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How Reddit's Co-Founder, Jim Cramer, and Wall Street Reacted to GameStop's Surge (cnn.com) 180

Friday afternoon CNBC reported that "heightened speculative trading by retail investors" (later referred to as "GameStop mania") had "continued to unnerve the market." The Dow Jones Industrial average lost 620.74 points, or 2%, to 29,982.62, the first time the 30-stock gauge has closed below the 30,000 mark since Dec. 14....

The market also experienced the highest trading volume in years as the mania heated up. On Wednesday, total market volume hit more than 23.7 billion shares, surpassing the level during the height of the financial crisis in 2008. Thursday also saw extremely heavy trading with more than 19 billion shares changing hands.

But Forbes reports that experts "seem in broad agreement that the bull market can rage on." "The market is not broken, but recent events have revealed some cracks," says Commonwealth Financial Network Chief Investment Officer Brad McMillan, who thinks one likely result of the week's frenzy could be that the price of options — which helped fuel some of the outsized meme-stock demand — rise to help curb "price hacking" in the future. McMillan eschews concerns from other experts that the Reddit-fueled price mania could be a sign the market is in the middle of a bubble akin to the dot-com era in the late 1990s, but he says "crackdown" by regulators is likely.
CNN pointed out that the tagline of Reddit's forum is "like 4chan found a Bloomberg terminal illness" — and cited two more reactions:

- "We've seen how social media can be manipulated to expose fault lines in our democracy," said Arthur Levitt, Jr., the former chair of the Securities and Exchange Commission, in an op-ed [titled "Danger Lurks Beneath Reddit Day Traders' GameStop Triumph"]. "Are we certain the same isn't happening in our financial markets? Time to find out."

- "I think it's a real example of what we're already seeing with the way media has been upended," said Reddit co-founder Alexis Ohanian in an Instagram video this week. "All of these big institutions have been challenged, quietly and sometimes loudly, at moments, for the last 10 years with the rise of social media."

Meanwhile, CNBC's stock pundit Jim Cramer advised the traders who'd helped spark the runup to grab their profits now: "Take the home run. Don't go for the grand slam. Take the home run. You've already won. You've won the game. You're done," Cramer said on "Squawk on the Street."

"Please don't lose a lot of money on GameStop," added the "Mad Money" host.

Cramer, who's being treated in the hospital for a pinched nerve, said he called into CNBC in hopes of making sure people recognize the potential downside risk in GameStop and other soaring short squeezed stocks. "Don't let them get hurt. It's our job" to make sure people know they may get burned if the stock price collapses, he said....

Cramer said he was concerned about the stability of the rest of the U.S. equity market the longer the frenzied trading continued...

"I'm not saying that Reddit is good or bad, or that the shorts are good or bad," he said. "I'm just saying that the government has to step in and at least try to address the situation so the rest of the market isn't panicked by four stocks that are heavily shorted."

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How Reddit's Co-Founder, Jim Cramer, and Wall Street Reacted to GameStop's Surge

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  • by rapierian ( 608068 ) on Saturday January 30, 2021 @11:21AM (#61009016)
    Full stop. There is no manipulation, hacking, "ignorance of market fundamentals", or any of the other ridiculous allegations going around. Hedge funds put themselves into a ridiculous position that they never expected to be called out on, and got called out on it.
    • by ceoyoyo ( 59147 ) on Saturday January 30, 2021 @11:24AM (#61009026)

      This is way more concerning:

      "I'm not saying that Reddit is good or bad, or that the shorts are good or bad," he said. "I'm just saying that the government has to step in and at least try to address the situation so the rest of the market isn't panicked by four stocks that are heavily shorted."

      Perhaps the big boys do need some more serious regulation if they can't differentiate between four stocks in a surreal position and the broader market. Or maybe "panicked" is just code for "afraid someone who's not a member of the cartel might call them on their bullshit."

