Impulsive, uninformed people, like the capitol rioters, will find themselves further weakened while a few instigators will walk away with a story and some money in their pocket. An appropriate way the wrap-up the rule of the last administration. Hardly a company worth rescuing.
> On Jan 30, 2021, at 3:20 AM, David Eric Smith <[email protected]> wrote: > > So I have been watching this, and it looks just like one more > wealth-concentrator on the long term, with smaller shifts in the short term > that people get caught up looking at because they involve personality > conflicts. > > Will somebody tell me where I am wrong in the following? > > 1. We start with the usual state of affairs, in which hedge funds of various > sizes take short positions; in what and how much depends on the capital they > hold to cover the short, relative to their other options. They are “big” > actors, in the sense that decisions of individual firms can involve > moderately large amounts of money. They assume they are the full landscape > of big actors, and although they act with cognizance of each other, since > they are all using similar research, they do much the same thing. > > 2. A new “oligopolistic actor” comes in that changes the landscape of > participants, which is a group of Reddit-coordinated little fish. They can > put a short squeeze on the hedge funds. Those that took too large a position > either with too little capital to cover the squeeze until it bursts, or with > too little interest in this stock to be willing to take much of a loss on it, > will sell off at a loss, and the various little fish will make a little money > each, but it will look like a decent chunk when you take them together. The > smaller or medium-sized hedge funds that can’t wait this out could be forced > into low enough overall returns that their clients will want to withdraw from > them, putting them in further trouble, perhaps driving some of them out of > business. > > 3. Meanwhile: the oligopoly move is an ordinary pyramid scheme, and it only > works as long as the pool of new buyers remains large enough to pay off the > earlier buyers surfing the bubble. Considering that relief and unemployment > checks amounted to many hundreds of billions of dollars, if even a modest > amount of this is in the hands of the young men who were gamers and are now > stuck at home, it can look as if that bubble can continue to inflate for a > while. We might even be able to estimate, however, from the overall amount > of free money spent into the system, and the part of the public that this > young-male demographic accounts for, what the potential size of total > gambling capital is for this thing. > > 4. While attention is on the oligopoly of small fish, and the unprepared > mid-sized or small hedge funds that might go bankrupt, there are always > larger actors who are well capitalized and can wait out bubbles. They may > not have taken positions in this before, when it wasn’t all that interesting, > but now seeing that there is a bubble afoot, they had a reason to get in and > go short early. They can outlast the short squeeze, and have a reason to do > so because of point 5 (next): > > 5. The pyramid will end when the new buyers are exhausted, and that will be > the end of any power for the little-fish oligopoly. At that point everybody > who is leveraged will be underwater. Because a lot of this money was in > options, the unwinding will be very fast, much faster than if it were just > driven by a sell-off of the underlying. The last wave of buyers in will lose > essentially whatever they spent. Whichever little fish happened to get out > of the bubble before that will collect some of the money from that last wave, > and the larger hedge funds who were waiting out the short squeeze will then > collect the rest. > > > So, when the dust settles, the net effect? Some money will have changed > hands in a quasi-random way, from many small fish who gambled the rent and > couldn’t afford to lose it, to a smaller number of other small fish who will > collect at varying multiples, but still not enough to meaningfully alter > their life trajectories. The Reddit board-makers might collect enough to > happily go on to the next scam, but they will not be breaking into any Forbes > lists. However, in the net, there will have been a flow of money out of both > the oligopoly of small fish