, it keeps, say, 3 cents for itself, and sends 2 cents back to the retail broker who sent it the trade. The broker has subcontracted the internalizing job to the wholesaler, and they share the profits.

So the company's money comes from transaction fees, what bookies call a "vig", short for "vigorish".

 

[Gospel]

Congress Disappoints In Its Blockbuster Robinhood Hearing

"I Waited Five Hours for AOC to Ask the Robinhood Guy a Question, and This Is What I Got"

It seemed like some of the Congresspeople may have had some good questions to ask.

And yet, we got an epic bipartisan shit show.

Over 50 Congress members attempted rapid-fire five-minute interrogations while battling an experimental noise band of moving furniture, clinking cups, and ambient yelling. Present were the major GameStop squeeze characters: Robinhood CEO Vlad Tenev, Citadel CEO Kenneth Griffin, Melvin Capital CEO Gabriel Plotkin, and unofficial WallStreetBets CEO “DeepFuckingValue” aka Keith Gill. (And, for some reason, Reddit CEO Steve Huffman.) For all of the chaos, delight, comedy, parody, boredom, rage, and rage-inspiring boredom this produced, our elected representatives’ loose command of the mute button quickly got depressing.

Republicans argued that the Democrat-led hearing was political theater, via political theater. We veered into breathtakingly delusional meta-questions about why Robinhood CEO Vlad Tenev isn’t monitoring all of social media for trustworthy investment advice. One representative spent the whole of his time talking about TikTok and the Chinese Communist Party, and others lobbed righteous but scattershot protests against class inequality to hedge fund CEOs. Some prompted the thought: “You’re on the Financial Services Committee? That’s terrifying!” And many demonstrated the potential value in ceding time to a fellow party member.

It was like when Michael Cohen showed up early in 2019. It was also a big disappointment. Many of the Congresspeople preferred making speeches and denouncing MC as a liar, but there were a few exceptions toward the end. Katie Hill asked him about what he might have on his former boss's relationship with Stormy Daniels, and AOC asked him some very good questions about possible tax and insurance fraud, noting that some of Trump's properties jump up in valuation for insurance purposes and down in valuation for tax purposes. She was also careful to ask who might know if MC didn't know.

Congress: "We've got a complex & Multi Billion dollar issue on the line & a lot of questions folks!". Allows 5 minutes per senator & answer.

Yup, they are efficient.

 

[lpetrich]

"WallStreetBets investor and financial analyst DeepFuckingValue (aka Keith Patrick Gill) passed this hearing with flying colors."

He introduced himself with “I’m not a cat. I’m not an institutional investor, nor am I a hedge fund.” He then presented GameStop as a company that might be worth investing in, as opposed to treating its stock like adult trading cards, an adult version of Pokemon cards.

I grew up playing video games and shopping at GameStop, and I plan to continue shopping there. GameStop stores still provide real value to consumers and reliable revenue for GameStop. Second, I believe that GameStop has the potential to reinvent itself as the ultimate destination for gamers within the rapidly-growing, $200 billion gaming industry. GameStop has a unique opportunity to pivot toward a technology driven business by embracing the digital economy. GameStop may be able to find new revenue streams that vastly exceed the value of its business.

I don't see that happening. IMO, online delivery is here to stay for high-tech gaming, and the main value of physical media is as high-tech dongles, access-control devices.

When I wrote and spoke about GameStop and social media with other individual investors, our conversations were no different from people in a bar or on a golf course or at home talking or arguing about a stock. Hedge funds and other Wall Street firms have teams of analysts working together to compile research and analyze shares of companies. Individual investors do not have those resources. Social media platforms like Reddit, YouTube and Twitter are leveling the playing field. The idea that I use social media to promote GameStop stock to unwitting investors and influence the market is preposterous. My post did not cause the movement of billions of dollars into GameStop shares. It is tragic that some people lost money in my heart goes out to them. But what happened in January just demonstrates again that investing in public securities is extremely risky.

Seems like yet another investment bubble, like the Dutch Tulip Mania nearly 400 years ago.  Economic bubble

Republicans are very pissed that Democrats are using this little show trial to push their Big Government agenda. In the telling of certain GOP reps, the government stepped in and forced Robinhood to stop allowing their users to buy meme stocks, and now Maxine Waters is manipulating the outrage to impose more market regulations. Not for nothing, this stance could score points with voters and potential hedge fund donors.

The reality is a little more complicated. Robinhood CEO Vlad Tenev has maintained that the company had to halt GameStop buys after its clearinghouse NSCC suddenly asked for $3 billion in collateral at 5am ET. The NSCC and its parent company, the Depository Trust and Clearing Corporation (DTCC), are beholden to SEC rules designed to mitigate risk. Tenev pointed out in his testimony that this might not have been an issue if the SEC enabled clearinghouses to settle trades immediately, rather than the current two-day cycle (the “T+2" settlement period).

