GameStop and the Means of Prediction
So what's going on with the GameStop share price is easily the most interesting thing happening in the universe right now, so here's a place to discuss that, for anyone interested. For those who don't quite understand what's going on, here's an explainer video:
The most relevant point - was there market manipulation? Yes, but it was by the hedge funds who are screaming out for market regulation right now. The bloke who made the video has another great follow up here, but I don't want to overwhelm this thread with two quite long videos. Anyway, watch and learn the above is some of what's going on is a bit confusing to anyone.
The most relevant point - was there market manipulation? Yes, but it was by the hedge funds who are screaming out for market regulation right now. The bloke who made the video has another great follow up here, but I don't want to overwhelm this thread with two quite long videos. Anyway, watch and learn the above is some of what's going on is a bit confusing to anyone.
Comments (230)
[tweet]https://twitter.com/DonaldJTrumpJr/status/1354793103090212865[/tweet]
AOC and Trump Jr on the same side of an issue. Who would have thought?
[tweet]https://twitter.com/benshapiro/status/1354795139500302338[/tweet]
[tweet]https://twitter.com/AmericasComic/status/1354452317257560067[/tweet]
SEC better punish them for this. Although they won't, because the rich own the government and politicians are probably clients of the hedge funds that are losing money.
You need fucking margin to buy it now. Everyone who has margin is short on GME already, that's how they got into this fucking mess. Etoro's still got buy options apparently.
In any case I'm liking the bipartisanship here.
Cheers. T212's stopped "onboarding clients"!
This guy says the institutional side actually drives a large proportion of the trend upwards on the basis of algorithms/automated strategy.
https://ftx.com/
What's alarming to me is that, even when the stock prices started to increase, they refused to close their position. This either suggests that they had their eye on the ball less than a bunch of amateurs on Reddit, or, more likely, their belief in their entitlement to an even greater profit made them forego the profit they had secured.
Melvin have been bailed out by friends, brokers have intervened, the government are monitoring the situation, and we're probably going to see legislation criminalising the purchase of stocks that the financial elite have a vested interest in. Even when they lose, they don't lose, instead just rigging the game even more in their favour. But they'll still tell you that, left to its own devices, the market looks after itself.
I actually have a feeling it will be done far more subtly than this - in fact, we're already seeing how the response is shaping up. It's not to criminalize the purchasing of stock, but to control access to brokerage. Hence why Robinhood and others - who have a vested interest in servicing the hedge funds which provide them the majority of their business - stopped the purchasing of GME stock, and only allowing selling. What's being played out now in SEC complaints is how legal this is - and the pessimist in me reckons it's going to be A-OK.
This is how the elites govern now - by means of 'structural power', where they close ranks and deny access to means rather than end-product. One precedent for this which I've studied alot is in the case of sovereign debt, where solidarity among lending institutions (banks and so forth) simply refuse to lend more to indebted countries in order to enforce austerity and political change (this is basically the story of international finance relations since the 70s, and no one talks about it). This kinda of neoliberal strategy is favoured because it sticks with the script of "open-markets": the state isn't denying anything, it's allowing certain institutions to do stuff (even if that stuff happens to be denying access). It's devolution of power 'outside' the state and 'freedom' to corporate action.
Anyway, what happened here was or is the identification of gap in this kind of structural power, which is what allowed this bubbling-up of organization from 'below' to gain any traction. And it took all but three or four days to shut the tap off - although obviously not completely as there's brokerages still willing let people buy the stock. At the very least this is going to spur an attempt to consolidate brokerage agencies under the direct control of hedge funds, probably by means of massive push for regulation whose costs and burdens only they can bear (if Robinhood isn't made bankrupt by the shenanigans that it's pulling, I have every expectation that business models like it will be legislated out of existence in the future now). But this is just speculation on my part.
But as usual yeah - the free market is a fucking lie.
Is that all the other brokerages like Robinhood etc have been doing, or have they been limiting it even further?
@StreetlightX I see you mentioned margin above, but it sounds like you're saying the opposite of what my brokerage seems to be saying? I would think that if anything it would only be big institutional investors who would have margin on which to buy (though Googling it right now it seems like some margin is a pretty standard feature of every brokerage account?), and the requirement from my brokerage seems to be that you cannot buy on margin, not that you must buy on margin.
Whoops yeah, similar avatars (both mostly white with the mod badge) confused my tired brain.
So, was what Robinhood etc were doing earlier something more than just requiring 100% cash on hand to buy? Like, you couldn't buy it at all, even in cash? I thought it was the latter but then my brokerage's notice plus @fdrake's mention of margin earlier makes me wonder if wasn't just that.
On the other hand, isn't further pushing up the stock, knowing full well that it'll eventually crash again, like taking part in a pyramid scheme? Someone will loose eventually, and I doubt it'll be just the hedge funds.
One would hope this would lead to a demand for brokers who promise not to do this sort of thing, and a mass exodus from platforms like Robinhood.
Quoting StreetlightX
Mmm such as Greece. I'm not sure how Varoufakis' backup plan would have played out (he's a bit of a blowhard) but I kinda regret we never found out. Seems to have worked out okay, though. Adults in the Room describes a somewhat different story in which really it came down to one stubborn man who never approved of Greece being in the EU in the first place, with everyone else promising the Earth then backing down. Again, not sure Varoufakis is a trustworthy narrator.
Quoting Pfhorrest
As I understand it they were capping the amounts they'd broker.
Robinhood stopped buy orders of GME. Full stop. As did Etoro. t212 stopped new clients from joining. Heard reports about other agencies that buy orders of GME were made impossible. A brokerage I [s]saw but can't remember the name of[/s] IBKR started requiring that an investor had the ability to buy on the margin - borrow money to buy stock - in order to issue buy orders for GME - IE they put in a requirement that someone was an institutional investor in order to buy GME.
Citation: https://twitter.com/IBKR/status/1354792600004386818
Edit: Seems I didn't know what I was talking about. More than possible I misinterpreted all of this. Things I know for certain: Robinhood made buy orders impossible for regular clients (confirmed from friend), as did Etoro (confirmed from other friend).
I think RH has a tiered system depending on your subscription fee. But they were, for a period, specifically halting any buying of GME. They're putting it down to liquidity problems, which may even be true, but it still stinks. I read of some people having RH force the sale of GME stock on their behalf at one point, but I haven't seen much traction on that story so I don't know how trustworthy it is.
Quoting Kenosha Kid
True, but if brokerage becomes consolidated - much like ratings agencies - what demands people have won't matter. That's my worry anyway.
Quoting Kenosha Kid
Greece but also Argentina, Mexico, and Italy, among other places. Aside from Varoufakis check out Jerome Roos' Why Not Default? and Wolfgang Streeck's Buying Time where they really delve into the politics of how lending conslidation functions. Also, I realized in my big speculative rant I missed the most obvious mode of how this stuff is being prevented - by simply shutting down the forums where people gather to talk about this stuff. Both the wsb discord and facebook page were shut down in the last two days, even though the reddit page remains up.
This shit, this shit is gonna become more common. And it'll be done in the name of shielding from volatility and 'market stabilization' or some crap.
As I understand it, that means that you must have 100% of the purchase price on hand, i.e. you may not borrow to purchase; not that you are required to borrow to purchase.
And this should mean that it’s more difficult to do what the hedge funds were doing, because it requires that you have 300% of the purchase price on hand to short it.Quoting StreetlightX
From what I was reading earlier to make sure my understanding of margins was correct, that’s normal practice when someone buys something on margin and then it tanks below the required maintenance margin percentage (e.g. if you buy $2k of something with only $1k of cash, i.e. at 50% margin, and then it tanks to only $1.5k in value, if your maintenance margin is 33% then your holdings of that will be liquidated to cut the losses of the money you borrowed from the brokerage to purchase it).
Banning trading in a specific stock or derivative is possible too but with a reasonable notification period - which can be very short in volatile markets. For instance, I once bought KIOR stock and that tanked into penny stocks and the costs for the bank to pay the deposit fees were no longer in line with the value of the underlying stock so they told me to get rid of it or they'd close out the position for me on a specific future date.
Problem with Robin Hood is that margin lending is embedded in its use case as far as I can tell and if hordes of dummies lend margin to buy a volatile and shitty stock then quite obviously banning them to buy, in order to protect the recovery rate on those loans, is an obvious risk measure.
So quite frankly, I think the outrage is totally misplaced.
Is it not RH, rather than the dummies, who would be doing the lending? And in requiring 100% margin, RH is basically refusing to lend toward the purchase ofQuoting Benkeiwhich yeah, sounds reasonable to me.
I’m as skeptical as the next socialist of big capital, but I’m even more skeptical of the skreechings of 4channy people who call themselves “autists”, and though I admittedly don’t know a whole lot about this topic, from what I’ve been reading it sounds like they know even less and are just furious about normal reasonable procedures.
That seems right to me too. I thought it suggested that the user required the ability to buy on the margin in order to buy the stock, perhaps I've misinterpreted things. I edited the post I made to flag that explicitly.
I think it remains the case that brokerages stopped people from being able to buy GME even with all their own money up front. But they allowed people simultaneously to sell it. Robinhood and Etoro definitely did that - a couple of friends tried to buy the stocks with their own money and couldn't. But it was fine to sell the stock!
Quoting Benkei
It is a very risky stock, the reason all this started was that for some reason a few hedge funds had been shorting the hell out of it. It's still currently at 120% short volume. The rising value of stock caused a big loss for Melvin Capital.
Is there a way to see if any other stock has a > 100% short volume?
Yes, that is correct, the alternative was asking even more margin (above 100%) but that has the risk of causing a fire sale because it quickly reduces (potential) yield to the point where you're better off taking your money elsewhere. Upping margin requirements from 50% to 80% is different, while losing leverage also reduces potential yield it also lowers the risk you run so can be considered an acceptable trade off. Posting margin above 100% no longer lowers your risk (as a trader).
The outrage as I understand it is not that normal risk measures were applied but that brokers banned purchase of stocks to ensure those stocks could be wilfully devalued by those betting against them, i.e. the apparent collaboration between hedge fund managers like Melvin and brokers like Robinhood to manufacture a particular market outcome. If brokers were simply following normal procedure, the outrage would be misplaced. It depends how justified you think the paranoia is, I guess.
I'd guess yahoo finance has a database somewhere? I had a look for a bit there but couldn't find a list.
Found this. https://financhill.com/most-heavily-shorted-stocks-today. Nothing greater than 100%, not even GME anymore.
I think the short volume/interest of a stock is different from whether a portfolio is net short? As I understand it short interest in a stock says how often a share is short sold compared to its number of available shares. It doesn't care about who's short selling it and what % of their portfolio is devoted to shorting. If I've read it right, you've linked a registry of companies whose portfolios are above a certain % of short position, not a list of companies whose stocks are shorted at a really high volume?
LGND looks like it's getting squeezed too.
Apparently the whole stock exchange is spooked.
https://www.theguardian.com/business/live/2021/jan/29/stocks-slump-gamestop-trading-frenzy-spook-investors-reddit-wall-street-pound-brexit-inflation-gdp-business-live
Ummm... Whoops!
