Why Did Reddit Trigger a GameStop Stock Surge?

[kyphysics]

$136.6 now. Zero loss in almost a month is not what I would call "crashing fast". It's still very volatile, you can always pick a timespan where it lost something. But it also keeps gaining in between, so focusing on the first only is producing a misleading picture.

When I posted, it had crashed from ~$240 with an uninspiring Q3 earnings release report. For example, they released revenue figures of $1.3 billion in 2021 Q3, while it was $1.4 billion in 2019 Q3. They are still "underwater" to 2019/pre-pandemic sales, while the stock has exploded from like $4 or whatever. Fundamentally, that is crazy.

(I'd rather own Disney, which is still underwater to 2019 revenue/earnings, while its stock price is higher, but at least has a good growth story/path forward w/ streaming vs. GameStop's dying brick-and-mortar biz.)

Thus, it was the combination of those two things that made me say what I said: crash of price from Nov-Dec. of about ~40% and no signs of recovery/growth in relation to elevated stock price.

You can never count out the Reddit army, but I feel like the fizzle is gone with $GME. If the business continues to suck, the fundamentals could just be too bad for even the meme-stock buyers/short squeezers to continue to prop it up.

A desperate move to try to stay relevant. PC gaming today is virtually all digital (via Steam, for example). Sony/PlayStation and Microsoft/Xbox have been trending in that direction over the last few years, now offering digital only consoles.

I previously proposed they just expand their business to include stock trading and/or investing education. They could change the company name to "GameStonk" and have a new section of their stores that focuses on teaching kids investing principles with a ready-made story of $GME's short squeeze rise in 2021.

Maybe offer a trading app like Robinhood. Have local in-store investing club meetings. Charge a membership/store utilization fee of $5/person/month. etc. etc. GameStop's legacy biz is dead, I feel.

 

[mfb]

When I posted, it had crashed from ~$240 with an uninspiring Q3 earnings release report.

You did exactly what I described in the text you quoted. You looked at the past, picked a high point there, and the concluded that it's crashing.
Where was your post when it reached $240, up from $170 a month before, concluding it's going up? Non-existent.

It's going up and down, with no consistent trend since March last year.

 

[kyphysics]

You did exactly what I described in the text you quoted. You looked at the past, picked a high point there, and the concluded that it's crashing.
Where was your post when it reached $240, up from $170 a month before, concluding it's going up? Non-existent.

It's going up and down, with no consistent trend since March last year.

Because there was still a narrative of Cohen, et. al turning GameStop the company around then.

The fundamentals have started to catch up and crystallize more and more. I understand the point you're making, by the way.

I'm simply saying my $240 mark wasn't as arbitrary as you make it to seem for reasons laid out in my post above. THE NARRATIVE now is that GameStop is not a turn-around company.

 

[kyphysics]

$GME down 14% today. The end is near.

 

[russ_watters]

$GME down 14% today. The end is near.

I've given up trying to predict this. It could ride on at $100 a share right up until the day they sell all the furniture at headquarters and take it off the market.

 

[kyphysics]

I've given up trying to predict this. It could ride on at $100 a share right up until the day they sell all the furniture at headquarters and take it off the market.

Fed tightening will likely test the resolve and finances of the Reddit crowd. QE is getting tapered from $120 billion/month (about $1.5 trillion/year) to $0 by mid-March.

That level of liquidity withdrawal is going to hit asset prices with high valuations, at a bare minimum, if not the entire market. If the Fed then decides to announce rate hikes in March, these high-flying growers and/or no-revenue story/meme stocks will get body-bagged imo. I think at bare minimum, the taper to $0 will keep a lid on any speculative fervor in stocks like $GME. Big institutional players are selling growth and rotating into defensives like health care and consumer staples (some financials too, as higher rates help them).

I cannot imagine any big buyers of $GME (institutions and momentum traders are out of this trade)...maybe other than the Reddit crowd...who are probably losing more and more money and may be out of cash if they keep it up. I don't like to see people hurt, but many DESERVE to be broke the way they buy stonks!

 

[Astronuc]

https://finance.yahoo.com/news/game-stop-needs-to-get-it-together-already-analyst-132745223.html
Well - yeah!

This all started when a bunch of Redditors/Redditers got interested in messing with some short sellers of GME and it kind of took off (kind of an artificial resuscitation). I suspect some individuals took advantage of the situation to make some short term gains.

For the 39-weeks ended Oct. 30, GameStop has posted an operating loss of $201.7 million

US News - 8 Reddit Stocks Trending in January
https://finance.yahoo.com/news/8-top-reddit-stocks-gaining-222025808.html

So, expect some volatility. Fundamentals are still fundamentals.

Will it become a matter of Wall Street, or some on Wall Street, or the financial markets will manipulate stocks through Reddit, or simply take advantage of volatility? Will Redditors inadvertently influence/manipulate stock prices?

 

[stefan r]

Fed tightening will likely test the resolve and finances of the Reddit crowd. ...