In the day Robinhood halted GameStop buys, CNBC interrogated Tenev about whether Robinhood simply didn’t have the money on-hand for collateral, i.e., whether Robinhood had a “liquidity problem.” Money problems are probably not good to admit from a business standpoint, but that might have been a more understandable answer than Tenev’s vague insistence that Robinhood just had to “‘protect the firm and protect our customers” while meeting “SEC net capital requirements.

So this Gamestop bubble was hurting Robinhood financially?

 

[Gospel]

I don't see that happening. IMO, online delivery is here to stay for high-tech gaming, and the main value of physical media is as high-tech dongles, access-control devices.

I dunno man. Gamestop is an internationally known brand. 17 countries to say the least. They are indeed in a position (have been for some time and it's still not too late) to champion the gaming industry on and offline. For example, if they partner with ESports Hosts they can become a destination for Esport players to frequently visit and join tournaments. They can be the go-to place for people who can't afford the systems but may actually turn out to be future champions. Maybe even giving away system for local tourneys leading to state, national then eventually international events. Sponsoring some of the players (teams) that are discovered through their local tourneys. For revenue sell tickets, put up gaming-related prizes as an incentive to join. Right now I bet at least 5k people in my hood would pay upwards of $70ish to sign up for a chance to win a PS5 even if they never heard of the game.


They can also harness the digital sales by partnering with game development studios (giving them a decent cut of the sales while providing consumers a more reliable and trustworthy source for digital keys. Not to mention they can be a place to purchase game-related merchandise as you can't do a hands-on review prior to purchase from Amazon. All they'd need is awesome quality control and people will refuse to play the lottery game that amazon is.

Just ideas, but I don't know how they'd pull off the reorganizing, marketing, budgeting well enough & in the right amount of time.

 

[lpetrich]

Near the end of this hearing,

AOC Asks a Useful Question, and This is What Happens

Imagine now that you’re 5 hours and 15 minutes deep into this livestream, and you’ve nearly abandoned all hope. By some miracle, Waters calls upon Alexandria Ocasio-Cortez.

AOC to Tenev: If removing the revenues that you make from payment for order flow would cause the removal of free commissions—doesn’t that mean that trading on Robinhood isn’t free to begin with because you’re just hiding the cost? The cost in terms of potentially poor execution or the cost of lost rebates to your customers?

Tenev: So, certainly, Congresswoman, Robinhood is a for-profit business and needs to generate some revenue to pay for the costs of running this business. People were initially skeptical that the model even with payment for order flow would work when you remove commissions, and I think we’ve proven that otherwise by making this the standard model by which brokerages operate now.

AOC: I see...I have a timeline question here for Mr. Plotkin. I see that earlier your testimony today was that Melvin Capital had not engaged in..um...sorry—Madame Chairwoman?

[Maxine Waters, indiscernible]

AOC: I’m sorry, I think you’re not muted, sorry about that. [Laughs] Mr. Plotkin, earlier today you mentioned that Melvin Capital had not engaged in a naked short of GameStop. And Melvin closed out its position on GME on the [inaudible date], correct?

Waters: I’m sorry, but the gentlelady’s time has expired.

AOC asked about whether Robinhood depends on hidden fees, and Mr. Tenev essentially said yes.

 

[lpetrich]

I don't see that happening. IMO, online delivery is here to stay for high-tech gaming, and the main value of physical media is as high-tech dongles, access-control devices.

I dunno man. Gamestop is an internationally known brand. 17 countries to say the least. They are indeed in a position (have been for some time and it's still not too late) to champion the gaming industry on and offline. For example, if they partner with ESports Hosts they can become a destination for Esport players to frequently visit and join tournaments. They can be the go-to place for people who can't afford the systems but may actually turn out to be future champions. ...

In effect, run Internet cafes oriented toward gaming. It would be something like ocean liners becoming cruise ships.

-

GameStop hearing: Keith Gill aka Roaring Kitty opening statement before Capitol Hill lawmakers - YouTube
Keith Gill delivers his testimony at GameStop hearing: 'I like the stock' - YouTube
(seems to be a repeat)

Watch lawmakers grill Robinhood's CEO at GameStop hearing - YouTube
and
Congress hits Robinhood HARD! GameStop hearing in 10 minutes (supercut) - YouTube

One Congressmember complained that Robinhood CEO Vlad Tenev was not giving straight answers, and that with his filibustering, he ought to run for the Senate.