Just conjecture, I am a noob.
Can you imagine what the operational leverage of your average investment firm is after the covid bailouts went to the financial industry? Debt fueling speculation.
And how much that gets multiplied when trading short like this? One firm already lost 3 billion USD and had to be bailed out by its friends. Debt fueling debt fueling debt multiplying debt fueling debt...
Allowing individuals to buy on margin is another way that the predictability of the market is increased. When a stock plummets to a particular point, it triggers a margin call, and the person who bought on margin is forced to sell in order to cover the margin. This amplifies the fall, making the overall fall more predictable. If it falls a certain percentage, margin calls will begin, forcing a further fall, and more margin calls. A fall will always proceed in a somewhat predictable way due to the standards employed in margins.
Quoting Pfhorrest
Margin is more complicated than this though. If you have a variety of holdings you can take margin on more stable stock to buy other more risky companies which are not marginable. This makes a dependence between different sectors in the market. Widespread market crash is now a natural and predictable phenomenon, as a fall in one sector will precipitate selling in another sector to cover margins, resulting in a cascading event which becomes quite predictable and lucrative to the short sellers.
Exchange data probably contains it. If I'm not mistaken you need to flag short sales in the order message.
Quoting BitconnectCarlos
This doesn't help Gamestop in any way. They've already issued those shares and received the notional value. Any premium being paid goes to the seller.
Does it not protect Gamestop from potential liquidation? Like if the total market cap of GME drops below the total assets of Gamestop that will incentivize the shareholders to call for liquidation of assets to cut their losses, no? Thus putting Gamestop completely out of business. Propping up their share price in turn prevents that, no? (Also, don’t companies borrowing power usually hinge on share price too?)
Heavy short selling suppressed gamestop's stock price for years, this hurts the company, no? Suppressing the share price leads to a lower market cap for the company.
Look at it this way, when a company issues a stock for the first time it's like it gets a perpetual loan from the investor and in return will pay a variable interest (dividends) which is related to company's performance. This loan can be transferred from investor to investor and prices for the loan will vary depending on expected dividends and therefore expected performance. One investor pays another for the right to the dividends but the original amount loaned to the company doesn't change.
Shorting a stock is again just transactions between investors, first you borrow one from an investor and sell it to another investor, then later you buy one from yet another investor to return the borrowed stock to the first investor. These are all transactions between investors with no effect to the company but says something about investors' expectations of the performance of the company.
Right, that's what I'm talking about. I once worked for a penny-stock company and their whole business strategy seemed to be to look promising enough to boost their stock price enough to convince investors that they're worth lending money to actually do that promising stuff with.
Yeah, this is my understanding of it. One of the principle consequences of low stock value is an inability to attract loans and investments. As the ghost of Gary Numan in that video said, driving down the value of a company does genuine harm. Shorting the crap out of them can destroy their ability to transform their business, can ultimately destroy the business itself when it becomes more attractive to liquidate than to persevere.
Why is it a perpetual loan rather than a one-time loan when the stock is issued for the first time and sold to the public?
I understand that shorting is just a transaction between investors, but that does impact the market cap. I admit that I don't have much experience in traditional markets, but I would think a low market cap reflects poorly on the brand, no? Wouldn't a low market cap make it harder to get loans? Maybe Gamestop or AMC employees get offered stock options as part of their compensation? While I understand that a company's market cap may not reflect its fundamentals or its actual performance, I find it hard to swallow that market cap just apparently doesn't matter to the company as you seem to be implying.
It's not a loan it's like one, which I just used to describe a specific aspect of the relationship between the company and investors. I call it perpetual because the company is not obligated at any time to repay the notional on its outstanding equity.
Quoting BitconnectCarlos
That's indeed what I'm implying. A bank offering loans because of a high market cap in lieu of its own risk assessment isn't doing it's job well. A company can have a low market cap while having a stable and sustainable business model, simply because it offers a low yield to investors and the reverse is possible too where a company attracts a lot of venture capital but isn't sustainable (yet), like most start ups and scale ups.
:heart: :hearts: :death:
On gDrive because CNBC keeps taking down the full video elsewhere.
They maybe had to take it down because it's unethical for a television journalist to use his platform to actively try to devalue the stock price of a particular company. The only argument he had left by well before the midpoint is: IT'S GONNA CRASH!!!! I'm pretty sure there's rules against market manipulation by using the media to scaremonger.
And it probably is gonna crash tbf. But protecting a financial elite that stands to lose tens of billions through failed market manipulation under the guise of benevolent nannyism for the little guy who might lose a few thousand is more transparent than he realises. Do they know they might lose their investment? On the stock market of all places? Yeah, they know, you condescending ****!
@Michael
GME's still at 121% short volume. Over 20 billion dollars lost for shorters so far.
Fuck that interviewer.
I'm looking at GME's balance sheet and it does seem that GME holds $GME common stock so getting shorted on a massive scale can't be too helpful there. I heard as a result of the AMC stock appreciation AMC was able to pay off $600mm in debt and the organization can continue running after coming very close to bankruptcy recently.
I saw an interview with the RobinHood CEO in which he suggested existential reasons for this. I don't really have much of a grasp on how buying frenzies hurt brokers, seems kind of counterintuitive, but IG are claiming the same thing here. Anyone know why these frenzies might hurt brokers?
Well, if the market cap of the company is collateral for any debt, it might be an issue. (I think mentioned this already)
Anyway,
This whole Gamestop event just shows that we are living quite similar times as in the 1920's. Then too speculators could gang up on stocks (and I'm talking of both the hedge funds and others) as there isn't much anymore of the New Deal era limitations/regulations in force.
And that this kind of issue gets so much focus tells again tells about these times...
https://www.cnn.com/2021/01/29/investing/wallstreetbets-reddit-culture/index.html
No doubt, that Wall Street hedge finds abuse their power and change the rules mid-game. Yet, it would be incorrect to represent the event as the rise of the 'little guy,' as a revolt of the people. There are no just rules in the accelerating process of financial speculations. Redditors' way to skyrocket the price of GameStop is a kind of massive speculative action. It harms several hedge funds, but it does not threaten The Wall-Street's financial order. Do the people claim their right to create fiat money from the state and banks? They do not. In fact, the Redditors' speculation is dependent on the same regulations and mechanisms that allow short-term bets. There are no new instances of the fiat money creation. Maybe the hedge funds will eventually experience the brute losses, but Wall Street will enjoy the further transformation of money of payment into speculative, dematerialized capital.
Quoting StreetlightX
Following the recent COVID-related drastic increase of America's sovereign debt, there are the newest neoliberal strategies: no austerity (so far), helicopter money instead, and even more dramatic political change. It looks like elites do not care about the debt anymore. (Biden even has proposed an additional 1.9 trillion $ of 'COVID' relief.) Neither debtors nor creditors think of re-paying or reimbursing of debts. With zero interest rates, the accelerating virtualization and dematerialization of money will continue to be the engine and source of the neoliberal financial system's power. It looks like the neoliberal corporate power 'outside' the state will resonate with the power of the state itself.
Do we witness the rise of post-neoliberal order, where the distinction between major
debtors and creditors become insignificant?
Agreed. This is an interesting event, and some schadenfreude towards the hedge funds in question is perhaps warranted. But to treat this as anything more than a short-lived prank and a lottery jackpot for a few people strikes me as odd. It's not like anything institutional has changed at Wallstreet, or the stock markets in general. I am seeing signs of people buying their own hype and treating GME stock as an investment rather than a lottery ticket. In the end, there'll be at least as many loosers as there are winners.
The best thing this could do is to expose the absurdity of unrestricted speculation. But the myth-making that's already starting will just obscure that message.
My understanding is that the problem lies entirely with margin trading, which it seems was Robin Hood's bread-and-butter. When trading on margin, the trader orders the purchase of a security without having (the entirety of) the funds to pay for that security already in their account. The trader does have to deliver those funds eventually, and I gather that with "app" brokerages like Robinhood it maybe initiates a payment transaction right away (I'm not sure, I've never used anything but a real bank, but that's the impression I pick up of these apps), but that still takes time to reach the brokerage's clearing house, even if it's an "immediate" payment (because those somehow still take days to fully clear). Meanwhile, the broker makes the security purchase immediately, with their cash on hand, to grab it at the price it was at that instant instead of whatever price it was when the payment eventually reaches them. In between making the purchase and payment arriving, the broker is basically loaning the trader money.
So lots of people making lots of trades on very volatile stocks means the broker is making lots of loans to people buying those stocks, secured by collateral of very unstable value (the purchased stock, which they can liquidate if the money doesn't show), and meanwhile they're also having to issue immediate payouts to those who are selling that same stock (on the other end of those trades; every purchase is also a sale). So as the price soars, but unstably, the brokerage has to spend increasingly much of their cash on hand on other people's behalf, increasingly unsure if they will be able to collect on the collateral if the money they're owed by the buyers doesn't show in time.
That's why they made purchases require 100% margin (basically, you have to supply the cash up front, no lending to you). It's probably also why they made shorts require 300% margin (because when they've got a lot of loans out backed by these volatile stocks, they really can't have anyone tanking that collateral unless they're also putting a bunch of other money into the system that the brokerage can use to keep things running until everything settles).
Deficits don't matter. Now it's just official.
The Federal Reserve can buy the debt.. .as it has and now is the largest single owner of the debt. Naturally it all can be paid with a keystroke, hence the debts surely can be repaid. The US cannot default on it's own currency.
And with the new gospel is MMT, there isn't any danger with this as a) inflation becomes a problem in full employment, b) the government can control demand-pull inflation, basically the normal thing what happens to prices when demand is larger than supply and c) the whole thing doesn't affect the private sector and it's issuing of bonds. That's the line.
We all believe in the perpetual dominance of King Dollar, right? Nothing to shake that confidence here...
This event indicates well the resilience of the financial gambling system. Las-Vegas is closed due to
COVID-19, but its model of business has become ubiquitous via WallStreetBets. The myth-making and narration simultaneously obscure and deliver this message.
Are you seriously trying to suggest that WallStreetBets are responsible for casino economics? That's hilarious!
Quoting ssu
Yeah, I do wonder about that. We're borrowing from future generations, who are going to have plenty to deal with, what with climate emergencies, resource shortages, and global over-population already. Seems a recipe for collapse to me.
I think this is a bad political read of the situation. Or at least, a totalizing one that blinds itself from nuance by instituting a single, far-away standard from which these actions are meant to be judged - "whether or not this threatens Wall Street's financial order". In fact, even on that score, it's pretty clear they feel threatened, and, more importantly, are reacting accordingly. The attempt to close ranks and halt buying across multiple platforms is pretty wild, as is the sheer ramping up of propaganda across finance media to portray what's going on as some kind of kiddish trolling - as if these funds do not do the exact same thing only with a suit and a tie on; as if the consequences may not be entirely incommensurate with that portrayal.
Second, you seem to be holding on to some idea of purity with respect to the instruments involved, as if any challenge to the financial order must appear ex nihilio from a place of unsullied soil of virginal revolution. But this is messianic fantasy. If the instruments used to maim the master belong to the master then so be it. In fact, all the better. I hope people use their regulation against them, I hope people turn their speculation against them. That this stuff is finally happening on their own turf is an occasion for delight, not pessimism.