I cannot imagine any big buyers of $GME (institutions and momentum traders are out of this trade)...maybe other than the Reddit crowd...who are probably losing more and more money and may be out of cash if they keep it up. I don't like to see people hurt, but many DESERVE to be broke the way they buy stonks!

It does not cost anything to buy and hold. Obviously costs the initial purchase but there is no ongoing cash needed.

The options markets are still moving large quantities of money around GME. Bets have been made on options for January 2023 and 2024. The puts and calls are still out there whether or not any new investment comes in.

 

[kyphysics]

It does not cost anything to buy and hold. Obviously costs the initial purchase but there is no ongoing cash needed.

I guess I view some live-at-home-with-parents traders as needing the cash at some point and if they expected to make money and are now losing it, then that could hurt them more than others. Many on WSB post YOLO all-in bets and the subsequent "loss porn." It's a degenerate community in a lot of ways. Gamblers do go broke and I would think the same happens to them.

 

[InkTide]

I guess I view some live-at-home-with-parents traders as needing the cash at some point and if they expected to make money and are now losing it, then that could hurt them more than others. Many on WSB post YOLO all-in bets and the subsequent "loss porn." It's a degenerate community in a lot of ways. Gamblers do go broke and I would think the same happens to them.

Gamblers go broke because casinos have house-favoring probability distributions over a large enough sample size. The scale and depth of publicly available information regarding GME is genuinely unprecedented, and is essentially a bet against the 'house' using their own rules - and they've already demonstrated the capacity to be correct: the spike a year ago was a very painful (for hedge funds) vindication of what was then the retail investors' underlying thesis (which boils down to widespread naked shorting but includes widespread illegal/unethical/manipulative behavior by market makers and the Federal Reserve).

From a broad economics perspective, a publicly accessible market of information with a continually growing number of critical eyes and individual actors behind it and the ability to parse, digest, and disseminate complex information internationally in the span of hours, has come to the remarkably consistent conclusion that it is prudent to bet against the integrity and honesty of a financial market that thinks transactions taking 3 days are fast, made up of a handful of people who were born into generational wealth or climbed to the top of industries by abusing decades of legislative neglect of market monopolization.

The current underlying thesis of retail holding GME still is "all these big players didn't learn their lesson in January 2021."

That's essentially it, but it has picked up an enormous amount of rhetorical fuel from the discovery that shares "owned" in brokers are owned by brokers, not investors, and companies are legally prevented from informing their own shareholders that the only way to actually own their shares without a broker middleman is by directly registering them with their transfer agent, not a broker. It's like buying a gold ingot and instead getting a certificate that will allow you to sell the gold ingot, except it's also illegal for the ingot smithing factory (transfer agent) or the gold miners (company the share is of) to tell you that the certificate is not the same thing as a gold ingot. This is important because not only might that be one of many identical certificates for the same ingot (allows broker lending of shares they own "in your name"), but your certificate may not correspond to any existing gold ingot at all (synthetic shares; supposed to be illegal, but much like naked shorting it's basically unregulated and the legal fines are utterly dwarfed by the profit from breaking the law anyway in the rare instances other fraud fails to prevent getting caught).

IIRC the above example with gold basically happened at some point recently, or it might've been silver - well, minus the 'we made it illegal to talk about this' part.

Brokers and the DTCC are essentially running an I.O.U. coupon scam with the entire publicly traded economy, and until recently had done a decent job of keeping evidence of the scam hidden by making it illegal for companies to educate shareholders about it in the hope that retail investors would remain ignorant of it in perpetuity.

Especially ironic was the legal reasoning used by the DTCC (sort of the host of the aforementioned broker/market maker middlemen) to enshrine that legal restriction - they argued that if shareholders knew, there would be no reason for the DTCC to exist.

Now, thanks to that discovery and the speed of information and persistence of memory in the public information market (i.e. the internet), a potential corollary to the current thesis has become "there is no legitimate reason for the DTCC to exist." This wasn't a factor in January 2021. It is now widely public knowledge, and therefore will basically never not be a factor going forward without structural changes to the market that change the DTCC's relationship to real shares.

What we're dealing with seems, to me at least, to be a severe underestimation in the financial establishment of the capacity of the public as a collective, relying heavily on past historical trends that are not naively applicable to modern contexts.

And if it's wrong? Well, it'll be a fun ride to see how, far from a tragic or depressing one - most people talking about it consider their investment to be an expense unless/until GME squeezes. In other words, it costs them nothing to hold, and they won't sell unless/until a squeeze. If the price goes to pennies, they damn well might buy more.

In perhaps the greatest irony of all of this, according to mainstream economics, even if retail's investment thesis is completely wrong, the very fact that so many believe GME is worth more than its current price means GME becomes worth more than its current price - because the alternative is a market completely divorced from the sentiment of market actors, which would itself be evidence that the market was being manipulated by insiders and retail's thesis wasn't completely wrong. The alternative appears increasingly likely to me.

 

[kyphysics]

GME: $106.57 ...how low can they go?

game over?

 

[InkTide]

GME: $106.57 ...how low can they go?

game over?

