THE WOLF STREET REPORT: The Stock Market Is Broken, Now for All to See

The historic short squeeze, engineered by millions of deeply cynical small traders, exposed just how rigged the market has been. (You can also download THE WOLF STREET REPORT wherever you get your podcasts).

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  230 comments for “THE WOLF STREET REPORT: The Stock Market Is Broken, Now for All to See

  1. Dano says:

    TSHTF moment inbound in 3…2…1…

    • 2banana says:

      It all seems so fake, doesn’t it?

      Nothing, that we used to believe in, is not faked or heavily manipulated or full of massive fraud.

      Following the rules, following the law, enforcement of the law, consequences, audits, open transactions, transparency of the raw data, etc. is all gone.

      • Kentucky says:

        Yes, it’s all learned behavior. All rules are made up. For example, what we wear to work are simply costumes. Information is moving more rapidly everyday. People are now questioning the rules and traditions that came before them. Whether it be financial, religious, or political in nature. Societies are becoming more transparent and chaotic because of the frictionless flow of data. Everyone is starting to see what only a few were privy to and everyone now has a platform to be heard.

        • Gl says:

          Agreed, where does it end?

        • joe2 says:

          Disagree. If people were questioning rules and traditions, that implies that some reasoning and analysis is in play. I don’t see much of that. I see factions of corruption and greed acquiring power, factions of intolerant violence persecuting random people for perceived difference of opinion on stuff that could be easily and peacefully worked out, factions of self righteous people that claim the right to force their definition of truth and beauty on everyone else, and factions of scared people that only want to be left alone and now need to defend themselves.

          Don’t make it sound like the enlightened Renaissance. More like the Reformation, the Inquisition, the Great Leap Forward, and Year Zero all rolled into one. No one is rationally questioning prior beliefs. They are being deliberately force-fed new beliefs by psychopaths.

          It’s not information moving faster, look at the censorship of the platforms you mention, it’s propaganda pushed faster and harder.

        • Harrold says:

          This is a repeat of 1439 when Gutenberg invented the printing press.

        • number1gi says:

          “everyone now has a platform to be heard.” Yeah, like P@rler, oh wait a minute. As long as ‘everyone’ virtue signals wokeness, everyone has a platform… everyone else, not so much.

        • VintageVNvet says:

          this for H, as well as #1:
          YES indeed,,, darpanet, or whatever is the currently politically correct term for the incredibly increased communications of, for, and by WE the Peedons is very similar to the same kind of increased communications of the first printing presses;
          however, if looked at closely, the printing press might have been thus for the rising upper middle classes at best;
          the clear results and vast advantages of the net appear so far to benefit all folks at all levels and all ages, any of us who are interested IMO.
          I am very optimistic about the long term results of this vast increase in communication possibilities!
          Just a few years ago I was feeling really sorry for the generation of my grand children born in the last couple decades, but have now realized that even though they have clearly lost some of the freedoms I enjoyed as a kid and teen, they have gained SO much that it’s likely a push, IF they are as active in seeking adventure and advancement as I was.
          Thanks again Wolf, for the continuing education.

        • nick kelly says:

          A lot of societies aren’t chaotic, apart from the C 19, the outbreak of which is not a function of their behavior, although the speed of transmission can be. Given the stresses they also face from the pandemic, the Western constitutional monarchies are remarkably unchaotic compared to some other developed countries. Germany is not chaotic. Japan is not chaotic.

        • Argus says:

          That platform to be heard is diminishing as the moguls who own the social media, You Tube etc decide unilaterally what the narrative du jour should be. Dissenting voices are removed.

        • nick kelly says:

          Harrold: after the 1493 Gutenberg press came science. But if after 500+ years some people think the earth is 10,000 years old, or that the California fires were caused by ‘Jewish lasers’ what can you say to them?

        • NBay says:

          It’s still hard to top “the Devil hid all those old dinosaur bones to fool us”.

      • Frederick says:

        Physical Gold and Silver aren’t fake and doing very well today Manipulated yes, fake NO

        • 2banana says:

          It’s only physical if you personally hold it.

          Which, statistically, almost no one does these days.

          A piece of paper in an ETF is not holding it.

        • RightNYer says:

          I think he meant the fantasy of a free market is fake, not that certain commodities are fake.

        • roddy6667 says:

          I was waiting to make a lot of money, but my silver shares are only up 10%. Physical silver up 11.5%. Meh.

        • Depth Charge says:

          “I was waiting to make a lot of money, but my silver shares are only up 10%. Physical silver up 11.5%. Meh.”

          Physical silver is never going to behave like crypto. If you want fantasy returns, buy fantasy products.

        • Depth Charge says:

          By the way, I am ecstatic with 10% in a day. I can’t even get that in 10 years on my savings account.

        • WSKJ says:

          The miners re whom I recently commented wrt their ability to mine “green metals”, in the U.S. (I’m serious here; got prospects; mining jobs are well-paid), are quite happy to mine the precious metals, as well. Just saying…..

        • c1ue says:

          Depends on your point of view. I sold all my physical silver at $45 – are we back there yet?

      • JK says:

        So how does it feel to live in a democracy? /sarc

        • WyleeEconomist says:

          “The Best Democracy Money can buy…” brought to you by Citizens United! A conservative ideal.

      • NBay says:

        The creators of South Park built a (my absolute favorite and one of maybe 5-6 I ever watched a complete episode of, and only 1 regularly…sometimes) sit-com world based more or less on kid’s thinking, their world view, absurdity, hypocrisy, and other things I currently am out of words to describe.

        Anyway, surprised like most, after the last election, they basically said they couldn’t top reality, and quit and took a hiatus. (I’m glad they are back).

        It’s sort of how I feel now, I just don’t have anything to say, other than that was an excellent podcast concerning things that I come here to learn about.

      • K says:

        Amen. As a result, I propose an alternative to the “efficient markets” theory, which might, possibly turn out to work over the very long run, because all falsehoods and manipulations may be discovered in the end. The Enron-type playing with financial information and inaccurate or outright false information out there means that most investors must operate like half blind cattle and often reacting with terror.

        Uncle “Fed,” Buttbeard, and their cronies previously enabled this manipulation by essentially, effectively guaranteeing that Wall Streeters could gamble recklessly without actually facing any risks: any risk would actually be borne by the taxpayers, whose legal tender would be created by Uncle “Fed” to bail out the Wall Streeters and banksters who owned its district banks.

        My theory is called the “panicked cattle stampede” theory of investing: it posits that the stock markets are now utterly irrational, influenced mostly on inaccurate information, and moved by strong, often random influences, which enable the Wall Streeters to manipulate the markets by posting stories on media. E.g., the articles that a particular company that is being sold short has poor earnings prospects, so that investors are discouraged from investing in it.

        This is nothing new. If you read or watch reporting on the 1929 Wall Street crash and the stock manipulations before that, pump and dump schemes have been used for more than a century. They work just as well in modern times when crooks now do not pump up a stock’s price but short a stock and manipulate the news then to enable that stock’s price to be tanked.

        The billionaires’ control of US media enables this by allowing them and their cronies to post any nonsense stories that they please whenever they please. See Forbes Magazine’s article as to how “These 15 Billionaires Own America’s News Media Companies.”

      • John K says:

        Turns out that Orwell was a prophet , who knew ?

    • K says:

      The small traders are wise and realize the game is rigged. The Wall Streeters are seeking to profit from our misery but they cooked them, LOL: e.g.,, inability to shop at Games top due to virus. Serves the crooks right! Investigate Citadel and its involvement with Melvin Capital and Robinhood, also its Bernanke and Yelled connections.

      These people are all so interconnected all discussions start to sound paranoid!

      • K says:

        Y e l l e n not yelled, darn spell checker!

      • K says:

        I suspect that 15 U. S. C.A. Sec. 78 will be enforced against the brave, valiant Reddit buyers while the Society to Enable Corruption never enforces it against the connected crooks: Wall Streeters and banksters

    • K says:

      I wonder if OCC or DTCC and brokerages will have “issues,” because I would not be surprised if more shares of GME were being traded than they and the Wall Streeters actually have.

      • K says:

        Not GM but GME, is what I meant. I purchased GME in a small way myself, because I figure that the short sellers will need to get out of their short positions in the coming days. I expect a profit of at least 10% in the coming days and for it to be coming from the ______ Wall Streeters, which is the best thing!

        • K says:

          My order did not go through. Apparently, my broker insists that an order be for tomorrow but provides that it must be for a very low amount: it rejected my orders. It is just as well.

          Somehow, the crooks will get assisted. I decided just to invest in another company instead, which has more secure earnings. I do not know if the call options that were purchased were enough to get the Wall Streeters out of their short positions, so this stock could go up or down.

        • Javert Chip says:

          K

          You have no friggin clue what you’re talking about.

          Retail customers in margin accounts sometimes get margin calls, requiring the customer to put up more cash to stay in the trade.

