[0] https://www.forbes.com/sites/steveschaefer/2015/07/07/forbes...

[1] https://www.bloomberg.com/news/features/2019-03-08/the-gazil...

"Front running" doesn't just mean "getting there quicker than someone else". It is a specific conflict of interest problem where the same people or firm are acting in more than one capacity - agent and principal or agent for different parties - at the same time (eg I see large customer order coming in then trade for myself/my firm before I trade for the client, potentially moving the market for them which would hurt them if our trades are both in the same direction).

Money is a made up thing. From another comment I made:

> Why is a Audi "worth" $60K but a VW "worth" $30K? A Porsche "worth" over $100K? Why is a Patek Philippe or A. Lange & Söhne Tourbillon watch worth $100K? Why should I pay $300 for one All-Clad pan when for the same price I can get a 10-piece set at Costco?

[…]

> And to go back to my first paragraph: a Porsche is not "worth" $100K to me—because I'm not willing to pay for it, or even for an Audi. But it may be "worth" it to someone else because they are willing to pay for it.

* https://news.ycombinator.com/item?id=25935968

It's a convenient fiction that allows for a complicated society to run relatively smoothly, but it's a fiction nonetheless when you get down to it (IMHO).

https://en.wikipedia.org/wiki/Veblen_good

You didn't break economics with your "why are luxury goods so expensive even though they're not better" argument, unfortunately.

> You didn't break economics with your "why are luxury goods so expensive even though they're not better" argument, unfortunately.

I do not see (a) where my claims imply breaking any economics principles, and (b) did not claim they're not better. As someone with an engineering degree I was taught all about trade-offs in design. Different situations may call for a need for different characteristics of a design: one person's situation may call for VW (simple commuting) while another's a Porsche (dealing with a mid-life crisis).

My point was that different items, which have different prices, have different value to different people. So to say what something is "worth" can be completely arbitrary, independent of price. Similarly, various people can find the same item "worth" differently, depending on what they value, so each is will to pay a different price: this is what auctions are all about after all.

In the case of GME: the people who actually care about the retail company may value it one way, and thus are willing to pay a particular price for each stock; while the people who care about fulfilling their (shorting) option contracts may have a different value and are wilting to pay a different price. What each stock is "worth" is different to each of them.

I think he's saying it's not manipulation, but simply a bet. If I buy GameStop at $100 believing I can sell it for $120 tomorrow, I am buying that stock honestly believing in its current value so I'm not sure you can call it manipulation any more than another investor hoping to cash in on an expectation that a stock will appreciate.

How do you decide whether or not something is manipulation? Everybody invests in stocks expecting them to go up - at what point is it nefarious?

In reality, many institutions are also long GME and capitalizing on the squeeze as well.

It's a pump-dump...which is illegal.

Does this mean investment firms are inherently manipulative, since they coordinate investments for their investors? They're doing the same thing - investing in bulk, hoping to catch the rising tide. When big investment firms and famous traders make announcements it affects the stock price too, you know.

I'm not trying to be obtuse. I just don't see how you can make an objective distinction.

I'd argue you could say everyone investing in TSLA is coordinating a pump-and-dump scheme as that stock is insanely overpriced as well.

There is a clear difference in TSLA. People were not coordinated. They have been investing because they believe the company will grow and the stock will appreciate long term.

GME is a bunch of people on reddit saying "guys if we all collectively buy, we can induce a short squeeze and artificially pump the stock price for a short period of time. Pour all your money in and diamond hand so we can get rich together." Then as it hits the mainstream, the smart people will cash out, and the dumb people will stay on the train and lose a ton of money.

You really don't see the difference?

It seems like both stocks are targets of manipulation to me.

I suggest you read up on shorting and pump-dumps. TSLA investors believe the company is changing the world and has enormous growth opportunity.

From my perspective, you're being willfully ignorant.

> You keep conveniently ignoring the short squeeze.

