back to article What happens when the internet realizes the stock market is basically a casino? They go shopping at the Mall

So it seems 2021 is going to be the year that internet culture finally reaches the deepest and most protected pockets of society. The past day has seen the kind of demented activity on the stock market that normally comes with an era-defining crash – except in this case it was Reddit readers who are, um, having a laugh while …

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    1. IceC0ld

      pump n dump is EXACTLY how hedge funds do their business :o(

      watching some of the people burnt, some were hilarious, a 'billionaire' crying, because he lost so much money, that he had to re finance the loan for his new yacht, is NOT my idea of losing lots of money

      down to listening to SO many talking heads saying how this is market manipulation, and is illegal, yet at the same time ignoring the hedge funds doing exactly the same thing over and over again

      for those looking to find somewhere to peruse a decent overview of WTF is going on :-

      https://isthesqueezesquoze.com/

  1. Sorry that handle is already taken. Silver badge

    The number one rule of internet investing

    Never risk less than you can afford to lose.

  2. Anonymous Coward
    1. katrinab Silver badge

      Re: Yawn. South Sea Bubble.

      This is more of a Volkswagen than a South Sea Trading Company.

  3. amanfromMars 1 Silver badge

    Reading the Runes in Between the Lines ... Karma Sucks Big Time

    The other bad news for amateur investors is that the big boys will always, always get there before you. They have teams of people who do nothing all day but watch the markets and are plugged into the system. And they have access to funds.

    That is as may be, Kieran, but you are both missing the point and have highlighted the whole point of the exercise, a simple program which can be activated innumerable times virtually by practically anyone with half a fully working brain of such a notion, to take unprecedented advantage of a corrupted and perverse systemic abomination, ..... fully endorsed and actively supported by established markets regulations and gilded gatekeepers [think SEC (Securities and Exchange Commissions), FCA (Financial Conduct Authorities). the Fed (Federal Reserve Bank) etc. etc .etc.] by virtue of their all too apparent co-conspiratorial acceptance of short selling profit and loss trading results] ......and in so drawing ever more attention and forensic interest to its fabulous ponzi shenanigans/fantasy wealth creations.

    However, that is just as the breath-taking heart-stopping entrée before the next course of a gluttonous feast, both concerning and delighting excited diners alike with thoughts of what is prepared next to follow on the menu yet to come.

    And will it delight sublimely or disappoint disastrously the assembly of gourmands and one's peers?

    Put plain and simply, now that so many more are so quickly learning of what is so relatively freely available to them to actively participate in .... Do global leading market players still want to blatantly continue aiding and abetting crooked fantasy trades creating fabulous virtual wealth for an exclusively chosen few, or is it all to disastrously collapse like the house of cards built on shifting bottomless quicksands that it is? ..... for they are presently surely the system's only two prime opposing and competing choices. If you know different, don't be shy, speak up, for now is there no better good time.

    It is hard not to equate and realise that is as CheckMate, a Game, Set and Match win and defeat but there are sure to be others with a contrary view would would wish to disagree and to such a degree one would almost think their very lives depended upon it.

    1. Anonymous Coward
      Anonymous Coward

      Re: Reading the Runes in Between the Lines ... Karma Sucks Big Time

      To me it is just the product of the USA's implementation of freedom.

      This freedom comes at a price.

      Their (USA's citizens') freedom comes at a price.

      The freedom to do whatever you like as long as you can get away with it.

      The freedom to exploit your fellowman's psychological weaknesses.

      The freedom to not protect the innocent and weak.

      The freedom to parasitize on the weak and vulnarable.

      Thank you.

    2. amanfromMars 1 Silver badge

      Re: Reading the Runes in Between the Lines ... Karma Sucks Big Time

      The latest share-price shenanigans came as the International Monetary Fund warned “complacent” financial markets buoyed by the rollout of Covid vaccines are at risk of a sudden collapse. .... https://www.telegraph.co.uk/business/2021/01/27/reddit-fever-hits-london-market-short-sellers-feel-squeeze/

      Who's got the popcorn and Belgian chocolates?

