praguepride
 member, 1753 posts
 "Hugs for the Hugs God!"
 - Warhammer Fluffy-K
Thu 28 Jan 2021
at 16:52
Blatant Stock Market Manipulation happening in real time
For those of you out of the loops, a hedge fund shot their mouth off about their position shorting (i.e. betting a stock will go down) Gamestop, a struggling brick & mortar video game shop. Savvy investors realized that these positions meant that these hedge funds had essentially "borrowed" 140% of all Gamestop stocks available.

A short means you "sell now, buy later" which can put you on the hook for huge losses if the stock skyrockets. A big $12B hedge basically sold hundreds of thousands of shares at $10 a pop but only had X amount of time to buy them back. Now if that stock price jumps to say $500 then they have lost $490 per share. Because they have to buy the share that the already sold this can result in what is called a short squeeze. The price is driven up and eventually the people shorting the stock pull the rip chord and buy it at inflated prices just to stop the bleed which drives the price up even further.

Anyway so this hedge was positioned where they owed more stocks then could possibly be driven. Last time something like this happened, Volkswagon jump up something like $1,000 a share and was briefly the most valuable company in the world because of hedge funds closing their shorts for billions of dollars in losses.

Even Volkswagon wasn't over shorted like Gamestop was so on Reddit a bunch of people started dumping tons of money into the stock and another squeeze took place. Over a week the stock went from $40 a share to $487 a share and it was climbing higher and higher because even though hedges were desperately closing their positions (one hedge reported losing about $4 billion and counting) it was still climbing.

This squeeze was being driven heavily by "retail investors" i.e. day traders using free apps like Robinhood, not huge hedges duking it out. Something like 3-4 million individual investors started scooping up stocks and these short hedges were looking at complete financial collapse as people were making millions of dollars.

Then Robinhood and most other retail traders banned trading of Gamestop stock (as well as a few other stocks that were in similar situations). Now the stock is in freefall because the main traders working on it can't purchase it. In one hour it went from $487 down to $125 giving hedge funds an opening to cover their position and escape the squeeze with only 1,000% percent losses instead of potential 100,000% losses. Seriously at market opening today these hedges were at -10,000% positions.

Now the internet is ablaze and regulators and politicians are taking up the cry of why hedge funds get to make huge gambles but individual investors get locked out of money making schemes. It has been absolutely blatant as investors are scrambling to try to find new brokerages to buy up stocks but there is this domino effect where the new traders are being pressured by Wallstreet to stop trading these vulnerable stocks.

Class action lawsuits and government regulations will likely be in the future after this debacle and I must say the money I have put in is well worth the price of admission to this wild and crazy ride.
jkeogh
 member, 94 posts
Thu 28 Jan 2021
at 16:59
Blatant Stock Market Manipulation happening in real time
Thanks for this well informed summary of what has been happening! I've enjoyed watching it as well! It's really too bad that the hedge fund bet all of his investor's money on such a volatile position and it is clear he is already paying a hefty price for doing so.
praguepride
 member, 1754 posts
 "Hugs for the Hugs God!"
 - Warhammer Fluffy-K
Thu 28 Jan 2021
at 17:06
Blatant Stock Market Manipulation happening in real time
He should be paying the price but it looks like the retail apps all these investors are using to put the squeeze on him are betraying their own users to help extract the big hedge.

They do market manipulations to try to make people panic and sell at low prices but if everyone just holds it doesn't work. As I write in 2 hours the price has gone from $487 -> $125 -> $273