          The same is true of the DTCC and broker/dealers. All stock settle on T+2 (2nd day after trade). If volatility in certain stock pricing gets too high, the DTCC requires broker/dealers to put up more cash (capital) to guarantee the trades (GME definitely qualified). Robinhood got a DTCC margin call for an additional $3B that had to be paid within a few business hours (not days). Robinhood constraint traded in GME because Robinhood was in danger of running out of capital.

          The lack of understand demonstrated on his topic is the very reason fools and their money are soon parted.

  2. Brady Boyd says:

    Long SLV….

    • DeerInHeadlights says:

      Too late to get in tomorrow?

      • Noelck says:

        Please don’t. What started out as a nice story then became the perfect short squeeze has now become a giant pump and dump and a lot of retail investors are going to get hurt. There is a lot of institutional money in this and before it’s over BlackRock is going to make billions and many retail investors will be left holding the bag. Aladdin never seems to lose :(

        • 2banana says:

          What’s wrong with throwing the free stimulus money into the short squeeze lotto?

        • WES says:

          Noel:

          This time they are targeting all of the world’s central bankers!

        • Ulev says:

          “Throwing the ‘free’ stimulus money at the market ???
          How about FEEDING your kids…
          OR..How will You survive when your parents throw you out ?

        • 2banana says:

          Ulev.

          There are a plethora of articles on this very site that documents the stimulus money basically went into buying Chinese imports.

          “How about FEEDING your kids…
          OR..How will You survive when your parents throw you out ?”

    • DW says:

      Hold physical. SLV is tricky. Any ETF that just creates shares out of thin air is problematic
      St Angelo has a great explanation about the cautions in SLV

      • 2banana says:

        SLV is tricky…

        Because there is no where near enough physical silver to cover the contracts for it.

        Thus the deeply cynical small traders exposing just how rigged the market is in a YOLO kinda way.

      • Putter says:

        Silver has topped for now. The dollar will hammer it into the crapper. Good buy around $18.

        • cd says:

          its going to 50 print….cycles happen, its undervalued currently, jpm short is gone

    • MiTurn says:

      “Long SLV….”

      Concur. And have it in hand. If you can get it.

    • Frederick says:

      Get the physical if you can find any SLV will default and they will just settle with you in cash

      • Bobber says:

        Doesn’t SLV hold the silver in a vault, like GLD? If so, it’s not just paper. It is the same as physically holding it in my opinion.

        I have heard people claim time and time again that GLD doesn’t own actual gold. Yet, when I read the materials, I see that it does own the gold and holds it in a vault.

        If trust shares are backed 100% by metal in a vault, that is better than metal hidden in your house, because it won’t be stolen. People who hide meal all over their house, behind structural elements, under the floor, in the attic, in the wall, buried underground, etc., are kidding themselves. A good thief, looking for metals, would find that stuff in a few minutes, especially if they utilize a metal detector.

        • LifeSupportSystem4aVote says:

          “If trust shares are backed 100% by metal in a vault, that is better than metal hidden in your house”

          You have confused SLV with PSLV.

        • Wisdom Seeker says:

          When you own SLV or GLD, you own a legal claim, not actual metal. The legal claim doesn’t give you a right to take possession of the actual metal. And unfortunately, legal claims to the _same_ metal are sometimes sold over and over again. Your legal claim is only as good as the willingness of your counterparts not to cheat.

          In that regard, funds which include a contractual option to deliver you the actual metal have a far higher level of credibility.

        • RickV says:

          Talking heads on both Bloomberg TV and CNBC claimed today that there is 1 Billion ounces of silver in the London vaults to cover delivery of physical silver in options, futures, ETFs etc, if necessary. So the question is Does enough (unencumbered) physical silver really exist or not? I think we could find out soon. And one other question: If you had 1 Billion ounces of silver sitting in a vault in London what would you do with it: just sit on it paying storage fees waiting for a day like today, or would you lease it out or otherwise encumber it to make some money?

        • Thomas Roberts says:

          Bobber,

          I don’t know about SLV specifically, but for gold, it’s well established that the gold vaults of the world of the world sell claims worth several times their actual holdings worth of gold. For every bar of gold they have, they sell several times that in paper gold claims. Across the world, people hold several times as much paper gold as gold that’s ever been mined in human history.

          If everyone tried to exchange their paper gold for physical gold the vaults wouldn’t have enough, the small guy isn’t the one who’s going to get any from the vaults in such a scenario, unless maybe he is one of the first to do the exchange. If you do try to get your claim from the vault, there is enormous fees and hurdles to go through.

          For silver, platinum, and other precious metals we can assume very similar things happen. (There is probably proof, I just hadn’t checked personally).

          An average person should only buy the real stuff from local B&M locations (they can be bought in coin form or small bars). The tricky part is storing it, you can keep it in a safety storage box (at the bank) or hide it somewhere in your house.

    • EJ says:

      Your playing into their hands – Its a false flag operation

      https://decrypt.co/56193/wallstreetbets-is-not-trying-to-short-squeeze-silver-heres-why

      • joe2 says:

        I agree. Metals are a more serious game than a few hedge fund billions, an amount that the Fed prints every day. Talking international markets, financial elements of national power, and confidence in fiat.

    • endeavor says:

      Depth Charge

      By the way, I am ecstatic with 10% in a day. I can’t even get that in 10 years on my savings account.

      True. If it stayed this way all year this investment would have inflation covered for a year if our present circumstances stayed roughly the same. AND never go to zero value in a collapse like a stock or bond.

    • Robert says:

      Although the silver market is a relatively small market, I think it’s a mistake for the “flash mob” crowd to try to pump silver. Unlike small cap stocks, silver is known to be highly volatile, and there must be a large number of people anticipating outsized moves. Unlike Gamestop shares more silver can come to market from warehouses and be sold to suppress volatility. My guess is most global silver production is hedged by the producers, so I’m not sure if the Gamestop trick will work here.

      Why would a producer panic and cover his shorts when he’s benefiting from the upside?

      I’m a big fan of silver and have been watching it for decades. All the recent upside is mostly due to anticipation of inflation, with some dollar weakness thrown in. I’ll be impressed if the Robinhooders can get any traction.

      Likely a bad idea to buy silver here, but it’s always a bad idea to short silver.

      • c1ue says:

        Utter nonsense.
        Look at the long term price history. I sold silver at $45 not so long ago.

        • Robert says:

          “Look at the long term price history. ”

          In the long run we’re all dead.

          As I said, big fan of silver, but the post was about the tactics involved. There’s a big difference between systemic hedges and naked shorts when trying to get someone to cover.

        • Nick says:

          And how did the person who bought silver from you at $45 make out?

        • Thomas Roberts says:

          I was originally going to keep some of my savings in platinum, but, those giant 1kg silver coins seem very appealing. Silver does seem like the best bet for storing money right now.

          :)

        • cd says:

          it will see above that number….cycles happen….its the gray mare’s time….

        • c1ue says:

          Silver was $45, less than 10 years ago.
          The reality is that PMs also go through manias.
          Silver and gold have done it twice in the last generation as has gold.
          The notion that PMs hedge anything is utter nonsense – a combination of pump and dumpers selling to seniors and the monetary theory-challenged plus failure to understand that individuals are not like central banks.
          Central banks = government = legal right to define money. The term “payable for all debts public and private” is the key.
          Unless you live in international waters, you will *always* be subject to the above law.
          Yes, PMs will always retain *some* value – but the same can be said for anything: stamps, Mona Lisas, classic cars etc. As a “jewelry hedge”, that’s fine but don’t confuse the jewelry hedge with an actual monetary one.

        • Thomas Roberts says:

          The mona lisa isn’t for sale though, postage stamps aren’t guaranteed to hold value and classic cars will vary, some go up, many will go down.

          For the average person, when the stock market and most asset classes are hugely overvalued has limited options. Silver is a good option. Yes it was worth more temporarily awhile ago, but it’s widely thought that many institutions have been actively trying to supress value.

          As always, if you think silver is not a good option, what are you suggesting?

  3. DeerInHeadlights says:

    Does RH go under? Is this the Lehman Brothers moment for 2021?

    • MonkeyBusiness says:

      Robinhood “Let them eat Gamestop” moment

    • Swamp Creature says:

      It’s a Henry Company moment

      This could be a replay of “The Henry Company” a gold trading company in the Swamp that I used to deal with. They went under right in the middle of the gold price boom. People sent them checks in the mail and before the gold could be delivered the company filed for bankruptcy. The Henry Company took all their clients money and pocketed it. Investors got nothing. A class action suit was filed and the Henry Company got absolved of any civil action, as the judge ruled that they “just got over their heads.”

      If any losers want to play in this game be my guest. Don’t coming wining to me when you get wiped out.

      • Lisa_Hooker says:

        See also: MF Global and John Corzine.