Given the enormous number of new bearish positions opened in just the last few days (puts/shorts) and the staggering number of FTDs (failures to deliver - basically means the broker sold a share but couldn't find one, so they've got to either buy one or give up one they own because they still owe the buyer a share), I'd say this is looking more interesting than it has in months.

The FTD spike data is from December. FTDs aren't from the seller - they are essentially the buyer saying "I bought a share X days ago (X days being the amount of time broker is given to "find" a share after selling one), you still haven't delivered." It's roughly 8 million FTDs, as of December, in ETFs alone - for perspective, that's over 10% of the total number of shares issued by GameStop (76,351,000) ... that brokers sold without finding a share to deliver for over a month.

All these new bearish positions they've opened drive the price down - and with a volume as dried up and illiquid as GME has become since people started directly registering shares to pull them out of DTCC circulation, the negative price action is actually easier - right as they start hitting the deadline of when they need to buy the shares they failed to deliver in December. But it's ultimately only a delay - those new short positions create new potential future FTDs, and the cycle could repeat... but the cycle repeating forever is no longer an option. Retail has put friction into the stock shorting perpetual motion machine, by simply refusing to sell and taking volume away. The whole machine is relying on retail to sell, en masse, at a loss, or the ouroboros of using new shorts today to lessen the consequences of yesterday's shorts will drive them to autophagy. Retail selling at a loss is what used to happen. I don't think the past trends included the effect of retail holding shares out of spite.

IMO, less "game over," more "level 2 unlocked".

 

[russ_watters]

@InkTide, that's a long rant with some conspiracy theory/counter-culture -ish vibes that I don't agree with but don't want to get into. But a few thoughts on the specific issue of the thread:

The current underlying thesis of retail holding GME still is "all these big players didn't learn their lesson in January 2021."

If you play a soccer (football) game and instead of trying to score goals you focus on kicking your opponents in the shins, you might succeed in breaking some legs, but you won't win the game. And you might also break your foot.

And if it's wrong? Well, it'll be a fun ride to see how, far from a tragic or depressing one - most people talking about it consider their investment to be an expense unless/until GME squeezes. In other words, it costs them nothing to hold, and they won't sell unless/until a squeeze.

Expensive ride, and I'm not sure they will believe it was worth it when the ride ends.

If the price goes to pennies, they damn well might buy more.

Unless it closes and is taken off the market. Although I suppose if they can get ahold of paper shares like you seem to want, they can still keep buying and selling the paper shares of a company that no longer exists.

In perhaps the greatest irony of all of this, according to mainstream economics, even if retail's investment thesis is completely wrong, the very fact that so many believe GME is worth more than its current price means GME becomes worth more than its current price - because the alternative is a market completely divorced from the sentiment of market actors, which would itself be evidence that the market was being manipulated by insiders and retail's thesis wasn't completely wrong. The alternative appears increasingly likely to me.

All of that is backwards for this case. You said it yourself: it's the wallstreetbets crowd who is leading the manipulation right now and many/most don't really believe it's worth the price and that's not why they are playing the game. But that does make it ironic.

 

[russ_watters]

GME: $106.57 ...how low can they go?

game over?

Maybe. There's a real value reason that is likely behind the current drop: Microsoft is buying Activision and that's likely to be very bad for Gamestop:
https://finance.yahoo.com/news/micr...-really-hurt-game-stop-analyst-112343875.html

 

[InkTide]

that's a long rant with some conspiracy theory/counter-culture -ish vibes that I don't agree with

Really? Understanding what FTDs are (this is public information from the SEC by the way, has been since I believe 2004 - but even the public data needs to be viewed with the context that is not difficult to hide FTDs, and the reports to the SEC only come from within the NSCC's "Continuous Net Settlement" (CNS) system. If the NSCC decides that it doesn't want to be liable for some trade in the CNS, they can simply decide that trade is a "Special Trade". Instead of clearing it through CNS they can force the trade to clear via the Obligation Warehouse - which doesn't report FTDs to the SEC.) and what 8 million of them last month for just ETFs containing GME means is "conspiracy theory/counter-culture -ish"? If you are basing this conclusion on a better understanding of stock market structure and function I would very much appreciate an explanation of where I'm wro-...

but don't want to get into.

...oh.

If you play a soccer (football) game and instead of trying to score goals you focus on kicking your opponents in the shins, you might succeed in breaking some legs, but you won't win the game. And you might also break your foot.

A more apt analogy for this would be kicking the ball towards the goal because you think the goalie is a cardboard cutout, actually scoring (what happened in January 2021), and then not believing the other team's coach when he tells you he put a real goalie in this time.

Unless it closes and is taken off the market.

This is ultimately the goal of the short selling institutions, because it would mean they never have to cover their short positions. It is in the best interest (see: not doing this is literally an existential threat) of anyone who shorted GME to do anything and everything possible to ensure that GameStop either goes bankrupt or GME holders sell for a loss, because un-covered short positions have theoretically unlimited risk. How? It's quite simple - a short position means you borrowed someone else's share and sold it with the expectation that it will be cheaper to buy in the future. If you were right, you pocket the difference as profit. If not - you still don't own a share to give back (because you sold it, but, again, you never actually owned it), so you either give the owner you borrowed from one of your own or you have to go out and buy another at whatever price it currently is (this is "covering" the short).