The amount of market manipulation as hedges do shady things to dump and rebuy stock to themselves to make it appear like the stock is in freefall is astounding. The reddit is abuzz talking about how a hedge will dump rapidly dump stock back and forth to trick the tickers into thinking it is in freefall. By constantly selling back and forth at lower prices it seems like it is in complete collapse to shake off timid and low stakes investors.
jkeogh
 member, 95 posts
Thu 28 Jan 2021
at 17:30
Blatant Stock Market Manipulation happening in real time
I like that people are learning more and more about how the market is really working and how these hedge funds operate.
Jarodemo
 member, 915 posts
 My hovercraft
 is full of eels
Thu 28 Jan 2021
at 17:40
Blatant Stock Market Manipulation happening in real time
This is why more and more companies are looking to de-list, I.e. buy back shares and take themselves out of the stock market. Crazy hedgers can kill a perfectly good, profitable business just in an effort to make a quick buck. And if you are a public company you have no control over who invests in you.
jkeogh
 member, 96 posts
Thu 28 Jan 2021
at 17:46
Blatant Stock Market Manipulation happening in real time
True, in this case it seems like the companies are likely benefiting in some small ways from the investments. It's likely too early to tell, but GameStop announced it was closing over 1,000 locations. AMC is trying their best to avoid bankruptcy due to the pandemic and now American Airlines is somehow getting a boost.

It should make everyone think twice about going public, but if you are a start-up that's always a big motivator. The current speculation is that Robinhood halted trading because of investors and because they are planning an IPO of their own in a few weeks to months and they don't want the hedge funds to destroy them when they go public.
Waffles
 member, 195 posts
 I may or may not be
 an alien
Thu 28 Jan 2021
at 18:49
Blatant Stock Market Manipulation happening in real time
Appreciate the summary, I had no idea what was going on aside from some Tweets I saw.
facemaker329
 member, 7314 posts
 Gaming for over 40
 years, and counting!
Thu 28 Jan 2021
at 19:21
Blatant Stock Market Manipulation happening in real time
There's apparently a group on Reddit who watches for situations where hedge funds are severely shorting stock...they wade in and buy, then sell back when the hedge fund is trying to cover.  It's tough to say how many of them are doing it to "stick it to Wall Street" versus doing it because it's a really fast way to make money (I mean, if you bought ten shares at $40 and then sold at $450, you just turned over $4k in profit...)

I'm sure there's going to be more market regulations over this...I just hope it addresses the WHOLE issue, rather than just trying to come up with some kind of limitation on how groups of investors can communicate about their strategies.  We'll see, I guess...

Legality aside, shorting someone's stock like that is grossly unethical...or should be, if there are still actual ethics involved in the stock market.
praguepride
 member, 1755 posts
 "Hugs for the Hugs God!"
 - Warhammer Fluffy-K
Thu 28 Jan 2021
at 19:41
Blatant Stock Market Manipulation happening in real time
Shorting is an interesting dilemma because it seems gross but it is also very useful to avoid stocks artifically ballooning to outrageous prices. It puts pressure on stock prices to go down to counteract investor pressure for stocks to go up.

THAT BEING SAID one of the things I've read is that companies don't have to disclose their shorts like they do with their long calls which seems very unethical. You should not be able to make hidden positions because then you run into situations where a hedge fund shorts a sector, like hotels, and then goes on the talk show circuit preaching doom & gloom to try and crash that market without anyone realizing they have a financial interest in it:

https://www.cnbc.com/2020/03/2...ncluding-hilton.html

quote:
Bill Ackman warned ‘hell is coming’ because of virus: He then pocketed $2B in bets against markets


The other thing that is going to be interesting is when it comes out who put pressure on Robinhood and other trading platforms to remove GME from active trades. Someone got Robinhood to operate directly against their own investors best interests to help give hedge funds a chance to run the market down so they can reposition themselves in less risky positions.

If etrade platforms hadn't delisted then when they ran the market down, retailers would have snatched up all the discounted stocks but because individual investors were frozen and left scrambling to find a platform that they could still buy through, that gave hedge funders basically time to play around with the market without the peasants ruining their game.
Dream Sequence
 member, 69 posts
 Certainly the loveliest,
 most civilized of us all
Thu 28 Jan 2021
at 19:47
Blatant Stock Market Manipulation happening in real time
This didn't take long at all, an was 100% predictable:

"Robinhood Hit with Class Action After Blocking GameStop Trades"

https://www.vice.com/en/articl...class-action-lawsuit
nauthiz
 subscriber, 705 posts
Thu 28 Jan 2021
at 20:08
Blatant Stock Market Manipulation happening in real time
I've seen it reported that a company with ownership in Robinhood (either partial or full) also has ownership stakes in one of the hedge funds that was losing it's shirt and every other article of clothing in all this.