        • VintageVNvet says:

          Right on LH and SC:
          Was in London when the TX bros tried to corner the silver mkt in early 80s, and called a good friend to go down to the ”coin shop” that made a local mkt with physical PMs and buy a few hundred oz bars, which she did,,,
          AG went to 50 or so IIRC, we made about double before the Russians came in with their billions of ounces,, then bought and sold and bought and sold those 100 ounce bars a dozen or so times in the next few years.
          AG eventually settled well below $10/oz once again , and even though has had spikes many times since, has always, sooner or later, been back to that level ”inflation adjusted.”
          I buy the coins for the grandchildren, with hope they will come to understand the difference between AG and AU,,, paper money of all kinds,,, and now digital money of all kinds.

  4. MonkeyBusiness says:

    All aboard the WolfStreetBets train.

    What shall we do first?

    Buy the dip?

    • DeerInHeadlights says:

      He he. I know Wolf loves crypto, so Dogecoin?

      • Depth Charge says:

        There are thousands of these things, backed by nothing. No thanks.

        • DeerInHeadlights says:

          **whoosh**

          That’s the sound of you missing the sarcasm but then again, this is the interwebs so I don’t blame you.

      • GirlInOC says:

        I was thiiissss ? close to buying dogecoin, but somewhere in the back, dark recess of my mind I heard the voice of Wolf warning me “nooooooooo! It’s all a load of crock!” ? so I donated the money to a houseless woman in Sacramento that feeds her neighbors instead. So Wolf, Twana in Sacto thanks you for the redirection of funds… much more wisely spent this way.

        So, now what’s the word on AMC???? ?

        • Anthony A. says:

          “So, now what’s the word on AMC????”

          No one goes to the movies anymore!

  5. Javert Chip says:

    Not sure I’m believing a couple hundred thousand RobinHood dudes beat Wall Street.

    Every brokerage trade is actually a 2-day loan from the brokerage to he buyer. The US system settles trades at the DTTH on day +2. That means if a buyer acquires a share for $300 on day 0, and the stock GOES DOWN $200 on day 1, the buyer MAY NOT SHOW UP WITH $300 ON SETTLEMENT day +2. THATS A CREDIT RISK.

    The brokerage firm has to step in and take the loss.

    Just like individual shareholders, brokerage firms get “margin” calls based on how risky the trades are. GME was highly risky. The DTTC collateral required increased (industry-wide) from $25B to $36B in the space of a few days. That is the proximate cause of restrictions in GME trades.

    A whole lot of new/ignorant traders are playing the game with zero understanding of the rules.

    • WES says:

      Javert:

      Actually it is hard to know what the rules are since “they” change them in the middle of the game, whenever “they” are losing!

      Yes, the little guy always looses!

    • Wolf Richter says:

      Javert Chip,

      “Not sure I’m believing a couple hundred thousand RobinHood dudes beat Wall Street.”

      What they did was expose how rigged the whole thing is, something we have seen for a long time, but now it’s totally in the public eye. They did it by manipulating those stocks publicly.

      BTW, there are close to 10 million followers on WallStreetBets now, with hedge funds trading alongside. Those traders trade at all brokers. And that’s a lot of firepower for a handful of the most shorted stocks with small floats.

      • Panamabob says:

        The smartest the Wallstreetbets participates could do is start communicating through a cryptic service , signal, telegram, or tor not a mainstream service with planning action. They could use the Reddit for public use.
        I’m sure by now some hedge funds or other funds are joining the party. WSB can start the fire and get out securely with their profits and let the hedge fight to the end, beating both sides of the “players”.
        The only downside are the pension funds and other innocent parties that invest in those “players”.

        • Mark says:

          Yoiu mean like in secret on a Blloomberg Terminal, which costs $24,000 a year ?

          That’s how Stevie Cohen does it.

      • phusg says:

        I understand the massive underlying rigging through artificial interest rate suppression, but what’s wrong with hedge funds shorting loss making companies like GameStop? Or silver miners shorting silver to hedge their future production?

        • RightNYer says:

          There’s nothing wrong with shorting companies per se. The problem comes with them going on TV and telling everyone they’ve shorted it, in an attempt to get others to sell and make the decline a self-fulfilling prophecy.

        • Depth Charge says:

          The naked shorts are the problem.

        • Wolf Richter says:

          phusg,

          The manipulations that I discuss in the podcast aren’t focused on the hedge funds that shorted those stocks. That is just one aspect. 95% of the podcast is about other forms of rigging by others, including those people on WallStreetBets, and by the entire Wall Street mechanism through which stock trading takes place.

          Nothing wrong with shorting unless everyone is shorting the same thing, and then it gets very risky. However, “short and distort” as a strategy is just the reverse of “pump and dump.”

      • Eddy says:

        Inequality is this country’s open wound. People in cardboard boxes and people with more income than fair. It’s not good. Who or what can fix this if the state can’t? Wall Street has forever been the epitomy of unearned rents. What these guys on Ridinghood are doing should be govt. policy.

        • Lisa_Hooker says:

          We tried equality of opportunity. Unfortunately, some work harder than others, some are more frugal than others, some chose more affluent parents, and some were just plain lucky. Many appear unhappy with equality of opportunity. Now we seem to be about to pursue equality of outcome. I don’t think that that can turn out well. Do you want the state determining your children’s future more than it now does with its educational system?

        • Eddy says:

          @Lisa_Hooker the state should be democratic. It executes what we don’t really have time for while working in other fields. The state is in fact crippled by election funding and paid speeches and lobbying and media that serve private interests. I think everybody would want more equality of outcome if you put it that way. The factors you mention have little to do with outcome. For example, you could be a really good nurse and love your work and work hard. It doesn’t mean your liberty and prosperity aren’t going to be cornered or destroyed if some rich person sees it fit. I’m too old for this type of discussion. 99% should eat the 1%. It’s really just that simple.

        • Javert Chip says:

          eddy

          Let me guess: you HAVE NOT gone out and given all your money to people in cardboard boxes.

          Am I right?

      • Tony says:

        Is there some kind of strategy behind the WSB and others? Is the USD or perhaps the FED under attack. The timing just post inauguration seems like it is planned.

        Begin small and if it works crank it up to bigger pools and drain the liquidity of the manipulated sectors?

        Even if its a byproduct it might help the ‘sound money’ types.

      • sunny129 says:

        Wolf

        The question is what exposing the ongoing fraud would do in the future?

        First ,will WallSt’s bigboys admit that this rachet is going on for decades?

        Will Fed admits it’s policy errors in contributing to this fraud – very unlikely, b/c they see NO BUBBLES

        Regulators like SEC are capture to Wall ST and was aleep at the switch just like during GFC

        I don’t believe Congress is a innocent party here. In fact they are deeply complicit, ever since Glass-Steagal act was removed in a late mid night session in 1999.

        SEC had the power to reduce volatility in HF trading, increasing marging requirement and bringing back up tick rule but thery didn’t

        Are they really seriously interested in real reform in making the playing field even for all – retail vs institutional?

        • Implicit says:

          Well said. Glass- Steagal was huge. The lobbyists for the banks, and the central banks got their way. Rich people could get richer by using enormous leverage, and then get bailed out by one of their own when things went wrong. And the politicians got rich by accepting bribes from their rich friends.
          Bring back Glass Steagall, break up he big banks. end the fed,
          end lobbyists’ bribes, and break up all monopolies.
          Ron Paul saw this coming, but people love corruption for the rich kings and queens-our overlords. The prisoner’s dillemna

      • Javert Chip says:

        Until this scenario plays out and is autopsied to factually tell the story of winners and losers, all I’m conceding is a few greedy, sloppy & inattentive hedge funds got seriously clobbered (I’m always in favor of greedy, sloppy & inattentive hedge funds getting seriously clobbered).

        In the meantime, Robinhood (in particular) has made a bazillion dollars on “stock loan”, margin loans, and order flow payments.

        It remains to be seen the impact on most Reddit retail traders in GME.

        My guess for the Reddit mob is it broke about even. However, a very few, very knowledgable Reddit posters appear to have made $10-20M+ fortunes, meaning the remaining 99% probably, on balance, lost. Ironically, if that is the case, the bulk of Reddit players got got seriously gamed by a couple of their “compatriots”.

        We’ll soon see (I’m guessing a week or two…)

    • jm says:

      Isn’t it rather in this situation that the buyer tells the brokerage to buy at $300, the brokerage subtracts $300 from his cash on hand in his account, but the stock is up at $500 when the trade settles and that’s what the brokerage has to pay?

      • jm says:

        No. I was wrong above. But something’s not complete in Javert Chip’s explanation, as in the Robin Hood case the buyer would have had to at least nominally have had $300 in his or her account to make the trade. Presumably, when the buy order went in, it was matched with a seller willing to sell for $300.
        But Javert’s right that the problem relates to the brokerage being at least nominally on the hook somehow until the trade settles.

        • Socal Rhino says:

          His explanation sounded a bit off to me too. I may be wrong but I think rather than a brkr/dlr making a loan to a buyer, they maintain collateral at the clearing agent to assure good settlement, and in this case, increased volatility led the clearer to raise the broker’s collateral requirement.

