Shock. Horror. Gasp. World markets reel from the news that Wall Street stocks are being manipulated. Excuse me for a minute while I pick myself up off the floor from laughing too hard.
That’s the first reaction to this week’s bizarre GameStop story, whereby an army of day-trading nerds used people power to drive up the share price of the ailing video game shop. They’ve done similar coordinated plays on Blackberry and retailer Macy’s.
In short (pardon the pun), they’ve taken on the Masters of the Universe and managed to beat them at their own game.
And it is a game to many. The main avenue of angst behind the GameStop coup was an online forum on platform Reddit known as r/WallStreetBets.
Of course, it’s not a game when their efforts forced a US$2.8 billion bailout for Melvin Capital. Boo hoo. Rapacious hedge fund gets its comeuppance.
Even harder to sympathise when the targets of these online traders have been the short sellers — a practice which has always been dubious.
“What’s wrong with betting on a stock price going down if you can bet on it going up?” they will argue to defend themselves.
Except we have seen the consequences this week of what happens when it goes wrong. Not to mention short selling can and has led to increasing market manipulation and extortion in recent years. Even the mafia has seen the merits of the practice, according to US reports.
It’s not called “short and distort” for nothing.
And if it’s such a fine thing, one should remember that at the height of the 2008 market crash, Macquarie Bank was one of those looking decidedly shaky until the government kindly helped with a quick ban on short selling.
Then there’s the whole crocodile tears of the broking fraternity that these young nobodies on social media might be colluding together which would never ever happen among professionals who will swear there is no such thing as insider trading.
Yes, plenty of things can still surprise me after four decades of financial journalism — but the fact that markets are often one big casino is not one of them.
Nor should it be a surprise that sometimes they can appear as poorly supervised as the casino regulator monitoring the Crown group.
Leaving aside the fact our corporate watchdog currently has no actual chief, it does actually try, and credit must be given for their prescience on this whole trend of young day traders piling into the market during 2020.
Back in September I wrote about two reports from ASIC on the retail trading trends since the beginning of the pandemic which showed that while real casinos were closed, plenty of new participants were piling into the stockmarket for the first time.
ASIC’s senior executive leader for markets Calissa Aldridge told me “we are seeing continued high volume, speculation and younger participants”. They were favouring high risk stocks like Afterpay and ZipCo, sending share prices soaring.
This week we’ve seen what that trend has meant for Wall Street.
In the end though, the new manipulators could actually be the ones being had. After all, they were being gleefully encouraged by none other than billionaire Elon Musk, who himself has been banned for manipulating his own share price.
He ain’t no Robin Hood.
Short sellers may create and advertise their “analysis” of the target shares to create adverse publicity and help drive the price down. It is a bit rich they complain about tactics to drive the market price up, especially since it is actual transactions of people buying the shares that cause it.
There are so many angles to this story, it’s just amazing.
The business press going through hoops and rings and together to try to smear the retail investors. The calls for more regulation to stop the. retail investors. The brazen manipulation from brokers to close the market and actually sell the stock without permissions from retail investors to protect the institutional investors. The pressure on platforms (discord in particular) to stop the retail investors from communicating.
It will be very interesting to see how this will develop – will the little man be screwed over again and more fuel be poured on the smoldering fire of civil unrest or will high powered capital be reigned in.
Who always gets screwed over in these situations?
If it’s the big money that will be novel.
When you want to ‘ride the roller coaster’ as someone put it, Ellon Musk rides in on his white rocket ship with his golden fleece dancing in the breeze? He says jump, they reply ‘ok, off which cliff?’. It is not a case of the blind leading the blind. I read what the Age has to say about this issue. I am just actually trying to get my head around it.
I have only watched people ride the roller coaster, I have no desire to queue for a ride. Perhaps I should: The power of collective ‘outsider’ trading? As I get my head around it, it not only is an uphill battle, it seems like a futile one?
The Age described the problem as: The bottom line is that a group of novice and professional “day traders” rose up and started to inflict financial pain on Wall Street titans.
And how did the institution/establishment react to that?
The fear for some on Wall Street is that record low interest rates, an extraordinary run-up in stock prices and the ability for a critical mass of shareholders to work together via an online platform, combined with rage, has created a moment in history where the little guy in the street can take on wealth and power.
However ‘During Thursday trading in the US, many retail investors couldn’t trade certain stocks on various platforms they use but the big investment banks were given a green light.’
I believe Leanne at the Guardian would call this “á shit show”. Janene Parrett clearly thinks so.