And more than that, this stuff has raised more class consciousness than the entirety of BLM and Occupy combined. Is it opportunistic? Hell yeah. But politics is opportunistic, and anyone on the left who pooh-poohs opportunism for high-minded purity is reactionary. You take what Kairos offers. And not also to talk about the decentralized, democratic aspects of this - no leaders, relatively low buy-in. And just to be clear, I don't want to overly romanticize this - this could break horribly and everything could end in tears (as if it doesn't already end in tears, all the time, everywhere). In fact, it's more likely than not going to end just so. But anyone who wants risk-free challenge is again, a reactionary in disguise.
Quoting Number2018
Debt has only ever been an instrument of sovereign and subjective discipline - there is no reason to think that these people will not pick and choose who to enforce debts upon, as and when it suits them. Don't give them that credit.
“...The GameStop workers I spoke to described a company that offers little support to its shops and is on the precipice of laying more of them off (the company closed more than 460 stores in 2020). None saw any way that the rising shares would alleviate chronic issues like the insufficient stocking of products, overworked employees, and low pay.”
“...If anything, shop-level employees are concerned that the GameStop’s whirlwind rally will convince the company to give them even less support. Some of the momentum behind the stock comes from Redditors believing that Ryan Cohen, a well-known investor and former CEO of the e-commerce pet supplies company Chewy who joined GameStop’s board of directors in November, will successfully reorient the business around online sales rather than its brick-and-mortar shops. (It’s likely that more of the retail investors are well-aware that they’re helping to overvalue GameStop stock.) Some employees expressed concerned that these retail GameStop investors are essentially rooting for the company to close down their locations. “I don’t really think having Cohen on our board will change much of anything,” said the Pennsylvania assistant store leader. “If anything, it simply means we’ll lose our jobs faster, because he wants to close the majority of our stores.” An assistant store leader who has been working at GameStop for five years in Oklahoma said that her store leader was initially optimistic that the rising stock “meant good things for us,” and she hoped that it would lead to unfreezing raises, but then everyone at the store started to worry upon discovering why investors were excited about the company.”
https://slate.com/technology/2021/01/gamestop-employees-stock-retail.html?fbclid=IwAR35kynu7HuKNxz-Ka1N21pkHn9sxwdSOI8LKX6jsBwIgab99LU5DBPg-8A
But one or two are, publicly, by a decentralized, mass action driven by both greed and schadenfreude effecting some measure of wealth redistribution and by God lets co-opt the shit out of it. More 'fuck Wall Streets' and more 'the game is rigged' - I don't even care about the motivations. We keep whining about corporations coopting action, and when there's a chance to do just that at the level of narrative we whine about how impure it is. If we leave copting to capital, the left is less than useless. The right don't give a shit and frankly neither should we. Politicize, divide, agitate - even if it's just narrative.
Try Vanguard. It's not a high-tech trading platform or anything, but it'll get the job done. Zero fees and commissions too.
Also anyone getting inundated with headlines to buy silver? WSB is saying this is a false flag.
I've never actually used the app and I've heard it isn't great. I just access Vanguard through chrome on my laptop.
EDIT: I think you need to be a US resident to use Vanguard.
Yes.
I doubt that it's a conspiracy? The only way it makes sense as a conspiracy would be if:
Media attention on silver was intended to divert people from buying GME onto buying silver.
The rise in silver is mirrored by a rise in the other precious metals. Precious metals are seen to function as a hedge in volatile market conditions, so if people are buying into precious metals all it means is that either investors have no fucking idea what is going on, that they're trying to avoid the effects of a crash they're anticipating, or both.
I think it would require an enormous amount of coordination in order for the rise in precious metal prices over the last week to be a result of a proportional change in retail investor spending patterns caused by a media management strategy by hedge funds- I think it's better explained by investors panicking that the stock market is going to crash and hedging against it.
I'd heard that. I don't think it suffices. I'm sure they would attempt to raise the price if they could; where's the evidence that they have. I'm suspicious that the framing of the increase of prices of precious metals in these stories has nothing to do with investors hedging for a volatile market/crash, when that's usually what precious metal prices going up is said to mean! Now it's "redditors taking an eye on silver", not "investors pivoting into precious metals in anticipation of financial crisis"! But I don't think my vague suspicions are enough to say "it's a media manipulation by Citadel" - and I've not seen anything that supports more than vague suspicions?
This is in most cases not a hedge. In these situations people usually divest stock and invest in precious metals and AAA bonds, a "flight to safety". To the extent these assets are inversely correlated to stock value and precious metals are bought as a strategy of diversifying risk, then it is a hedge.
Why isn't a change in investment strategy (the "flight to safety") that aims to buy things that aren't effected by these ruinous market shenanigans a hedge? I don't understand.
I'm not saying that I'm 100% onboard with the "conspiracy" view, but it is worth noting that silver is up over 8% on the daily which far outstrips over precious metals. Gold & Palladium are barely up today. Platinum is doing well today, but only around half as well as silver.
In any case I did pick up some AMC and GME today and I'm fully preparing to get utterly wrecked. I'm already down over 20% today but it's nice to play a part.
I agree that I could miss a few critical nuances. No doubt, what is unfolding right now possesses the features of an event. It is unpredictable, and it could help to expose the nasty side of hedge fund speculations. There is indeed a threat. But this threat is no more than one of the crises that are regularly generated by the capitalistic financial system itself and are resolved by this system and its further development. The threatening effects were caused by implementing the newest apps and platforms, constituting the medium for Redditors’ collective action. They are not just technical means. You may underestimate the role of the medium in creating a sense of participation and what you call ‘solidarity.’ It could be incorrect to say that institutions and corporations that control the digital medium also control ‘solidarity,’ but digitalized affective flows of images and information that we deal with in the GameStop’s crisis are unseparated from the very flows that ground contemporary capitalism.
Quoting StreetlightX
“The current prosthetization of counsciousness, the systematic industrialization of the entirety of retentional devices, is an obstacle to the very individuation process of which consciousness consists.” ( Bernard Stiegler, ‘ Technics and Time').Today, the use of the concept of consciousness, as well as of class consciousness looks problematic. Their constitutive processes are ultimately dependent on external digital retentional networks. Compared to The Occupy Movement, the concerted and autopoietic action of Redditors has become completely digitalized. It should be studied how contemporary ‘virtual digitalized solidarity’ impacts collective social agency and the people’s ability to act in-concert.
Quoting StreetlightX
The enormous latest COVID-relief packages in the US express the accelerating ability to create unlimited amounts of money. It may become possible due to the neoliberal elite's newest reorganizations. As Biden’s administration shows, the global elite is simultaneously in charge of the state, the leading corporations, international financial institutions, and has close reciprocal relations with the most significant creditors. Remarkably, according to numerous reports, a considerable portion of the money that Redditors operate comes from the recent US relief packages. Swiftly closing the short circuit, money goes back to the site of its origin.
Precious metals are at best in the long term a somewhat good hedge, but basically the spot prices are are controlled with paper. Hence if the market makers cannot deliver the actual metal, they can simply give back cash.
Yet as we saw with negative oil prices, nearly everything if not everything has been made a vehicle for speculation.
But what else could we assume when the owners of the US Central Bank are the speculating Wall Street banks themselves.
Quoting fdrake
Well, A crash could be something that could happen.
Likely at first that would have an deflationary effect...everything going down against the currency, before the trusty plunge-protection-team comes to the rescue of the banks.
Can I ask why?
I actually like AMC as a company; they're a nice chain in the US and I've been to AMC theaters countless times and would love to see them reopen after the pandemic. Buying $GME isn't so much about making profit - I don't have any price targets or stop losses with my gamestop buy - At the end of the day, what's wrong with a bunch of retail investors coming together and deciding to help out a struggling company? I've been a Gamestop customer plenty of times. If certain hedge funds who were ultra-short Gamestop feel a little pain then that's not my problem. Hedge funds already have enormous advantages over the average retail investor.
I also only threw like 1% of my portfolio at this so it's not like failure is the end of the world.
But some people have their retirement savings in funds like that, right?
Who the hell puts all of their retirement savings into a hedge fund? So what now, do we just protect the hedge funds then? Pour billions of taxpayers dollars in to subsidize them and keep them afloat? I'm sorry but when you give your retirement funds to a company that makes a living shorting American businesses and then they get hit because a group of retailer investors steps in to try to help out the struggling business I just don't have much sympathy for you. Just leave your retirement savings in the S&P 500 or some target date index fund or bonds. Why anyone would put an overwhelming portion of their retirement savings with to trust to a risky hedge fund is beyond me. These people saw that Melvin had a great year a year or two ago and they were trying to maximize earnings. Well sometimes greed backfires, deal with it.
I don't know. I think they just hire financial advisors who invest for them. Point is, it's probably not just certain brokers who get hurt when a fund implodes. Am I wrong?
This is why people need to learn to manage their own finances and not trust everything to a "professional." I have a tough time understanding or sympathizing with people who refuse to manage their own finances or savings. If someone's "financial advisor" destroys their retirement savings in a risky hedge fund, then I hate to say it but who allowed that? Who gave them the money? Were they never overseeing their own investments? Or did they just believe that large piles of money would suddenly appear to them upon retirement when they trusted this "financial advisor?" You do know other people's portfolios suffered too while Gamestop was shorted over the course of years? I'm sure people lost retirement savings there too.
Yea, it's survival of the fittest all around. I'm just saying, you can't stick it to the Man without sticking it to a lot of little people at the same time.
I don't know about Melvin specifically, but with hedge funds generally if you wanted to be accepted as a client you'd need atleast $100k if not $1mm to even get your foot in the door. These are not impoverished families for whatever reason throwing their life savings at Melvin. These are people with money seeking high returns and using their tax-advantaged retirement accounts to do it.
Oh, I see.
An index fund is a kind of mutual fund which is a kind of hedge fund.
Ah right. Cheers!
But they'll go or not go out of business regardless of what investors think the market value of the company is. If I short sell a stock because I think it will do badly, my short sell has exactly zero effect on company performance.
Speculation actually fulfils an important role in market function leading to a more efficient allocation of money between borrowers and lenders and better "price" discovery. There's nothing bad about it and it actually serves an important function. It's more obvious in a market for goods, like say grain. If we imagine a bad harvest, a speculator will buy up part of the harvest to profit from the expected shortage. This drives up prices and means consumption of grain will become more rationalised (do more with less, don't buy more than you need, buy alternatives, etc.). The producers are stimulated to invest in more production as a result of the rising prices. Similarly, if then prices rise to a point that a speculator considers too high, he will start selling, leading to lowering prices that will avoid a surplus.
What's really the issue is how much efficiency a market really needs. Do we need to be able to trade stock in a fraction of a millisecond up to .0001 USD? There's a tremendous amount going into making markets efficient but I don't think it benefits society at large. My simple and blunt solution to all this bullshit is to reintroduce liability for shareholders. That limitation of liability originally was only granted to corporation with a public goal and for corporations with a temporary charter - so once the goal was fulfilled, they ended.
