6 ms·

WSB is an "extreme" example. I think it happens ALL the time in very common places (including HN). Some types of market manipulation are truly a bad thing. I'm

WSB is an "extreme" example. I think it happens ALL the time in very common places (including HN). Some types of market manipulation are truly a bad thing. I'm sure someone engaging in some of the more egregious cases could rationalize their behavior as "it's just guerilla marketing, everybody does that". That's not wholly wrong -- the intent is really more important than the action in these cases. Were people buying GME because they legit thought the fundamentals of the company were good now or were they riding a bubble? I'm already too far down the river though, because now we could argue about whether there is something fundamentally wrong about speculating on pricing alone.

IgorPartola 6y ago
From what I can tell, currently WSB is riding the bubble. Or rather their thesis is that a short squeeze will happen. In some conversations they try to justify that the company will actually turn itself around using the capital raised from selling the new generation of consoles, but quickly the conversation turns to the prospect of the squeeze. In other words, most people who are buying GME from WSB advice aren't there to hold the stock long term because they think it'll grow 2-5% per year because of the company doing well. They are in it to overnight have it grow by 10,000% or some such because "when the squeeze happens every single investor can name their price for the shares they own because hedge funds will need to buy every share available". I am not a financial expert, but to me this seems extremely bogus. I am not certain where exactly the math is wrong, but it seems like a hedge fund can just buy the shares from the people they borrowed from, and those people will be willing to sell because the price had risen a bit. WSB on the other hand has no strategy beyond "a squeeze will happen". There is no agreed up on price at which to sell, which will lead to some people going right past, say, $10k/share price point holding out for $100k/share, and then the price falling back down to earth while they are left holding the bag, having bought in at $300/share or whatever.
- choeger 6y ago
  > but it seems like a hedge fund can just buy the shares from the people they borrowed from That's not how it works. A short position is basically the contract to deliver a stock regardless of its price at that point, so neither the short holder nor the party that gave them the stock in the first place actually hold that stock anymore. Now I don't know this exactly and I am not an expert, but I wouldn't be surprised if short positions can exist absolutely independently from the existence of any actual stock. In principle, there can be agreements that only deal with the price of the stock. And something that can exist in principle probably also exists in the financial markets. So whether or not an actual short squeeze will occur depends on the technicalities of the short positions.
  - IgorPartola 6y ago
    The crux of the situation I don't understand is (a) where does the claim that hedge funds would have to buy all the available shares on the market comes from? and (b) what exactly happens if [a] is true, but I'm not selling my 1 share that they need to return to you the share they borrowed? In this case, do they pay a penalty, does they go out of business and you don't get your share back, or does the whole system collapse on itself?
    - choeger 6y ago
      a) (hopefully) comes from an analysis of standardized and published contracts ("short positions"). Presumably, a hedge fund has to publicly announce which such positions they hold. So in theory, you should be able to dog through the data and sum up all the positions. If people on wsb did this, if it even works that way, I don't know. Regarding b) I presume some clauses of said contracts are going to be used. Probably there is a part about some additional payments. Alternatively, the short positions could be extended (for a hefty price, I assume) or in the worst case courts and lawyers will get involved. Interestingly, some of the lenders don't even own the stock they lend. Sometimes they manage other people's stock. When these owners notice that they cannot sell their stock during a short squeeze, then things will get interesting.
- Supermancho 6y ago
  When you know CompanyA fires a bunch of people, the price goes up because of the perception that the company will have more capital to leverage. Knowing that an event has happened or expect the consequence of an event (CompanyA gets sued for patent violation) to have an effect on the company, changes the stock price through participation. GME is an interesting case where the event is perceived to be a complex situation with an outcome that is believed to be good for participants, increasing participation and driving the price up. I don't see how it's special, other than someone with a lot of money made a plan that motivated participants to believe in that plan, then play against it.
  - IgorPartola 6y ago
    The difference is that the value of GME isn't in any way connected to its fundamentals here. It is only valuable because of the (supposed) overshorting. Basically, the way I understand it is that everyone is playing poker with tin poker chips. By themselves the poker chips are nearly worthless (tin is cheap), but because suddenly someone owes someone else a whole lot of these chips and there are real green dollars attached to that IOW, the tin chips suddenly are worth a lot. Once that debt is repaid, they become worth only what the tin is worth. In other words, when the guy that started it all (Roaring Kitty/DFV) testified before congress that the only reason he was buying GME was because he fundamentally thought they were going to be a profitable corporation, that was bullshit. He talks a whole lot about short squeezing the stock elsewhere, so his denial that that's why he did it seems to me to be a lie. On a personal level, he seems shady as hell and the whole thing seems like a setup for others to be left holding the bag.

