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1/n This thread will address some of the GME saga talking points that are currently being oversimplified. Note that, other than being friendly with ppl at Melvin Capital, I do not have a dog in this fight. Rather, these are general observations. #stocks #markets #OOTT #trading
/2 1. “$GME share price has become wildly divorced from fundamentals, ergo this is a scheme.”
From time to time, asset prices will diverge from their underlying values. Short squeezes are, ipso facto, such an instance. The fact that GameStop stock is not trading in-line w/
From time to time, asset prices will diverge from their underlying values. Short squeezes are, ipso facto, such an instance. The fact that GameStop stock is not trading in-line w/
/3 fundamentals does not make the current fervor a “scheme.” It makes it an historic short-squeeze. Similarly, when #Oil prices went negative last spring, it was not a scheme; rather, inexperienced traders piled into products they did not understand, & suddenly realized they
/4 could not accept physical delivery, forcing them to dump expiring futures contracts at negative prices. Here, the fact that “sophisticated” hedge funds made a gross miscalculation of risk, as opposed to naive retail $, is being cited as evidence that a “greedy” mob is somehow
/5 engaged in untoward behavior. This necessarily begs the question: why is it “greedy” for individual investors (*or other hedge funds, for that matter) to profit from the miscalculation of those who now cannot cover their Shorts of the “meme” stocks? Do we honestly believe that
/6 such “pile-on” behavior is new or unique? Hedge funds often look for weakness in their competitors’ Books (see: 2008; Amaranth, etc.) Why is it okay for funds to take advantage of someone else’s distress but not for retail? That’s a double-standard.
/7 2. “This madness will ‘end badly’ for many, so we should protect investors from themselves.”
There is certainly truth to this: many investors can, will, & have lost $ on the $GME trade. That’s not academic. But where do you draw the line? What about crypto? What about O&G
There is certainly truth to this: many investors can, will, & have lost $ on the $GME trade. That’s not academic. But where do you draw the line? What about crypto? What about O&G
/8 stocks? What about EV SPACs with no revenue? What about cab drivers flipping condos in 2007? What about trucks that roll down hills? There are many, many ways for investors—both individual & institutional—to lose money. While investor regulators/protections are of course
/9 needed, in the current dynamic it appears that investors were acting *legally* & leveraging their collective power via #YOLO call-buying & locking up shares at their brokers, both of which tactics greatly accelerated the squeeze. Now, it’s fair to say that these moves
/10 amplified stress on the back-office system (and short-sellers); but is it really accurate to describe such methods as somehow ‘mercenary’ or ‘predatory?’ Beyond that, whether or not a trading-halt was directed from DTCC via increased collateral requirements, as opposed to at
/11 the behest of market-makers, the result is the same: snuffing out buy orders will necessarily result in stock prices falling, which is what happened. It strains credulity to suggest that over-extended market-makers were not aided by this maneuver, as were certain funds
/12 desperate to cover their positions.
Lastly, before I’m accused of populist-pandering, consider this: I do not, have not, & never will bill myself as the People’s Hero. Quite apart from that, I’m 6th-generation extractive industries, fiercely pro-Capitalism & pro-Free Markets
Lastly, before I’m accused of populist-pandering, consider this: I do not, have not, & never will bill myself as the People’s Hero. Quite apart from that, I’m 6th-generation extractive industries, fiercely pro-Capitalism & pro-Free Markets
/13 And it’s precisely because of that that I think we need to tread very carefully at this ‘Market moment’ in how we handle this dynamic.
My solution in the interim is straightforward: retail brokerages should increase transaction costs for certain high-margin requirement
My solution in the interim is straightforward: retail brokerages should increase transaction costs for certain high-margin requirement
/14 securities: specifically, by raising commissions on derivatives of meme stocks, you will: 1) decrease purchases of #yolo calls; 2) reduce the likelihood of gamma squeezes for MMs; 3) allow broker-dealers (like Robinhood) to use increased order commissions to help meet their
/15 own increased collateral requirements w/ clearing bodies.
Simply put, this inferno can be extinguished in stages, & the first step is slowing down the orders. Don’t shut down trading; just make it more expensive.
Robinhood was launched on the premise of ‘democratizing’
Simply put, this inferno can be extinguished in stages, & the first step is slowing down the orders. Don’t shut down trading; just make it more expensive.
Robinhood was launched on the premise of ‘democratizing’