Quoting Pfhorrest
This is not correct. All of these financial products are different. Index funds are different from mutual funds which are different from hedge funds.
It is in a very real sense bad, because it gives the experienced traders, and those with access to specific tools, unfair advantage over the inexperienced and honest investors. The honest investor believes that the rules which govern speculation are in in place to create a fair market place, when actually the rules are strategized to create the illusion of a fair market while providing better predictive capacity to those with the desire to speculate and trade. Predictive capacity in the market, which the rules create, is nothing other than the capacity for traders to take advantage of investors.
Quoting Benkei
You think that this is good, to allow speculators to hoard the necessities of life, only to dole them out on principles of who's willing to pay the most for them, with complete disregard for any consequences of these actions, other than how much money I can make?
Quoting Benkei
How could this deal with the problem of short sellers who actually hold the stock for a negative period of time, in the attempt to drive down the prices for the sake of personal profit?
Talk about animal spirits. Philosophical animal spirits, I would say. Stock investment as a recreation.
I would take this as an obvious indicator that the market is overpriced, overtly excessive, out of touch, ready for a collapse.
When people wait in lines to buy stocks, that's the traditional indicator of an impending market crash. I don't know where to put this on the scale...
Decreasing my stock portfolio.
One good indicator is the stock market compared to GDP:
Your picture of the honest investor is that of an investor who doesn't understand markets. Back in the 17th century Dutch traders would post horseback riders at the southern tip of Holland to look out for incoming ships. These horseback riders would ride all the way back to Amsterdam and inform whoever hired them of what ship was returning and how deep it was running in the water. I don't see a fundamental problem with investing to have an information advantage over other investors. There's nothing unfair about the practice.
Quoting Metaphysician Undercover
I think my description was clear about the effects on economic behaviour on other buyers that speculation has. It has nothing to do with hoarding. The speculator introduces price changes earlier and quicker than which would come about if the market is only entered by buyers and producers. It improves efficiency in use and production which actually results in more price stability in the long run because they add liquidity. Liquidity lowers volalitiy which lowers the risk of surplusses and shortages negatively affecting buyers and producers. So in fact, speculators avoid faminine and bankruptcies where it concerns "necessities of life".
Quoting Metaphysician Undercover
As is clear from my previous post I'm not adverse to short selling. The bullshit I'm talking about is the insane amount of money invested in making "markets" more efficient to the extent it's detrimental to society at large. We don't need high speed trading or tick sizes a fraction of a cent.
Right, but the play here - as with so many of these predatory hedge funds - was specifically to never have to cover their short positions on account of whatever overshorted company going out of business. In this case GS. This isn't just hedging - this is weaponized hedging, with profits indexed to the literal destruction of companies.
Yeah, stock market investing or trading has definitely become recreation, especially during the pandemic when everyone's staying home. While GME and AMC are obviously having a rough day today, the stock market as a whole I'm not too worried about. I'm not a stock trader. I'm an investor. I throw the vast majority of my stock market portfolio into the S&P 500 and I just don't touch it. I made the mistake of selling in March 2020 right near the bottom and had to rebuy higher. In any case, I do touch base with my family's financial advisor at BofA and BofA is anticipating decent annual returns up until 2023. I anticipate holding my S&P 500 position for decades though (I'm 30) so a dip isn't a problem for me unless I do sell and make the same mistake I made last time. There are also tax implications to selling here in the US which makes me even less inclined to do so.
Indeed. This is why I bought a few shares of GME when it was going down rapidly today. I wanted to get a fair price for it.
Well, you got in cheaper than me. I don't know what a fair price is though given Gamestop was been trading between $4-$15 for the past few years and now it's "crashed" to $86 or so now.
This Gamestop saga is interesting to watch though. On one side you have possibly millions of bourgeoise retail investors, some with quite ample capital, and on the other side you have hedge funds who have been in this business for years and are heavily connected, but there's less of them and their moves are a little more visible than they might desire. Earlier today GME and AMC were both down like 55-60% but just in the last few minutes presumably the retail investors have managed to fight back and Gamestop is now only down 33% halfway through the trading day. Retail investors emerged victorious last week but it'll be an ongoing battle.
I'm not sure what you're saying here. What do you mean with covering a short position? And what is an overshorted stock?
Yeah! I don't know, or really care, what the fair price is. I'd've been fine losing it all if GME crashed to 0 at that point. Not going to pretend I'm "value investing" or whatever. I was trying to make a funny where I framed an investment expecting a loss as a need for a fair price of the thing I wanted, apparently I am not a funny. Should've learned that by now.
Quoting Benkei
Not a direct answer to the question; but in case you've not read what happened to Melvin capital. The number of shares of GME sold short the last few days has been 120% of the number of shares sold otherwise. About 6 months ago that was 240%. When the increase in GME value was triggered, Melvin capital lost over 2 billion USD and was bailed out by other companies. The overall losses inflicted on people's short positions this month has been 20 billion, all the while they are not relinquishing their short positions much going by this.
Edit: To be clear; this isn't just a case of people shorting GME after it blew up then getting owned when it didn't deflate in time, people were shorting it loads before it blew up and it seems that's part of why it blew up. The overall position on it is still very short, so the same thing could very well happen again.
Supposedly there's research indicating that a chimpanzee can invest as successfully as top wall st professionals.
I think any investor guide gives you the basics for normal investing, which is very good to understand.
I would give one advice: understand where just now the economy is in the business cycle. One good or bad company and it's stock price still goes with the flow of the market, hence this is a crucial question.
A very good thing to know now is what is referred with the Minsky moment. Once you understand that, then go and invest.
For starters, the P/E ratio would be a good indicator. Or if the company is near bankruptcy in a dead end business sector or not. :roll:
I find stock investing pretty boring TBH. The basic advice people will give you is to throw everything in the S&P or the Dow and and just capture the returns of the overall market. Things get more interesting when you're able to engage in either newer, emerging markets (like crypto) or more specialized markets like collectibles where people can do their research and find some returns in unexpected places like with Pokemon cards. I personally learn best just by doing, maybe making a few mistakes and learning from those, and then talking with other investors or people in the same space.
All this does is paint the picture of the difference between investing and trading. What I was talking about is the situation where the rules in the market place are set up such that traders can more readily take advantage of investors. This is not a matter of some investors having an information advantage over other investors, because the information which is useful to the trader (prediction in market volatility) is completely different from the information which is useful to the investor (prediction of a company's success). And if traders make money, that money must come from someone. So it's a matter of traders being engaged in a completely different activity from that of investors. And "taking advantage of", means that the traders treat the investors unfairly, because they know that the rules of the market place will allow them to do so.
“An index fund (also index tracker) is a mutual fund...”
https://en.m.wikipedia.org/wiki/Index_fund
However:
“Hedge funds are not mutual funds as hedge funds cannot be sold to the general public.”
https://en.m.wikipedia.org/wiki/Mutual_fund
Looks like hedge funds and mutual funds are both types of open-ended pooled investments, though, the only difference being whether they are open to the public or not.
Different sources will say different things about index funds vs. mutual funds. For the sake of clarity and simplicity, index funds just basically track an index (like the S&P 500) while mutual funds are often actively managed by fund managers attempting to beat market returns. Typically mutual funds have much higher expense ratios than index funds.
Hedge funds are less regulated than mutual funds and much, much more exclusive. Much higher barrier to entry.
Here's an article that expands on the differences between mutual funds and index funds.
https://www.nerdwallet.com/article/investing/index-funds-vs-mutual-funds
It's not totally out of the question that those five stocks could/would go down and what now has been the engine for the stellar performance of index fund reverses and then it's a slaughter with index stocks while old time mutual fund managers would beat the index. That kind of transition could possibly happen. When if ever, who knows that.
Just notice how the flows into funds have changed:
And this has just continued:
To cover a short simply means to close out your position by buying the stock you initially sold (after borrowing it). It's what all these hedge funds who shorted GME are obligated to do, at some point. As for an overshorted stock - that's just what set off this whole fiasco in the first place. As @fdrake already described, GME had been shorted to the tune of about 120% of its available stock - there was more stock that had to be covered (bought) than actually exists. One of the reasons this happened was because, again, people were hedging on the company to go bust, so that no stock would ever have to be bought back.
That's no problem though. If only one share is issued and it's sold twice in one day, the transaction volume was 200% of the outstanding stock. In this example we understand these are consecutive sales.
Quoting StreetlightX
This isn't the case though. If a company goes bankrupt its stock continues to exist and would still have to be delivered back to the lender. The stock no longer represents an equity ownership after bankruptcy but a subordinated claim.
But we're not talking about transaction volume. And I didn't say it was a 'problem' - only that it was this situation that created an opportunity for the attempt at a squeeze that's happening/happened. Take a read:
https://www.fool.com/investing/2021/01/28/yes-a-stock-can-have-short-interest-over-100-heres/
Quoting Benkei
Sure, but again, the point is still that the expected profit banks on the company going out of business.
"Yes, what the wallstreetbets members are doing is nihilistic, but it is nihilism immanent to the stock exchange itself, a nihilism already at work in Wall Street. To overcome this nihilism, we will have to move out of the game of the stock exchange. The moment of socialism is lurking in the background, waiting to be seized, since the very center of global capitalism is beginning to fall apart.
Will this happen? Almost certainly not, but what should worry us is that this latest crisis is another unexpected threat to the system already under attack from multiple sides (by the pandemic, global warming, social protests…). Moreover, this threat comes from the very heart of the system not from outside. An explosive mixture is in the making, and the longer the explosion is postponed, the more devastating it could be."
https://spectator.us/topic/corruption-for-everybody-slavoj-zizek-wallstreetbets/
Errr... this is still about transaction volume because shares that were borrowed were sold to another investor who then lends it to another. The locate requirements are met because the underlying stock is available because of multiple sales of the same stock. That the borrower is doing the selling really doesn't change anything.
Quoting StreetlightX
I don't see the problem. Why is expecting a company to go bankrupt fundamentally wrong, or indeed, worse than expecting it to do just worse than other people think it will do? Once again, going back to the beginning, market capitalisation is expectation of future performance. All these trades have exactly no bearing on the likelihood of GME surviving except for possibly the fact that GME might hold a lot of its own stock as @BitconnectCarlos mentioned and even then just having a ton of money with a shitty business is still not really improving things for any employees.
I see fundamental problems with the stock markets how they operate and how financial institutions dominate the economy and society nowadays but this isn't the issue here. Speculators add liquidity and lower risks for every investor active in that market. That they make money off of that is only fair as the lower risk for others is basically the result of that risk being transferred to speculators. And that's still true even when speculators expect a company to go bust.
Well, it does when they find themselves paying for inflated stock they don't want not just once but 1.4 times, and find they can only sell it again once. Shorting is a risk, and therefore a potential problem, sometimes a real one.
That money is going to come from other traders. So for instance I trade eth and btc derivatives on Phemex (I know we're talking about stocks here but it's the same theme), and when I make a trade I use the Phemex orderbooks so that liquidity is coming from other Phemex traders or maybe whatever liquidity reserves Phemex itself has, but I'd assume mostly from other traders.