      • This has gone on long enough. SEC needs to step in and say for these 20 volatile stocks no short selling is to be allowed. All borrowed stock needs to be returned back by the end of the day and margins for everyone not just retail traders brought up to 100%. Followed by an orderly liquidation of the hedge funds and a lifetime ban from the secuities trade for all the Hedge Fund partners who are not able to cover their shorts. Any shortfall will be paid out of govt funds to those holding longs. Cap the price
        • Why not outlaw short selling completely? What does such an anti-business behavior accomplish? Look at all the assholes that tried to crash Tesla, for example.

          • Why not outlaw short selling completely? What does such an anti-business behavior accomplish?

            Short selling is important if you want prices to convey full signals and (used appropriately) can help prevent bubbles. Suppose you have a bunch of investors who are all gung ho on a bad stock (they are coming out with cold fusion next year!). There's no way to communicate to the purchasers that the rest of the market thinks its a scam, and some people could easily lose their life savings. Especially as the price

        • by ceoyoyo ( 59147 )

          What? Why end it? The longer Reddit holds their feet to the fire, the less likely they are to short, or at least short an unreasonable fraction of the stock, in the future. And a nice big loss for 2020 will make people less likely to give them money in the future.

          • by ghoul ( 157158 )
            Because if it goe on long enough the hedgies will convince Congress into a taxpayer funded bailout. They are already crashing normal stocks like MSFT and AMD. If we leave them alone any longer they will escape while putting the cost on society like they did in 2008
        • by Gimric ( 110667 )

          Why would the government get involved in a private transaction? These aren't FDIC secured funds.

          If financial actors have transacted on shares that don't exist, or put themselves into a financial hole, they just need to follow the bankruptcy laws.

          • At this point 5 Billion of stock has been leverage to almost a trillion of options liabilities. If this goes down it can take systemically important institutions like the OCC down with it. Which will lead to a Taxpayer funded bailout. So we need to stop this before the hedge funds are able to pass their liabilities up the chain to the taxpayers. Stop it now. This is why in Bankruptcy the court appoints administrators to make sure that the owners dont drain the company before it goes into bankruptcy.
      • The problem is those hedge funds that shorted those stocks must sell their long positions of unrelated stocks in the 'broader market' to cover their losses. Such a massive sell off is what has caused the pull backs (price drops) that happened to the market in general the past two trading days.

        The market was due for a correction but this moved it up a bit.
        • by ceoyoyo ( 59147 )

          Meh, a few billion isn't enough to move the market much. The indexes took little dips yesterday, but nothing exceptional.

          • by tlhIngan ( 30335 )

            The thing is, and retail investors are seen as "dumb money" by the professionals. As in they're just a minor amount of noise in the grand scheme of things and the private equity funds and all that control the world.

            What the four stocks did, was provide a wake up call that basically called their bluff.

            And nothing wrong with a deep selloff of other holdings. It meant us "retail investors" could take up positions in companies that were good at discounted priced and benefit from the long term growth of said com

      • If the government wants to step in, maybe they should outlaw naked shorting.

        • by ceoyoyo ( 59147 )

          I agree with you, except for one word. Naked shorting is already illegal. Just outlaw shorts in general.

    • One hedge fun shorting Game Stop is not a problem.

      When it becomes wisdom on Wall Street to do so, and the "new big thing," or a trend/fad in other words, then everyone starts doing it.

      At that point, it takes on a destructive nature, like most crowd actions.

      • by g01d4 ( 888748 )

        a destructive nature, like most crowd actions

        Crowd actions can also perform checks and balance to the asymmetric power of access to information and monetary privilege. That's likely what happened recently as in addition to being able to obtain information on the hedge fund position an internet crowd was able to muster the monetary resources to act.

        • ...but usually do not. It's important to remember that the system as it is consists of the results of two centuries of attempting to "balance the asymmetric power of access to information and monetary privilege."

    • The hedge funds got a pretty massive hit. But loaning out more shares than exist could make sense in some very rare situations.