Are you honestly implying there is no short squeeze for TSLA? David Einhorn has written multiple articles on this very topic.

https://markets.businessinsider.com/news/stocks/david-einhor...

A forum with 2 million members advertised and coordinated a massive purchase of shares. Gamestop's market cap was less than $900m at the time. Gamestop was shorted at %140 of its float. There were daily posts describing how the forum has enough collective capital to hold a significant portion of the company.

None of that happened with Tesla. There isn't a community of millions all planning to buy Telsa at the same time for a 2 week period. Its not being championed as a noble cause for retail investors.

How are you okay with this happening? The people who actually get hurt are gullible uneducated poor people that were promised a way to get rich quick and stick it to the global elite. Do you feel no sympathy for the victims of this scheme or any other MLM/ponzi "greater fool" bullshit?

Hasn't Musk been fined -repeatedly- by the FTC for doing exactly that?

https://www.theguardian.com/technology/2018/oct/28/elon-musk...

It's okay to like Tesla but please don't spread lies.

He was fined for misleading investors not for coordinating a distributed group effort. Musk absolutely wanted to take Telsa private but was unable to and made an early announcement.

While I agree with your skepticism of the govt trying to stop "manipulation", what happens when this hits scale?

https://en.wikipedia.org/wiki/Albanian_Civil_War

At some point the music will stop and everyone hodling GME is going to lose their collective shirt. Everyone knows it. You can say "it's simply a bet", and you're right except for the simple part.

Anyone with half a brain should be able to recognize that GME moving from a 900m market cap to a 30b market cap in a few weeks is completely nonsensical.

For example, if the dividend that was paid out per share of GME on, for example, March 15th, 2019 was $0.38, and you owned 1000 shares (and ~4k investment), then you received a payment of $380. In many companies, these dividend amounts and schedules are extremely predictable.

You can then use that money to buy food, or build a house, if you wanted.

The fundamental value of many stocks is tied to the dividend that it will pay you for owning it. Obviously "growth" stocks (stocks that as designed to increase in value, rather than pay a dividend, because funds are used to buy-back stock instead, thus raising the price) is valued differently, but there is still a fundamental value based on the financial situation of the underlying company.

Let's assume that you're right, and that nearly every tech stock, automotive stock, and stock for any company the average person has heard of, or is in an index, is drastically overvalued. Is there any event that would cause the value to "correct"? Some shift causing people to sell their TLSA and buy F, whose value is "more correct"? And if not: what makes the value based on this more correct than the value you can access through trades?

In Dec 2018, MSFT had 92B of SE with a market cap of 1.2T. In Dec 2020, MSFT had 130B of SE with a market cap of 1.7T. They earned money which added to their SE, and they returned some SE to shareholders via dividends and share buybacks over those 2 years.

If in Dec 2020 MSFT sold all of its assets, settled all of its liabilities, and closed its doors, it would theoretically be able to pay 130B in dividends to shareholders. The share price would drop by 92% (1 - 130B/1.7T).

So 92% of its share price is based on its future earning potential. This number goes up or down as the market expectations for their future earnings potential goes up or down.

Dividends reduce SE, which is typically why the share price drops by the amount of the dividend on the ex-dividend date. Share buybacks reduce SE and reduce the number of shares outstanding, which increases each Shareholder's equity stake.

GMEs share price is out-of-whack because some market participants are making decisions based off what they believe the fundamental value to be, and other market participants are ignoring the fundamentals and buying at any price.

GME's share price may be out-of-whack to those interested in the retail business.

But to the people who have (shorting) options contracts to fulfill then the share price may be reasonable, as the alternative to these people is to renege on a contract, which could bring all sorts of unappealing consequences. GME having a price of even $1000/share may be "cheap" to these people.

The same item can be valued differently by various individuals, each for their own particular reasons. This is what auctions are all about.

By what mechanism does this happen? Paying dividends doesn't affect the amount of shares outstanding nor meaningfully impact the market cap?