    • Ron says:

      You fools keep feeding the pig and they laugh all the way to their yachts

      • Depth Charge says:

        Yep. Everybody’s in the casino running to the next great thing. I have never seen so many reckless gamblers in my life. Seemingly every human is trading stocks and crypto. This is a shoeshine boy moment squared.

        • RightNYer says:

          What do you doomers not get? It’s DIFFERENT this time! Tech is the future! Don’t fight the Fed! There is no alternative! STONKS only go up! /s

          Did I miss any stupid cliches? LOL

    • Swamp Creature says:

      I’d like to see what happens if RH goes under and are not bailed out by anyone. This could be the financial equivalent of a Black Swan event like what occurred June 28th 1914 .

      • California Bob says:

        re: “I’d like to see what happens if RH goes under and are not bailed out by anyone.”

        Wonder how many people are dumping Restoration Hardware stock?

        • p coyle says:

          apparently not many, it closed at $484.04, up $8.68 on the day and still rising afterhours. as far as i can tell it pays no dividend.

        • Implicit says:

          Haha. Since the order low goes through Citadel, and this data is sold to other hedge funds, they will all front run the RH bet regardless. It is always about the money, symbol mistakes be dammed.

      • Hearing the term liquidity trap applied.

      • Javert Chip says:

        Robinhood is making a killing on this market, The do it by loaning customer GME shares to people who want to short it (and charge a “stock loan” fee), charging interest ion normal margin accounts, and being paid for order flow.

        Normally, a DTCC margin call to an established large broker/dealer would be a huge red flag (think Lehman); in this exceptional case, it’s simply an indication how fast Robinhood is growing (brokers have to have x% of capital based on their customer base, just like banks).

    • Beardawg says:

      Javert

      I think that is the point – the “rules” are being challenged, not followed.

      • Javert Chip says:

        Beardawg

        Ok, so we’ve backed off the unsupportable claim that “…rules are being changed in the middle of the game…”.

        Now you’ve claimed “….the “rules” are being challenged, not followed…”, and I’m still asking you for a specific. accurate, concrete example.

        My point is it’s easy to run around making all sorts of inaccurate claims for the mob (in fact, this plays quite well), especially if you don’t understand the rules.

    • c1ue says:

      You are repeating the RH excuse.
      Maybe it is true, maybe it isn’t.
      What is true, however, is that RH was built with investment money from hedge funds and HFT, it makes revenue by selling user behavior to hedge funds and HFT – and thus it is not likely to allow itself to be a tool used to hurt hedge funds and HFT.

      • Javert Chip says:

        I have no idea what you mean by “user data” (and I suspect you may not either), but RH does indeed get paid for “order flow”.

        How it works: RH does not DIRECTLY buy/sell shares on exchanges; rather, this “order flow ” is funneled to one of a few trading agents. As long as the order volumes are high enough, economy of scale makes this very profitable business, and the trading agents actually pay RH (and other brokers) for the “order flow.

  6. DeerInHeadlights says:

    Great summary of the state of affairs Wolf. If people could hear these types of takes on the MSM on a regular basis, they’d be demanding heads roll. However, since this is just a continuation of the Obama admin, I very much doubt anything meaningful investigation and/or repercussions ensue from all of this. When you take 800k in speaking fees from the very people who constitute the swamp of Wall Street, draining said swamp is the last thing you’d do.

    • Mark says:

      “When you take 800k in speaking fees from the very people who constitute the swamp of Wall Street, draining said swamp is the last thing you’d do.”

      WOW ! copy to Biden and Trump, and their cronies Powell and Yellen. (Is everyone at highest levels now a predator? )

      • Trailer Trash says:

        “Is everyone at highest levels now a predator?”

        That is the only way to get there. Regular people are not interested in that much control or responsibility. It is a serious design flaw of hierarchical social systems.

        To me that is the saddest part of the whole miserable empire rise/fall cycle: instead of learning how to organize equitable social systems, it is far more likely that some other empire will be built on the ashes of the current one. Only to once again crash and burn.

        • 91B20 1stCav (AUS) says:

          Trailer-outstanding observation about ‘regular people’-with you, in sadness as ‘just wanting to only mind your own business’ is a baked-in, and exploitable, vulnerability. This is the core of a democracy/democratic republic’s long-term survival chances.

          History’s record makes me fear our human nature is inimical to ‘equitable social systems’ at anything approaching a macro-level for any serious length of time. (does default to the hierarchical exist on the genome?).

          may we all find a better day.

  7. Kentucky says:

    Great podcast Wolf.

    Facebook, Instagram, Twitter and Robinhood…If the product is free you’re the product.

    I’ve wondered about Amazon knowing consumer demand for brands/products faster than the manufacturing company themselves. Like Robinhood they could use their massive “insider” data flow to short or long stocks.

  8. timbers says:

    Everybody is buying GameStop (and now silver) because vaccines. Why, I just today bought something in store because vaccines:

    “If you look at what’s really been driving asset prices in the last couple of months, it isn’t monetary policy,” Powell said. “It’s been expectations about vaccines…”

    • WES says:

      Timbers:

      That’s funny! Powell blaming vaccines!

    • Apple says:

      Silver is heavy. Do theses people realize this ?

      • BuySome says:

        Heavy? 9 out of 10 doctors recommend daily exercise. The 10th guy was busy filming an infomercial about whiter teeth or something.

      • TangoOscar says:

        PSLV 1000% daily volume and SLV 400% with 4 trading hours left. This will force more physical buying tomorrow. At some point the rigged paper game run by JPMorgan is going to vaporize and precious metals will moonshot, probably hand in hand with the market crashing.

    • Consumers will return to stores and movie theaters. The pace of the vaccine rollout has surprised some people.

    • Implicit says:

      These are the first vaccines to use -messenger rna (mrna) to deliver the payload. Perhaps it is unknowingly affecting the neural networks of our brain cells, telling us that the wealthy have our best interest at heart. Genetic government hackers changing the way we think by manipulating our DNA. Conspiracy theory, fake news. I think not :>{)

  9. Paulo says:

    @ timbers

    re: If the product is free you’re the product.

    Best thing I’ve read in a long time.

  10. DR DOOM says:

    Naked shorts allow hedge funds to borrow stocks with little or no skin in the game. This practice was illegal as with other 1930’s laws enacted after 1929. All of these laws have been slowly eliminated starting with the Regan administration. There is no need for an investigation . The investigation was done nearly 90 years ago. Wall Street owns DC and the Fed. It ain’t going to change. Collapse will be the only cure. Congress will engage in puffery and the administration will form a worthless commission and then all will fade away. The ol’Potomic two steep.

    • Don says:

      When did naked shorts become legal???

      • Apple says:

        There are ‘loopholes’ available, but not to you or me.

        Example :

        A owns 100 shares, lends to B, B shorts to C, C lends to D, D shorts to E.

      • SocalJim says:

        A Market Maker registered in a name is allowed to run a naked short.

      • Noelck says:

        Don,

        I don’t believe naked shorts are legal. A short is basically borrowing a stock from someone else(paying them interest) and selling it to another party(in hopes of buying it back at a lower price at a future point.)

        They say that by borrowing it you are covered but that’s kind of an oxymoron.

        • SocalJim says:

          Untrue. A Market Maker can legally run a naked short in any name they are registered in. Hedge funds use this loophole. I did this every day for thousands of names.

    • Hernando says:

      I read that after Charles I was executed, parliament became firmly entrenched as a mechanism of the mercantile class… and then it all made sense. This was in 1649.

      • Stephen C. says:

        post 1649 Capitalism became the reigning ideology in the Anglosphere, and from it grew the belief that value investing was a thing, and all those barbarians were lost in the darkness of ignorance. Its final and most clear expression with Benjamin Graham marked the end of this belief system, and the anglosphere once again began the the hunt for a world view they could believe in. Unfortunately they are only given the false choice between Neo-feudalism and Woke Communism.

        • Javert Chip says:

          Stephen C.

          Actually, capitalism (individual reaps gain/loss of his own “investment”) is a built-in part of homo sapiens. Very few subsistence hunters/farmers will share their “wealth” with those outside the family or tribe. The exceptions are called “altruistic”.

          Development of city-states & nations simply increased the amount of “stuff”, and the circle and benefits of sharing increased. Currently, you don’t see the rich Germany nation giving away huge amounts of their profits to the UN or other shitholes. Hell, the Germans don’t even want to pay for their own defense.

          I see nothing wrong with reaping he rewards of your own labor; however, I’m smart enough to understand the boundary between capitalism & obscene greed is thin, and that’s one reason I support appropriate governmental regulation. Absolutely any “-ism” will collapse without it.

    • jm says:

      The hedge funds most certainly have skin in the game. That’s why they’re losing money. The whole point of short selling is you borrow someone else’s stock, at least nominally, with a promise to buy it back and return it to them in the future.