  • So what now? Social media is bad because people can come to some agreements and act upon them? Shoot, they must have forgot internetz are just for lolz (and pr0n)... This kinda looks like "big boys" are crying that kids broke their game, while still playing by the rules... Seems the only difference from the usual folk doing just what those masses of retail investors did, is they don't necessarily look to gain from this. Which is not what stock market is about. Which is a silly argument to push to the press.
    • after a long career of standing for the "little guy" in the face of the billionaires on Wall Street, Elizabeth Warren is not amused by the GameStop event... and she's not in support of the little guys against the big hedge funds. She's demanding [twitter.com] the SEC look into BOTH sides. It seems she's no more concerned by the billionaire hedge fund managers artificially pushing down a stock for quick profits and doing it by selling more shares than actually exist (an actual act of fraud) than she is by anonymous small

    • There's no "agreement" on Reddit. It's more like someone saw that the Emperor was wearing no clothes, published the information that lead him to that conclusion, and then a bunch of commoners starting buying up all the clothes so the Emperor would have to pay a ton of money to cover his ass.

  • What? (Score:5, Insightful)

    by ledow ( 319597 ) on Saturday January 30, 2021 @11:28AM (#61009042) Homepage

    If random amateur people investing small amounts each in four stocks can threaten the stability of the entire stock market.... you need a new kind of stock market.

    Because... how long has that same stock market been vulnerable to professional, targeted, inside, well-funded, distributed, multi-stock attack of the same nature?

    • If random amateur people investing small amounts each in four stocks can threaten the stability of the entire stock market.... you need a new kind of stock market.

      I think it's more important to realize that the stock market is not the economy.

      • I think it's more important to realize that the stock market is not the economy.

        But for various reasons the stock market is the new savings account.

    • If random amateur people investing small amounts each in four stocks can threaten the stability of the entire stock market.... you need a new kind of stock market.

      If random amateur people investing small amounts each in four stocks can threaten the stability of the entire stock market.... just think what China could do. They're sitting on tons of cash, and could easily launch attacks on over-shorted stocks. Through fronts, of course.

      Why they could even setup their own RobinHood site, and call it DennisMoore for shits and giggles.

    • The heavy movers are already here in the effort to beat the shorts. Look at Friday's trading. The shorts were ladder trading (selling the shares back and forth between themselves to lower the price artificially), dropping the price precipitously. However, the share price hit a $250 wall set up with a party who threw in a multi-million dollar purchase order. Similarly, the shorts tried to dump the stock fifteen minutes before the markets closed in an attempt to have the January calls finish out of the money.

      • If this is true, and I have no reason to believe that it is not, it indicates that there are some heavy hitters who have been waiting for an opportunity to take down some of these shorters but were not willing to take the risk. Starting this sort of short squeeze is very risky, but heavy hitters can follow up on this with minimal risk (they may lose money, but they can be sure to cost the shorters more, a lot more).
  • by drkshadow ( 6277460 ) on Saturday January 30, 2021 @11:38AM (#61009080)

    People are acting like the GME rally was a "meme", as though there was no basis for the rally that happened here. That is incorrect.

    The fact is that GME was _extremely_ over-sold. That makes it a good buy. In fact, it was _so_ over-sold that by buying a _lot_ of it, and holding that lot of it, you could force the sellers to realize their mistake and exit their position -- at which point they owe you _more_ money. It was recognized as over sold, it was a planned purchase, it was executed, and it corrected the over-sold nature of the stock.

    Stop there. I'm not going to degrees, I'm saying that GME _is now_ a good buy, but it was _certainly_ a good buy when it was over sold. It was also good for Gamestop -- they covered debt, they'll be able to keep going as a company for some time. AMC too -- they didn't spike, but their debt is absolved by the growth in their over-sold stock, and that makes them a more valuable company in the end.

    Lets look at that last part. Other large investors felt strongly enough about the strength in the AMC gains that they used it to absolve AMC of their pandemic-induced debt. This is institutional traders, who supposedly know more than these meme-followers. The growth in these stocks is _justified_ and is supported by institutional traders.