      1. Korev Silver badge
        Alert

        Re: Reading the Runes in Between the Lines ... Karma Sucks Big Time

        Whilst I have no love for the Traders and wouldn't be that upset to see them hit by this; you have to remember when share prices go pop that impacts our pensions and may even make our employers reach for the P45s/"Pink slips"/etc

        1. Tomato42

          Re: Reading the Runes in Between the Lines ... Karma Sucks Big Time

          sorry, but what?! what kind of pension provider makes pension money by shorting stock!?

          Gamestop was already at the bottom when it started, *that's why it was shorted so fucking much* nobody with half a briaincell would invest long term in it, and if they did they got out months if not years ago.

          1. captain veg

            Re: Reading the Runes in Between the Lines ... Karma Sucks Big Time

            Pension providers don't short. But they hold stock which isn't earning much and which they could lend to shorters for a fee. This is the problem. Shareholders are supposed to be the owners of the company in which they hold shares. Yet they care only about maximal short-term profit, not the well-being of the companies that they notionally own.

            -A.

            1. Alan Brown Silver badge

              Re: Reading the Runes in Between the Lines ... Karma Sucks Big Time

              "Pension providers don't short. But they hold stock which isn't earning much and which they could lend to shorters for a fee."

              In other word: facilitating figleaf shorting. They still get their fee and their shares back (eventually). They're not hedge funds but they might end up owning a few after this blows over

      2. TimMaher Silver badge
        Happy

        Belgian chocolates

        I’ve got a box of Leonidas.

      3. disgruntled yank Silver badge

        Re: Reading the Runes in Between the Lines ... Karma Sucks Big Time

        Given that Godiva is closing all of its US stores, I'm not sure how well we are fixed for Belgian chocolates. Popcorn we may have.

  4. akoepke

    The money has to come from somewhere

    The money made on these shares has to come from somewhere. In order to sell your shares, there has to be someone willing to buy them. If someone is buying them at the peak price, then they are the ones that are going to lose the money when it comes crashing down. In order for one person to make big money on this, there needs to be lots of people who are going to be losing their savings.

    The hedge funds may end up losing money, but the people jumping on the bandwagon due to hype are the ones that are going to be hurt the most.

    1. amanfromMars 1 Silver badge

      Re: The money has to come from somewhere

      You are pimping and pumping and dumping a popular misconception there, akoepke.

      One cannot fault you for that .

    2. P. Lee

      Re: The money has to come from somewhere

      It isn’t quite a pump and dump. Of course its a bubble, but how much of a bubble depends on the size of the hedge fund short.

      My understanding is that the short was huge, so the hedge fund has to buy the stock it borrowed at whatever the market rate is. The bubble will last until the hedge fund buys enough stock to fulfill its obligation to return the stock it shorted. The Redditers aim is to sell the stock to the hedge fund.

      The money comes from the hedge fund which has to liquidate other assets to pay for the stock at a particular time. It isn’t pure speculation, like the original short, the tulip, south-seas, or like high-frequency trading.

      I hear that miraculously the Reddit board was shut down for “hate speech”. What a handy tool that is. Never misused for political or financial purposes.

      I believe Soros used a similar technique to shorting in the currency markets (betting the government wouldn’t be able to prop up the pound) when forcing the UK out of the European Exchange Rate Mechanism and made himself an extra billion or so.

      1. MiguelC Silver badge

        Re: The money has to come from somewhere

        You can also read about when Porsche tried to buy Volkswagen.

        TLDR? It went so badly that VW ended up owning Porsche.

        1. Falmari Silver badge

          Re: The money has to come from somewhere

          Interesting read "when Porsche tried to buy Volkswagen".

    3. Schultz
      Devil

      Re: The money has to come from somewhere

      You say: "The hedge funds may end up losing money, but the people jumping on the bandwagon due to hype are the ones that are going to be hurt the most."