That is why FTDs are so important - even if likely under-reported, it's an unavoidably public indicator of when the short sellers couldn't find shares to replace the borrowed ones, so they'll have to go out and buy more... before the end of a period roughly 35 calendar days from the FTD declaration, which for the aforementioned 8 million FTDs would start tomorrow (i.e. January 21, 2022) through I believe February 8th if they used every delay tactic possible (there are quite a few, and big market players tend to heel drag as a general rule). This creates immense buy pressure, and buy pressure on a stock that has become increasingly illiquid (i.e. current holders just aren't selling, and so many shares have been pulled out of DTCC circulation that the DTCC's usual methods of preserving liquidity are already starting to become ineffectual - fun fact, legal naked short selling by the DTCC itself is one of those liquidity preservation methods... and it would be absolutely disastrous to try it in this scenario) has enormous potential to increase the price, which is why so many additional short positions have been opened in the last few weeks (also public info) to suppress price (and that is indeed how that works - betting against a stock makes additional betting against the stock more viable, but more bets increases squeeze risk - the selling of the borrowed stock pushes the price down, even as you're betting the price will go down, but you still never actually owned the stock you sold, so you owe somebody at least one stock; the cash is used in the interim to buy other assets so you're not betting against your own positions - selling those other assets for the liquid cash to cover your short positions is why basically the entire market that wasn't GME went red in January of last year right as GME spiked) just before that buy pressure would start hitting and drive the price up.

GameStop going bankrupt any time soon - especially within the next few months - is quite simply not feasible given the company's net positive assets and minimal debts, without significantly greater losses than they are incurring (during an internal restructuring and market pivot, but that's not important to the basic math of their current solvency). The best some analysts (I think it was mainly yahoo finance) could do a few months ago was theorize a valuation for the company that was less than half of the liquid cash it had on hand at the time. In other words, the only way to make it seem like their bankruptcy was imminent was pretending every dollar held by GameStop is worth 50 cents - which, ironically, even if somehow true, would still have left GameStop net-positive in wealth terms (a.k.a. still not bankrupt).

it's the wallstreetbets crowd who is leading the manipulation right now

Well, r/wallstreetbets had essentially banned discussion of GME following a sudden and large amount of moderator turnover in late winter last year - there have been multiple exoduses (exodi?) of users to other forums/subreddits. Believe it or not r/wallstreetbets actually has a history of moderators being "bought off" by outside actors that predates the whole GME saga. R/wallstreetbets itself has not been a primary forum for discussion of GME trends and theses for months now, but it is the only forum that is regularly mentioned in the media in the context of GME. The culture of r/wallstreetbets and the forums to which GME discussion migrated are notably different.

Expensive ride, and I'm not sure they will believe it was worth it when the ride ends.

They paid an admission price. Key tense: past. It costs nothing more to ride the ride - which they have already been doing for months - just to buy more tickets. Oh, and GameStop's transfer agent, Computershare, allows you to set an investment amount in cash and they will register in your name whatever shares or portions of a share that investment amount (minus some fees) is worth when they batch purchase other aggregated share orders. What this means is that the minimum expense of having at least some "skin" in the ride/game is not actually the cost of a GME share - it's the minimum investment amount in Computershare's transfer structure with GameStop, which for a one-time investment is, IIRC, $25, or $50 if you have no account with them. The fees are taken from those amounts at purchase, not added to them - even with fees, that minimum amount is all you'd need to pay.

Given that the ticket itself is the asset (i.e. the stock), the asset holders only incur a permanent reduction to their liquid net worth (i.e. a loss of liquid funds) if they each decide to sell at a loss.

many/most don't really believe it's worth the price and that's not why they are playing the game.

Do you have the market data to back that declaration of majority motive/belief up?

Microsoft is buying Activision and that's likely to be very bad for Gamestop:

I wouldn't call "two companies you already have extensive contractual relationships with becoming one company" a "very bad" thing - it may allow Microsoft to have more leverage in individual contract negotiations... but buying Activision means they also inherit the motives to sell with GameStop that Activision had before, as well as likely directly inheriting many of Activision's existing contractual obligations. They have more to offer GameStop, but at the same time have more that they can benefit from selling through GameStop by virtue of having more to sell.

That yahoo finance piece is absolutely bizarrely reasoned - it's like saying a grocery store will be severely harmed if, where before it was buying two different kinds of bread from two sellers, those two sellers are now one company and it now buys both kinds of bread from that company. The newly merged bread company still wants to sell its bread - and it already knows, twice over, that the grocer is a reliable way to do that. This might be less important in a digital system or with nonperishable goods... unless you also sell digital bread and now know that the grocer itself is heavily investing in building new infrastructure to sell nonperishable digital bread in an emerging new kind of digital market, which allows you to outsource the new digital storefront and sale infrastructure construction/maintenance costs to an already proven reliable business partner and potentially merge your digital and physical sales into the same storefront system, all while letting your business partner handle most of the risks associated with the early stages of a new kind of market. Yes, those risks are potentially detrimental to GameStop... but they are risks that were actively being taken by GameStop already, regardless of Microsoft's acquisition of Activision.