    The end result? A few companies that were going to go under have now been supported through the pandemic. Real companies, that people really interact with, that do provide value to the country.

    So lets go back to the high valuation of gamestop right now. Absolutely, it's now "over valued." In fact, just about every stock in the stock market is over valued right now. Is it just going to fall out of the sky, then? No. Again, every stock is over valued. There are holders of this stock that bought it because they like Gamestop. My friend said his family practically lived there for years (him and kids). Gamestop is over valued, just like everything else in the market. (Tesla -- why aren't they halting trading on Tesla?)

    The reason for this is that people have money, and they don't know what to do with it. Previously they were putting it into savings accounts. (Through high school, "7% _compounding_ interest! You should put your money in a savings account and save for retirement!" Oh, that interest is now 0.05%... damn. The stock market! We'll put it into the stock market!) Savings accounts aren't viable, and most people realize that, so all the money that people are just sitting on is being used to buy up stock. As a result, every company's stock is over-valued; as a result, many, many stocks are inflated beyond reason; as a result, all the "fundamentals" that you're hearing about no longer apply to the stock market. People are just buying because they don't have anything better to do with their money. If it goes up, great. If it doesn't, well they weren't doing anything with it anyway. People are buying the indexes (SPY, XLK, QCLN, TAN, PBW) because it's "easy" and/or because they like what it represents (clean energy! I'll buy into that!). Because people are buying, it keeps going up. It's a meme. "Buy the market!"

    That's not to say these savings-accounters are wrong -- they're putting there money 1. where they might get something out of it (as opposed to where they _won't_ get something out of it), 2. where it might help the world (clean energy!), 3. in the relatively "safe" indexes.

    The absolute result is everything in the indexes is growing just because people "meme"ed it. The current market is a meme. It will crash if anyone finds something better to do with their money than put it in the stock market like a savings account, because "Hey stock market!" isn't any longer the best option.

    Hedge funds and institutional traders are just meme-followers.

    • A lot of it has to do with extra stimulus money. But it's highest price in the last 5 years was ~30$ is 10x that now. I don't think they've been doing 10x better

      • by ghoul ( 157158 )
        Maybe with all the newly printed money the value of the dollar has fallen 10x
        • There is 5.2 Trillion in circulation, and they bought bonds for what 2 Trillion for the stimulus and possibly 2 Trillion more? So if you just use a ratio (which doesn't work but anyway) it would be more like 2x. Most of the damage will come from inflating prices (because there is more money around) and because we are spending tommorows money today and it will have to be paid off. This will happen through bonds and through taxes. The lower and middle class will suffer more because salaries will not increase.

    • Gamestop is now bigger than half the companies in the SP500. If Gamestop issues convertible debt with a conversion price of 1000 dollar per share they can raise money without crashing the share (1000 dollar becomes a floor). GME is profitable from operations. Only their debt payments load them down. Use the convertible debt to pay off the debt. Now they become EPS profitable. Given EPS profitability and the size of the company, the SP500 is forced to add them. Once SP500 adds them all Index fund managers ar
    • The fact is that GME was _extremely_ over-sold. That makes it a good buy. In fact, it was _so_ over-sold that by buying a _lot_ of it, and holding that lot of it, you could force the sellers to realize their mistake and exit their position

      If you truly believe that then buy the discounted stock the shorting created until the price is what you consider to be more realistic, not some crazy high multiple of that to force some technical shenanigans.

      Don't act like it was so undervalued it deserved to be incredibly over valued, that's not what happened, that's not true. The shorts got exploited, and they didn't realize their error like GME was REALLY fundamentally more valuable than it is, they got forced to buy high, a technical knock out. Now G

  • Can someone explain what purpose have shorts? What advantage do they bring? Why are they legal? Why do they even exist in the first place? To me, it seems that they serve no other purpose than to screw over some people (in a direction or the other).