      But the money the hedge fund loses will end up in some pockets -- so on average the people who jumped on the bandwagon will make a killing.

      It's an old game: big traders taking a big position thereby influencing the stock value. The hedge fund probably expected that a large and nicely publicized short position in GameStop would drive down prices, netting them a beautiful profit. Now they got caught out by a larger investor countering their position. This happens every day in the stock market and the only thing special about this instance is that it was nota large investors playing with their money (and your pension funds), but it was a collection of small investors.

      I'll hold back my tears for the hedge fund managers, but also for the small investors who will win or loose depending on when they entered the market. Those who play the casino stocks deserve to be burned. We'll need to introduce a transaction tax to shut the casino down while keeping the actual capital market alive. It would remove the blood-supply for the "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."

      1. amanfromMars 1 Silver badge

        Re: The money has to come from somewhere

        You say: "The hedge funds may end up losing money, but the people jumping on the bandwagon due to hype are the ones that are going to be hurt the most."

        But the money the hedge fund loses will end up in some pockets -- so on average the people who jumped on the bandwagon will make a killing. ....... Schultz

        :-) Digging down deeper for the finer details in the truth reveals ...... The hedge funds managers end up losing colossal sums of other peoples money, and some of those folk are well able to going looking for them to more than just hurt them ..... and it won't be the average Joe making such a killing.

        And it is not a business to be in without accepting it carries exceptional extraordinary risk.

      2. Doctor Syntax Silver badge

        Re: The money has to come from somewhere

        But the money the hedge fund loses will end up in some pockets -- so on average the people who jumped on the bandwagon and got out in time will make a killing.

        FTFY

        1. Version 1.0 Silver badge

          Re: The money has to come from somewhere

          The Hedge Fund investors will lose money, the people running the Hedge Fund will make money.

          1. Alan Brown Silver badge

            Re: The money has to come from somewhere

            "the people running the Hedge Fund will make money."

            or find themselves fired and their hedge funds owned by someone else (most likely the companies they borrowed Gamestop shares from in the first place)

    4. Anonymous Coward
      Anonymous Coward

      Re: The money has to come from somewhere

      I remember thinking exactly the same thing when Microsoft shares went up to $10.

    5. DS999 Silver badge

      The hedge funds have to buy the shares

      When the shares they shorted rise too high they have a margin call. They either need to deposit sufficient funds to cover the margin, or buy shares to cancel out all/part of the short. One hedge fund borrowed $2.75 billion over the weekend from another hedge fund to cover the margin, they later capitulated and stated they had closed their short position. The fund had been worth $13 billion, it may have lost nearly all its value buying inflated Gamestop shares to cover its short positions.

      Another hedge fund supposedly had an even bigger short position, I haven't heard any reports on it, but if they haven't capitulated and had sufficient capital to avoid margin calls they might be hoping they can wait it out. Or maybe they are effectively bankrupt already, and the fund manager has been busy over the last couple days liquidating as many of his assets as he can, wiring the money overseas, and getting ready for a one way trip on a private jet to a country without an extradition treaty.

      There was a huge momentary spike in the Gamestop price from around $230 to nearly $500 and back again just after 2pm NYC time. That looks like another big short seller capitulating.

  5. MikeThelHill

    Would you pay $100 to screw a hedge fund?

    The other way of looking at this is that many reditters may be happy to throw a coupla bucks down the drain to see a Hedge Fund/Short Seller get burnt to the ground.

    The article talks about people "investing" in GME and getting burnt in the end, but maybe many of them are buying and holding a tiny amount to watch the dumpster fire? A million redditers have a bunch more firepower than one hedge fund.

    The professional shorters have long view themselves as hunters of the weak, it's an ironic twist that they find they are no longer at the top of the food chain.

    1. Anonymous Coward
      Anonymous Coward

      Re: Would you pay $100 to screw a hedge fund?

      But can you stay solvent longer the market remains irrational?

      1. Dan 55 Silver badge

        Re: Would you pay $100 to screw a hedge fund?

