Reddit vs. Wall Street

[Inky_Wretch]

Are you following what Redditors are doing to the stock market? They've cost hedge funds around $5 billion on short bets that blew up as Redditors kept bidding up GameStop stock.

Can Anything Stop GameStop?

Today, they are working on AMC.

 

[TheSportsPredictor]

Been texting with a friend this morning.

GS opened at 304.93. Was down about 7 bucks before I finished typing that in a text to him.

Went back to 310 moments later. Then I saw it as high as 328 before it settled down.

Looks like it is crashing back down, at 278 as I type this.

As if you needed any more evidence that Wall Street is just fancy gambling.

Meanwhile I am almost sold out of Super Bowl squares for $5 each.

 

[TheSportsPredictor]

Hmmmm, Robinhood not working.

 

[The Big Ragu]

Not just Gamestop. ... Look at AMC Entertainment Holdings -- the heavily shorted movie theater chain. That one got so ridiculous that AMC Networks, which is no relationship, got run up on the euphoria.

There are a few of them like this right now.

Welcome to the casino the Federal Reserve created. There is so much liquidity sloshing around on the back of the most mispriced debt in history.

It's really easy to make money. You take your "stimmie" -- stimulus check -- or sell some of your Tesla stock, look at a message board and load up on call options so you can get maximum leverage.

What could possibly go wrong?

FYI, Wall Street being "fancy gambling." Equity markets SHOULD be discounting mechnaisms and the valuation of a stock should be relative to 1) the risk-free rate of return and 2) the company's earnings. But we have spent the last 10 years with none of that being the case, because central banks around the world have destroyed the debt markets to answer the debt crisis they created in the first place. ... by propping it up with more debt. Economically, we suffer for it, because it turns the whole economy into a casino. It has exacerbated wealth inequality -- as anyone who can control risk assets has seen their values jump through hte roof. And instead of capital being allocated efficiently, you first get savers who are being robbed of their risk-free return being pushed into riskier and riskier behavior, and when the amount of debt monetization keeps ramping up, you end up with Reddit boards sending the stocks of bankrupt companies up 500 percent in a few days.

This reminds me so much of the dot-com bubble.

 

[The Big Ragu]

Hmmmm, Robinhood not working.

TD Ameritrade, Schwab, Vanguard all reporting an unprecedented volume surge and that they are having trouble keeping up. People are having trouble getting into accounts, supposedly.

 

[Michael_ Gee]

At least the dot-com bubble was based on a real thing, the idea the Internet would transform the economy. This is just market manipulation, albeit by large groups of people acting collectively, to **** over short sellers, who're never very popular.

 

[Scout]

This was on the politics thread and the gaming thread, but if anything deserves a thread, it’s this.

I’m sure there are people on this board who can explain this butter than I can, but here is the explain like I’m five rundown.

People on the internet make millions buying, or shorting, stocks they feel will fail. They are directly profiting off the loss of others. It’s sick when you think about it.

So hedge funds are filled with these shorts, and some chowderhead went on cable TV and said to short Game Stop.

Well the good people of Reddit got pissed and organized to buy the **** out Game Stop to drive up the price, because if you own the short and it goes up, then you are ****ed and lose your ass.

Basically, a message board on Reddit has billion dollar hedge funds by the balls and they are ripping them off but sac and all.

It’s glorious to watch.
https://www.reddit.com/r/wallstreetbets/

 

[FileNotFound]

Would be fun if they set their sights on GCI or LEE.

 

[2muchcoffeeman]

Reddit vs. Wall Street

 

[The Big Ragu]

Would be fun if they set their sights on GCI or LEE.

Not likely. The short intrest is relatively small for those stocks.

What made GME so vulnerable is that the short interest as a percentage of the float (the amount of stock) was 140 percent. The company should have been out of business long ago, but it is surviving on debt (that wouldn't be available to it without the Fed having taken over the debt markets). Fundamentally, it was a no-brainer short. But fundamentals no longer matter -- it's a casino.