    • Re: Shorts are bad (Score:2, Interesting)

      by lenoc60877 ( 7381256 )
      Shorts are the only people examining public companies in a critical manner. Shorts uncovered many fraudulent companies like Enron. The have the incentive to find fraud. The Enron execs hated shorts. They even called them anti-American. Without shorts there would only be cheerleaders for stocks. Shorts are good and keep public companies semi honest.
      • Not sure why this is modded down. While I wouldn't go so far as to say shorts are good, they are certainly a bit of a counterweight to the general incentive that almost all actors have in being "cheerleaders", as you say. I also think it's important to point out that it is not a common occurrence to have 130% of a stock's public float shorted... AFAIK.
    • Re: Shorts are bad (Score:2, Informative)

      by BAReFO0t ( 6240524 )

      It's precisely the same thing as any other stock.
      Betting on positive beliefs is just ad bad as betting on negativr beliefs. It's the delta between the bet and reality, that's the whole cause of the problem.

    • It's actually a good thing because it is preventing GME from going to some ridiculous price like 1000, which would make gamestop valued in the 70 to 100 bil $ range. Price spikes end eventually and the shorts are betting on that.

      Shorters want stocks to go down, and this has exposed bad business plans like enron and some shady companies in China.

    • Say a company is really popular and noone wants to sell its share but many new investors want to buy its shares. Company is not issuing new stock. So market makers go short. They create sythetic shares and sell them to the new investors. Understanding is that eventually some will want to sell and they can buy and balance the books at that time. Hedge funds have been misusing this power to short sell stocks of vulnerable companies and trying to drive them to bankruptcy. So shorts have a purpose but when they
    • Shorting can serve a useful purpose. Imagine that some stock is overvalued, but the market is slow to catch on. This is a misallocation of capital, and it won't last in the long run.

      Under those circumstances, a person should be able to put their own capital at risk on a bet that the price will fall. If they are right, they make a profit (and thus increase their ability to influence the markets in the future). If they are wrong, they lose their capital (and thus decrease their influence). Their bet by i

      • The first problem with that is that this is more in line with betting than investing.

        The second problem is that most people on Wall Street are short-sighted and want profits right fucking now, no matter the social/environmental cost.

        That kind of thinking completely destroys long-term financial planning, ex: all the shorters that tried to basically kill Tesla or any other long-term projects to re-build greener industries that will help reduce or eliminate the pollution of our* planet.

        * with apologies to any

      • by lorinc ( 2470890 )

        So far, you gave the most complete answer (thank you!) and you're confirming my intuition: it has nothing to do with investing, it's pure speculation. Unlike investment which is essential to many things, I don't think speculation serves any purpose other than allowing a happy few to make a quick buck by screwing other. I'll be happy yo change my mind if someone has good arguments.

    • Everyone keeps talking about how short selling involves a bet that the price will fall. They forget that nobody can bet with themself. If one person is betting it falls, then someone else is betting it rises: the person who bought the stock from them. I think the whole thing between those two people is symmetric and it's not fair to say the purpose is to screw someone, unless you think the purpose of the whole market is to screw someone. Is the purpose of good ol' traditional "Buy Low, Sell High" to screw t

  • Front-running, debt (Score:5, Informative)

    by colfer ( 619105 ) on Saturday January 30, 2021 @12:13PM (#61009234)

    Pundit on KCRW https://www.kcrw.com/news/show... [kcrw.com] said the "free" trading apps not only sell your trading data to the big boys, but the big boys (probably) use it to front-run your trades. I had thought the data was for typical historical analysis, but guess not. Front-running means you don't get the best price. In this case, the difference would not be enough to keep you out of the money if you got in early.

    Some big boys - not just small traders - were on the other side of that $10b loss on options. Options are a zero-sum trade, so they made $10b. That's aside from those who bought the stock, not the option.

    AMC theaters had its $600m debt wiped out for good. Its creditor exercised a stock purchase clause on the debt, at a set price. AMC now has more shares outstanding, diluting their value fundamentally, but for now the share price is holding. Long term, the debt is gone. The short sellers paid for that.