When you're an investor that gain or loss doesn't become realized until you sell it. A trader could go short or long, but he's competing against other traders here and his profits are from other traders, not long-term holders who aren't offering their liquidity to the orderbooks.
EDIT: It's also worth noting that in my experience the vast majority of traders are investors themselves. It would be jarring to me to hear from a serious trader who just doesn't invest in anything.
I think that this is demonstrably false. If the money came from other traders, there would be an equality between traders making money and traders losing money. A trader losing money could not make a living, and would be gone from the market. But on top of this, all the losing traders, would have to be bringing into the market place all the money required for the winning traders to be making their living. So there'd be an endless supply of losing traders coming in with money for the winning traders.
In reality, a lot of the money comes from investors who are forced (for one reason or another) into selling at a loss. As you say, when the market drops, you don't lose anything unless you sell. So when the market dips, an investor doesn't lose money, until the company goes out of business, or is bought out or something like that, or else is forced to sell for some other reason.
However, there is the issue of margins, which was mentioned earlier in the thread. An investor might think that taking a margin is a smart and profitable way to invest. But if we consider the reasons why an investor would sell when the market is down, the call to cover the margin when the market does drop from an unforeseen event, is reason number one.
You might argue that once a person is into this category of investing using margin, that person is not an investor anymore, but a trader, and that may be true. Still, you cannot avoid the fact that huge market drops are perpetuated by traders then, and there is still a significant number of investors who are forced to sell low, due to prior commitments or whatever other reason, and companies are forced out of business, and the loses from these investors are supplying a lot of money to the traders.
To be clear, I was responding to the point that overshorting is not a problem since it is equivalent to the same stocks being bought and sold in succession (volume-based). But if it were just that, there would be no situation in which someone pays for 1.4 stocks and ends up with 1 stock.
If someone bought a share at $10 dollars, sold it for $5 dollars, then bought another at $10, we'd say that person was a bit dim for paying $15 dollars for a share worth $5. The problem that person would be creating for themselves is the problem inherent in shorting that the trader risks meeting.
I guess I just can't get interested in it. My employer invests benefit money in a company called Vanguard, but I don't really think of it as mine. I think if the global economy crashes and can't be bailed out as previously, then I won't be missing anything.
I'm not sure I follow what you're saying. First of all, let me say that we were discussing shorting as actually affecting the livelihood of the people employed by the shorted company. I don't think that view is correct.
But let me try to follow what you're trying to say. Nobody has paid a price of 1.4 to then end up with 1 merely as a result of "shorting". "Overshorting" just isn't a thing. Taking the example of a company with a single share again. I borrow the share, I sell it, the person I sold it too, lends it out too, and that borrower sells it again. We now have two short sales with only one issued share and no regular transactions. Is it "overshorted" because I know have a 200% short interest? I can make a chain of 100 short sellers if I want and I still don't see an issue with the activity of short selling itself.
Shorting by a large company would send a signal to the market that the target stock is expected to decline. The market runs on moods, right? So the stock declines because it's expected to, and the target company now has a diminished ability to pay for marketing, securing talent, planning for the future.
That said, I didn't know GameStop was still in business. After the pandemic, how? Who are these people shopping at malls?
I think the issue is that two people are contractually obliged to buy a share but there's only 1 share available.
I've heard the statistics that 90% of traders are losing money. But some portion of that figure will probably become winning traders and some portion of the winners will become losers. It's not a static thing where the winners just always stay winners.
I wouldn't be surprised if some portion of those "losing traders" are really just using trading platforms to hedge and are thus happy with their losses (I've been guilty of this.)
Quoting Metaphysician Undercover
Why are investors "forced" to sell? Have they hit their stop loss? Do investors face liquidation if the price goes too low? Tell me what is forcing the investors to sell.
But yeah, the investor only really loses if the stock or asset goes to zero. Then you're screwed. If the asset goes to zero then traders can no longer trade it either so they're out of work too for that market.
Quoting Metaphysician Undercover
Yeah, if you take on margin you're taking on a lot of extra risk. Obviously if you go long and the market tanks you will be facing margin calls or be forced to sell at liquidation or your stop loss, but this doesn't apply to people who just buy and hold. Margin holders add that extra feature themselves. Newer traders or investors should stay away from margin.
Quoting Metaphysician Undercover
Well, sure it could be traders or whales or any big price mover who's looking to either buy or sell is going to move that market and the swings can be pretty wild. That's why you need to extremely careful when using margin and it's not something for newer traders to use. If you just buy and hold you can wait out these price swings and you'll never be forced to sell unless you're investing money that you need for personal use, but that's a whole different thing and we can ask ourselves whether that person should even be investing in something this risky in the first place.
TLDR: If you're using margin you're speculating so if you get stopped out or liquidated don't come crying that "speculators take money from investors" because by using margin you're speculating.
Come now Frank, as if everybody is really taking account of who has which short position all the time. Normally, nobody gives a shit. This whole GME debacle is just hyped. It's actually really not that interesting and it's not interesting what Robin Hood did. I find the reactions of people interesting though. A lot of the comments remind me of 2008.
Quoting Michael
Oh there's definitely a settlement risk. But that's always there. One reason the naked short is prohibited. At least the short seller has a locate for his initial sale. He might get squeezed when buying it back. But that's why it's an issue of transaction volume and not how big the interest in short sale is compared to the outstanding number of stock. If that one share is normally traded 500 times during a day, buying it back twice on the same day (assuming the stock lending agreements end on the same day) isn't an issue.
There are 100 shares and you own them all. I borrow 60 from you and sell them to Jane. Jane sells them back to you. You have all 100 shares. I borrow another 60 from you and sell them to Jane. Jane sells them back to you. You have all 100 shares. I owe you 120 shares.
Hype involving billions of dollars.
But this once again illustrates the importance of total transaction volume and the shares of short sales part of that transaction volume. If what you describe is a typical day in the market, shorting is an extremely bad idea. If there are lots of players and transaction volumes are a multitude of issued shares, 240% short interest doesn't raise any concerns.
All investing is speculating, so this is not a real distinction. There is however a real distinction to be made between investing and trading. While both are speculating, what is speculated on, differs.
Ok just replace "speculating" with "trading" then. My point is you basically step into the realm of trader when you start using margin trading/leverage.
Perhaps, but I think I implied that this is debatable. Would you say that someone who takes out a mortgage to buy a house does this only because they plan to flip the house?
No of course not. Buying a house is a different issue. It would actually be really dumb to buy a house in cash. Regardless of whether we consider using margin/leverage "trading" or just "investing" by choosing it the user has consciously taken on more risk than just holding the asset normally. When you use leverage you must know there's always a chance of being forced to sell.
It's really not a different issue, look at the crash of the housing market in the USA, 15 or so years ago. It's well documented that this crash was caused by traders. More and more money was needed to support the traders until the mortgages were worth more than the real estate itself. What happens when you owe more for your house than your house is worth? Bankruptcy.
Quoting BitconnectCarlos
Sure, but an investor never expects to be forced to sell at a loss. And when this appears to be forced by the activity of traders there's likely more hard feelings, because now there's someone other than oneself, to blame. That's where the problem lies, in the fact that there's someone to blame. Blame implies wrongdoing. To admit to myself, I made a bad investment, I lost money, is not a big deal. To think that some traders cheated me out of my investment is a big deal. Notice it's "to think that some traders cheated me...". When people start to point fingers at wrongdoing, then the truth or falsity of this or that particular instance doesn't even matter anymore, just like for the Trump supporters who thought that they got cheated out of the election.
(1) the early guys, at wallstreet bets, who knew the whole structure of the thing
(2) the hedgefunds
(3) the late adopters.
I think the people who point to this as a sort of popping, neon symptom of the immanent crisis in the heart of capitalism etc etc are right, but also it's going to fuck up a shit load of regular people.
& that's not a value-judgment, in any way, on the traders. I'm on board with Wall Street Bets.
But I think an interesting question is to what degree people understand their role in the living-out-of-the-immanent-crisis-at-the-heart-of-capitalism.
There's no way around the fact that the structure of this thing is:
short squeeze -> profit -> bagholders.
Regular people are going to get fucked. If they knew that going in, & if they bought it as a show of solidarity, then right on. If they didn't, it quickly becomes more complicated. I think most didn't buy in for that reason.
The bagholders are going to be people who signed up on the wsb fuck-the-hedgefund-energy. They will be confused at the stock's value goes down. They already are.
i think the real leftist question is how to continue this energy, when most people are bagholders. I haven't seen many people talking about that.
I think the worst thing the left could do would be cheerlead this, then drift away when the fallout happens. I don't want to be cynical, but... let's see where this thread is in a few months.
Oh yeah, avoiding paying all that mortgage interest is super dumb.
What is the next step, rather than dropping this when it stops trending?
Well, interest rates are the lowest ever, like in thousands of years low. And creating mortrages is the most normal thing any bank will do.
Quoting Benkei
Buying real estate isn't a hedge against stocks or other capital investments. In a credit crunch or a collapse of a speculative boom boths stocks and housing prices come crashing down. Yet do notice that it's a rather rare event: I've just seen one housing crash in my lifetime of investing, but several stock market downfalls.
I think the truth or falsity of the accusation genuinely does matter here. If there was actual fraud or something criminal behind the scenes then investors/traders absolutely have a right to be upset. However, if a whale simply decides to buy or sell today and traders get stopped out when they were using high leverage then it's hard to feel bad for them because they willingly went out of their way to take on this additional risk. Traders or investors or whatever you want to call them need to go out of their way to use leverage. Most exchanges don't even offer it.
It's not always market manipulation either. Some traders or "investors" set their stop losses too close to the price and when it hits those "investors" get "forced to sell" just on normal market swings.
The issue is not whether we ought to feel bad for the little fish getting crushed by the whale, the issue is the little fish pointing the finger of blame at the whale, and accusing the whale of wrongdoing. If one whale makes a sudden move which injures thousands of little fish, all those little fish are going to point a finger of blame at the whale, regardless of whether the whale was doing wrong, or the little fish were living dangerously. And that's a lot of fingers.
Now we cannot remove this attitude of pointing a finger of blame, it's human nature that if we can readily pass the fault to someone else, then obviously it wasn't my mistake, someone else caused this deprived situation. But it does create a real problem because casting blame around in a stormy sea is only conducive to creating further disturbances rather than calming things down. And those disturbance will only hurt more little fish. So the only way to avoid this nasty scenario is to have rules which prevent these situations from coming about in the first place.
Quoting BitconnectCarlos
Do you expect me, or anyone else to believe this? What constitutes "a normal market swing" in today's environment? Manipulation is the norm. There is no such distinction to be made, between normal market swing, and manipulation.
Mortgages last a looooong time though. I'm buying a £270,000 house now that will cost me £367,000. Since houses are still one of the safest investment opportunities out there, it doesn't really make much sense to pay an additional £100,000 for the benefit of investing £228,000 elsewhere.
Quoting Pfhorrest
And mortgage application fees and your solicitor's mortgage handling fees as the icing on the cake. Bastards.