Short squeezes aren't anything new in a situation like that. The fact that it looks like it began with retail traders, and the squeeze has been the most violent anyone has maybe ever seen, is what is new. This isn't all Reddit, though, even that group has been talking about GME for a few months now. The money doing this has to be largely institutional.

 

[Michael_ Gee]

The trouble is, now these Reddit folks own very expensive stocks. Sooner or later, enough of them will decide to cash out so that the stocks start to decline and once that happens, the prices will start to go down very quickly to a very low value as everybody heads for the exits. To a certain extent, the Reddit speculators are swindling themselves.

 

[TheSportsPredictor]

Don't know if Bed, Bath, and Beyond is part of this, but they've been on a recent tear. More than doubled in the last two weeks. Around $47 now after being under $10 a few months ago.

I had them on my radar last April as a bounce back when they were under $5. Had my money tied up in Imax at the time so I stuck with that. Shoulda went with BBB.

Anyway, I just put the rest of what I had in Robinhood on AMC. Just three shares worth, but it's already up a buck in the last 20 minutes or so. Maybe it goes half a GameStop and I make a couple hundred in a day.

 

[Scout]

Reddit is calling AMC a false flag and stay focused on Game Stop. They want to destroy these hedge funds.

 

[Scout]

https://www.reddit.com/r/wallstreetbets/

 

[Scout]

The trouble is, now these Reddit folks own very expensive stocks. Sooner or later, enough of them will decide to cash out so that the stocks start to decline and once that happens, the prices will start to go down very quickly to a very low value as everybody heads for the exits. To a certain extent, the Reddit speculators are swindling themselves.

But they are making the hedge funds borrow billions to cover this loss.

 

[Michael_ Gee]

But they are making the hedge funds borrow billions to cover this loss.

Sure, it's great now. But keeping the prices of these pretty close to worthless stocks high is an unsustainable exercise. The profit-taking motive alone sinks it.

 

[DanielSimpsonDay]

 

[The Big Ragu]

At least the dot-com bubble was based on a real thing, the idea the Internet would transform the economy. This is just market manipulation, albeit by large groups of people acting collectively, to **** over short sellers, who're never very popular.

Yes and no. A lot of stocks of companies with real businesses like Amazon, Microsoft, Cisco went ballistic during the dot-com bubble and ran up to levels that it would more than a decade for them to reach again. But for every real company that got swept up in the euphoria there were a handful pets.coms and Webvans that never earned a penny and just lived on Alan Greenspan's genius. ... until they went bankrupt.

This is similar in that we are in a world of zombie companies that are drowning in debt, losing money, and are able to keep borrowing to stay alive. There are plenty of good companies now, too, where just like during the dot-com bubble, they are trading at the most expensive valuations in history, too. Think Apple -- great company, way overvalued. Or Alphabet. Or Facebook. They are real things. ... at the same time, there are a lot of companies that don't earn a penny and just keep borrowing or tapping the secondary IPO markets, trading at huge multiples.

It's the same exact thing in that regard. I won't bug everyone with too long of a long post, but if you want to see another symptom read up on what is going on with SPACs right now -- special purpose acquisition companies and the number of IPOs there have been in that space and how much the prices are running up.

We have been in a euphoric, mispriced environment since the financial crisis. But with what central banks have done over the last year, it is now getting into territory we have never seen before. If you buy the stock of one of those SPACs, you are just gambling. There is no business. It's just, "Give us money and value us at a ridiculous valuation. ... and trust us to reinvest it in places that will justify the insane valuation."

 

[TheSportsPredictor]

GameStop up to 378

 

[Michael_ Gee]

Funnily enough I have been rereading "The Great Crash," J.K. Galbraith's history of the 1929 crash. One of the points he makes is that the speculation of that time was largely financed by buying on margin loans (buyer only puts up a percentage of the purchase price, borrows the rest), the interest rates on which were quite high, like 12 percent. Since as prices went up, the stocks used as collateral made the loan nut easily, every financial institution on earth was throwing money at Wall St. to get that 12 percent return. When the crash came, all that money was promptly called in and the speculators were ruined, often in the course of a morning's trading.