Cynical, as in, telling it like it is. Taibbi, of course, writes LONG articles, so there's lots more at the link:
In a blowout comedy for the ages, finance pirates take it up the clacker
The episode prompted calls to regulate Reddit and, finally, halt action on the disputed stocks. As I write this, word has come out that platforms like Robinhood and TD Ameritrade are curbing trading in GameStop and several other companies, including Nokia and AMC Entertainment holdings.
Meaning: just like 2008, trading was shut down to save the hides of erstwhile high priests of “creative destruction.” Also just like 2008, there are calls for the government to investigate the people deemed responsible for unapproved market losses.
Even Nancy Pelosi, when asked about “manipulation” and “what’s going on on Wall Street right now,” said “we’ll all be reviewing it,” as if it were the business of congress to worry about a bunch of day traders cashing in for once.
The only thing “dangerous” about a gang of Reddit investors blowing up hedge funds is that some of us reading about it might die of laughter. That bit about investigating this as a “pump and dump scheme” to push prices away from their “fundamental value” is particularly hilarious. What does the Washington Post think the entire stock market is, in the bailout age?
America’s banks just had maybe their best year ever, raking in $125 billion in underwriting fees at a time when the rest of the country is dealing with record unemployment, thanks entirely to massive Federal Reserve intervention that turned a crash into a boom. Who thinks the “fundamental value” of most stocks would be this high, absent the Fed’s Atlas-like support in the last year?
In other words, it was all well and good for investment banks and executives of phoney-baloney companies to gorge themselves on funhouse profits on a funhouse economy, but when amateurs decided to funnel just a bit of this clown show into their own pockets, finance pros wailed like the grave of Adam Smith had been danced upon. The worst was Morgan Stanley CEO James Gorman, who issued a somber warning that those behind the recent market frenzy are “in for a very rude awakening,” adding, “I don’t know if it is going to happen tomorrow, next week or in a month, but it will happen.”
This is the same James Gorman whose company just saw its 2020 fourth-quarter profits go up 51% versus the year before, with total revenues up 16% to $48.2 billion, matching almost exactly the 16% rise in the stock market last year. If you’re going to rake in $33 million as Gorman did last year captaining a firm that just siphoned off billions in essentially risk-free profits underwriting a never-ending bailout, should you really be worrying about someone else getting a “rude awakening”? There are 19 million people collecting unemployment who might be reading those profit numbers. Does this man know how to spell “pitchfork”?
Fundamentals? How much does Sorkin think his exalted Delta Airlines would be worth now, if the Fed hadn’t stopped its death plunge last March? How much would any of the airlines be worth in the Covid age, with their fleets of mothballed jets? What a joke!
The rank selectivity of this makes any moral argument against the GameStop revolt moot. There’s no legitimate cause here, just an assertion of exclusive rights to plunder, which will doubtless be exercised now in the form of bans, investigations, and increased barriers to market entry. Probably also, in the political spirit of our times, there will some form of speech crackdown on platforms like Reddit, to protect us from the mob.
This is where society will ultimately come down, of course, uniting to denounce $GME as financial Trumpism, even though it actually comes closer to being an updated and superior version of Occupy Wall Street. It’s likely not any evil manipulation scheme, but ordinary people acting — out of self-interest, but also out of sheer enthusiasm for one of the best reasons to do just about anything, because you can — on a few simple, powerful observations.
They’ve seen first that our markets are basically fake, set up to artificially accelerate the wealth divide, and not in their favor. Secondly they see that the stock market, like the ballot box, remains one of the only places where sheer numbers still matter more than capital or connections. And they’re piling on, and it’s delicious, not so much because they’re right, but because the people running for cover are so wrong, and still can’t admit it.
Buy the ticket, take the ride, nitwits. If you earned anything, it’s this.
You could accomplish the same thing but going to GameStop and buy lots of their games. A huge rise in their profits would also raise the stock price.ReplyDelete
You mean like actually walking to a voting place and cast a physical vote, compared to mass mail-in ballots?Delete
“...they see that the stock market, like the ballot box [huh?], remains one of the only places where sheer numbers still matter more than capital or connections.”ReplyDelete
Uh, did Matt sleep through the past “election” cycle?