      Although it seems now possible for hedge funds to in some cases execute a short sale without having properly borrowed the stock, driving the stock price lower than it could have been be driven, victimizing owners who sell at that lower price, perhaps making a dishonest profit by covering the short at that lower price, they still have skin in the game, and will lose if the stock price rises (and I believe this is illegal even today, though some may be getting away wiyh it).

  11. BuySome says:

    How did that song go…”Had a dream last night I got a silver arrow in my back, Please Mr. Muskard, I don’t want to go”. “Mount up son…Silverstonk!” Or will he avoid talking up the price on manufacturing inputs?

  12. Old school says:

    The financial markets are not like a bell curve. It’s more like a perpetual boxing match. You always have to be on defense. If you get lazy and drop your gloves your opponent is going to take advantage of it. You can never rely on statistics or correlations to protect you. When the stock market grim reaper calls you better have cash on hand or you will have to go begging.

  13. Rowen says:

    When 1 person manages $100M of a stock: yummy 200% returns.

    When 1M people manage $100 of a stock: YOLO! to infinity!

    Commission free, fractional share purchase from your smartphone has turned traditional valuations on its head. The price of the stock simply the function of supply and demand, not some tried and true valuation.

    My 2019 self wouldn’t know what was more outlandish: GME going 100X or a negative print on oil.

    • fajensen says:

      The price of the stock simply the function of supply and demand, not some tried and true valuation.

      It was always thus. Valuations are at best tangential to what a stock will do.

      I don’t think that the regulated markets have much of a problem or are causing problems. Because, they are ancient, therefore every possible scam there is has already been run and it is contained as The Expected.

      Of course when something noisy goes down in the regulated markets, it draws politicians attention away from the Unregulated Financial Markets, where the real scams are going down – money laundering, tax evasion, terrorist funding … Good Thing we got to bail all that shit out or the world just wouldn’t be the same /sarc.

    • Depth Charge says:

      “Commission free, fractional share purchase from your smartphone has turned traditional valuations on its head.”

      All designed to give the insiders information to trade against and a whole new group of sheep to slaughter. The end result will probably be no more “free” trading accounts.

    • Javert Chip says:

      Rowen

      Pro tip: if you think anything other than supply and demand drive the market, you’ve missed the point (and I haven’t even mentioned fear & greed).

      “Fundamentals” are simply highly correlated leading indicators.

      What do you think drives Tesla, Uber, et al?

  14. Joe in LA says:

    Somewhere, Alan Greenspan is sitting in his diapers laughing.

  15. jm says:

    There’s nothing dishonest about the short interest being greater than the number of shares outstanding. Short seller A borrows 100 shares from owner X and sells them to buyer Y, then short seller B borrows them from Y and sells them to buyer C, and the short interest counts as 200 shares.

    When the trades are unwound, this all gets reversed. But the short seller can’t spend the money from the sale, and has to have a certain amount of additional cash in their account as insurance for the broker, who is on the hook if the price shoots up so that margin is not enough and the customer can’t come up with the additional cash when hit with a margin call. In that case the broker has to buy the stock to close out the trade, and will lose money if there’s not enough in the shorting customer’s account to cover the cost.

    • A short sale is a side bet with a third party. The brokerage, which also sells options, has a need for borrowed shares to hedge those positions. There is unprecedented liquidity and tight spreads in most options. Put options are the preferred method of hedging a long position, but you can go “short against the box”. While short interest is wiped out in a squeeze, shares are harder to find, put option premium is cheap, you wonder if these brokers will get squeezed. The premium on a GME 250 put is $200. If you sell that put and the stock goes to zero the seller loses $50. Brokerages typically post clients assets as collateral, for the margin needed to write that put. Not much risk in this case.

  16. Birger Bro says:

    The WSBs are not cynical. They are just ordinary market participants.

  17. Island Teal says:

    AG 2022 LEAPS are going to have a good day tomorrow…thank you??

  18. polistra says:

    I always rely on Wolf for REAL info, and he always comes through. The most important info in this podcast is that Robinhood makes its money by telling the hedge funds what its users are doing. The hedge funds are the real customers, and the daytraders are the product. The real customers always get what they want.

    If you aren’t paying, you’re the product.

    Everybody “knows” this, but nobody applies it to their own choices.

  19. Michael says:

    Free markets depend on equal, transparent-to-all information. For a long time large institutions have been using preferential access to information to steal money from retail. Social media has provided the means to rumble the scam and it will accelerate in coming weeks and months with desperate attempts by governments and elites and bankers to shut down free speech and communication calling it insider dealing.

    The hunters are becoming the hunted.

    • VintageVNvet says:

      Exactly correct M,, all the way back to the beginnings of each and every market, when those in control of those markets, and likely the same folks who started the market in the first place, realized that by initiating exceptional communications systems that the proletariat did not have access to, they could literally corner the market(s).
      Been down hill for WE the Peedons ever since, and, per this very educational discussion by Wolf, now WE are beginning,,, really just beginning, to see this extra ordinary communications system and it’s results, and react appropriately.
      Of course the corrupt guv mint cronies of these corrupt market folks will put a stop to WE the PEEDONs doing EXACTLY the same as the big boys, this time as per the last several times.
      Why anyone would question that this crack down on folks not part of the corruption is beyond me, as we’ve seen the exact same crack down many times.
      Maybe, just maybe, WE the PEEDONs will be able to make sure that a level playing field with eventually come out of this, but please don’t hold your breath waiting for it.

  20. ru82 says:

    Wouldn’t it be ironic if a country like China decided to join in the fun and also join this short squeeze trend to cause the U.S. markets to become unstable. Just for the fun of it?

    • Yort says:

      Other countries already print currency to purchase Amercian stock. For many years I have questioned why any country would start a war to take over other countries assets, when all they have to do is print unlimited amounts of their currency as the market allows, and purchase all the other countries assets via the stock market; Versus… spending large amounts of cash to steal the companies via war (and having to rebuild the entire country you plunder using even more printed currency)…

      So really, if infinite money printing allows for a pause in wars, perhaps we should continue until it fails. Sure it is a short term glass half full of hopium theory…but perhaps???

      Wolf- do you think this theory holds water? I guess if capitalism and global currencies fail, that could create war…but perhaps that point is decades or even generations away?

      Sweden Tesla stock purchasing example copy and pasted below:

      Swiss National Bank reports 395.05% increase in ownership of TSLA / Tesla Motors, Inc.

      2020-11-09 – Swiss National Bank has filed a 13F-HR form disclosing ownership of 2,887,865 shares of Tesla Motors, Inc. (US:TSLA) with total holdings valued at $1,238,923,000 USD as of 2020-09-30.

      • Yort says:

        Correction, I meant “Switzerland”, not “Sweden”. The Swiss National Bank is the central bank of Switzerland, not Sweden.

      • Wolf Richter says:

        The only reason the SNB can print francs and buy foreign currency assets with them without destroying its currency is because globally there is the perception that holding Swiss francs is a winning game, and there is huge global demand for that currency of this tiny country.

        If someday the sentiment shifts and these investors/speculators are selling their francs, the franc dives, and some of it may be welcome. But then if inflation rattles Switzerland (higher import prices, etc.), the SNB may end printing francs and end buying foreign currency assets, and if it gets bad enough, it may have to sell those foreign assets to support its currency.

        What the SNB is doing is of course currency manipulation, enabled by global investors thinking that the Swiss franc is worth buying.

        BTW, to see if the SNB has increased its stake in TSLA, you need to look at the column on the 13F that gives you the share count, and compare that to a prior 13F. TSLA’s price has surged, so a big part of the dollar increase of its stake is just the increase in share price.

        • RightNYer says:

          Is that so different from what we do every day? We print dollars and China sends us their manufactured goods in exchange for those dollars.

        • BeaV says:

          @RNY.

          We buy China’s depreciating assets (stuff) with our monopoly money.

          China buys our appreciating assets (real estate, companies) with theirs.

          Guess how that game ends.

    • MonkeyBusiness says:

      The Swiss National Bank is already doing their part i.e. they have been contributing to the market bubble.

      Arguably a lot of Sovereign Wealth Fund are also in the market as well. Singapore’s 2 SWFs are heavily invested in the US market.

    • Javert Chip says:

      In a way they already have.

      If a Chinese company (say, a coffee house) can trade in American capital markets for years (without having to meet the same listing requirements as American firms), taking capital & profits back to China, then going bankrupt, I’d say China made a hell of a profit off American capitalists.

      Technically it’s not called short selling (probably just “fraud”), but the bottom line, so to speak, is the same.

  21. historicus says:

    The fundamental of a free market is supply/demand price discovery.
    The Central bankers have short circuited that fundamental. They have created a fake interest rate environment by sopping up loads of government debt. The fakeness permeates throughout the system….stock and asset evaluations become fake as well.
    This is where we are.
    It wasnt long ago that inordinate government borrowing would ramp up interest rates thus tamping down that urge of govt to operate outside its means. The discipline of the market. No more.
    Unelected central bankers, themselves insulated from the ill effects of the dictates and policies they throw upon us (inflation protected wages and pensions), deciding by committee behind closed doors, funding socialistic programs by monetizing debt….and here we thought the Communists were the enemy. Inside job.
    This socialism. And Thatcher, when she predicted socialism “runs out of other people’s money” never saw the threat from central bankers and their antics providing the endless stream of funds that socialism needs.