  • Are there people really so naive? Stocks go up and down all the time. Last week we lost about 5% on the stocks. So what? We know exactly why it happened.

    And instead of panicking, I am planning to buy more (not GSE, my regular portfolio). When it goes down, it becomes cheaper, you buy more, if it goes up then you make money.

    I think this should be thought at elementary school. Don't need a finance degree to understand what is going on.

    • It is the hedge fund companies and everyone they feed that are panicking and they're trying to panic everyone else (mostly, the GME buyers) to get out of their mess.

      Hence why so many of the quotes in the summary treat the retail investors at WSB as a problem that needs to be fixed, without talking about the totally fucked up shorting. Anyone who thinks Jim Cramer isn't a shill hasn't heard the phrase "Roll 212".

  • hodl (Score:2, Insightful)

    by Tom ( 822 )

    "Take the home run. Don't go for the grand slam. Take the home run. You've already won. You've won the game. You're done," Cramer said on "Squawk on the Street."

    That's a sure sign that they're scared shitless and everyone needs to hold, and keep the price up there. Is $300, $400 overpriced? Yeah, it probably is. But as long as the pundits are trying to convince regular people to sell, there's still a hedge fund or two deep in shit looking for a way to cash out without going under. Some of the assholes are still in need of closing out their shorts with a loss less than Melvin took.

    When the enemy tells you that you've won - you haven't yet won. They want you to give

    • The stock has been flat (although volatile) for the past few days after its big jump. From here, do you think it will go up or down?

      • by Tom ( 822 )

        Short-term or long-term?

        In the short run, it will continue to fluctuate while this powerplay is going on. Depending on the outcome, it will then fall slowly or quickly, though I doubt that it'll hit single-digits again.

        If had bought in at $200 or higher, and if I were in it for the money, I'd look for the next spike to sell. If I bought in for $50 or lower, I'd turn off the news and let it sit. Inbetween, depends if you're in it to make a buck or to enjoy some sweet justice.

    • The short as a percentage of float is currently at 247%. The fundamentals of the stock do not matter. The only thing that is relevant is the belief that short sellers need to buy the stock.

  • I think the takeaway someone thinking about joining in now is this: if you bought in early great but if you just heard aboiut it you missed the boat and the situation has mostly played itself out.

    Right now the stock price is high because the short sellers are required by law rto buy the stock to cover their shorts. That will slowly disiparte and the price will fall again. So if you buy in now you are likely to lose. If you bought early at say $25, then as long as you sell before the stock goes down to $25

  • by rsilvergun ( 571051 ) on Saturday January 30, 2021 @02:48PM (#61009804)
    Pharma company: This drug costs us $3 to make and we'll sell it to people that need it to live for $300, it's not like they can say "no".

    Media & Establishment: Great Job!

    Redditors on WSB: This stock costs me $3 to buy and I can sell it to an over leveraged hedge fund for $300 a share. It's not like they can say "no".

    Media & Establishment: THIS IS AN OUTRAGE!
  • Take the home run. (Score:5, Insightful)

    by Chas ( 5144 ) on Saturday January 30, 2021 @04:41PM (#61010094) Homepage Journal

    Why? The point hasn't been made.

    The Gamestop incident has only resulted in an 8% reduction in naked shorts

    This means that COUNTLESS financial institutions are still HEAVILY invested in this shady business.

    And Jim still thinks that the push is to "Pump & Dump".

    No.

    The push is to hold longer than these short-sellers can afford to stay liquid.
    And all it requires is patience.

    If you try and ruin a company through this method, prepare to be bitch-slapped over it.

  • by Macdude ( 23507 ) on Saturday January 30, 2021 @06:54PM (#61010402)

    Jim Cramer, paraphrased: "I'm just saying that the government has to step in and prevent the little guy being able to manipulate the market like the big players have been doing for decades".

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