        Why is it irrational? The invisible hand of the market has spoken. It does not want GameStop to get closed down.

        1. Alan Brown Silver badge

          Re: Would you pay $100 to screw a hedge fund?

          " It does not want GameStop to get closed down."

          Gamestop is irrelevant to this exercise. The object of the redditers is to burn down the hedge funds and Gamestop happens to be the convenient way to do so

          The really fun part would be if Gamestop's original share owners were the major purchasers of the borrowed shares the hedges were throwing into the market, knowing that they'll have to pay higher figures to get them back. It's one way of burning them down and owning the carcass

    2. Adelio Silver badge

      Re: Would you pay $100 to screw a hedge fund?

      T.B.H i have never felt truly happy with the concept of shorting, it just seems so disgusting

      1. lglethal Silver badge

        Re: Would you pay $100 to screw a hedge fund?

        Agreed. I've never been able to understand why it's legal since it seems like it massively encourages illegal or only semi legal activities on the part of the person doing the shorting. If you're taking a million dollar bet (which is basically what you're doing) then of course you're going to try to influence the outcome if you can.

        Having chatted to a stockbroker once in a bar, he couldn't actually come up with a rational reason for allowing it other than that it made him a ton of money.

        Ban shorting and the stock market would be a much nicer place.

        1. FILE_ID.DIZ

          Re: Would you pay $100 to screw a hedge fund?

          Ban shorting and the stock market would be a much nicer place.

          The market will simply route around that inefficiency, much like the Internet is able to route around outages (sometimes).

          This is why we also have futures and options markets.

        2. Greybearded old scrote Silver badge
          Devil

          Re: Would you pay $100 to screw a hedge fund?

          It's legal because the people doing it are wealthy and donors, sorry friends (err, colleagues?*) of those in power. They can buy the laws they want.

          * Is there a way to describe that which doesn't sound as utterly corrupt as I believe it to be?

          1. Loyal Commenter Silver badge

            Re: Would you pay $100 to screw a hedge fund?

            I have to say, seeing these people get burned fills me with delight. Let's hope the stock price remains high until those short options expire (does anyone know when this is?) and the Redditors don't bottle it and cash out first.

        3. DS999 Silver badge

          Re: Would you pay $100 to screw a hedge fund?

          How does shorting encourage illegality more than owning the stock? One way and bad actors will spread false rumors trying to hurt the value of the stock. The other way and bad actors will spread rumors trying to pump up the value of a stock.

          It only SEEMS like crimes are more common around shorting, because of how few people are willing to short stocks. If you assume 1% of people in the stock market are "bad actors" willing to violate the law in order to make more money, then you only see 1% of people are "pump and dumpers".

          But since only a small percentage of the total are willing to short, then a large percentage of the shorters will be "bad actors" who do the opposite of pump and dump. If say 5% of all stock traders are willing to short stocks, that would mean 20% of the shorters will be bad actors! You would see the same thing if you looked at any other subset of stock traders, such as options traders. If 10% are willing to trade options then 10% of them will be bad actors...

      2. First Light Silver badge

        Re: Would you pay $100 to screw a hedge fund?

        Agreed. Except, that it can act as a pressure on companies to get and/or keep their act together instead of faffing around. Short seller Chanos saw red flags in Enron's filings that no one else was bothering to pay attention to. Hence he made a killing.

        When regulatory organizations have too cosy a relationship to the companies they are regulating, you can argue this is one way to restore balance. It's far from ideal, but if the regulators are incapable of doing, or not permitted to do, their jobs, or there is continued fraud, then the short sellers' investigations can sometimes be the only check scary enough to affect the Board & Executive decisions.

        1. Dave 126 Silver badge

          Re: Would you pay $100 to screw a hedge fund?

          > It's far from ideal, but if the regulators are incapable of doing, or not permitted to do, their jobs, or there is continued fraud...

          The excellent 'Against The Rules with Micheal Lewis' podcast series is all about the different ways that regulators and referees can become undermined, toothless, under-resouced or captured.