“Will high powered capital be reigned in?”
The gathering of thousands of investors outside the New York Stock Exchange in the days before the 1929 stock market crash? It would take more than a village, it always does take might to move big money and big influence away from the insidious ‘reaches’ of everyday people. In this case ‘retail investors’. That is who big money will be up against. As they are now on high alert, ready to react in the market to keep the little ‘man’s’ backs pinned on the matt, their feet kicking and hands and arms flailing in the air. In the end I am sure they will regret riding the roller coaster.
*You have to be this tall to ride the roller coaster.
We have all seen those ‘signs’ as we wait in the queue. It is written in black and white: accompanied usually by the image of a clown?
I appreciate they (At Gamestop) tried to be collectively tall enough.
The fact that you have to be tall enough to ride has no regard for your own or retail investor safety. Those at the top are just insuring themselves against akin ‘litigation’, or as they feel may to be the case; against an insurgence of small ‘outsider’ money they they will have to spend their money having to constantly combat, to counter the moves of small money to manipulative the market. The big market will just be more steadfast and alert to make those counter moves to protect their financial interests. It is an exercise in futility for a ‘retail’ investor.
It will be very interesting to see how this will develop
Indeed!
It’s certainly fun to join in the schadenfreude as hedge funds and the like get badly burned because a bunch of amateurs noticed how vulnerable their position was on some stocks.
On the other hand almost all the reporting of the huge profits made by the individuals who joined together to send the price of Gamestop through the roof has missed a critical detail. Any profit is entirely notional before the stock is sold. While these investors still hold the stock they bought, they have not made a cent. How this finishes up remains to be seen.
And what some of the commentariat are missing is that many of the people involved in this are doing it for recreational purposes, i.e. they don’t care that they may or may not make money from buying “penny stocks”. They are paying their money to “ride the roller coaster”.
Absolutely kiwi. And second is that many have sold out, and pulled billions out of hedge funds. Halle-effin-lujah
The wealthy have been manipulating the market for years, much like walking the reels on the old pokies, as always it’s the suckers that lose and we all know how easy it is to fool a sucker, just look at the current opinion polls.
I’ve a vague recollection that any money the clubs lost was more than compensated by the cardiganed battalions of Little Aussie Battlers who’d convinced themselves they had mastered the technique of walking the reels. Around the time of the Fine Cotton affair they would cheerfully admit that races were rigged but claim they had the mental acumen to work out which ones were.
This time around they’ll lose their shirt but, as they always do, keep their cardigan.
This article has missed the key point.
Reddit became involved when someone realised that Gamestop was shorted 140% of shares issued. The Hedge funds doubled down when caught out and shirted further. The shorted shares have to be paid back eventually. The pension funds that lent the shares for shorting need to be punished and the hedge funds have their just desserts
Yes. It’s not just the hedge fund’s positions that are short, so are their memories. It as though they had never heard of the Volkswagen short squeeze organised by Porsche in 2008 that briefly made VW the most valuable company in the world. Porsche made US$10 billion. Hedge funds lost US$30 billion. In November 2015 similar tactics sent the price of KaloBios (KBIO), an insolvent basket-case pharma company, up 100-fold very briefly, and again short sellers got burned.
Adding to this, for many on r/wallstreetbets holding the position on gamestock is very personal. Gamestock was in surprisingly good condition for a company being shorted like it was and was being unfairly and irresponsibly targeted by the hedge funds to make a quick buck. Most of those on wallstreetbets aren’t “playing” or “betting”. They are holding the positions to make the hedge funds accountable for their behaviour, something no government regulator is willing to do, especially with the memories of 08 and it’s fallout on the little guy fresh in everyone’s memory.
Absolutely Chris. When th regulator goes missing …
Not sure if the pension fund members should be punished for the sins committed by their managers, B. Clearly too many pension funds are loaded up disproportionately with equities and therefore over exposed to inevitable market rigging/ manipulation and business cycle induced market crashes. Apparently on top of this inherent, high risk , instability of equity markets, even blue chip shares bought at current stratospheric prices are loss making because the dividends payed are too small. Bit like buying a $5m house with cash and only receiving a rental income of $50,000 a year.
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PS correction “… 5$m house in an increasingly bushfire prone area…”
Gary, super funds should not be directing any funds through hedge funds, and should not be loaning shares for short selling.
Agree, DB – it’s not about the members it’s the pension fund managers. Most members are treated like mushrooms, and it’s quite often too late when incompetent managers have abused their fiduciary duties.