Investment Thread

[PackMan97]

https://markets.businessinsider.com/...1-1-1030015292

You can play for free all you want until a hedge fund loses billions and then it's time to shut it down.

[acdevil]

Don’t hedge fund managers do something similar every day?

Yes, but (in theory) hedge fund managers understand the markets and the risks. I doubt a majority of the current people buying GME do.

And let’s also not forget - there’s a difference between shorting a stock and shorting a stock and actively trying to push it into bankruptcy. There are a bunch of good and valid reasons to short stocks that don’t “deserve” to be punished.

Also, I see a lot of anger about Melvin being bailed out, but I think there is a lot of confusion. The government is not bailing out this hedge fund. Other hedge funds/sports owners are (for the time being).

This reminds me a lot of the 08 crash in that there was such anger against “bankers”, but there wasn’t any effort to separate those that had something to do with the housing bubble and crash and those that worked in completely different areas that weren’t doing anything untoward or putting the financial system at risk.

To someone else’s point, I’m sure there are some that are in it to punish hedge funds. But I’m pretty certain that there are probably a ton of people that have bought in this week that heard about this great way to make money on Facebook. (I asked my wife this morning to check to make sure my father in law isn’t one of them as he seems prone to this type of issue). Those are the ones that concern me - they don’t understand the risk and probably can least afford to lose the money.

[Acymetric]

Also, I see a lot of anger about Melvin being bailed out, but I think there is a lot of confusion. The government is not bailing out this hedge fund. Other hedge funds/sports owners are (for the time being).

The anger I've seen is about the potential for a government bailout if things get worse for Melvin, which is (to my understanding) absolutely on the table.

[acdevil]

The anger I've seen is about the potential for a government bailout if things get worse for Melvin, which is (to my understanding) absolutely on the table.

I’d bet against that happening unless it becomes more systemic.

And to Packman’s point, I’m not surprised some exchanges are stopping trading. IANAL (but I work in finance (not surprisingly)), the situation becomes more and more of a pump and dump every day. I wouldn’t be surprised if the trading companies would have legal liability down the road if they let trading go on unimpeded.

[acdevil]

Looks like the end is starting for the GME experience.

[PackMan97]

Looks like the end is starting for the GME experience.

Unsurprisingly, no one wants to catch a falling knife and on some platforms they couldn't if they wanted to! That's a scary thing to think about.

[duke79]

The anger I've seen is about the potential for a government bailout if things get worse for Melvin, which is (to my understanding) absolutely on the table.

I’d bet against that happening unless it becomes more systemic.

And to Packman’s point, I’m not surprised some exchanges are stopping trading. IANAL (but I work in finance (not surprisingly)), the situation becomes more and more of a pump and dump every day. I wouldn’t be surprised if the trading companies would have legal liability down the road if they let trading go on unimpeded.

I haven't read anything about a potential government bail-out of the various hedge funds, including Melvin Capital. Melvin Capital (and perhaps some other hedge funds) have received infusions of capital from other hedge funds (Steve Cohen-Point 72 Capital - and the new owner of the NY Mets and Ken Griffin - multi-billionaire hedge fund "guy" and investment firm owner, because Melvin Capital has apparently lost a ton of money on its GME shorts (and perhaps other shorts too). I think the real issue is how leveraged Melvin Capital is (i.e., how much money they have borrowed from banks to invest along side their own and investor capital - many hedge funds use leverage to boost their potential gains) and whether or not their losses on the short positions put those loans from banks at risk (and thus posing a systematic risk to the entire banking system). Something similar happened in 1998 when a CT-based hedge fund - Long-Term Capital Management - suffered huge losses when a trading strategy suddenly went awry and the lost vast amounts of money very rapidly. The firm had, I believe, a 28 to 1 leverage ratio (i.e, if they had $1 billion of their own and investor capital in the firm, they then borrowed $28 billion from outside banks to invest). Their losses were so huge that they could not re-pay the bank the full amount of their loans and, for a short time, it was a very scary situation (and not completely well publicized) for the entire international banking system.

See link below:

https://en.wikipedia.org/wiki/Long-T...tal_Management

Let's hope this is not the case here but it does raise the issues of better and smarter regulation of the securities markets and the participants, including hedge funds and other institutional investors (should we allow 150% of a stock's outstanding float to be shorted?) AND some of the more lunatic fringe element of the "day traders" that have popped up on Reddit and Robin Hood and who are causing huge dislocations to the normal functions of the financial markets.

[Mtn.Devil.91.92.01.10.15]

The more I read about the GME stock, the less it sounds like a forum mob run on the stock, and the more it sounds like a pretty shrewd Reddit user who leveraged a small amount of knowledge with a large amount of frustration to really put some of the pros in an extremely tight situation.

From the outside, it is rather amusing to see the Big Boys get their jimmies rustled.

[CrazyNotCrazie]

I haven't read anything about a potential government bail-out of the various hedge funds, including Melvin Capital. Melvin Capital (and perhaps some other hedge funds) have received infusions of capital from other hedge funds (Steve Cohen-Point 72 Capital - and the new owner of the NY Mets and Ken Griffin - multi-billionaire hedge fund "guy" and investment firm owner, because Melvin Capital has apparently lost a ton of money on its GME shorts (and perhaps other shorts too). I think the real issue is how leveraged Melvin Capital is (i.e., how much money they have borrowed from banks to invest along side their own and investor capital - many hedge funds use leverage to boost their potential gains) and whether or not their losses on the short positions put those loans from banks at risk (and thus posing a systematic risk to the entire banking system). Something similar happened in 1998 when a CT-based hedge fund - Long-Term Capital Management - suffered huge losses when a trading strategy suddenly went awry and the lost vast amounts of money very rapidly. The firm had, I believe, a 28 to 1 leverage ratio (i.e, if they had $1 billion of their own and investor capital in the firm, they then borrowed $28 billion from outside banks to invest). Their losses were so huge that they could not re-pay the bank the full amount of their loans and, for a short time, it was a very scary situation (and not completely well publicized) for the entire international banking system.