    • Cas127 says:

      The key part of the scam is being able to cross dress inflation as “investment gains”…ignoring the obvious result that when owners who have vastly overpaid for assets (due to ZIRP effect on discounted cash flow calculations) try to ratify that overvaluation by jacking up product prices…plain old fashioned consumer inflation results.

      This can be most clearly seen among apt complex purchasers…who have been overpaying for years…and leaning hard on rent increases to make good on their initial valuation errors.

      But because this Fed driven inflation occurs in two steps, with a convenient villain (landlords, who are more fools than villains) interposed, the Fed beats the rap for inflation – being able to pin it on landlords (pending).

      Rinse, repeat for almost every industry.

      By being able to control a very small number of macroeconomic variables (mainly interest rates, via money printing) and varying the cyclical timing of such changes, the Fed can induce invt, doomed invt, inflationary invt, forced consumer dissaving etc.).

      But the essentially totalitarian nature of such action is obscured because it works itself out by means of intermediary players (the “private” sector).

      Inflation plays everyone (not in the political class) for suckers.

      It was true in the decaying Roman Empire that clipped coinage and it is true now, as DC uses ZIRP to save itself from policy failures that were doomed when started 60 yrs ago.

  22. Yort says:

    In many ways the stock market has become the latest Las Vegas casino stay-cation. And when millions of citizens get free stimulus money, the psychology ends in higher risk tolerance across the board.

    For example, I know I take more risk with free money. I once won a four figure cash payout on a cruise ship SuperBowl raffle (used bookie odds to calculate the final score and bought highest probability tickets). BECAUSE it was now “free money”, my risk tolerance spiked to “f-it, lets have fun”. I ended up playing maximum odds at a high odds craps table using logic, the emotional high “free money” turned off my risk tolerance, and I turned four figures into five figures with a string of luck before I was tossed out of the casino for “disturbing the passengers”, by “carrying too many chips around”, and some other weird excuses. The truth was I took one to two days of the ships casino profits, and when you start taking the house profits, just like Wall Street, they find a way to toss you out in order of protecting you and protecting others, because who can say no to more protection???

    Another similar feature of casino vs stock markets is I sometimes play craps on the house side, cheering for a seven roll. Almost nobody seems to do this, and the other gamblers get extremely tribal and angry for reasons I fail to understand logically. People tend to like to bet together, as herd mentality seems to comfort higher risk taking as “how is it risk if everyone else is doing it” seems to be the illogical thought process. I find the gamblers who get the most upset usually end up losing all their money, and the ones who don’t show any emotion when I bet with the house usually win money. In summary, emotions are dangerous in the stock market and casinos, and right now stock market gamblers are very emotional in their stock market “bets”, with many of them using “free money” which adds even more unhealthy emotions to the gambling frenzy…

    • Sam says:

      gaming.unlv.edu/casinomath.html

    • RightNYer says:

      Yes, great post. Another example of this mentality is how otherwise smart people insist to the death that a bad player at their blackjack table “hurts” everyone else. I realized long ago to not even bother having the discussion with them. I could line up mathematicians and statisticians from here to California who could demonstrate that the other players at your blackjack table have no statistically significant effect on your odds, but their tribal response is too ingrained at this point.

    • Javert Chip says:

      Yort

      Bad news: nobody (except the house) plays on the house side. Next time you’re in Vegas, look around at the spectacular decorations and figure out whose paying for all that stuff.

      What you’re doing is called “wrong way”, and you do need to be very quiet about it at the table…but it’s definitely not playing on the house side.

      Most people have no idea how to do it, and the way it physically pays off further obscures what the payment is for.

  23. David Hall says:

    Wall Street Bets is rumored to be long silver.

    I remember when the Hunt brothers tried to corner the silver market. They bought up a third of the world’s silver using margin. Silver went from $6 to $49. Jewelers were upset. People could no longer afford jewelry. Silver crashed on a Thursday afternoon. The Hunt brothers lost a large sum of their wealth.

    • Bobber says:

      WallSTreetBets is rumored to be long silver?

      Nah, that’s just a rumor started by some investors or hedge funds hoping to create another GME situation. Given that WallStreetBets is a totally public forum, every opportunistic SOB in the country is gaslighting on there now, trying to drum up interest in something.

      Markets have become a casino. The pit boss (the Fed) is saying you can’t have another drink unless you play. The other customers are yelling at you to place your bet here or there. You best “bet” is to have a cup of coffee and sober up.

      • DeerInHeadlights says:

        Nice summary of the madness on display. It’s the front running of silver and other names by *regulars/professionals* at newsbreak that drives the prices high and then retailers pile in at the top mistakenly thinking it’s mostly their peers causing this, only to get burned by the inevitable dump that follows.

        • RightNYer says:

          Which is not that different from the equities market as a whole. The big boys will continue pumping the market at these obscene valuations until they’ve closed out their positions and then they’ll crash it.

    • Volume in GME 200M so far today, volume in GLD 5M, and SLV 200M. I am still not buying the tome that “little Donald Segretti [or RH] did all this..”, momentum is a powerful factor in Fed induced markets. Very sharklike feeding frenzy.

    • VintageVNvet says:

      TX bros did not do their homework, and had no idea the Russians were sitting on 12BB oz of AG, per my earlier comment.
      Just a very good warning for anyone considering trying to corner any market to do your homework thoroughly, extensively, and completely, which process is getting easier and easier IMO due to the net.

    • Javert Chip says:

      …including their Rolex watches.

  24. sendero says:

    I’m not sure I agree with the characterization of “cynical”. No amount of cynicism could do the perfidy of our “markets” justice.

  25. Questa Nota says:

    Identify the impact and prevalence of front-running and all other revenue and expense items start to finish in short sales, naked or otherwise.

    That would help flesh out the discussion to highlight what is at issue, beyond the typical short sale as efficient market price discovery enabling device.

    By putting the entire circus in front of viewers, there is less distraction from an individual carnival barker in one or another ring. Find out who is taking tickets.

  26. Memento mori says:

    The game is rigged and has been so for a long time.
    It was manifest in 2009 when they banned “mark to market rules” and it has only gotten worse.
    Fiat currency is used by the elite to e tract wealth from the working stiffs.
    How was it possible for 140% of a company shares to be short?
    Isn’t naked shorting illegal?

    • NARmageddon says:

      >>when they banned “mark to market rules”

      I think you meant to say “rescinded (or withdrew) mark-to-market requirements”.

      Sometimes the words that come flying out of the keyboard are not the best or most accurate. It happens to everyone.

  27. curiouscat says:

    This is probably the best piece I’ve ever seen on your site. A classic.

  28. Lisa_Hooker says:

    The trick is to dance to the music, but keep your eye on a chair. Then, just before the music stops, start to sit down but remain on your feet until it’s stopped.

    FYI: It is very very helpful if you already know the tune by heart. Those that don’t lose.

    • Heinz says:

      “Then, just before the music stops, start to sit down but remain on your feet until it’s stopped.”

      So, just how exactly do you know in advance that the music is about to stop? Does the band change tempo or go off key?

      Timing the market is a fool’s errand for us mere mortals, but then there is no shortage of fools these days.

      • Lisa_Hooker says:

        An algo can tell you if your links are fast enough and your computers big enough. Or one of your politicians if they are honest and stay bought.

  29. MCH says:

    Dear Mr. Richter,

    Have you informed your betters about your title change, has it been reviewed and authorized by higher authority?

    Head Honcho…. is there an org chart that can be reviewed? Seems quite a promotion from chief underling.

    ?

    • VintageVNvet says:

      As a ”happily married person” ,,, I have to agree with your very good comment mch;
      Wolf, please correct any such language to reflect the reality of being either, ”The #1 helper,,, or, possibly, chief of staff” otherwise, we who see this assumption of power will have to consider you are rising above your station…
      LOL
      Been giving the same advice for a happy marriage for many years,
      #1 and most important, in any argument, you MUST have the last word, and that is, ” yes dear.”
      #2 when your spouse asks you to do something, just go do it.
      #3 do NOT fight,,, just a total waste of time, and nobody every wins…
      Good luck to all you youngsters!!!

      • Paulo says:

        Or, you can be like this German guy I met. He said, “I let my wife look after all the really important stuff in our relationship like World peace, equality, the environment…stuff like that. And I just take care of the little things like our household budget, the bank accounts, car purchases, vacations, etc”.

        I didn’t see if he got a kick under the table or not?

      • Lisa_Hooker says:

        I always used: “Yeah, ….. you’re right.” And did what had to be done on the qt.

