The GameStop Turducken of Scammery....

This is both amazingly amusing and also remarkably dangerous. So lets go through the layers.

#1: The “Short squeeze”. A large number of people bet that GameStop would go to 0 because, well, it really is pretty worthless. I think the only value GameStop offers these days is buying Waifu pillows with cash, the console makers have done lots to kill the used game market.

In a short squeeze, those who bet the stock will go down find the stock going up, and in order to either stop their losses or deal with calls that they need more collateral have to buy the stock too. This is the stated goal of the Reddit mob. Layer 1.

But a short squeeze is temporary. You cause a big loss to the shorts and then you have to get out yourself because, really, GameStop is practically worthless! In the long run the shorts are right, its just “the market can stay irrational longer than you can stay solvent”

So enter layer 2 of the scam, this one targeting the Reddit mob itself. “Hold on. Don’t sell”. Because the stock is going to collapse (eventually), those who organized the mob now sell and the parts that don’t are left holding the bag. Classic pump & dump.

This is why RobinHood had to basically stop people from buying. They are in an impossible position here, because otherwise they are knowingly allowing people to buy into a known pump & dump scam. It isn’t about protecting hedge funds, it is protecting their “customers”

But “customers” is in scare quotes. “Victims” is more like it. Because now we enter the final layer of the scam. In it, RobinHood and all of wall street are running a casino, not a market. You can’t run an online poker game, but you can do it as a stock market.

Active trading of ALL forms is designed to lose money. The only optimal strategy is the “Log optimal portfolio”. AKA mutual funds & index funds, and rarely (if ever) trading. This exists all the way up and down the stack. Small, large, it doesn’t matter...

EG, if Trump had taken his inheritance and put it in index funds he’d be an actual billionaire and not a multi-bankrupt clown living on credit. Hedge funds are a scam on the very big & very rich, where the hedge fund captures the benefits (2-and-20) with strategies

That 90% of the time look brilliant but on a long enough time horizon can give an expectation of 0. (Google “Capital Decimation Partners” for an example. I suspect most hedge funds are running such strategies without even knowing it).

And RobinHood is extending that scam onto the very small. Absent inside information (such as being a Senator), frequent trading costs you on each trade, which makes the expectation deeply negative. Yet RobinHood only makes money when you do trade.

So layer 3 of the scam is the entire notion of active trading. RobinHood turned the stock market into a casino for gamblers, they make money when the gamblers trade. Hedge funds are similar but with a twist: they skim a share of the profits but shove the loss on their investors

So in the end we have a Turducken of scammery. Layer 1 is Reddit scamming the short sellers. Layer 2 is Reddit scamming Reddit. And layer 3 is Wall Street scamming everybody.

Just say no to all of it: put your long term savings in index funds and ignore the short term market.