IgorPartola 6y ago

From what I can tell, currently WSB is riding the bubble. Or rather their thesis is that a short squeeze will happen. In some conversations they try to justify that the company will actually turn itself around using the capital raised from selling the new generation of consoles, but quickly the conversation turns to the prospect of the squeeze. In other words, most people who are buying GME from WSB advice aren't there to hold the stock long term because they think it'll grow 2-5% per year because of the company doing well. They are in it to overnight have it grow by 10,000% or some such because "when the squeeze happens every single investor can name their price for the shares they own because hedge funds will need to buy every share available". I am not a financial expert, but to me this seems extremely bogus. I am not certain where exactly the math is wrong, but it seems like a hedge fund can just buy the shares from the people they borrowed from, and those people will be willing to sell because the price had risen a bit. WSB on the other hand has no strategy beyond "a squeeze will happen". There is no agreed up on price at which to sell, which will lead to some people going right past, say, $10k/share price point holding out for $100k/share, and then the price falling back down to earth while they are left holding the bag, having bought in at $300/share or whatever.

choeger 6y ago
> but it seems like a hedge fund can just buy the shares from the people they borrowed from That's not how it works. A short position is basically the contract to deliver a stock regardless of its price at that point, so neither the short holder nor the party that gave them the stock in the first place actually hold that stock anymore. Now I don't know this exactly and I am not an expert, but I wouldn't be surprised if short positions can exist absolutely independently from the existence of any actual stock. In principle, there can be agreements that only deal with the price of the stock. And something that can exist in principle probably also exists in the financial markets. So whether or not an actual short squeeze will occur depends on the technicalities of the short positions.
- IgorPartola 6y ago
  The crux of the situation I don't understand is (a) where does the claim that hedge funds would have to buy all the available shares on the market comes from? and (b) what exactly happens if [a] is true, but I'm not selling my 1 share that they need to return to you the share they borrowed? In this case, do they pay a penalty, does they go out of business and you don't get your share back, or does the whole system collapse on itself?
  - choeger 6y ago
    a) (hopefully) comes from an analysis of standardized and published contracts ("short positions"). Presumably, a hedge fund has to publicly announce which such positions they hold. So in theory, you should be able to dog through the data and sum up all the positions. If people on wsb did this, if it even works that way, I don't know. Regarding b) I presume some clauses of said contracts are going to be used. Probably there is a part about some additional payments. Alternatively, the short positions could be extended (for a hefty price, I assume) or in the worst case courts and lawyers will get involved. Interestingly, some of the lenders don't even own the stock they lend. Sometimes they manage other people's stock. When these owners notice that they cannot sell their stock during a short squeeze, then things will get interesting.
Supermancho 6y ago
When you know CompanyA fires a bunch of people, the price goes up because of the perception that the company will have more capital to leverage. Knowing that an event has happened or expect the consequence of an event (CompanyA gets sued for patent violation) to have an effect on the company, changes the stock price through participation. GME is an interesting case where the event is perceived to be a complex situation with an outcome that is believed to be good for participants, increasing participation and driving the price up. I don't see how it's special, other than someone with a lot of money made a plan that motivated participants to believe in that plan, then play against it.
- IgorPartola 6y ago
  The difference is that the value of GME isn't in any way connected to its fundamentals here. It is only valuable because of the (supposed) overshorting. Basically, the way I understand it is that everyone is playing poker with tin poker chips. By themselves the poker chips are nearly worthless (tin is cheap), but because suddenly someone owes someone else a whole lot of these chips and there are real green dollars attached to that IOW, the tin chips suddenly are worth a lot. Once that debt is repaid, they become worth only what the tin is worth. In other words, when the guy that started it all (Roaring Kitty/DFV) testified before congress that the only reason he was buying GME was because he fundamentally thought they were going to be a profitable corporation, that was bullshit. He talks a whole lot about short squeezing the stock elsewhere, so his denial that that's why he did it seems to me to be a lie. On a personal level, he seems shady as hell and the whole thing seems like a setup for others to be left holding the bag.