Can anyone make sense, of how more shares could get shorted, that the firms have issued?ReplyDelete
Here's Denninger's take:
> ... I can buy a $20 PUT on some stock. This gives me the right to PUT that stock on the other person, for $20/share up until expiration. IF the price is under $20, I of course have every reason to do that -- I can buy the shares for $10, and make you pay me $20! Who doesn't like that deal?
Likewise, the *market maker* never wants that directional bet either, since on the short side of an options trade you're obligated to perform, if demanded by the long side.
Nobody would stay in business being a market maker, if this sort of thing could happen to them, so as soon as they take the opposing side, they execute a balancing trade on the other side. In short if you're a market maker, you always want to be neutral on every security you make a market in; you make a (very) small profit on each transaction, but you never, ever want to be exposed directionally, because the amount you get paid is tiny compared to the risk, and one mistake will bankrupt you.
Therefore if you're a market maker, you can short without locating first, for this explicit reason. This doesn't lead to a problem generally, because nobody in their right mind as a market maker wants a directional exposure, ever. As a result the failure to locate is transient, and does not accumulate; you will lay that risk off, and remove the imbalance if you have to, since you can construct synthetic positions that perform financially the same as real ones.
So how do you get 130% of the available shares short? It would seem impossible and is, unless someone *cheats*.
There are some players in the market who have "market maker" status, but *also trade their own* books, or have cross-interests with those who do. Allegedly there are "Chinese walls" between those pieces (or interconnected entities.). Quite obviously that is a load of crap, because otherwise what you've seen would be impossible, but it clearly not only has happened before, but is still happening to this day.
These entities are how you wind up with short sales, where the *locate and borrow* hasn't happened first, and the position remains open across time. This is supposed to be *illegal*, but other than a few hand-slaps in the futures markets for physical commodities, I'm not aware of any criminal prosecution for doing it.
And let's be clear here: This practice is counterfeiting.... <
From https://market-ticker.org/akcs-www?post=241454 .
I should've writtenDelete
"*how* more shares *could* get shorted, *than* the firms (e.g. GameStop) have issued?"
KD's point seems to be that, when players who have "market maker" status also trade *their own* books, they can conflate short sales, where the *locate and borrow* has happened first, with those where the position remains open across time.
these kind of anomalies in price happen off and on, and it's always figured out when someone takes advantage of it and it becomes public. That's all this is. Given the numbers are so big, they're doing a lot of whining and kicking and screaming, trying to change the system retroactively, and trying to paint the smarter investors as fraudulent or critical, all just to avoid losing a few billion dollars. The market doesn't care....they overextended due to greed and stupidity, they should just pay the price. Would be classier if they just shut up and took it like a [strong human being?]!ReplyDelete
All these articles make it sound complicated, but basically they sold a lot of shares they didn't have, but they remain obligated to find and buy shares. It's all public, so the owners of the shares now know what a fix they're in and are asking high prices. They wouldn't be in this position if they hadn't sold shares they didn't have to sell. They don't deserve sympathy.
The same thing may have saved the AMC movie chain. Same situation occurred, and their stock price had a runup because of it. Because of the situation, they were able to trade some shares to an investor and swap out a lot of the debt that was dragging them under. This is a good thing for everyone who likes movie theaters!
You're right. Its a classic short squeeze.
Another aspect of this which may be of interest, generally, to readers here relates to who the players are. The media is reporting that a band of renegade day traders banded together to squeeze "Wall Street" hedge funds who had gone short.
Apparently the principal short was a nice guy named Gabriel Plotkin, who runs a 'hedge' fund called Melvin Capital, one of the biggest short sellers on "Wall Street". Plotkin, who is apparently publicity shy, was most recently in the news (before Game Stop) because he bought some residential real estate in Miami for $44 million. That's right. $44 million.
