US Stock Market - Hedge Funds vs. Reddit ($GME, $AMC)

Kevin

Code Monkey 🐒
Anybody else following the saga this week that is pitting small stock buyers versus hedge funds companies? It's been pretty interesting watching it play out.

For those not following the stocks, the short version of it is that a whole bunch of people are buying small amounts of certain stocks to drive the price of those stocks up which is causing hedge fund companies to go nuts because some of them have obligations to buy back a whole bunch of those stocks at what are now hugely inflated prices causing them to lose money. It's happening at large enough volumes that it is catching the attention of lawmakers and will likely lead to some type of changes which is also causing controversy because any changes would be in favor of large funds and not the small time investors.

Usually I pay no attention to a lot of these fleeting news cycle items but an interview this morning on Yahoo Finance TV caught my attention. They were interviewing a bunch of folks who were all trying to justify why the public (as in you & me) should be restricted in how we buy & sell stocks and one of the people was Megan Horneman representing a company by the name of Verdance Capital Advisers. Below is an exact quote.

Megan Horneman - Verdance Capital Adivisers said:
Anybody that has an iPhone now can invest in the stock market. This is dangerous.

I ended up using the DVR rewind to go back and listen to it again to make sure that I heard it correctly. Yep, that is exactly what she said. The next sentence from her was about how only trained & professional traders should be in the market. 🤦‍♂️

One part of my brain is thinking "Hey, wait a minute, I wonder if this will affect any of my 401K investments? 🤔" but, seeing statements like the one above combined with the shenanigans of companies like Citadel and RobinHood today along with some recent troubling (to put it mildly) political divisions, also makes me think "Yikes, the US is plowing full-steam ahead towards an implosion on a major scale. 😲"



(EDIT: Not a political post!)
 

Kevin

Code Monkey 🐒
Here's a quote from another interview this morning, this time it's billionaire Leon Cooperman from Omega Advisors on CNBC. I wonder who the "we" is in his context?

Leon Cooperman said:
The reason the market is doing what it’s doing is people are sitting at home getting their checks from the government, okay, and this fair share is a bullshit concept.

It’s just a way of attacking wealthy people. It’s inappropriate and we all gotta' work together and pull together.

 

agentlossing

All-Pro
Location
S. Oregon Coast (the Northernmost-Cal of them All)
Real Name
Andrew Lossing
As a left leaning person, I approve of this attack on those billionaires. As a person near retirement, I’d prefer not to see my retirement fund take a beating. So, I am conflicted.
I think that makes you a moderate! Dirty word? Why??? Don't we all have to live together, with our various systems? Seems to me being conflicted just means seeing the most clearly these days.
 

theoldsmithy

Hall of Famer
Location
Cheshire, England
Real Name
Martin Connolly
As a left leaning person, I approve of this attack on those billionaires. As a person near retirement, I’d prefer not to see my retirement fund take a beating. So, I am conflicted.
I think stopping the “amateur” investor from buying shares while allowing the hedge funds to continue driving down a company’s share price is ludicrous. I also think short selling is a pretty unethical practice anyway, and I experience waves of schadenfreude when it goes wrong.
 

Luke

Legend
Location
Milwaukee, WI USA
Real Name
Luke
I think some of the videos that I have seen are hilarious where they show some disheveled college student who is excited that he has made made $280 (on paper) in one day.

And meanwhile the hedge fund has lost hundreds of millions.

Makes me wonder if the trading platform Robinhood ("Steal from the rich and give to the poor") isn't somehow involved
 

phigmov

Probably Not Walter Kernow
Location
Aotearoa
I think some of the videos that I have seen are hilarious where they show some disheveled college student who is excited that he has made made $280 (on paper) in one day.

And meanwhile the hedge fund has lost hundreds of millions.

Makes me wonder if the trading platform Robinhood ("Steal from the rich and give to the poor") isn't somehow involved
I find it pretty funny. These are the games traders have played for decades and now the tools have been commoditised such that many more people can play those games.