See link below:

https://en.wikipedia.org/wiki/Long-T...tal_Management

Let's hope this is not the case here but it does raise the issues of better and smarter regulation of the securities markets and the participants, including hedge funds and other institutional investors (should we allow 150% of a stock's outstanding float to be shorted?) AND some of the more lunatic fringe element of the "day traders" that have popped up on Reddit and Robin Hood and who are causing huge dislocations to the normal functions of the financial markets.

The regulators have really clamped down on the banks since 2008. Sure, a major black swan event could easily turn things sideways, but the banks are a lot better prepared for that than they were. The system is far from perfect, but it is better than it was. Full disclosure - I work at a large bank in a risk-related function. I know we have a large and constantly growing team that monitors our counterparty exposure to hedge funds, but I am not involved in any of what they do so cannot speak specifically about their processes. I was not in this type of role in 2008.

[Mtn.Devil.91.92.01.10.15]

The more I read about the GME stock, the less it sounds like a forum mob run on the stock, and the more it sounds like a pretty shrewd Reddit user who leveraged a small amount of knowledge with a large amount of frustration to really put some of the pros in an extremely tight situation.

From the outside, it is rather amusing to see the Big Boys get their jimmies rustled.

Additional drama today - Robinhood and a few other apps that allow amateur traders (like myself) to access stocks easily have locked their users out of the GME and AMC stocks. I understand the thinking behind it, but it really undermines their branding and is ticking some people off to a large degree.

[bundabergdevil]

GME’s day today has been nuggin futs.

[duke79]

Additional drama today - Robinhood and a few other apps that allow amateur traders (like myself) to access stocks easily have locked their users out of the GME and AMC stocks. I understand the thinking behind it, but it really undermines their branding and is ticking some people off to a large degree.

Yea, it's a good question whether or not the brokerage firms CAN or SHOULD ban their customers from buying (or selling) certain stocks (although in this case it may be good for the overall markets).

Just be glad you were not one of the fools who bought GME pre-market today at over $500/share!

[El_Diablo]

Additional drama today - Robinhood and a few other apps that allow amateur traders (like myself) to access stocks easily have locked their users out of the GME and AMC stocks. I understand the thinking behind it, but it really undermines their branding and is ticking some people off to a large degree.

Yeah, I don't see how this ends well for Robinhood.

[duke79]

The regulators have really clamped down on the banks since 2008. Sure, a major black swan event could easily turn things sideways, but the banks are a lot better prepared for that than they were. The system is far from perfect, but it is better than it was. Full disclosure - I work at a large bank in a risk-related function. I know we have a large and constantly growing team that monitors our counterparty exposure to hedge funds, but I am not involved in any of what they do so cannot speak specifically about their processes. I was not in this type of role in 2008.

Thanks for this insight! Yea, let's hope that both the banks AND the bank regulators have learned their lessons from 2007-2008 and situations like Long-Term Capital Management. Needless to say, there IS risk in lending money (as in it won't get paid back).

[YmoBeThere]

I thinking of shorting GME. I think it's a bit overbought and wanted to throw this out to the group.

#whatcouldgowrong?

As you note, a fool's errand but the key to doing it now would be to keep the position size right.

[acdevil]

Yea, it's a good question whether or not the brokerage firms CAN or SHOULD ban their customers from buying (or selling) certain stocks (although in this case it may be good for the overall markets).

Just be glad you were not one of the fools who bought GME pre-market today at over $500/share!

Tough call. As I said earlier, I think we had gotten to the point where there were a lot of followers trying to come in and ride the wave without understanding the risk. From RH’s perspective, I wonder if they were spooked by their potential liability if they let that happen.

[kshepinthehouse]

The more I read about the GME stock, the less it sounds like a forum mob run on the stock, and the more it sounds like a pretty shrewd Reddit user who leveraged a small amount of knowledge with a large amount of frustration to really put some of the pros in an extremely tight situation.

From the outside, it is rather amusing to see the Big Boys get their jimmies rustled.

I agree and don’t see what they did wrong.

[MChambers]

https://markets.businessinsider.com/...1-1-1030015292

You can play for free all you want until a hedge fund loses billions and then it's time to shut it down.

SEC should sue Robinhood for having a misleading name! In all seriousness, I wonder if this will cause a reexamination of the practice of payment for order flow.

[Mtn.Devil.91.92.01.10.15]

SEC should sue Robinhood for having a misleading name! In all seriousness, I wonder if this will cause a reexamination of the practice of payment for order flow.

Definitely hurts the branding of "steal from the rich, give to the poor."

To my understanding, nothing illegal was done, though I am admittedly stupid about such things.

[acdevil]

I agree and don’t see what they did wrong.

What if it turned out that the Reddit moderators were just principals of another hedge fund? (I’m not saying that’s the case). Would you still say nothing done was wrong?

And if the answer is nothing was done wrong, I guarantee you that one will try it in the future.