Saturday, January 30, 2021

The GameStop Effect - Bad or Good

This is an opinion piece which assumes that you already know the basics of what's been happening in the US markets - in particular, where hedge funds which specialise i shorting stocks have had their hands burned beyond belief by the herd effect of groups of retail players.

Let's get the jargon right .. GameStop is a silly stock that a few months back was less than USD20 and now can be over USD300, Reddit is a thread (byline, headline, topic being connected with comments and passed on) ... Robinhood is an app that appeals to retail players.

The SEC has had tons of complaints. Is this manipulation, fraud or something else. The SEC has not said much because it is very difficult to prosecute - first, whom to prosecute and then secondly, how to catch the right perpetrators. But even before that, the SEC has to verify that what has happened was illegal under the law.

What is a syndicate, it is not something sinister until they plan to do something together (collude) to "falsify markets by manipulating orders", "make pretensions about the attractiveness or otherwise of a stock" ... I do not think the first one is in question here as the buying and selling have been genuine.

Can you regulate chatrooms, group chats in Telegram, Facebook market sharing groups. When do they become illegal, when is it acceptable sharing of stocks' information. We will all LIKE or DISLIKE certain trends or counters or even rubbish certain charting style - is that illegal? Of course not. Freedom of speech. 

When you hear rumours from your friends or colleagues, you act upon it, is your friend LIABLE - of course not, ... you did not pay for any services, and your friend did not make himself/herself out to be a licensed investment advisor. Even if he/she was licensed, you have to be considered a "client" or paying for his/her services as an expert ... only then can you sue for his/her misinformation/appalling misjudgment/major errors/intention to deceive ... and even then he/she has to have PROFITED from making those claims.

Stock markets are a MAN-MADE thing. It is not a science where there are absolutes. You draw a new line and call it a rule. Of course even new rules CANNOT go against prevailing "higher laws" confirmed and protected by the constitution.

A bourse could ban short selling and that would make it illegal. Same if they legalise short selling. So short selling can and is regulated. What has happened is DISRUPTION ... and when there is disruption in any economic business model or transactional business model, THERE WILL BE UPHEAVALS but in the end its the DISRUPTORS who will see the bulk of their "new ways" being accepted.

An example as a disruptor: Electric Vehicle (lithium battery life); online commerce; payment via smart phones ... you can resist the changes but they will win out eventually.

Am I to say that the "Robinhood members" are RIGHT? No. ... I can understand parts of it might appeal tremendously to normal investors. For the first time in a fucking long time, the small potato has the POWER - consumers in general have been 'raped', 'trapped', 'deceived', 'marginalised', 'stomped on', 'ridiculed', ... (fill in your own) ... by the big boys. Retail rarely get "better pricing", "access to research and analysts", etc... Retail money has always been referred to as "stupid money"... while institutions and insiders' moves as "smart money". OK, who is smart NOW!!!

So on the one hand you can appreciate the "rise of people's power", "the mobilisation of the masses effect" .. on the other we can also see that it can and will lead to certain MARKET DISTORTIONS.

Market mis-valuations happen ALL THE TIME, EVERY DAY even. Thats why you buy or you sell. The market is a machinery that ALLOWS everyone of DIFFERING VIEWS to put their stake into whichever company they want. If they don't put money into certain stocks (when you think they should), or when they put a lot of money into certain stocks (which you don't should be the case) - and you DISAGREE... aren't you another Koon???

The regulators here is more concerned over MARKET DISTORTIONS, and is putting investors' protection as a prime consideration. CAN YOU REALLY PROTECT INVESTORS? You can only hope to "provide a somewhat safe, reliable and functioning exchange". You are not paid to make "valuation judgments" on what is perfectly called MARKET PRICES - they are determined by the markets.

Protect Investors??!! Somehow you need to be 18 or 21 before you can drink, you need to pass a driving test before you can drive legally ... but you got money and zilch brains.. welcome to my stockmarket or casino!!! Apa logic ini? When you do not "control at the entrance" as a gatekeeper ... why the need to talk about investor protection when they are swimming with sharks already??!!

"provide a somewhat safe, reliable and functioning exchange" : limit ups, limit downs, circuit breakers .. are all to ensure a proper functioning market that is not susceptible to over zealousness or herd mentality effects. Regulators should approach GameStop/Reddit/Robinhood effects with the same strategy.

Knowing how hard it is to control the GAMESTOP effect or the Robinhood effect, regulators can only warn the chat group leaders, social media leaders to be very careful. When does sharing becomes collusion?

Things have a way of equalising out. Very soon some of those hedge funds which have lost money shorting, will be going with the retail forces. Just switch sides till all things equalise because there's little solid justification for one side or the other.

Have to be careful: you are not receiving benefit or subscriptions or fees for your groupings. If you find yourself in one, be careful. Your opinions have "speech that exhorts or rally cries or a call to action in droves" for specific counters - then you should be careful.

I think SC will throw the book at a few groupings' leaders who accept fees and they themselves are unlicensed. Just to mean business and calm things down in Malaysia.

On a broader picture: the GAMESTOP effect will cause new ways to understand and play the stockmarket. The mobilisation of masses treatise will be a new phenom which regulators everywhere will have to contend with and find ways to accept. Sites that are properly channeled to investors forums and stock information dissemination WILL RISE exponentially in value.

The GameStop effect, the Reddit platform or Robinhood app effect were all evolved from the rise of technology into the stockmarket trading platforms. To me this is the needed EQUALISER to shift the balance of powers back to retail. Look at ALL THE MANAGED FUNDS in the world, pick any study for the past 30 years - more than 90% underperforms the index. The institutions mainly 'raped' the consumer of fees and returns. Power back to the people. Just because you are in a suit may only means you are a better dressed criminal.

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