  30. CtKahanamoku says:

    It’s not perfidy or cynicism, it’s not even greed. It’s the maniacal narcissistic system rooted somewhere in the brain that causes the 1% to constantly stomp on the 99% and when called on it, seek on other 1%ers to stomp with them. It’s sick and has caused many like me who worked to understand how to be intelligent about investing to throw in the towel and then cry without one. Help me Obi Wan Kenobi, you’re our only hope.

  31. Bobber says:

    I think WallStreetBets will find it difficult to operate their collective hedge fund when 100% of their “strategies” are easily visible. They used the element of surprise with this latest short squeeze effort. That element is now gone.

    I don’t think they can find a different forum without Wall Street finding out about it. Wall Street has the money to comb the web, every minute of every day.

    • Wolf Richter says:

      Yes. If there is one person that can get a lot of momentum for one small stock or something, and can entice a lot of followers to concentrate on it, then it might work.

      But if it’s just lots of different voices hyping different things, it’ll be just like any other stock discussion board, with comments going all over the place.

      Their genius was a concentrated simple message, and it started out relatively small. Now there are millions of people on it, and everyone and their dog, including hedge funds, are trying ride on their coat tails or front-run them.

      There is also the pump-and-dump issue: the early birds that get out early make all the bucks, and the latecomers that allow the early birds to exit have huge losses. This discourages potential latecomers, but they’re needed to allow the early birds to exit. This takes the magic out of a discussion board.

      • Lisa_Hooker says:

        Most multi-level marketing schemes eventually slow down and fail. Very few have succeeded over time.

      • MCH says:

        The exact same thing as all of those hedge funds and “research outfits” are doing, take a position, go on CNBC, etc, release research, get the voice heard and then close out the position as the suckers jump in.

        Only difference is the medium, thanks to social media, everyone can try to pump and dump. Eventually this will reach some kind of new state, I.e. restriction to retail because they destabilize the market, approved channels only for opinions on investments, or my personal favorite (but will never happen) the end of this plague called social media.

        • Lisa_Hooker says:

          @MCH – I agree that “social media” has introduced new problems. I don’t know how bad it is as I don’t use it. Considering the virtually consolidated voice of unidirectional mainstream media I think the downsides of social media are far outweighed by allowing people to have a collective voice. Folks just need to learn to think a bit more before sending trash.

  32. Crush the Peasants! says:

    I tend to agree with the previous posters that price is determined solely by supply versus demand. One may take issue with what is driving demand, of course, but appeals to fundamental value are well intentioned but wrong.

    There was a time in the days of dependable dividend issuing stocks that one could impute value by assigning a risk factor to the value of a riskless UST equivalent. But once everyone began trying to value revenueless companies based upon notional future earnings, the descent in Wonderland was complete and irreversible.

    Classicists err in forgetting that investment finance is not a science, but resides more in the realm of sociology. And so regarding valuation based on P/E ratios as one would an immutable law of science, misinterprets the fluidity of sociological conventions.

    The casino would be broken if it refused to pay out, no matter how odious the bet. Timmy Geithner understood this when he had taxpayers pay the bets of credit default swap speculators, when the AIG casino went kaput.

    • Lisa_Hooker says:

      I much concur, excepting that I believe that Tim and Hank were much more concerned with maintaining the status quo for the rich and not-famous-at-all crowd. I don’t think there was concern about the ebb and flow of the casino’s credibility.

  33. WSKJ says:

    Feb. 1, 2021
    Inspired by your audio blog of yesterday, Jan. 31, 2021, Wolf, I decided to take action and Sell 100 shares of Facebook which I have held for some years now, but have finalized decision to sell because of reports of FB censorship. Your blog was a propos of the current state of Wall Street and the U.S. economy, but I have generalized to the desire to keep all uglies out of the portfolios….more will need to go…..

    The adventure at TDAmeritrade: was able to log on to first account. The second account log-on attempt screened me out with message that I was already logged on (I had closed my browser, but they are trying to force me to link all TDAmeritrade accounts.)

    Went to the 800 number to “get help logging on”, and got recorded message that I should expect a 2-hour wait. Gave up.

    Have not been happy with TDAmeritrade since the forced migration.

    Thx, Wolf, for looking after us; your censorship is even-handed and clearly outlined in WS game rules.

    P.S. ……Kind of hoping to see Gamestop maintain a bricks-and-mortar presence…………..

    • Wolf Richter says:

      WSKJ,

      You can try to clear the browsing history (all of it, including passwords) in your browser. It should help. This removes all log-in data, among other things.

      Clearing the browsing history (including passwords) is a good idea for lots of reasons, but it’s especially a good idea before and after you’re using your financial sites (bank, broker, credit card account, etc.).

      If you clear the browsing history between logging into TDA accounts, I think you will be able to log into both accounts. Like this:

      1. clear browsing history
      2. log into Acct 1, do business, log out
      3. clear browsing history
      4. log into Acct 2, do business, log out
      5. clear browsing history
      6. let us know if this resolved the problem.

      • Lisa_Hooker says:

        Also very helpful – clear the browser’s “cache.” Usually located under Tools and/or Options, &c (search for cache in Help if need be).

        • Wolf Richter says:

          Yes, the cache is where the browsing history is stored. Browsers such as Chrome and Firefox call it “History” in their menu, not “cache,” so I like to use terms in my instructions that you can actually find on the hamburger menu :-]

        • Lisa_Hooker says:

          Firefox maintains both history and cache as two separate data stores. They must be cleared individually. History has only a list of links. The cache contains copies of actual data reducing the need for the browser to re-request some web pages and page components, and user responses. Clearing only the cache retains the useful history list of pages visited while eliminating a host of problems associated with previous user responses.

    • tolkapiam says:

      clearing cookies+history will do the trick.
      or use another browser say Firebox & chrome to log in to 2nd a/c
      or use mobile app. (instead of laptop or vice versa)

      • Lisa_Hooker says:

        Me bad, tolkapiam, cookies can cause problems too. I should have included the evil cookies. Fortunately you usually can delete cookies individually rather than wiping all of them.

  34. Swamp Creature says:

    Everyone talks about Hedge Funds.

    Where’s a list of their names, and the total assets they have???

    What’s the big mystery?? What is the MSM afraid of??

    • Lisa_Hooker says:

      @SC – when you don’t want to be known, and don’t talk to the media, there isn’t much for the media to talk about. As it’s private capital they’re not required to report publicly. I wish they were.

  35. Clarke Acton says:

    Great analysis Wolf. Hey WSB has some pretty compelling analysis on counterfeit shares produced by brokerages and clearing houses and encouraged by HFs and institutional investors. I was a CFO for a hedgie when Refco went belly-up in 1998. They were our brokerage when the whole thing went down. Crazy times – I worked 48 hours straight – as in no breaks! Margin calls in the middle of the night – GP nervous breakdown. Good times lol.
    Anyway history doesn’t always repeat itself but it often rhymes. My bet is that DTC and some brokerages are up to no good and there is a chance the GME long by WSB exposes it.
    The CEO of interactive brokers pretty much said this ‘It Can Take Down the Entire System, Theoretically’ – Thomas Peterffy, founder and chairman of Interactive Brokers Group Inc.

    Any thoughts on counterfeit shares and/or shares borrowed multiple times being the black swan that creates a 2-3 sd event?

    • Lisa_Hooker says:

      @Clarke – is loaning shares multiple times more or less difficult than rehypothecating US Treasuries multiple times?

  36. John says:

    GME should issue & sell 10 million shares at $300 = $3 billion.

    Then GME should use that money to declare a special dividend of $43 per authorized share ($3 Billion / (71 + 10 =81 million shares). Make the ex-dividend date last Friday and payable this Friday. Maybe even call it Return of Capital so it is tax free.

    The naked shorts would need to come up with $43 for each outstanding share they shorted – both naked and borrowed shares. You have a short position of 100 million shares? That will cost you a cool $4.3 billion…in cash…by Friday.

    Next week, repeat the process.

    It is anti-dilutive to GME shareholders, rewards shareholders at the expense of the hedge fund shorts, and gives the shorts a way out without crashing the entire system.

    • Wolf Richter says:

      John,

      “GME should issue & sell 10 million shares at $300 = $3 billion.”

      Yes, I agree all of these most shorted companies whose stock soared should issue a ton of new shares. But not to pay a big dividend. Instead, these companies should use those billions of dollars to restructure their businesses so that they can thrive – or at least survive. AMC did a version of this, and this will keep it out of bankruptcy court for a while.

      But the thing is, if GameStop tried to issue 10 million shares at $300… well, it’s at $187 right now afterhours.

      But OK, say GameStop tries to issue 300 million shares at $187. At first mention of this plan, GME would plunge further, as the entire demand for its shares would be mopped up by those 300 million new shares.

      The short squeeze would be instantly dissolved by this large issuance of new shares. The only thing that props up these shares would be gone.

      The shorts that came in recently would have a field day, closing their positions with big gains, now that there are an additional 300 million shares out there that they can buy a low price.

      And anyone who bought those shares a few days ago at $300 or $400 and didn’t sell would be left to weep into their pillow.

