Why Did Reddit Trigger a GameStop Stock Surge?

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russ_watters said:
people implied they recognized a bubble/game of musical chairs...though they implied they though all stocks were like that.
They aren't exactly wrong. Companies go up and go down. How many of the original Dow 30 are still in it? How many are still solvent? The Reddit crowd seems not to like shorting on principle, but fact of the matter is that companies can and should shrink. Acme Buggy Whips is not the great deal it once was. :smile:
 
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Astronuc said:
Ethereum co-founder says every ‘average smallholder’ impacted by Terra’s stablecoin crash should be made whole, cites FDIC’s $250,000 as ‘precedent’ :oops: :rolleyes:
https://finance.yahoo.com/news/ethereum-co-founder-says-every-215033542.html

He's not that wrong - I don't know what will happen for this situation, but if there was a stable coin where anyone who held it was promised to get at least a thousand dollars back, that would greatly enhance its value and utility (I mean, a stable coin that was fully backed by assets like tether is supposed to be is even better)
 
Office_Shredder said:
You're ignoring the potential for future growth on the assets that you would have owned if you didn't sell them to buy your stuff. If you have a billion dollars of stuff earning 30 million a year, selling it to buy stuff vs borrowing a billion dollars and using your 30 a year to pay the interest is economically equivalent. (Where here 30 million a year might be mostly contained in the growth of the asset, since we're assuming they're cash poor to begin with)
Sure, I get that but a growing loan balance and volatility risks triggering the ~50% LTV levels that would trigger a margin call

billionaires tend aggressive risk-seeking personalities and many leverage themselves to the hilt because they believe in the growth of their companies, or own a concentrated interest in their own company stock and want to avoid the optics of selling, but there is a downside, for example:

https://whalewisdomalpha.com/the-mo...-stock-melted-down-to-30-million-in-100-days/
 
BWV said:
Sure, I get that but a growing loan balance and volatility risks triggering the ~50% LTV levels that would trigger a margin call

Did you see the part where they borrowed a billion dollars against 15 billion in assets? I literally said If you only have 2 billion dollars you wouldn't do that! We're on the same page here - having many billions of dollars is better than only a couple billion dollars. The thing about borrowing money is kind of irrelevant, though I guarantee you people are doing this.
 
Astronuc said:
Ethereum co-founder says every ‘average smallholder’ impacted by Terra’s stablecoin crash should be made whole, cites FDIC’s $250,000 as ‘precedent’
Interesting position. "We don't want government involvement, until we do."
 
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Vanadium 50 said:
Interesting position. "We don't want government involvement, until we do."

That's not what he said. He said terra, the organization behind the coin, should reimburse people so that most people become whole.

The thing to remember here is the Terra organization raised like, 3 billion dollars selling its coins as funds to use to defend the dollar peg. I think they claimed to have spent it trying to buy the stablecoin. There were only ten billion dollars of terrausd available, if they promised to make as many people whole instead of just buying from whoever sold first they could have pulled this off.
 
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Vanadium 50 said:
Interesting position. "We don't want government involvement, until we do."
I didn't read that as a promise of FDIC insurance but rather a promise to reimburse losses directly because they don't have FDIC insurance. Not, "we want government involvement" but rather "we can do it all ourselves".

Assuming we believe they actually can.

[edit] Oops, already answered.
 
Obviously, if they have billions of dollars, they can do with it what they will. The question then becomes why they didn't do this proactively. "Terra - the satblecoin that's not very stable" is not the best slogan I have every heard.
 
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Vanadium 50 said:
Obviously, if they have billions of dollars, they can do with it what they will. The question then becomes why they didn't do this proactively. "Terra - the satblecoin that's jot very stable" is not the best slogan I have every heard.

No, they don't have any money anymore, they spent it all.