If apple were to do a 1 time 150 billion dollar dividend, you would almost certainly see their market cap drop by a similar amount the day after. However apples market cap is 2.39 trillion so that is still only 6.27% of their market cap and could get drowned out by normal daily swings. Highly doubt it though and I would expect to see a corresponding runup to the event to claim the dividend and a corresponding drop after.

The next-best alternative is one of them. We are currently in an economic situation where money is literally being printed by the trillions, there has not been a offsetting set of funds going back to the government (thus increasing the money supply), and interest rates are 0 (and stated to stay there for the forseeable future). There is lots of money, that has to go to something, which raises the price of everything (or devalues the dollar, depending on how you look at it).

You ask 'Is there any event that would cause the value to "correct"?'. As a definitely-not-economist, I would guess any event that modifies either of the aspects I mentioned above. Reducing the money supply (perhaps taxing capital gains more reasonably), or increasing interest rates.

[0] I want to point out here that each individual entity buying something will have a different "correct price" for them, based on individual factors, especially at scale. One of these is individual risk, and how the risk associated with a given stock correlates with other risk in your life. If you live in an oil town, investing in a correlated asset should require a better potential payoff, and thus a better entry point, than someone who has no other oil exposure (if the industry collapses, do you really want to lose both your job and your investments?)

PS:

> It doesn't make sense for TLSA

I never said, and would never make the argument, that TSLA is "correctly" valued. But I'm also not insane so am not going to try to short it.

2. Discounted cash flow: how much revenue this business is expected to make in the next N years

3. Dividends

I will grant that multiples vary wildly by industry, but in theory that's a reflection of earning potential of the industry as a whole.

A group of people are coordinating a short squeeze. They are selling a get rich quick scheme and marketing it as anti-establishment. People who are late to the party and fall for the anti-establishment rhetoric will be the ones who lose their shirts.

That being said, if you're worried about pushing prices away from fundamental value, how about negative crude prices?

I didn't say anything about morality. This is a purely functional argument. When something is sold for its fundamental value, nobody loses. That's why its good for society for things to transact at their intrinsic value.

> That being said, if you're worried about pushing prices away from fundamental value, how about negative crude prices?

It was crude futures that were negative. Crude oil has storage costs. Those costs rarely overwhelm the value of the asset, but in particular circumstances they can. That is what happened when crude futures went negative. It seems illogical, but if you actually understand it, it all makes sense and fits neatly inside an intrinsic value narrative.

The original claim was that squeezing an ill-advised short wasn't less moral than deliberately collapsing a currency and taking $1bn of funds from a government, or engaging in sketchy HFT practices. You said "then you don't understand this, or any of the things listed", implying that you believe that squeezing the short WAS less moral.

> Crude oil has storage costs. Those costs rarely overwhelm the value of the asset, but in particular circumstances they can.

"Storage costs" is a convenient and inoffensive way to say "the few remaining buyers with enough spare capacity smelled blood in the water and were able to price gouge".

Sure. But you don't need morality to make the point. I will make that point though: things trading at their intrinsic value is more moral than not doing so, because it means nobody loses.

> "Storage costs" is a convenient and inoffensive way to say "the few remaining buyers with enough spare capacity smelled blood in the water and were able to price gouge".

Err. No. It means the storage capacity was completely gone, and people were scrambling to find new storage capacity. It doesn't seem like you're very familiar with how these things work.

People are free to buy or not-buy any stock, and to sell or not-sell any stock that they already hold. Everyone trading is an adult and is free to do it (notwithstanding things like insider trading, etc).

There is nothing illegal in the activities that I've seen: just people/institutions trading and holding stocks in an open market.

