What's causing all these stocks to be squeezing at the same time?
I'm not even sure we should be saying GME was WSB's doing, although it is a fun story.
I think the real world meaning of this, is that people shorted stocks that were perhaps in temporary distress, but many if not all of them could be saved if they got a lot of cash, which they can do, if they suddenly can sell stock at an inflated price. The short theses could have been self-fulfilling, but now things are going the other way. It's not really a violation of objective facts if the market decides to give these companies more capital. Who's to say they shouldn't get it? Especially with all the money showered on IPOs lately?
I used to think short selling was honorable, misunderstood, etc. but if it really is a self-fulfilling thing, maybe it isn't a social good, especially when the viability of a company is affected by the temporary situation with covid.
Maybe GME and similar should get a year's lifeline, for the good of all their stakeholders, because a lot could and almost certainly will change.
It reminds me of when "everybody" (in a vague sense) suddenly took covid-19 seriously. There's a dynamic sort of like people are particles in an avalanche or something. I remember the week or so leading up to March 13th (iirc) as just having the pressure building and wondering when something would be done, and then there was the tipping point.
You're meant to buy(sell) because you like the idea of (not) owning something. That means you don't want to move the price. If you move the price you can't buy more at the same great price later. Wanting to move the price is sort of the smoking gun of manipulation.
Being able to change the price in the short term means the price is "wrong". A wrong price cheats all sorts of market participants even ones who don't trade.
Securities fraud is defined as any action that "induces investors to make purchase or sale decisions on the basis of false information"[0]. A false price is a great false piece of info to manufacture.
I'm watching with interest for when WSB attracts the interest of the regulators. Being retail means they're generally ignored, until they're not.
That's the definition of shorting 100% of the float.
Borrow the stock of every active trader. Sell all stocks. Now the market looks like everyone, literally every single trader, is selling the stock and it is true because all of the actively traded stock was in possession of wallstreet who did indeed sell the stock.
People who are long in the stocks now get scared and sell their shares. That's how this strategy is making money for wallstreet. However, wallstreet kept shorting and shorting. From $24 per share to well below $3 and they never stopped shorting. They never closed their shorts even though going from $3 to 0 is only an extra $3 in profit but it massively increases exposure to a short squeeze and thus the potential for losses. They could have bought some options to cover their shorts and lock in profits at $6 and still have the upside of the stock going down to $0. They did neither.
It doesn't matter who buys GME. Anyone can buy the stock and go long and cause a short squeeze. Anyone. I think it is sad that I have to remind you that a short squeeze is not market manipulation. There is nothing to regulate except the short sellers and that is exactly why they try to find a scapegoat like WSB. When you fucked up and are about to get investigated just stirr up the media and control the narrative.
There is nothing wrong with saying "X is a good stock, buy it". Saying "I don't really know about stock X, but if we work together to drive prices up we can make money when we dump the stock" is all sorts of illegal.
>"we somehow coordinated and we stuck with it"
https://www.reddit.com/r/wallstreetbets/comments/kwkle2/gme_...
Don't get me wrong. I am not saying a case will definitely be made. Maybe it will be judged not worth the effort or politically unpalatable (going after the little guys). Maybe they had much less impact than they\we think and there was actually some other entity behind it.
But if there is a case to be made, those are the key elements:
* They conspired together
* Their aim was to manipulate the market (move the stock price).
Edit: typos
Edit: and as to your first point, it has always been legal to say, hey, I am buying this stock, I like it, I recommend you buy it too. That alone is definitely not manipulation.
https://www.sec.gov/news/press-release/2019-216
Drove prices down, bought, drove prices up, sold.
The reported actions of WSB is basically the second half of this with the twist that they think they can use large short positions as leverage to push prices up more.
It's actually a very common, old form of fraud. The question is whether regulators care to enforce the rules. It's what Leonardo Decaprio is guilty of in Wolf of Wallstreet.
On the other hand, WSB is just a bunch of different people and a lot of them have bought GME because they thought would go up.
By your logic, anytime a stock goes up, how's it not just manipulation? It's typically caused by a bunch of people buying it cause they hope it will continue to go up. This is all that's happened at WSB.
Why is it the fault of wsb for exploiting a market failure?
That said, manipulating the price up because you think someone is manipulating it down, is still manipulating it. I'm not saying they're "the bad guy", but they're breaking the law and not actually helping anything imho.
If the price goes way up, they can sell stock at that price and keep the business running.
GME being a worthless company right now is not an objective fact about the world, but a contingent one, significantly dependent on their access to capital to get through covid and restructure.
P.S. Matt Levine's column today gave a "traditional four part test" for manipulation:
(1) That the accused had the ability to influence market prices; (2) that the accused specifically intended to create or effect a price or price trend that does not reflect legitimate forces of supply and demand; (3) that artificial prices existed; and (4) that the accused caused the artificial prices.
No individual on WSB can possibly be doing all four things, can they? Unless there is some private conspiracy among a small number of people.
May I ask: Why would there need be an individual behind the attempt? If it takes (say) 1mUSD to manipulate a market, then the market is being manipulated whether 1 person does that in one $1m trade or 1000 people do it in 1000 trades each of $1 right?
The second possibility adds complexity admittedly. I'd have to show they were conspiring to do it, not just all randomly making the same trade on the same day.
But at least some WSB members have explicitly admitted that so...
>we somehow coordinated and we stuck with it
https://www.reddit.com/r/wallstreetbets/comments/kwkle2/gme_...
There are a lot of reasons the SEC (and others) might not act on this. And there are a lot of "fuzzy edges" (eg how influential were they in the price move vs someone else trading at the same time?). But the case I'd make is pretty much that: Members of WSB conspired together to complete your 4 items, no different to a safe-cracker and a get away driver working together to commit a crime they couldn't have managed solo.
Of course, I'm a bit of a Crime and Justice nut, so maybe it's best I don't get to interpret these things in real life :)
"Legitimate" and "artificial" seem like undefined words. If one person or a few people puts a value on something that nobody else does, then you can call it artificial. But if millions of people are buying and selling at various prices, how can you prove any of them are "artificial"? To some extent, I think it's simply about numbers. One person who thinks different is crazy. Millions are a political party or religion or something.
They could go after Elon Musk (again), since he gave WSB a shout-out after hours and it jumped like 50%.
To be honest, I have no idea.
There may be a hard mathematical test I'm unaware of. Or it might just come down to convincing the jury. In this case, I'd say that the statements on WSB and the fact the price rose 2 (3?) figures with no change in the underlying company is a pretty strong indication. But it's not a slam dunk, "anything over x% is manipulation" rule AFAIK.
Still, plenty of others are convicted of it, so either juries can be convinced or there is a mathematical rule I'm missing.
I actually think WSB likely didn't do it completely alone. Plenty of hedge funds watch WSB. RobinHood sells the data too so I'd be surprised if it was a solo effort.
Index funds buy shares as a group.
Retail investors buy Tesla in droves.
Companies buy back their own shares on the regular specifically to increase the share value.