and the small or mid-sized hedge funds that > didn’t see it coming, and into the wealth of the large funds. In addition to > the direct winnings of the large players, because their returns to their > clients will go up, they will collect new clients that jumped ship from the > hedge funds that bought back out of the short squeeze at a loss. > > So the macro-thing that will happen is the macro-thing that happens through > every other mechanism: whoever has the most capital can wait out the largest > spectrum of risks, and will on average gain more capital. This is the > ratchet that works through everything. It is not a Fama-French efficient > market mechanism, because it works through differential action of > constraints, not through Arrow-Debreu “complete” price systems. It is not > quite the same, but still related to, the bubble-bailout cycles that I have > termed Minsky’s Ratchet, from the arguments made by Hyman Minsky in > Stabilizing an Unstable Economy. > https://www.amazon.com/Stabilizing-Unstable-Economy-Hyman-Minsky/dp/0071592997 > > > For AOC to be seeking media attention, when there was an early trading > freeze, to criticize the hedge funds for looking for protection against the > oligopoly doesn’t surprise me, because this is a culture-war thing and > responding in the moment to that is what she does. But for Warren > (Elizabeth, not Buffett) to allow that to be her caught-on-camera moment > surprises me, and seems regrettable. Yes, EW is as motivated as AOC to > criticize the use of access by the hedge funds to seek protection when they > get beat at their own game, and both are right to mock them and welcome them > to go under. But EW’s career has been about how the ratchet of unequal > capital constraints moves capital from the small to the large, and if what I > said above is correct, I would assume this would be the biggest picture in > her view. In the long term, the people who will get hurt mainly are just the > people she has made a profession of trying to protect. I would think she > would want her on-camera moment to be about not getting distracted from that, > and worrying that, yes, market regulations and taxation that encourage > game-of-chicken gambling are The Urgent — and structural — Problem. Whether > some gambling hedge funds get caught and go under is a sideshow. AOC, too, > of course is plenty smart to understand all this (if what I have said above > is not wrong), and I expect she probably does. (She was an econ major in > college, right?). But her media incentives are a bit different, so for her to > mostly emphasize the culture-war thing doesn’t seem strange. > > So is the above roughly correct? Or do I misunderstand the structure badly > enough that I am drawing the wrong macro-conclusion? > > Eric > > >> On Jan 29, 2021, at 6:45 PM, uǝlƃ ↙↙↙ <[email protected]> wrote: >> >> Yep. I've logged into my TD Ameritrade account several times to see if >> they've limited purchases of GME. Supposedly Robinhood did limit purchases. >> It looked like I could always buy on TDA... but I'm not sure. I would never >> actually buy GME, *except* to screw The Man. 8^D >> >>> On 1/29/21 3:41 PM, Merle Lefkoff wrote: >>> Has anyone been watching what's happening in the stock market with GameStop? >> >> >> -- >> ↙↙↙ uǝlƃ >> >> - .... . -..-. . -. -.. -..-. .. ... -..-. .... . .-. . >> FRIAM Applied Complexity Group listserv >> Zoom Fridays 9:30a-12p Mtn GMT-6 bit.ly/virtualfriam >> un/subscribe >> https://linkprotect.cudasvc.com/url?a=http%3a%2f%2fredfish.com%2fmailman%2flistinfo%2ffriam_redfish.com&c=E,1,vjPYuWV_SOqXmjm9v6nfchPYvTQOERJqzYuZ2EvGnKR7L9JjDHkhv09DfpBYVvGe1tHPFt0RRGwq0ChNxd4eziP-rcFnAxXsqnUAkkBW&typo=1 >> FRIAM-COMIC >> https://linkprotect.cudasvc.com/url?a=http%3a%2f%2ffriam-comic.blogspot.com%2f&c=E,1,Ng1EbcI2wHi1MUdaZwXmDZg2LgvtvJqHf7DOlh3YY2zT6TsytRdo9rGgU_AUtySrheyJhbod7GCSTftIa0Lyq26aHcwK5Q1ssH2dO5zJRMKCITI,&typo=1 >> archives: http://friam.471366.n2.nabble.com/ > > > - .... . -..-. . -. -.. -..-. .. ... -..-. .... . .-. . > FRIAM Applied Complexity Group listserv > Zoom Fridays 9:30a-12p Mtn GMT-6 bit.ly/virtualfriam > un/subscribe http://redfish.com/mailman/listinfo/friam_redfish.com > FRIAM-COMIC http://friam-comic.blogspot.com/ > archives: http://friam.471366.n2.nabble.com/ - .... . -..-. . -. -.. -..-. .. ... -..-. .... . .-. . 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