In theory the stablecoin is no different from the us dollar. It had a gold standard, then came off it for a bit, then got back on it, then dropped it entirely. The value of a us dollar is pretty stable despite it just, being a dollar. This stablecoin had the same goal - it was kind of sort of pegged to the dollar by some assets backing it, but it didn't work out. This isn't that dissimilar to the Swiss franc peg to the euro or the British pound to the various European currencies in the 90s, except that the move was more extreme because this is a more speculative and unestablished currency.
 
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Vanadium 50 said:
The question then becomes why they didn't do this proactively. "Terra - the satblecoin that's jot very stable" is not the best slogan I have every heard.
In order to think to put the policy in proactively they first have to believe there is a non-zero possibility that their The Algorithm could fail. But this is crypto we're talking about. It's a totally safe and stable alternative to currency backed by fickle and unstable governments like the US.
 
russ_watters said:
they first have to believe there is a non-zero possibility that their The Algorithm could fail.
Hmmmm...

My understanding is that the algorithm is a "cocktail" of various assets (all cryptocurrencies, I think, but that's not an important detail). This is not new to crypto; see Special Drawing Rights (XDR) as an example of an attem,pt to make a currency that is stable. Well, more stable. Well, maybe a little less volatile.

The problem with this is that if the cocktail ingredients are all positive definite, you can't maintain parity in all circumstances. The easiest to see is if all the assets fall with respect to the dollar, there is no rebalancing that will recover parity. That's the easiest to see, but you also have the case where things fall so far and so fast in a subset of assets the others can't buoy the basket up.

There is a great Dilbert on this from 12/13/2008 on this. For obvious reasons, I won't like it here.
 
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I don't know if Reddit had anything to do with Snap (SnapChat), or just the not so good news from Snap CEO Evan Spiegel, who warned of slowing growth in a note to employees made public on Monday.

SNAP
Snap Inc.		12.79-9.68-43.08%

The founders own a combined 95% of voting shares (Spiegel with 48% and Murphy with 47%), which are undiluted and transferable to the other when one retires or dies.
https://en.wikipedia.org/wiki/Snap_Inc.

https://www.cnbc.com/2022/05/24/snaps-down-32percent-and-its-dragging-other-stocks-down-with-it.html
 
There's nothing special about snapshot- lots of internet stocks whose value was based on long term user growth at getting hammered now that there are better things to do than use the internet again.
 
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The luna/ust fall is not.the first nor the last ''stable coin'' fall. Usdt, the currently most used one, is a titanic waiting to meet its iceberg. It's not an algorithmic one, it's an unbacked one.

The founder of DAI (an overcollateralized algorithmic stablecoin) called out luna's founder earlier this year on twitter. He got a salty reply from luna's founder.

.

I'm glad I didn't sink in that ship. Entered the game when luna hit 100 usd, left one day later at 102 usd.

Not only that but someone had shown that luna would crash for a billion usd or so, and this is exactly what happened.
 
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The Rise and Fall of Cathie Wood
https://nymag.com/intelligencer/2022/05/the-rise-and-fall-of-cathie-wood.html
Even after her ARK fund dropped in value, she talked up her portfolio and future opportunity.

Around the middle of April, Cathie Wood sat onstage at the storied Fontainebleau hotel in Miami. It was an awkward time to be a keynote speaker at a conference for money managers: Wood’s flagship fund, the ARK Innovation ETF, had lost roughly half of its value over the prior year, as its aggressive bets on hot companies from Coinbase to Robinhood and Tesla had melted down amid a bear market in tech stocks.

Wood, though, had evidently not lost her luster — judging by the crowd’s applause — nor her brazen bullishness. A year earlier, she’d thought her firm, ARK Invest, would deliver annualized returns of 15 percent, she acknowledged, setting up what seemed like a mea culpa for her poor performance. Instead, she doubled down: “Now we think 50 percent.”
So far, she’s been wrong — her main fund is down another 34 percent since her comments — but her firm still has more than $16 billion in assets, according to fund-tracker Morningstar. While that’s a fraction of the $40 billion ARK had in March (a figure the firm still lists on its website), it means Wood’s pool of money is still roughly the same size as major hedge funds like Bill Ackman’s Pershing Square. (Wood declined to comment for this article.) In the realm of Wall Street, Wood is an unusual creature: Not only is she a rare female portfolio manager, but she was also an outlier in her nearly boundless optimism about the riskiest investments on the market, including cryptocurrency and Tesla, which four years ago she (correctly) predicted would go up more than 1,000 percent. Last fall, she put a $500,000 price target on bitcoin, then — as bitcoin’s price cratered — raised it to $1 million a few months later.