As per the Cory Doctorow explainer - I find it doubly amusing that Robinhood enabled this via their free-trading platform because (like any good system predicated on leveraging surveillance-capitalism) they monitor the free-trades of retail-investors to feed their own algorithmic investments (which just sends the stock higher).
 

tonyturley

Legend
Location
Scott Depot, WV, USA
Real Name
Tony
OK, I know pretty much nothing about stock trading, but Walter's second paragraph above begs a question: is the Robinhood algorithm akin to the same kind of algorithm used by YouTube, wherein pretty much every content creator on YT is begging viewers to click and subscribe in order to increase their ranking?
 

wee-pics

Hall of Famer
Location
Germany
Real Name
Walter
The specialists over here consider it a phenomenon like the snowball system: some peole will make a lot of money, most people woll lose.
 

Jock Elliott

Hall of Famer
Location
Troy, NY
From my very limited understanding, here's what happens when you "short" a stock:

1. For a fee, you "borrow" a stock from its owner for a certain period of time.
2. You then sell the stock at whatever the current market price.
3. When the borrowing period is over, you must return the stock. If the price of the stock has gone down, you make money, because it costs less to repurchase and return the stock than the price you got for selling it. If the price of the stock goes up, you lose money, because it costs more to replace the stock that what you got for selling it.

In the game stock scenario, there are a couple of additional wrinkles:

1. The hedge funders were able to borrow (short) 140% of the available stock.
2. The small investors got wind of this and began bidding the price of the stock UP.

In the magic of my mind, this raise a couple of questions:

1. How is it even possible to borrow 140% of the available stock? Obviously, this is an exercise on paper only OR someone is allowing multiple entities to borrow the same stock.
2. How intellectually deprived do you have to be to think you can return 140% of something that you can (obviously) have only 100% of? (And yet now we are told only "the experts" should be allowed to play in the market). The only way that could work out is if the value of the stock goes to ZERO. Otherwise, you are going to have various entities bidding against each other to get the necessary stock which must be returned.

In short, DOY!
 

Richard

All-Pro
Location
Marlow, UK
I just Googled your first question, and came up with this (from the Motley Fool website):

As an example, take a situation involving four investors. Annie owns shares of GameStop, and Annie and her broker have an agreement that allows the broker to lend Annie's shares to short-sellers. It lends them to Bob, who subsequently sells those borrowed shares short in hopes that GameStop's share price will fall.
An investor named Chris ends up buying those borrowed shares from Bob. However, Chris has no way of knowing that those shares have been borrowed from Annie. To Chris, they're just like any other shares.

More importantly, if Chris has the same kind of agreement, then Chris's broker can lend out those shares to yet another investor. Diane, another GameStop bear, can borrow those shares and sell them short.
In this example, the same shares end up getting borrowed and sold twice. The short interest volume these transactions add to the total is twice the number of shares actually involved. You can therefore see that if this happened throughout the market, total short interest would eventually exceed the number of shares outstanding and approach 200%.


-R
 

Mr_Flibble

Top Veteran
Location
The Lowlands
Real Name
Rick
This comment from another forum pretty much nailed it for me;

We are not prepared for Gen Z.

I've long considered that we're looking at 21st century problems with 18th century solutions. These kids are smart, they are informed, and they can rapidly respond to something they think is an injustice. With the technology and the abilities they have, we're going to see a lot of modern society just...suddenly realize that they're outclassed.
Because right now, a lot of these kids are on Tiktok going "hey, you know how we all hate capitalism? Well...turns out you can use it to hurt itself.
 

drd1135

Zen Snapshooter
Location
SW Virginia
Real Name
Steve
I teach as a liberal arts college. These kids are pretty sharp. Many of their current complaints are real, like not being able to buy a house because housing prices compared to the BB gen have gone up by a factor of 10 and salaries have doubled or tripled. I have great faith in their abilities to make a dent in our problems
 

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