It also evidently hasn't been enough of a "material reason" to maintain the "current drop" momentum, which thus far today as market nears close has been basically sideways overall up until basically the last minute (though to be fair, market makers and brokers historically like to do their big selling moves and therefore potential negative price manipulation right at the end of the trading day, because overnight trading is something the public generally cannot access but they can). See: https://arxiv.org/pdf/2201.00223.pdf

EDIT as of 18:00 EST (original post was at 15:37) - Yep, exactly as I suspected, the price went from ~106.00 at around 15:20 EST down to 100.00 in basically the last 30 minutes before regular trading hours ended + some after hours selling. Which means the net negative price movement was basically confined to a period of time during which no non-market makers or non-brokers would have been able to react with any buy pressure, which tracks rather directly with the central thesis of the arxiv paper I linked, alongside a pending period of significant exposure to squeeze risk through FTD covering to heavily incentivize pushing the price as low as possible - even if it increases future short exposure - today. The goal may be to try and trigger any stop losses set at the nice round number of 100.00, but only tomorrow (hence the actual decline to 100.00 being during after hours and therefore not able to trigger those stop loss sells until tomorrow in pre-market at the earliest) so the price goes down before market open tomorrow just before the usual "right as market opens" buys the big players tend to do to give them the minimum possible price just before shorts from December start needing to be closed.

Oh, and as an aside, you may want to take yahoo finance analysis with a bit of a more skeptical eye - earlier this month they reported that GME had declined sharply "because of an NFT marketplace announcement by GameStop being underwhelming," but there are two issues with this:

1. GME's price when that was published had not declined - it had been stable; the actual decline in GME's price that day didn't happen until after the article talking about the decline was published, and was largely attributable to an enormous number of new short or bearish options positions being opened - in other words, not the fundamentals of the stock, as the analysis had implied, but very poorly veiled market manipulation.
2. GameStop never actually made any such announcement. Yahoo finance was citing a mostly speculative Wall Street Journal piece that had been published the day before... and had done basically nothing to the price (see "it had been stable" from 1.).

 

[kyphysics]

Maybe. There's a real value reason that is likely behind the current drop: Microsoft is buying Activision and that's likely to be very bad for Gamestop:
https://finance.yahoo.com/news/micr...-really-hurt-game-stop-analyst-112343875.html

Yeah. Lots of factors. Plus, I think GameStop was decrepit as a business beforehand.

I hope Microsoft doesn't take down my Zoom. I don't believe they will, given Eric Yuan's well-oiled customer-centric/obsessive machine that is Bezos-like in customer obsession.

Teams sucks when I used it. I'm more worried about Google Meet, but think Zoom has a current edge.

I'd much rather own meme/pandemic stock $ZM vs. $GME.

 

[Office_Shredder]

@InkTide I just want to comment on this

Given that the ticket itself is the asset (i.e. the stock), the asset holders only incur a permanent reduction to their liquid net worth (i.e. a loss of liquid funds) if they each decide to sell at a loss.

This is terrible accounting. Liquid means easily accessible, if you choose to never sell, your loss of liquid funds is your your entire stake.

 

[kyphysics]

$92.72 $GME...

 

[InkTide]

@InkTide I just want to comment on this
This is terrible accounting. Liquid means easily accessible, if you choose to never sell, your loss of liquid funds is your your entire stake.

Ease of access ≠ actually accessing. Your definition would make liquid funds held in banks a "loss" because you "decided never to sell" by not constantly engaging in currency transfers. It would be impossible for any asset not actively being exchanged to not be recorded as a loss, in large part because you've conflated not selling now at a loss with not selling ever.

An asset doesn't lose all value or all liquidity because you happen to not be exchanging it at the moment - selling securities is very easily accessible, hence the existence of the stock market. A belief that the asset will soon vanish from exchangeable existence like a perishable good (i.e. you think it will be removed from the exchange) before you can sell for a net gain is exactly that - a belief. It is not an actual measurement of future liquidity.

Hell, in the context of inflation, the security asset is likely more liquid than your literal bank held "liquid cash".

I'm talking about liquid in the "ease of asset conversion" sense, not the sense it's often used with in accounting (even if most of the time they agree), which is more along the lines of "ease of conversion into local currency" because accounting tends to assume local currency is and will always be the most liquid possible asset to hold. Even in the accounting sense, though, you don't lock what your asset's liquidity in local currency is until the moment you attempt to exchange it for that currency - hence not selling at a loss not itself somehow being a loss of liquidity - the change in liquidity is at best undefined from simply not currently making such an attempt.

A wave function that hasn't collapsed doesn't mean the wave function doesn't exist, despite what the solipsists might tell you (if they aren't too busy thinking you don't exist either).

$92.72 $GME...

Weird how stable that price point was. Totally didn't indicate an enormous amount of <$100 buy support by jumping back to above the close yesterday ...in the middle of a market selloff.