Wood’s willingness to make such calls so far ahead of reality — and so out of step with Wall Street’s old guard — has earned her a rockstar reputation among stonks-obsessed retail investors, making her a mascot for buy-the-f***ing-dip Robinhood traders, some of whom have dubbed her “Cathie Bae” on Reddit. In an industry loath to make guarantees about the future, Wood’s brand was like price-prediction porn: To hear her talk was to feel your mind liquefy in a clickbait-like flood of dopamine-inducing buzzwords — her portfolio a cornucopia of self-driving cars, crypto, genomic cancer cures, AI, streaming, and gaming. She told risk-drunk investors exactly what they wanted to hear. In her view, it seemed, tech stocks only went up and to the right.
I read some headline hype about Cathie Wood and ARK, and only recently did I learn about her and how she became the investor she did. I think she got lucky, then it went to her head.

I wonder of Redditors talked up ARK before it collapsed, just like Bitcoin and other cryptocurrencies.
 
I don't think she was as bad, nor as good as her peak performance and subsequent demise have shown.

Per SEC rules, I believe she's forced to invest incoming funds and also diversify them. That means even when prices are astronomically high for certain growth stocks, she's forced to buy more based on fund flows and new capital. On top of that, there are often diversification rules, so she's got to have a wide basket of stuff she may not even want to buy.

Everything is well when there is Fed liquidity (low rates and QE) and a huge mania behind meme and growth stocks. People just wanted to get in no matter the cost (ridiculous 50X price/sales multiples) as long as the stocks/funds went up. Cathie's not going to complain, nor tell people not to buy into her overvalued fund/ETF.

She's probably thinking it's their own responsibility to know what is overvalued or not. I don't mind her not telling people not to buy in. But, I do mind her pumping and pumping her fund even at those high valuations. I feel there is a difference.
 
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Um...what?

Mutual funds are not as complicated as you make them out to be. (There may be a kernel of truth in there somewhere, but it's not clear where or what it is.)

At their core, mutual funds are collections of stocks. ABC Corp may trade at $100/share, and XYZ at $200/share, and if a share of particular mutual fund contains 1/10 share of ABC and 1/20 of XYZ, it will trade at $20/share, and have half its value in each company. Of course as a practical matter, real funds hold many more stocks than just two. The fund price cannot deviate too far from $20/share, otherwise people will take advanatge of arbitrage until the situation stabilizes.

If I invest $2000 in this fund, I expect that I will own, through the fund, 10 shares of ABC and 5 shares of XYZ. If the fund doesn't buy them for me, that's a problem. But it's not a problem with the way that the fund is structured or with funds in general, or with liquidity, flow rates, or any other high-falutin' financial terms: it's simply malfeasance. (Note that in real life, funds have some latitude on when they need to purchase the underlying asset, how much they keep in cash, etc. This is in the prospectus)

Further, if the fund does not want to take in new money = for whatever reason - they can simply close the fund.

There's no financial mumbo-jumbo here. It appears to be an old story - Wood picked good stocks in the past, but isn't picking good stocks now.
 
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Vanadium 50 said:
Ever deal with Treasury Direct? It could possibly be thos most annoying website in the world. Just one disadvantage of I-series bonds.

Full disclosure: I bought a ton of TIPS during my June rebalance.
Sure, but the -7.5% yield on 1-year TIPS makes the Treasury Direct site palatable
 
kyphysics said:

12/31/19 market cap of US stocks was ~$34T, down 20% after the COVID crash that would be $27T, $100B is not that much money on that scale