    3. John Brown (no body) Silver badge

      Re: Would you pay $100 to screw a hedge fund?

      "The professional shorters have long view themselves as hunters of the weak, it's an ironic twist that they find they are no longer at the top of the food chain."

      Yes, even the King of the Jungle can be brought down by a large enough pack of Hyenas :-)

    4. OldSod

      Re: Would you pay $100 to screw a hedge fund?

      Sounds something like a Distributed Denial of Service attack; leverage a large number of low bandwidth hosts (low $$ purchasers) to attach a high bandwidth host (high $$ hedge fund).

  6. SecretSonOfHG

    You forgot to explain a crucial point about options

    Is that the number of shares involved in an option are not limited by the number of shares that ha company has. That is, the total sum of call and put options people bet on (yes, that's what all this is really, betting) can total more than the actual number of shares issued by a company. This makes for an interesting snowball effect that usually goes under the radar unless something like this happens, and shows that future option trading is more like gambling than anything else.

    1. Zolko Bronze badge
      Mushroom

      Re: You forgot to explain a crucial point about options

      Exactly. And I've read somewhere else that in this case the short-selling covered 140% of the available stock, therefore:

      This is really bad news for the amateur investors for two reasons. For one, literally no one will buy their stocks

      not only are those scrip-kiddies sure that the hedge-fund will have to buy the shares at whatever price, but that that price will even increase when the puts will need to find 140% shares in the 100% available. All the redditers need to do is hold long enough, and they're sure to make a huge win AND will see a hedge-fund burn.

      Unless, of course ... a new legislation is passed to save Wall-Street and screw the rest of the people. But then, the overrunning of the Capitol will look like a boy-scout picnic as compared to what will happen in New York. But if nothing is done, and since all those crooks hold each other by the barb, when 1 hedge-fund collapses, it might take the entire house of cards with it.

    2. diodesign (Written by Reg staff) Silver badge

      Re: You forgot to explain a crucial point about options

      We took out the stuff about the options and futures -- and instead highlighted the short squeeze aspect. GME was heavily shorted, to somewhere around 140%, leaving the hedges particularly vulnerable.

      C.

  7. Alan J. Wylie
  8. Alan J. Wylie

    I wonder whether someone will make a film about it?

    Previously: Trading Places

    1. TimMaher Silver badge
      Pint

      Re: I wonder whether someone will make a film about it?

      Beat me to it @Alan.

      Have a beer.———->

  9. deadlockvictim Silver badge

    Casino metaphor

    If the stock market is a casino, then who is the House? Governments? Stock Exchanges? Goldman Sachs, Blackrock & friends? All? None?

    The answer, as always, is surely 'it depends'.

    Or is the stockmarket not really a casino?

    1. Missing Semicolon Silver badge

      Re: Casino metaphor

      Goldman Sachs. Like always.

    2. Loyal Commenter Silver badge

      Re: Casino metaphor

      The brokers, who make a percentage on each trade. They don't care whether the person selling makes a profit or a loss.

    3. Zolko Bronze badge

      Re: Casino metaphor

      The FED is the House.

      Actually, it's worse than this: it's a casino, but a casino where the clients cannot loose, because if they do the casino is bankrupt (that's the meaning of "Too Big To Fail") so the House pumps money to the clients, always.

      Except that these redditer have gate-crashed the party, legally, and these new clients don't follow the well written script. Because these new clients don't get the easy money from the House, they are actually playing by the real rules, not the crooked ones played by the House.

    4. Anonymous Coward
      Anonymous Coward

      Re: Casino metaphor

      > Or is the stockmarket not really a casino?

      It seems like it attracts people with the same gambler's mindset. The missus and I used to have our Saturday breakfasts at a little restaurant in a Chicago North Shore suburb. Many of the other customers were people I recognized from the daily commuter train trips into the city as people working as traders at the CME and CBOE. Jesus, those people bet on everything -- and I mean everything -- while they were waiting for their breakfast to arrive.

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