 

[Office_Shredder]

Ease of access ≠ actually accessing. Your definition would make liquid funds held in banks a "loss" because you "decided never to sell" by not constantly engaging in currency transfers. It would be impossible for any asset not actively being exchanged to not be recorded as a loss, in large part because you've conflated not selling now at a loss with not selling ever.

You said, if the stock goes down, you haven't lost liquid assets if you don't sell it. You clearly have. If you do sell it, you get less money back than you started with. If you refuse to sell it, then it's not liquid
The money in my bank isn't considered lost liquid assets because I can withdraw it for its full value whenever I want. I don't have to wait for it to go back up.

 

[Astronuc]

Not Reddit, but related as in 'speculative investing'.

Close today: BTC-USD (Bitcoin USD) $36,490.42 $-4,400.04 -10.76%

Sometime after hours. $36,416.80

Change in value in one month ~$-12,241.80 (25.16%)

During the period 23-37 December, Bitcoin was valued over $50K, but since then has declined, especially in the last two days, after Russia apparently is thinking about banning it.

 

[InkTide]

You said, if the stock goes down, you haven't lost liquid assets if you don't sell it. You clearly have. If you do sell it, you get less money back than you started with. If you refuse to sell it, then it's not liquid

The act of selling is what tests the liquidity - you can't assume not testing liquidity means a reduction in liquidity. Liquidity is ease of exchange, which cannot be established without actually exchanging something. This is why stock is considered an asset and not a position - the position you take is holding, selling, or buying (ignoring the derivatives market where positions are sold as assets for the moment). Holding contains no exchange with which to test liquidity of the asset - selling or buying are the exchanges, and the measured liquidity is dependent on the exchange price at the time of selling or buying. In other words, you don't measure liquidity by holding - you only lose liquid assets in the case that the asset ceases to be exchangeable or you test liquidity by selling at a time where the asset you exchanged for the stock is worth more relative to the stock as an asset than it was when you bought. The delta affecting the asset's price is the aggregate of positions; the only delta for holding is the arrow of time or a breakdown of the exchange itself... which, by the way, is not unique to stocks - it's exactly what happens to currency during a bank run, because the relationship that accounting finance has with banks is simply not an accurate representation of the macroeconomic reality of what banks are and do.

The money in my bank isn't considered lost liquid assets because I can withdraw it for its full value whenever I want.

The inputting of the money into the bank is itself an exchange. If the bank decides you can't withdraw your "liquid assets" because they don't have it to give you (such as during a bank run), the fact the asset is cash does not make the liquidity you test by trying to withdraw and establish to be zero when that exchange fails suddenly positive just because it is convention to treat "liquid" as synonymous with "converted to a cash equivalent". The position you take by holding is essentially that the asset will be worth exactly what you put in when you withdraw - by your definition, you have indeed lost liquid assets by putting it into the bank, because you're assuming that not selling now (exchanging your position of cash held by a bank for the position of cash held by you in the case of a withdrawal) means not selling ever (i.e. never withdrawing).

 

[kyphysics]

Not Reddit, but related as in 'speculative investing'.

Close today: BTC-USD (Bitcoin USD) $36,490.42 $-4,400.04 -10.76%

Sometime after hours. $36,416.80

Change in value in one month ~$-12,241.80 (25.16%)

I think BTC is possibly the world's most volatile asset. I pretty much just shrug if it drops 25% in a day (or rises).

The connection to WSB meme stock trading is that a lot of the Reddit crowd probably owns a lot of BTC too...as their assets all fall, perhaps they'll have less capital to deploy going forward. Some might go broke entirely during this Fed liquidity pull and probable small tightening cycle afterwards.

I'm like many people, who believe we get a 20-30% market crash by summer or so - after which the Fed has an excuse to swoop in and cut rates + deploy QE again to save markets before the mid-term elections. An unstated rule by Fed insiders is that they try hard not to do anything crazy around election season. They want calm markets, so as to not show an appearance of favoring one party/candidate over another.

QE goes to $0 by mid-March, after which I suspect we could get rate hikes for several months that reset market multiples and bring on that Fed savior moment by late-July. That gives about three months for markets to recover into the November mid-terms.

Regardless, Q2 2022 is universally expected to be horrendous from a macroeconomic front. All the data will have impossible to surpass base effects on top of genuinely slowing economic data hitting at the same time. Bumpy ride perhaps and maybe crashing asset prices will wipe out that retail crowd at home trading in their pajamas.

 

[Office_Shredder]

The act of selling is what tests the liquidity - you can't assume not testing liquidity means a reduction in liquidity.

What are you talking about? It's a stock, the price is publicly available for anyone to look at. Unless you're trading warren buffet sizes or you're trading a super illiquid microcap stock (which gme is not) you will not get a noticeably different price than the public quote.

 

[scompi]

after Russia apparently is thinking about banning it.

Russia's central bank in particular. Of course it is proposing banning cryptocurrencies. Bitcoin, at least, is a potential threat to them. Any so-called "decentralized" currency has no use for a central bank.