      How much would you pay to get a one-time $43 dividend next week? $50? And what would those shares be worth ex-dividend? $7?

      But if the company can raise $1 billion or $1.5 billion and invest this money in its future, such as by changing its business model, its stock might have a better chance long term to have at least some value.

  37. Cas127 says:

    The old (old) expression was, “The game isn’t worth the candle”.

    Today, it should be, “The GameStop isn’t worth the game.”

  38. NotMe says:

    The biggest short of all is the dollar. All you have to do to short the dollar is loan someone money that you are holding on behalf of someone else.

    So the question is: If you can short company stock, you are creating shares that do not exist, allowing the buyers to take over a company without actually owning shares, and at a discounted price over market price. The shorts have actually provided cheaper shares for a takeover. And the shorts drive down the price of shares, causing shareholders to sell at depressed prices. An example of this is Sears.

    There are appear to be a number of hedgies that play both sides, creating a long fund on one side, and a totally separate short fund on the other side, selling to different groups of investors. For example, what if Amazon wanted to drive Sears out of business 25 years ago? They could put money into the short fund and acquire the company (what would become the real estate holds of Sears) on the other side. There is no way that this could have happened. This is strictly a thought experiment. Something that I would do, not what Amazon would do.

    • c1ue says:

      You really have no idea what you are talking about.
      You have to borrow stock in order to short it – incurring margin debt and interest on said debt if you do so.
      Hedge funds can employ some exotic ways to somewhat get around this, but there is no such thing as “creating” stock. First of all, if you short the stock then you are literally a negative stock holder – i.e. you don’t own it, you own an obligation to someone else to give it to them at some point.
      Secondly, the shorted stock sold is bought by someone -so the net creation is always 0 in a short sale.
      The only situations where stock is “created” is naked options.

      • Petunia says:

        Actually, you can create stock by shorting, which is how they got to 140% of the float. Every short seller sells to somebody, then they borrow the same shares again and sell them, then they borrow the same shares again and sell them, ….

        • c1ue says:

          Clearly you can’t read since I specifically noted that individuals DO NOT create stock by shorting.
          Only a naked option can do that – and even, it is not “creating” stock, it is creating an obligation to buy or sell stock.
          There is a huge difference between such obligations and the literal creation of shares – which is why derivatives are not something unskilled experts should ever touch.

        • Lisa_Hooker says:

          Then why, every time I have shorted a stock, has my broker delayed the execution of my trade until he had acquired the necessary number of shares? This probably would not be necessary when shorting an index like the S&P 500, or a stock with large volume, where the brokerage holds inventory.

        • Petunia says:

          c1ue,

          You can short as I described and hedge your position with calls, but technically it is still naked, and the float is still growing. I think you can call that printing shares.

  39. gnokgnoh says:

    You made the following comment early in your podcast, “…whole thing propped up by stimulus and bailout payments to consumers and companies alike.”

    Have you done an analysis of direct UI and stimulus payments to consumers and the impact on the stock market? I agree with everything you said in your podcast, except this. While my company did get eight weeks of PPP, I have not received any stimulus money. I’m invested in the stock market, but question the premise that most consumers did anything but buy durable goods and other items in lieu of services and vacations.

    • sunny129 says:

      When the price of capital was made ‘dirt’ cheap (ZRP), by the Fed, every kind of ‘shenanigan games’ began in blowing the assets of virtually ALL kind including housing. Fraud and corruption has been accepted as ‘normal’ by regulators, wall st and law makers.

      • Cas127 says:

        “Fraud and corruption has been accepted”

        Bridge to Anywhere/Nowhere…so long as there is a tollbooth.

        DC’s Keynesian outlook seems more and more to be that even the facilitation of crime acts as a beneficial stimulus. The entire concept of cause and effect and incentive structure takes a far, far distant second place to “activity” maximization in the service of political gain.

        • Stephen C. says:

          They only care about “economic activity.” Well, selling crack on the street corner is economic activity. As long as the big cheese gets his cut, it doesn’t matter to them what rainbows people are chasing.

      • cd says:

        it was going on in the libor for 20 years…..they even somehow turned the real estate market into a day trading game….

        how about ASM spike today, AUMN, MUX, AG too

        the wsb also started jumping into bio, that sector has been unreal ride up…now some blow off top momo from college kids, love it…

        BCRX, VXRT, INO, SRNE, CVM, OMER, CLVS still have room to play….

    • Wolf Richter says:

      gnokgnoh,

      Yes, I have analyzed how much money consumers obtained during the Pandemic from the sum of wages, stimulus, unemployment insurance, and welfare payments. I have called this the “majestic overshoot” — you can read all about it here:

      https://wolfstreet.com/2021/01/29/americans-cut-back-as-income-from-wages-salaries-hit-record-while-10-million-people-still-out-of-work-weirdest-economy-ever/#comment-315982

      This is one of the charts from the article. Green = income from salaries and wages; red = income from unemployment benefits, stimulus, and welfare payments. The top edge of the red is the sum of those incomes:

      • gnokgnoh says:

        Thank you. I read that and saw the graph the other day. My question is what impact that consumers who received federal stimulus UI and direct payments had on the stock market and out-of-whack asset inflation? Most of the UI and direct payments went to people in the bottom 60% of the economy and only the top 50% of earners actually invest in the stock market, even through IRAs, 401Ks, and other vehicles.

        • RightNYer says:

          It’s hard to quantify of course, but it’s been pretty well established that people splurged on durable goods last year, across all income groups. The top, because of their paper gains in the stock market and because they are saving money not traveling, going out to eat, commuting, and being stuck around the home and wanting entertainment, etc. and the bottom, because they had more money than they did before with stimulus and unemployment figured in.

          That’s why Apple and Amazon had banner years. Because people bought stuff.

  40. sunny129 says:

    Wonder, what’s the outcome after this RH/WSB scandal got exposed to the world that Mkts are really ‘rigged’ games posing as ‘free mkt’ run and financed by Fed/CBers?

    The congress has been complicit from the very beginning. I see very little meaningful reform. unless big boys and lawmakers lose big time!

    • MonkeyBusiness says:

      Nancy Pelosi bought 1 million dollars worth of options just in December, and she’ll be laughing all the way to the bank.

      • cd says:

        as a life long californian, she is just as much as disaster as Waters….
        hypocrite she be

      • What sort of options, you don’t know do you? You are just blowing smoke. Those two GA Sen didn’t get what they deservered but they were turned out. Using inside information on the pandemic and then going home and telling their constituents that mask rules and social distancing violate their freedoms. Sweet…

      • Swamp Creature says:

        At least they were calls and not puts.

  41. c1ue says:

    I was riding the Amtrak train today, returning from visiting family.
    A youngish couple behind me – the boyfriend/husband was talking about some stock he bought at 3.86 and was going to sell at 5.
    Clearly no idea whatsoever about anything, just playing with the legalized casino.
    I will that couple and the millions of others well – but it is far more likely they get sheared like all of the past other generations who thought they were brilliant buying into a rising market.

  42. Depth Charge says:

    Now the media is pimping stories of 10 year olds making money on Gamestop. It’s just repulsive what’s become of the market.

  43. Swamp Creature says:

    Treasury 10 year note just spiked today. Up 4 basis points. This news was drowned out by the RH trading. News media won’t cover it.

    • Wolf Richter says:

      Kashkari said today that if the 10-year yield is rising because investors see a strong economy, then that’s a welcome move.

      Higher long-term rates tighten financial conditions. It’s like a tapering of QE. And they know that and welcome it.

  44. Phoneix_Ikki says:

    Nothing new but I bet Vegas casino and every gambling operation is getting even more jealous of the stock market now thanks to Papa Jerome. The return from gambling on Gamestop or AMC, I don’t think you can even get that kind of return on one of those mega jackpot slot machine or high stake tables..

    • Javert Chip says:

      Phoneix_Ikki

      The whole Reddit/GME story needs to play out (few more days; GME today closed at $92.41), and then we need the (factual) autopsy of who won & who lost.

      I’m not a betting man on this kind of crap, but this is what I expect:

      1) Few tens of thousands of Reddit warriors surprised the hell out of a few sloppy, inattentive hedge funds, and got absolutely crushed. Even better, Reddit had been discussing this tactic for months (so hedge funds knew about it).

      2) Reddit/RH group (>1,000,000) as a whole about breaks even on all this GME activity

      3) HOWEVER (this is my favorite), a few very knowledgable Reddit dudes actually put on trades long before the rest of the mob. Reports indicate some have made $10-20M profits. In order for Reddit/RH to break even as a group, I’m guessing the bulk of the mob takes a small loss. Someday, some Reddit dude may even ask if the whole crowd just got taken to the cleaners so a few could get rich.

      We’ll soon see.

  45. Swamp Creature says:

    ” if the 10-year yield is rising because investors see a strong economy, then that’s a welcome move”

    Agreed, but I don’t see much evidence of a strong economy yet. In fact all I see is closed businesses and bankruptcies.

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