If you are buying a house to live in yourself, I agree. I did buy my present home with cash too: where you live, it's not an investment, actually. Only in the long term it is an investment for your family as your children or other heirs inherit the home afterwards.
Yet if you put that house or flat for rent, then the debt is understandable: one can easily get an rent that pays for the interest and loan amortization still leaving a profit and you don't need to speculate where the housing prices go. Rents don't collapse in the similar fashion as housing markets , they are extremely rarely in a bubble as every rent is priced every month. Besides, the only true risk is if housing prices are below your buying price and at the same time you cannot pay the interest on your debt. Such an event is actually quite rare and this is the reason why speculative bubbles are so dangerous: otherwise the risks are low and it's the most simple game ever.
My first house put me through my degree, my PhD, a year-long round-the-world trip, and three months of volunteering. It was pretty good as investments go. :)
Quoting ssu
What you can charge for rent doesn't depend on how you paid for the property. You get the same whether you own it or have it mortgaged. The best thing if you're only looking for a short-term investment is to not get a repayment mortgage at all. Get an interest-only loan: the end result is the same, but you get to keep more of the cash every month.
If you want to be skeptical that's on you but it's happened with me a few times. Sometimes you just set your stop loss a little too tightly and you get stopped out. If you want to know what normal market volatility is they have volatility indexes and measures for that type of thing so I'd direct you there. If you want to say 'everything is manipulation' that's on you and it kinda of blurs the distinction between actual misdeeds and normal buying and selling.
I think, having a blurred distinction is one step better than having misdeeds sanctioned by regulations, and passing as normal.
What is it specifically that you want to see outlawed or better regulated?
Ok so you don't believe that people should be able to borrow funds or have lines of credit extended to them, ok. I wonder how many economists would share this view.
I think that trading is inherently wrong. The trader doesn't provide any sort of service to anyone, yet the trader requires payment.
What do you mean "the trader requires payment?" The trade doesn't happen unless there is a buyer and a seller, both of whom believe that he has done something beneficial for himself upon doing the trade. By the trade happening its fulfilling both sides wishes.
That’s not selling something you don’t own.
More comparable would be renting a house and selling it to someone. How could you even do that? It’s not yours to sell.
What makes borrowing a stock and selling it any different? It’s not yours, how can you sell it?
ETA: On re-read I can see how one might construe spending borrowed money as "selling something you don't own" now. In any case I'm not specifically against that, but it is the case that in a properly functioning economy as I see it, nobody would have to borrow, except in the figurative sense of "borrowing from oneself", as capital ownership would be widely dispersed, so everyone would just have a pile of diverse invested capital that they could sell some of to get the money they need to spend on some newer more specific investment, like a new business. Large undertakings beyond the scale of one person's share of capital would require other people going in on it with you, and for their investment they would get equity in the venture; they wouldn't actually be lending money per se.
Would anyone persist in an occupation without making any money? That's what I mean, to support the existence of traders, the traders must make money, or else they'd all leave the market place knowing that there is no money to be made there..
Quoting BitconnectCarlos
The belief that he's doing "something beneficial for himself", is the belief that he is going to make money.
So the trader believes that he is going to make some money. Now what is the service that the trader provides, for which he believes he will get paid? If he's not providing any service, then why should he would get paid? And if he believed that he shouldn't get paid, because he's not providing any service, then he wouldn't be there trying to do "something beneficial for himself".
If all trades were like that, we'd go to the market place, trade our wares, and go home with what we needed. The world would be a beautiful place to live in. However, traders hang around the market place, without bringing any wares, looking to do something beneficial for themselves. Are they like dogs begging for scraps? No, they're more cunning than beggars, creating the illusion that they are providing you with a service, only to take advantage of you.
Traders that don't want to buy (and hold) do bring something to the market as well. They bring liquidity, which lowers risks for every market participant and it ensures the differences of the same stuff between different markets are as minimal as possible. So silver traded at CME is the same price as it is at SME, despite being traded in different currencies and on opposite sides of the world. That means you won't pay too much regardless of which market you or your broker happens to be connected too.
OK, if you want to get technical, traders do offer something. The question though is whether this offering is as I described, "creating the illusion that they are providing you with a service, only to take advantage of you". If this is the case, then they're more like scammers.
What's wrong with different people paying more, or less, for the same product, depending on the circumstances? For instance, if I set out to bake bread and I find that I'm low on milk, I'll zip out to the corner convenience store and buy some milk, at a much higher price than if I went down to the big box. Likewise, when I'm sitting at home in this pandemic, I'll go online and order goods to be delivered in a week or so, and pay more for them, just to avoid having to venture out into the city.
In both these cases, the local store, and the online delivery, someone is providing me with a service, for which I will pay, making the same product cost more. However, the possibility for me to get out and shop around for a lower price still exists if I am so inclined. How does the trader, by making sure that the price is the same everywhere, provide a service to me? Isn't the trader just taking the difference for oneself, thereby bringing the lower prices up to match the higher, and this is the way to the equality which is being offered by this type of trading? Then the person who is willing to do the extra legwork to get the lower prices cannot, because the trader has removed that possibility, by pocketing whatever would normally constitute that difference.
So should people only be paid if they provide services to others? Should winning poker players not be paid? Do you believe gambling should be banned? What about passive income from investment? What about someone who just wants to sell a collectable item?
Gambling is a known vice, so it is something we ought not do. Whether it needs to be banned, I don't know. Likewise, I don't know if trading needs to be banned, I just identified it as inherently wrong, just like gambling is. Investment is providing something, so I don't see anything inherently wrong with being paid for that. So is selling a collectible object providing something.
Quoting Benkei
As I said, it is not clear to me how this is a service. If my analogies don't work, then clearly I don't understand the situation, and simply repeating yourself won't release me from my misunderstanding. How does buying from a trader guarantee that I'm not paying too much? To me, the opposite appears to be true. The trader is an unnecessary middleman getting paid for doing nothing, therefore guaranteeing that I am paying too much. That the trader guarantees I won't pay too much, is just the illusion of the deception which the trader casts as part of the scam. You need to justify this assumption as the truth, to defend the trader.
Alright so lets say I buy a piece of artwork at $100 and later sell it at $200 - how is that different from someone buying a stock or a commodity at $100 and later selling it at $200? Why is one ok but not the other?
You're talking about shorting, right? What makes it ok is that all parties in the transaction understand and consent to it. Your broker and who ever is on the other side of your trade understand and agree to what's happening here. If all parties consent, who are we to object?
Now without a large segment of traders, as a US person you will only access the CME because brokers don't offer any alternative and certainly not at prices that would make sense for a retail investor. Good for you because price happens to be lowest at the CMEbut that's a matter of luck. But if you're a Singaporean, you're being screwed. And for the Singaporean to set up an investment account in the US is also prohibitively complex and expensive.
Here come the traders, driving broker and transaction prices down because they add transaction volume, your broker now sets up lines with both CME and SME because there's sufficient demand to do so, now let's assume they haven't been trading in gold just yet (but silver and copper). You're already benefitting from the market connectivity (well not you, but the Singaporean is since you were fine with just a connection to the CME). So while transactions costs for him will be higher, they won't be prohibitively high and the complexity has been reduced thanks to the work of the brokers.
Next, traders start trading in gold too. The inefficiencies are gone so if the price of SME gold is higher, traders will buy CME gold driving prices up and selling gold at the SME driving prices down. There are no losers here, the trader found a willing seller happy with the price he got at the CME, and they find a willing buyer happy to buy the slightly higher price at the SME. Without these traders, the CME gold seller didn't get rid of his gold and the SME buyer couldn't acquire his gold.
Seems like gambling has replaced investing at least with some people. It has become a recreation. Compared to these times, in 1929 things were reasonable.
The whole Gamestop thing tells this: so some naked short sellers got fleeced by pump and dump speculators and people cheer how the evil Melvin hedge fund were overcome by "small investors" and think this was some kind of statement. I don't see anything heroic or great in this: it all just tells how rotten the whole system is.
If Madoff Securities LLC was still active and people would know that it's a ponzi scheme, I guess there would be those carefree people who would still invest in it. Because ponzi schemes create unbelievable gains before they, uh, have no money and the gig is up. But before that, what an opportunity to make money!!!
Just another myth. There were big hedge funds on both sides of the trade.
https://www.wsj.com/articles/this-hedge-fund-made-700-million-on-gamestop-11612390687
Worth a read. See also:
https://www.zerohedge.com/markets/curious-timing-hedge-fund-made-700-million-gamestop
Many professionals made money going long on GSE. Michael Burry, the guy played by Christian Bale in The Big Short, made a 1400% gain buying GME. Plenty of professionals saw the short squeeze opportunity on a stock with 140% short interest. With short interest that high, professionals and amateurs alike saw that the short sellers would not be able to cover their shorts except at much higher prices.
Remember, a high short interest on a stock or on the market at large is regarded as a bullish indicator. Why? Because every share sold short must soon be bought back. The short interest represents a pool of guaranteed buyers, placing a floor under how far the stock can fall, and serving as rocket fuel if the stock price should start to rise.
https://www.investopedia.com/terms/s/shortinterest.asp
The idea that professionals didn't see the short squeeze opportunity is a myth. The big insiders want to demonize the "deplorable" Redditors. In fact ithe people who should be punished are the hedge funds who conspired to engage in naked short selling, made illegal in 2008 but clearly not enforced, for the purpose of driving an innocent company into the ground and destroying its employees and retail investors. And they were punished, by the market. The GME incident is a beautiful example of the free market in action. Players look at the available information and place their own money at risk, of their own free will, and live with the consequences.
Only our criminal overlords in Congress could have a problem with that. And the hearings will be presided over by Janet Yellen, who took $800k in bribes -- err, speaking fees -- from Citadel, and who in October promised to recuse herself from matters like this, and has just broken her "ethics" promise. This is the kind of corruption people are sick and tired of living under.
https://www.reuters.com/article/us-usa-treasury-yellen-gamestop-exclusiv/exclusive-treasurys-yellen-calls-top-regulator-meeting-on-gamestop-volatility-consults-ethics-lawyer-idUSKBN2A306A
More like professional wrestling. The media frenzy around it.
Quoting fishfry
Or likely how rules don't matter (naked short selling) and what odd things gets the attention of the media and the people. In other times things like this would be an interest of a small group of market players, not something that politicians would be commenting about.
I don't see how this difference in price between the CME and the SME is significantly different from my analogy of paying more for milk at the corner store compared to buying it at the big box store. Remember, I don't see anything inherently wrong with such price differences. I wouldn't say that the person buying milk at the corner store is getting screwed. Nor would I say that the person in Singapore who has to pay more for gold than the person in the USA is getting screwed.
There's a wide variety of different reasons for such differences in price which don't constitute getting screwed, such as being closer to the source of a resource makes that resource cheaper for you. There is nothing inherently wrong with the same commodity being different prices in different parts of the world. And, as I said already, I think that all the traders do, in creating price equality, is screw anybody they can.
Quoting Benkei
Yes there are losers here, the traders. The traders don't make any money in your scenario. But in reality the traders do make money, and it's at the expense of the others. So unless the traders aren't making any money, and are losers themselves, there are others who are losers, those who get screwed by the traders' desire to make money.