I'm like many people, who believe we get a 20-30% market crash by summer or so - after which the Fed as an excuse to swoop in and cut rates + deploy QE again to save markets before the mid-term elections. An unstated rule by Fed insiders is that they try hard not to do anything crazy around election season. They want calm markets, so as to not show an appearance

Couldn't agree more. I expect the Fed will capitulate and reverse course once the markets actually tank. In that case, the next few months can be seen as a great buying opportunity.

 

[InkTide]

What are you talking about? It's a stock, the price is publicly available for anyone to look at. Unless you're trading warren buffet sizes or you're trading a super illiquid microcap stock (which gme is not) you will not get a noticeably different price than the public quote.

The price of a unit of currency is also available to look at. Price is not liquidity. The volatility of price movements is, in theory, a representation of other market actors testing the liquidity. In practice, the affects of the derivatives market and the actual representation of price change on the security's ticker (which is unchanged by exchanges with a volume under 100 total shares) mean this relationship is largely indirect.

GME is not microcap, but its volume had been steadily going down prior to January and buying has become much more difficult. A better representation of the share asset's liquidity relative to cash is the price movement of options contracts within the derivative markets, which have been extremely volatile over the last month as well as extremely expensive on the buying side. The large number of publicly reported FTDs is another indicator of severe illiquidity of attempts to exchange "liquid" cash for GME shares. When the asset fails to deliver after an exchange (what FTDs mean), the liquidity of the asset you traded (cash) for that undelivered asset (a share) has failed - in other words, if you had a FTD, you're basically being told that the market maker you bought from wasn't able to find any available shares being sold at that price during the entire ~30 day period that has to elapse before FTDs are even reported. Market makers can suppress FTD data as I described above in several ways, one of which is hiding it in something called stock ETFs (Exchange Traded Funds), which are like baskets of pre-diversified shares that have their own ticker symbol that can be traded like a single stock. The largest number of GME shares in ETFs are in the XRT ticker - that ticker had over 1 million FTDs last month reported by the SEC.

Yesterday, short interest in XRT was reported at over 715%. This means that some group in the market has open short positions on 7.15 times more XRT than there exists XRT.

 

[Office_Shredder]

Price is not liquidity.

No, but current price represents the best price you can get. If you send an order to sell a stock, it's not going to go up and give you a better price than what it's currently trading at. And if you have a regular person amount of size, it probably won't go down either. Gme traded yesterday more than 500 million dollars, if you sell 10,000 dollars (100 shares), nobody is going to notice/react in any serious way.
I don't know, if you want to continue to believe that if you bought gme for 200 dollars, that you still have 200 dollars of liquidity available, go for it. Hopefully everyone else reading this realizes that's wrong. There's obviously not much point in this back and forth.

 

[InkTide]

The connection to WSB meme stock trading is that a lot of the Reddit crowd probably owns a lot of BTC too

This is why I mentioned that the culture outside of WSB is very different, and in general very different around GME. Most GME-focused communities are highly bearish on cryptocurrencies, BTC and Eth especially - many of them have been theorizing for months that the cryptocurrencies were being buoyed by hedge funds using them as a way to store value and facilitate exchanges protected from taxation.

WSB has always loved crypto, in large part because WSB as a community loves the entertainment that volatility creates - it's antithetical to going long on any asset, even ignoring GME, because going long is boring to the "YOLO" loss/gain porn zeitgeist of WSB. WSB is simply not analogous to "retail investors long on GME", and hasn't even been host to a significant subcommunity of them since early last year (until the volatility-loving options players started looking at the volatility in GME options and started to increase their interest as of late).

No, but current price represents the best price you can get.

Price is not a universal measure of value that is location/choice of market/circumstance invariant. It is, nominally, a measure of the amount of local currency for which a given seller will exchange the asset they are selling with a given buyer.

If you send an order to sell a stock, it's not going to go up and give you a better price than what it's currently trading at.

This depends on the structure of your broker and the contractual relationship you have with them - the money you get from a sale of the asset is actually, in theory, the market price when the order is carried out, not when you placed the order (minus fees). If the share is directly registered to your name, you are the broker - if not, the broker and/or market maker is legally free to delay or expedite your order to carry out the trade if the price goes above when you ordered (giving you the price at order time and burying their own gain in the settlement period, which is two entire business days), or sell high in a dark pool (i.e. nonpublic trading) or internalize the transaction with themselves to not affect the price if they don't want to. Buying information about pending transactions (whose wait time is something market makers can control to a significant degree) is called "Payment For Order Flow", and is essentially unregulated and the method by which market makers essentially extort all direct participants in the market for profit. Banks and large market players don't mind the relatively minimal fees compared to the sizes of their usual moves, and it rarely affects them significantly to have that inherent disadvantage in the market because most of their own liquid assets spend their time floating around in the derivatives market. Basically nothing has structurally changed since 2008, with the sole exception of QE, which has created the precedent of state-backed protection from market risk for banks and market makers. This is what macroeconomics might call a "systemic moral hazard."

And if you have a regular person amount of size, it probably won't go down either.