Assuming that's accurate, and given that funds were apparently losing billions of dollars it will be interesting to see if whatever legal ramifications come out of this end up being financially worth it.

As it's been a not uncommon issue with companies knowingly doing illegal things that still end up better off than they would have been because the money made exceeds money lost to fines and other punitive measures.
praguepride
 member, 1756 posts
 "Hugs for the Hugs God!"
 - Warhammer Fluffy-K
Thu 28 Jan 2021
at 20:20
Blatant Stock Market Manipulation happening in real time
According to internet researchers, Robinhood makes half its money by selling customer trade information to HFT's like Citadel. Citadel is backing Melvin which is one of the hedges holding billions in toxic shorts at the moment.

If there is any justice in the world this is going to result in Robinhood and Citadel CEOs being dragged in front of congress and the SEC for blatant collusion and market manipulation.

These hedge funds now that they're holding toxic positions and being taken to the cleaners by Joe Schmoe investors have successfully pulled gamestop stock from EVERY SINGLE etrade platform.

So far the only groups I have heard that still allow individual non-professional investors to buy gamestop direct is Fidelity and a bank brokerages.
Eur512
 member, 846 posts
Thu 28 Jan 2021
at 21:35
Blatant Stock Market Manipulation happening in real time


There's always going to be some ethical issues with the concept of shorting because it puts the same person in the conflicting roles of owner, and competitor.  You own shares... but you have a vested interest in seeing their value fall.

I don't see any danger from a bunch of small players teaming up like the recent episode.  If that's what they want to do, it's their right. The fact is, it's a game of chicken- if the they overbuy, they have purchased some stupidly overpriced stock and they're stuck.

What bothers me is the opportunity for behind-the-scenes abuse.

Big public pension fund manager shorts a company, then leans on the big city mayor to cancel a contract.  Corporate honcho calls some bank friends, has them deny financing to a company he shorted.  That crosses the line into real corruption.
praguepride
 member, 1757 posts
 "Hugs for the Hugs God!"
 - Warhammer Fluffy-K
Thu 28 Jan 2021
at 22:02
Blatant Stock Market Manipulation happening in real time
The problem is when it is privatized gains, socialized losses. We saw that in 2008 when in the US after big hedges and investment firms made HORRIBLE bets on the market they went crying to the goverment to bail them out to the tune of billions of losses paid for by US taxpayers but if those bets had paid out the taxpayers wouldn't have seen a dime.

If they make money they get to put it in their pockets. If they lose money then they cry to the government to bail them out. It is almost no risk for them to make stupid aggressive bets because they can't lose.
RanzarthPhx
 member, 49 posts
Thu 28 Jan 2021
at 22:49
Blatant Stock Market Manipulation happening in real time
The repeated remove the SEC's teeth has only exacerbated problems like this. I'm curious how they will try to fix and hold people accountable later.
facemaker329
 member, 7315 posts
 Gaming for over 40
 years, and counting!
Thu 28 Jan 2021
at 22:54
Re: Blatant Stock Market Manipulation happening in real time
Eur512:
if the they overbuy, they have purchased some stupidly overpriced stock and they're stuck.


That's the thing about this particular case, though...the "little guys" bought up stock which was artificially devalued.  They initially bought at $40/share, knowing the hedge fund had to, contractually, buy back enough stock to cover what they sold.  Well, that stock is currently sitting at around 5x-6x the value that they sold for, at one point it was over 10x.  So the small investors made bank, if they were smart enough to sell at the peak price, and they're still looking at a massive ROI--if the companies they use for their trading actually let them do anything with their stock.  Robin hood and several others are staring down the barrel of some intense scrutiny...I mean, Ocasio-Cortez and Ted Cruz actually agree on this...both sides of the political divide are saying, "Hey, this is some shady sherbet going on...we should really look at this."