Quoting ssu
I'll agree to that.
Quoting Metaphysician Undercover
Yes, they're inefficiencies and traders would be people investing in infrastructure and distribution bringing local prices down. But it's not a good analogy because they cause other people to do this simply by adding their money to the market.
Quoting Metaphysician Undercover
What? The traders make money in the arbitration of prices. It's literally in my post.
What? The traders don't make any money from the market, they actually add money to the market?
Quoting Benkei
I still don't see any reference to traders making any money. All I see is this.
Quoting Benkei
See, you portray the traders as interfering with natural market trends, to heroically create equality in prices to ensure that no one get's unlucky in the market. But you give no indication as to how the traders get paid for these gallant efforts, so we have no means of judging whether or not the traders are actually screwing people, driving up the prices all around, to be able to extract some money for themselves. If the traders were doing this, they would really be screwing everyone on the demand side. And then, when they've driven the prices so high that there's a breaking point, they'll turn around and drive the prices down, screwing everyone on the supply side. In the end, everybody's been screwed by the traders. And that's not a matter of luck.
So what I see, is that your equality between different places, Chicago and Singapore, is produced at the cost of inequality at different times. The traders make the world into one equal market in its spatial extensions, at the price of having that global market swing up and down violently in its temporal extension, in order for the traders to extract some money. Is there any means for a compromise between these two, or do you simply believe that spatial equality at the cost of temporal instability is the best situation?
They add transaction volume (eg. more money is exchanged then before because they enter the market with their own money. That doesn't mean they're giving it away. It's like poker, the initial pot gets bigger), which means exchanges, brokers, custodians, clearing houses etc. all make extra money. They can pay for those costs from the profits they make from their trading activities.
Quoting Metaphysician Undercover
Buy low, sell high. That's implicit in arbitrage.
Quoting Metaphysician Undercover
The idea markets become less natural because more buyers and sellers (eg. Traders) enter it is something I don't even understand how you got there to begin with so I don't know how to reply to it.
But let's go back. What exactly is your problem with some finding out he can buy low in one market and sell higher in another? There's a willing seller in the first and a willing buyer in the second. Who's being hurt here exactly? This is all a trader does.
This trade is called arbitrage and the traders arbitrageurs. And those traders aren't typically appreciated.
That there's mispricing is the plain theoretical reason. However usually the reason for having different prices in separate markets isn't because the sellers would be ignorant or indifferent of there being higher prices somewhere else.
If we rule out logistical reasons for different prices, typically the price difference is done by government decree to "help" the ordinary people by rationing or fixing prices. That naturally leads to a black market, where the arbitrageur is one of the most hated persons in the society.
Brent crude and WTI do have traded with separate prices, because an arbitrage in the oil market does have it's limitations.
OK, so the trader buys on the CME low, and sells high on the SME, and makes some money. The person buying higher, could have bought lower, directly from the CME, so how is the trader not screwing that person?
Quoting Benkei
I don't care if you want to represent trading as a "natural" part of the market, we can represent greed and its associated activities of hoarding, stockpiling, monopolizing, and all sorts of other things which are morally wrong as "natural" too. The question is whether we ought to put modern day "trading" into this category of morally wrong.
Quoting Benkei
If this were really "all a trader does", we could easily class the trader as providing a service which one ought to get paid for. The trader would purchase goods here, and deliver them over there, selling them at a mark up, to get paid for that service, like a common middleman. The problem is that with today's connectivity in the global market there is no such separation between here and there, every place has access to buy in any other place, so there is no need for the trader to purchase here and deliver over there. Effectively, the need for the trader has been eliminated, there is no longer any purpose for the trader in the market. One can hire a broker if required, and the trader's services have become obsolete.
However, the fact that there is no longer anything useful for the trader to do does not incline the trader to leave the market, because the trader still has all the knowledge of the system, and the skill required for making money in the market. So the trader has quickly found a new role, and that is to manipulate the market. This is done as you described, through transaction volumes. it's easy to see how an increased or decreased flow rate has an immediate effect in market prices, allowing some money to be extracted.
But investors, and the market in general, quickly become accustomed to such changes in volume, the market climatizes itself, and it becomes more and more difficult for the trader to extract money through volume manipulations. The magnitude of change in volume required for a trader to extract money becomes higher and higher, beyond the individual trader's resources, as the market has climatized itself to these individual actions, so the individual trader's capacity to manipulate the market has quickly been eliminated. Again, this does not incline the trader to leave the market, it inclines them to collude, to conspire, pool their resources in order to obtain the magnitude required to manipulate the market. .
Uh... In your milk example you were perfectly fine paying more and not having to travel further. Now someone offers it to you locally cheaper and you're complaining it's not as cheap as it is somewhere else despite it being cheaper than it was? It seems to me you have a judgment ready and are hell bent on ensuring that you reach that preconceived conclusion.
Quoting Metaphysician Undercover
I think if you postpone your moral indignation for a moment you'll realise your analysis goes only skin deep, which is why you're stuck at blaming traders. There are structural problems how our markets operate. You complain about the players and miss what's actually going on.
The rest of your post just reflects how your preconceived judgment colours everything you say, leading to statements that are just plain false. Traders are not en masse engaged in market manipulation. This is just silly talk.
Personally, I'm out of patience trying to explain basic aspects of how stock markets work to you. I'm open for direct questions if you want to learn something from someone who's worked for governments and private firms in both stocks and bonds.
If Metaphysician Undercover is also against "hoarding", "stockpiling" and gambling then I can't imagine it's worth it to try to convince him to accept trading. Some of his responses to me also lead me to believe that he's never actually traded or used leverage so this discussion would appear to be entirely theoretical for him. For someone who's never really participated in this type of activity to then come down and basically say "the need for the trader has been eliminated" is just drivel to me. As an actual trader who follows other traders no one really cares whether the market "needs" us or whether others morally approve, but you've made some good macro points about how traders do provide value even if when we're doing it we're mostly just out for ourselves.
I wouldn't say "hell bent", but I do need some sort of an argument from you, to change my preconceived conclusion. I really haven't seen much from you as an argument. And I'm not even trying to change your preconceived idea, just laying out some opinions.
Quoting Benkei
OK, so my preconceived conclusion is based in a misunderstanding of what's actually going on. Do you claim to know what's actually going on?
Quoting BitconnectCarlos
Wouldn't it be sort of hypocritical for me to actually be engaged in trading and at the same time expressing the opinion that it's inherently wrong?
Quoting BitconnectCarlos
So an observer's opinion is not worth anything? One must actually participate in the activity to make a judgement about it? Do you think that one must participate in murder, or theft, before judging that there is no place for these activities in our society?
There's no argument to be had where I'm still trying to explain the basics and you aren't interested to even listen.
(Besides, those 150+ million shares or so bought over 300 dollars likely were just recreation.)
I'm listening but you haven't gotten anywhere. I asked how the traders make any money. You said "buy low sell high" and then you just get distracted, sidetracked into going on about all the good which they are doing for the market, bringing in their own money to create a big pot, increasing volumes. Of course this is easily debunked as attempts at market manipulation, but you seemed upset by that suggestion..
So, back to the question, how do the traders ensure that they can buy low and sell high, to make sure that they get paid. If it was only a 50/50 chance they wouldn't be hanging around there, and it can't be like a gambling casino where the table is slightly slanted toward the house, because regular brokers would all share the same slant. And if it were a matter of knowledge, the brokers would share that as well. So what produces the slant for the traders, to keep them hanging around, if it's not market manipulation through pools of money and volume control?
Sure you're an observer - and I don't mean to be offensive or rude here - but you don't really seem to be an observer who really knows quite exactly what's going on in financial markets. I'm certainly not claiming to be an expert either and there are plenty of discussions where I'll be lost, but the difference between us is that I'm less inclined to make these kinds of overarching judgments. Before trading I was a semi-professional poker player so I'm just not that interested in hearing someone's take on why poker is wrong. According to who?
I'll ask you the question I asked earlier in this thread: What is the difference between buying a stock at $200 and selling it at $300 and buying a piece of artwork at $200 and selling it for $300? Why is one okay but not the other?
Quoting BitconnectCarlos
Poker is a good analogy to use. What's the slant on poker players who consistently make money? They must be cheating, right? No, it's a skill and they're good at it. Same with trading. Institutional advantage doesn't negate that.
If you know better, inform me then, I'm good to listen.
Quoting BitconnectCarlos
I've heard some opinions, so I'm throwing them out there to see if anyone can show me whether, they're true or not. Of course I would not say that every trader is like this, or every trader is like that, but I'm wondering if, over all, they bring more bad or more good to the market.
Quoting BitconnectCarlos
i wouldn't think that trading in artwork is any less immoral than trading in stock, or any commodity. Huge markups seem to be unacceptable no matter how you look at it. And that the buyer is willing to pay it doesn't justify the markup. Would it be acceptable to you if traders took control of all the produce from the farms releasing it to the people only if they would pay a huge mark up? The people would be really hungry, and willing to surrender large amounts of money for some food, after the supply was squeezed for just a few days.
There is however, a sense that if a person is wasting money on art, which is a luxury item, there's nothing wrong with trying to get as much money out of that person as possible. But just because the person has a whole lot of money, and may even have got it through immoral means, doesn't make it morally acceptable to use immoral means to get money from the person. It's kind of like stealing from a thief, it's not really acceptable. And there's still a victim, the person the first thief stole from, or in your example, the artist who didn't get paid the appropriate value for the work.
What about investments? Why should it be morally acceptable for people to take advantage of huge price swings, and even worse, manipulate the stock market attempting to force prices in one way or another to be able to take advantage of huge price swings?
Quoting Baden
The reason why gambling is considered to be a vice, is not that some may cheat. It's more like some will take advantage of others. Do you think it's morally acceptable for a highly educated person who's engaged in the same trade as a lesser educated person, to take advantage of the lesser educated person? The apprentice gets paid a fair and reasonable amount, not taken advantage of for everything that the more highly educated person can get from the apprentice. To me, that seems to be the issue with trading, some will take advantage of others, and there's nothing to prevent this, just like in poker. You might think that so long as it's done within the boundaries of the law, it's ok. But why do they have laws to try and prevent people from taking advantage of each other, if it were ok to take advantage of others so long as you do it within the law.
I haven't made any argument concerning the law yet. I simply don't equate winning with taking advantage of. Do you not see any distinction? Theoretically, if consenting adults pit themselves against each other in a game of poker and/or a session of trading, is there necessarily something immoral going on there in your view? Or is your argument more nuanced than that?
Without the money in the game, winning might not be taking advantage. But if you're playing for money, and one has a skill level which clearly exceeds the other, then winning is a matter of the one taking advantage of the other. And if the skilled player creates the illusion of a fair playing field, like they used to do in the pool halls, or when the skilled poker player allows the less skilled to get a little ahead at the beginning, to get a taste of winning, only to turn things around when it counts, it's surely immoral, regardless of the consent. There's no end to the little tricks which winners can do to increase what they take from the losers. Betting is half the game in poker. So the game becomes a game of trying to take as much as possible from the losers.