Some of those people are/will be making money through these actions and some are/will be losing money. As Nick Maggiulli recently posted (on a somewhat unrelated topic):

> If it wasn’t obvious before, it bears repeating now—some people are going to beat you at investing. Some of them will be dumber than you. Some will be less knowledgable. Some will even be completely wrong about the future. But they will beat you just the same. There is no great arbiter of justice in the investment world. There is no cosmic force that ensures that only the knowledgable make money. If there were, then I would be a far richer man today.

* https://ofdollarsanddata.com/let-them-vote/

As someone who rides a motorcycle, I think it's stupid not to wear helmet, gloves, etc., and yet in Michigan it's legal to ride without a helmet. IMHO it's dumb, but many people do it and ¯\_(ツ)_/¯

Currently some people think GME is worth US$347.51 per share and are willing to pay for it. ¯\_(ツ)_/¯

It's their money and they can do whatever they want with it. I invest in index and bond funds (80/20), but if someone wants to YOLO on this: not my circus, not my monkeys.

Not to contradict you, but just a reminder that short selling is based on something significantly different than "trading and holding stocks". The ability to promise to buy/sell stocks in the future at a given price has become so accepted as an ordinary feature of stock trading that we generally cease to notice how revolutionary of a concept it actually is. It's hard to see any rationale for prohibiting such arrangements - they are entirely consensual, and appear to have no additional impact on things that instantaneous buy/sell orders wouldn't also have.

But this is an illusion. The ability to go short/long on a stock is completely different from the ability to buy/sell it, despite it being based on all the same mechanisms. It's a truly radical concept that has slipped under our radar because it could be described without any new concepts or terms.

* https://en.wikipedia.org/wiki/Short_(finance)#History

Bond markets started early than that:

* https://en.wikipedia.org/wiki/Stock_market#History

The judgement of the value of this I will leave to others to decide.

My point was almost consonant with yours - it's almost as old as stock trading, but nobody realized how fundamentally different the concept is. They didn't realize it in 1609, and they certainly don't recognize it now.

Most naive conceptions of how stock markets work would never allow for these sorts of contracts. The fact that they've (nearly) always been a part of actual stock markets just points to the same sort of gaps between the actual operation of the financial services industry and how most people think things ought to be that the current GME gyrations are (according to some) also pointing at.

Neither is it "radical" in any type of market. It just means selling something you don't actually have yet (something you're "short"). Think of a middleman who sources classic cars. He contractually agrees to sell a 1991 Ferrari for $60k. He doesn't yet own the vehicle, but knows he can source them for $50k. Unfortunately for him, a recently popular meme has gassed the price of Ferraris, and he now has to pay $70k for the car. He's still obligated to sell at $60k, so he begrudgingly takes delivery and loses $10k, having "sold short" the car. Is he revolutionary or radical?

They also serve quite different purposes for a society/economy.

Futures are useful to a broader group of people precisely because they don't need to involve physical settlement. Many people use commodity futures to hedge exposures to the price of assets which are not the underlying in the future but where there is a relatively predictable relationship between the two prices. Others use them to speculate on prices despite having no ability to deliver or take delivery of the underlying. Some contracts are even purely cash-settled.

(Edit: made clear that it was the point that futures always involve an underlying which already exists I disagreed with.)

This is a bit of an oversimplification. Market manipulation for instance is forbidden my most regulators, and defined by the SEC as "transactions which create an artificial price or maintain an artificial price for a tradable security".

It would not seem irrational that people willingly gathering on internet to buy GME with the explicit objective of crashing hedge funds are considered market manipulators.

Since this started with a hedge fund shorting 140% of a company, I tend to disagree.

I don't know why the story is with Reddit/WSB.

What kind of incompetent fools are these "professionals" that their risk departments didn't flag this? And if it was flagged: who allowed the over ride and allowed it to go through?

The fact that the rest of the market (Reddit/WSB or anyone) caught these funds with their pants down simply shows that The Market® works: a short squeeze is simply a reaction to too much demand and not enough supply.

Whether or not Elon's tweet brought in a bunch of people who want it to be a pump and dump is another story.