Plotkin grew up in the hedge fund industry working for Steven "Stevie" Cohen, whose SAC firm was famously accused of massive insider trading a few years back but largely beat the rap. Plotkin was also implicated but not charged or convicted. He left SAC and founded Melvin, where Stevie Cohen is currently a major investor.
You can find out a lot more about what Melvin Capital does by going to their enormously informative website: https://melvincapital.com/.
The company Janet Yellen keeps. Of course it's all just appearances. The kind of appearances that might get a conservative, oh, criticized:Delete
"Yellen earned more than $800,000 speaking to Citadel, a prominent Wall Street hedge fund company that is a key figure in the ongoing scandal after Robinhood blocked trades of GameStop stock on Thursday.
"Citadel helped bail out Melvin Capital after the hedge fund lost millions by betting against GameStop before a group of trading populists on Reddit rallied to boost the stock price to unprecedented heights."
I am a securities lawyer who happened to vote for Trump. I like to consider myself a deplorable. The GameStop fiasco is a simple manipulation. The definition in the 1934 Act is a series of transactions designed to raise or lower the price of a security. The chat room posts are evidence of manipulation intent on the part of some posters. Of course the herd likely has no manipulative intent. But the herd members, or at least some, will be badly hurt. I am saddened that the SEC, where I used to work, has done nothing. Forget the politics and look at the underlying acts and value of the stock.ReplyDelete
If you think about it, the line between short selling and having a manipulative intent--in practice--can be a pretty hard one to draw. The line between hope/expectation and acting with an intent to manipulate would get pretty blurred in an environment where everyone is trying to make a killing. So to speak.Delete
I agree. But is only a question of how you prove manipulative intent. The statute requires intent or likely recklessness. With GME, you have evidence in the chat room. I am not speaking of the jump on the band wagon people.Delete
Does anybody at the SEC track how many hedge fund managers talk their book on CNBC, Bloomberg, and elsewhere? Having made a living trading Russell futures for a lot of years, I do find it interesting how hedgies who trash the stocks they're short on TV are deemed malicious, while those who are long tout the markets just as hard. Does anybody here want to suggest that the current market highs have anything to do with intrinsic value or fundamentals vs. endless 'quantitative easing"?Delete
My day trading strategy was directionally agnostic, but I ended every session 100% in cash I never had to worry about somebody talking down or talking up small caps. The only aspect of this story I find interesting is the power wielded on behalf of the hedge funds--including Robinhood's willingness to destroy their business to protect the big money guys.
Lots of these day trader types were probably Bernie Bros.
Bernie has sold out, and the establishment Democrats including Elizabeth Warren, Biden, Big Tech have sided with Wall Street.
The anger behind occupy Wall Street is still there.
Trump supporters are working class that feel the system / establishment ignores them and takes advantage of them.
Lots of intersections on a Venn diagram.
And Trump ran against the establishment. Sounds like a huge marketing opportunity to pick up and convert a new segment of voters.
And the hedge funds are/were heavy Democratic Party supporters.
Gotta wonder. Could they end this by simply asking the company to issue more common shares? The company gets a huge payday and the short sellers are off the hook at a high price.ReplyDelete
Wouldn't be the first time someone 'split' some stock for the right...er...wrong reasons? All it does is weaken the position of the guys who 'won' this fight and bolster the positions of the guys who 'lost'. I wish my losses could be backstopped with one phone call. Thanks for playing, everyone - sorry we rigged the game! Or am I missing the point of playing it at all? You know what they say about Karma....Delete
Hell, hedge fund managers for decades have shown up on CNBC providing quasi 'tips' that are objectively meant to increase pressure on any given stock, drive it down to stripmine their profits.ReplyDelete
"Every piece of this is man's bullshit. They call this war a cloud over the land. But they made the weather and then they stand in the rain and say 'Shit, it's raining!" Ruby (Cold Mountain)
I wonder if hedge funds would pay people to post anti refit short seller stuff?ReplyDelete
Media matters had a script to have people claim to be disillusioned supporters as a way to do damage control.
Or am I just too cynical?
Jim Cramer in 2006 is explaining how you manipulate the market