If you have anything less than 100 in volume, it is not recorded in the ticker. If a market maker or broker wishes to split one side of transactions to influence the public representation of the price in the other direction, they can - and they can do so without buying or selling anything.

Gme traded yesterday more than 500 million dollars, if you sell 10,000 dollars (100 shares), nobody is going to notice/react in any serious way.

The reaction is irrelevant; the effect on the ticker is dependent on how your broker decides to structure your transaction (though they are limited by what other transactions of that security they are processing in a given timeframe).

if you want to continue to believe that if you bought gme for 200 dollars, that you still have 200 dollars of liquidity available

Here again you are equating cash with liquidity. This is simply not the case - just because cash is a differently backed asset doesn't mean it isn't an asset (see: the existence of currency exchanges).

It's also implying an imperative to sell at current value that simply doesn't exist unless you need to divest because for some reason you bought on margin - in which case your obligation is debt not related to the asset in question reducing your own liquid assets elsewhere.

Fun fact, banks and hedge funds buy on margin constantly. Goldman Sachs is leveraged something like 2:1.

There's obviously not much point in this back and forth.

On the contrary, I've found it quite instructive on the general beliefs from a personal accounting perspective of the public in regards to market and asset finance. Between that and the revolving door of Wall Street funds and financial regulators, and the immense short term profits of the derivatives market, they're the only feasible reasons I can surmise that this system has still persisted since 2008 with nothing more than a new name (CLOs instead of CDOs) and a literal reward (bailout) for irresponsible gambling by people whose central provided economic service is literally "take your cash and sit on it until you need to use it".

 

[Office_Shredder]

This depends on the structure of your broker and the contractual relationship you have with them - the money you get from a sale of the asset is actually, in theory, the market price when the order is carried out, not when you placed the order (minus fees)

Right, so if you want to sell it now, you get the current price.

. If the share is directly registered to your name, you are the broker - if not, the broker and/or market maker is legally free to delay or expedite your order to carry out the trade if the price goes above when you ordered

This is false. If your order is marketable they are required to execute it immediately. If it's non marketable, they are required to post it on an exchange, unless it's "block size" (feel free to disapprove of the block size rule, I'm not attached to it).

(giving you the price at order time and burying their own gain in the settlement period, which is two entire business days),

The settlement period of two days has no economic effect on the trade that you get.

or sell high in a dark pool (i.e. nonpublic trading) or internalize the transaction with themselves to not affect the price if they don't want to.

If they choose to internalize your transaction it's because they think it's a good trade, not because they want to manipulate the price.

When a market maker receives your order, if they route out to them market they are required to give the fills they get to you. So if you send an order to sell and they send a sell order to a dark pool to see if they get filled as part of handling your order, they have to give you the fill they get.

Buying information about pending transactions (whose wait time is something market makers can control to a significant degree) is called "Payment For Order Flow",

This is not true at all. All trades are required to be reported immediately upon execution, you can't wait.

Payment for order flow is where they pay to get your order so they can make money by trading against you, because on average retail traders do not make money.

and is essentially unregulated and the method by which market makers essentially extort all direct participants in the market for profit.

Market maker internalization is a competitive business. Citadel, virtu and other companies give price improvement to the orders they receive (that is, give people a better price than that market on average), and whoever gives the most price improvement gets the most flow from the retail broker.

Separately, Claiming anything in this industry is unregulated is kind of absurd, all that parties here are large finra regulated broker dealers.

If you have anything less than 100 in volume, it is not recorded in the ticker. If a market maker or broker wishes to split one side of transactions to influence the public representation of the price in the other direction, they can - and they can do so without buying or selling anything.

This isn't true, every trade of any size is reported on the tape. You're probably thinking of the fact that odd lot *quotes* are not reported to the SIP, but they still show up in the exchanges' proprietary marketdata which many professionals pay for, so a lot of people know about the quotes anyway (that said, the sec is considering making odd lot quotes show up in the SIP feed).

The reaction is irrelevant; the effect on the ticker is dependent on how your broker decides to structure your transaction (though they are limited by what other transactions of that security they are processing in a given timeframe).

I mean, in as far as if they choose to route you vs internalize, yes, the price you get and the subsequent market price will be a little different. But not like, forty dollars different in a hundred dollar stock. We're talking about like pennies different.

It's also implying an imperative to sell at current value that simply doesn't exist unless you need to divest because for some reason you bought on margin - in which case your obligation is debt not related to the asset in question reducing your own liquid assets elsewhere.

No, liquid means liquid. It means your can get the cash when you want it for whatever you want it. If you bought gme for 200, and today you want to buy a house, or you want to buy a car, or pay for your kid's college, you simply do not have the same amount of money to pay for those things. That's the definition of liquidity, and why people want liquid assets, so they can pay for things.

On the contrary, I've found it quite instructive on the general beliefs from a personal accounting perspective of the public in regards to market and asset finance

.

I'm sorry, you don't actually know very much about how the industry works.

 

[mfb]

$92.72 $GME...

$106.36, up 15% from that point.
You are so eager to update us every time it goes down, but when it goes up there is silence.