I think that's why activities like this are generally considered to be immoral. Wen you have a contest of skill, and you're playing for money, there's no way to avoid the reality that people will take advantage of others. Isn't that the goal of the game, to win as much as you can? How can win as much money as you can, be consistent with, don't take advantage of the others? So that goal of winning money always turns into a matter of taking advantage of, as the means to the end.
Generally yes, people are happy with the voluntary transactions they make.
Yet tell that to someone that has to sell when they have gotten a margin call.
Don't trade on margin then, which is basically borrowing money. People who complain about margin calls or close outs shouldn't be trading at margin anyways. Comes with the territory.
The fact is that never has been so much leverage been used in the stock market.
(Margin debt is debt a brokerage customer takes on by trading on margin.)
Just remember Benkei that in this World we live in profits are privatized, yet the losses are socialized.
No! I stand with your average mom and pop investor who comes home from their 9-5 on payday, paycheck in hand, and decides to 10x leverage long AMC at $15. They don't use a stop loss because liquidation is their stop loss. But then evil traders come and manipulate the market and these poor Americans are forced to sell. The whole thing seems very immoral to me.
When poker players are betting on what they are holding, they are all willing, and getting what they want, at that time. They all think it's win-win, until "later" when it's decided who really wins. That "later" is when some don't get what they want. How is this different from trading?
Quoting Benkei
Yes, and tell that to the gambler too, you shouldn't gamble, the table's slanted to the house, you "probably" will not win, this comes with the territory. You can't even stop people from buying lottery tickets when the odds are millions against them, by trying to reason with them in this way. The fact that a reasonable person would not do that, does not stop people from doing it nevertheless.
That's the problem with this type of vise. The "evil" consequences appear minimal, or completely nonexistent. So what if I lose a little bit of money, I've got some to spare, and if I lose it, no one gets hurt but me. But when some of us get a taste of winning our emotions overwhelm our capacity to reason and we throw caution to the wind. Then "a little bit of money" has no bounds.
It may be easy for someone like you to say, "those people should not be playing that game". However, those people are the suckers, and if they weren't playing the game, the rest of you wouldn't be making the easy money. This just requires that you adhere to some fundamental principles while letting the emotional ones make the mistakes. So it's clearly a matter of the reasonable people taking advantage of the unreasonable, where "unreasonable" is defined by an emotional weakness.
A poker player takes willing risks but they don't want to lose. A trade consists of a buyer and seller who want to trade and for a price they both want - otherwise no trade. Nobody is losing here.
Quoting Metaphysician Undercover
This can certainly be the case, but it's not always the case. Two emotionally-balanced players could be playing and one could just be using better strategy than the other. The player that is using better strategy could (and often does) still lose though. Edges can be quite small and only expose themselves over thousands of hands.
But by and large, yeah, poker is often about exploitation and if you're 100% opposed to exploitation and want to maintain moral purity at all costs you probably shouldn't be at a poker table. You probably shouldn't be in business either. You might make a good philosopher though who can provide sweeping moral judgments over areas that they have zero personal experience with.
Many things look worryingly unsustainable. Not just the stock market and it's stellar performance during an economic crisis.
However that doesn't mean that we can get the same thing, go along the same road singing merrily while we go on without a worry in our minds. And nothing really bad happens.
For a month or two. For a year or two. Perhaps for even a decade....or not.
Afterwards the easy wisdom of hindsight. How could people do what they did? How could they not use their brains? How could they not see what was happening?
What were they thinking?
Fair point. Also, @Metaphysician Undercover, where do you draw the line between trading and investing? Seems you could apply the same logic you've used to condemn anyone who puts money into a market with the intention of later taking it out at a profit (and note that markets aren't zero sum games when they are expanding).
This is exactly the emotional issue which I tried to bring up. The lesser skilled can and does win, because poker is to a large degree a game of chance. This little bit of winning produces a euphoria in the player making the person more oblivious to the facts, which are that the probabilities ensure the more skilled will win in the long run, just like the probabilities are slanted for the house in the casinos. That's the emotional weakness, similar to dreaming about winning the lottery. The skill in poker is to a large degree in the betting strategy. The skilled win the big pots and lose small ones. As a trader you might see something similar with the intelligent use of stop orders.
If you look at a game like pool though, there's a much higher degree of skill than poker. The pool sharks might use a slightly different strategy, actually letting the lesser skilled win for two bits, and not revealing one's true skill level until the bet is significant. And as a trader you would know that the small money is made when the market rises, and the big money is made when the market drops.
Quoting Baden
I would say that investing is to put money into an enterprise with the goal of making a return. The terms of return ought to be clearly stipulated in advance, similar to what we do with the interest on a loan. I believe there is a degree of greed which brings about the idea that we can invest without stipulating the terms of return, allowing one to think that returns could be unlimited. But it is also a deceptive idea, which facilitates the negative return.
OK, so anyone who has a pension is participating in an immoral exercise due to the lack of constraints on the return. Interesting idea. Do you have a pension?
I think what pension mangers do is often very immoral.
They invest on your behalf, presuming you have a pension? If so, why participate in what you have described previously as a generally immoral activity? Or are there now exceptions? If so, what are they and why?
I've seen it in the movies, and you hear it on the news once in a while, pension fund managers seem to be prone to doing immoral things. Ever see "The Irishman", about Jimmy Hoffa?
By the way, I am forced to contribute to a pension fund, it's just like taxation. I never freely chose this so I am not willfully contributing to whatever immoral acts the managers might be involved in. One might even argue that forcing me to contribute is itself immoral. I don't think traders are forced to trade.
Well, I'm sorry about all those compounded ill-gotten gains they'll force on you. I hope you'll get through the experience somehow. :strong:
I liked your response here. Here I'm addressing the parts that I disagree with, but I read through your entire post and agreed with like 90% of it so I just didn't respond to those parts that I agreed with. Some of my "disagreements" here are really just extra analysis.
Quoting Metaphysician Undercover
I get what you're saying here. We should take note here that a live environment is different from an in-person environment, and while one player may have an overall better sense of the game at a fundamental level and excel at online play, live dynamics can muddle the waters a little bit and bring in an extra element that allows worse players to step up their game in other ways to even the playing field. A highly skilled player could also overestimate their edge and that could serve to their detriment.
Also a lot of players are just playing to have fun or pass time, not necessarily to win money. I personally was not playing with the goal of winning money when I played semi-professionally, my goal was always to play my best game. If the money comes then it comes but it was never a guarantee.
Quoting Metaphysician Undercover
This I would question. Traders can make money either way. Insane amounts of money are made when markets are doing well.
Fixed it. :wink:
I agree with this, and I think it's somewhat related to that emotionally euphoria I referred to. That is an emotional volatility, like a mania in an extreme case. The emotions must be stabilized in one way or another, to make a good player. So if the person is not playing for money, this would be beneficial toward stabilizing the emotions. Therefore if you're not playing for money, you'd be a more stable player. They say that the well fed cat makes a better hunter than the hungry one.
I would think that the best poker players are not playing for money, they're playing to be the best they can. This would really be not much different from any athlete playing any sport. The athletes are not playing for the money, they're working on being the best they can. The millions of dollars just comes naturally if they do well at it. But if they went into the gym with the goal of making lots of money, they most likely wouldn't have what it takes to become a good athlete, and so they wouldn't make it.
Quoting BitconnectCarlos
I agree that traders make money either way, but this is why I think more money is made for them on the down swing. The first premise is that the money is actually received from the sale. The second is that the trader will most likely continue in the occupation of trading, so there will always be the need for a purchase after a sale. So if the market is in a generalized upswing, the purchase after the sale will likely be higher relative to the sale price, then if the market is in a generalized downswing, thus more money is actually pocketed in the downswing. On top of that there is the issue of numerous people buying on margins which I mentioned earlier in the thread. I believe that margin calls make the downturns a little more predictable than the upswings, another reason that more money can be made from the downswing.
I get what you're saying here. However, we need to keep in mind that markets over time trend upwards, so if you're going to be a bear you need to time it well and know when to close your shorts before the reversal (this is nearly impossible in practice.) Being a bear and repeatedly shorting is one of the few ways to lose money in a bull market. Even if you do happen to time it correctly, you can certainly do well as a trader but your long-term holdings whether in stocks or commodities will suffer which could easily offset your trading wins with capital losses elsewhere. I guess the way to avoid this is to just sell everything prior to the crash and go full on short which is either genius or insanity at the peak of a bull market.
More like insanity, because you are shorting on how crazy people can be. And they can be far more crazy and for far longer than you can anticipate.
Far more sane is simply to try to get 80% right: to decrease your stock portfolio when (in hindsight) the stock market is in the 20% nearest to the top and then buy when it's 20% nearest to the bottom. Hence if you sell and the stock indexes still go up still 20% to the peak, you still might congratulate yourself. Same true the other way.
Some indicators like what I and discussed like Margin debt growth are good in this case. When that Margin debt growth starts to decrease at the height of the market, that is really an alarming signal, because it means that people aren't willing to speculate as earlier. Both in 2000 and in 2008 the decrease in margin debt happened just before the stock markets plunged. And in an euphoric market, which now the market is (we are having this conversation on a philosophy forum), that is where the turn happens: there isn't the guy willing to buy at a higher price to speculate on the price going higher.
That's a nice theory but it's not really consistent with the graph you provided. There are many instances when margin growth slows, where the market continues an upward trend, or it makes a slight coinciding dip then continues upward. 2020 provides a good example. But a graph of 60 years is not very good at showing things which occur over a matter of days.
The problem is that no one can ever really determine "the height of the market" unless you can foresee the crash. So there will always be people thinking the end is near, cashing in stocks and paying off margins, when the market will still proceed upward. Paying down debt can proceed in an orderly fashion, without big market drops. A true crash will not occur unless the market is pressured down far enough to force widespread margin calls. Since every individual's margin position differs, it would be difficult to determine what degree of drop would force a crash. Perhaps it would be helpful to break down the margin by sector, and determine vulnerable sectors. Consider a crash to be like a domino effect, and keep your eye on the most unstable dominoes.
Quoting Metaphysician Undercover
Last year is a good example of how trillions put into the most massive QE do have an effect to make the market and the real economy go their separate ways. The only "V"-shaped recovery was the stock market. Of course you can think that this is just the "new normal" and things have changed, that we have a new economy, but at least I'm not so sure.
How totally different and spectacular things are now from the past is shown in this interview with Stanley Druckenmiller by nowhere else than Goldman Sachs' Youtube channel:
A great read if you're following this story.
https://www.zerohedge.com/markets/exposing-robinhood-scam-heres-how-much-citadel-paid-robinhood-buy-your-orders
"Frankly, we've had it with the constant stream of lies from Robinhood and neverending bullshit from the company's CEO, Vlad Tenev."
Forgive me - interesting article, but I'm not fully understanding the scam...Citadel buys orders from RH, RH offers commission free or "commission free" trades with funding from Citadel, then - I got lost.. -?
Sounds very....normal for Wall Street.
Thanks for the clarifications.
Yes, I agree with the statement that the stock exchange is dirt. But our whole system is built not on moral values, but on methods of survival. The law of the jungle applies in every field.