Reddittors vs Wall Street

[lpm]

Global interest rates have been very very low due to the financial crash, followed by being knocked down again by the pandemic. But the margins we all pay are also getting lower and lower. We used to pay 6% or 8% margin on credit cards which has been cut to 3% or 4% by the sophistication of predicting risk by the financial markets. That's the real saving we are all getting.

OK, look. You need to stop and listen to yourself for a bit.

You’re saying that interest rates are historically low because of two things: the economy is f.cked (due the financial services sector mispricing risk) and because financial services allow us to sail closer to the wind than ever before due to their amazing sophistication at pricing risk?

Are you sure you don’t want to backpedal a little?

You've got a serious correlation = causation problem going on there.

Unless you're an anti-Semitic Corbynite, global bankers are not the ruling powers of the world. Governments are. Governments control economies through spending, taxing, interest rates and money supply.

Sadly we have a German superpower obsessed with solving international imbalances by the imposition of severe austerity, causing several years of economic devastation in the Eurozone. In the US superpower there's a near fascist party that imposes austerity upon opponents while embracing government handouts to the ultra rich. And in the China superpower we have the biggest global imbalance in history - a massive exporting economy with a huge savings rate, sending funds flooding out into the rest of the world which sends asset prices soaring and yields on those assets plummeting.

Meanwhile in a pathetic little island in the North Sea there's been a decade of sh.t government with absurd austerity and poor investment opportunities.

The notion that evil hedge fund managers are wrecking our lives is silly childishness. Ultimately we're all being drowned by the flood of Chinese savings - and until that vast imbalance of China's huge trading surplus offset by financial deficit solves itself over the coming decades, we're all in a pretty nasty situation.

[Herainestold]

lol, just go on reddit yourself and find out?

I have. Have you? It's tulipmania but with more neckbeards in basements.

lol. Thats a good take. Even if I disagree with you on other things.

[headshot]

You are making a very basic mistake.

The amount of cash or debt a company has is not related to the share price.

https://deadline.com/2021/01/amc-entert ... 234682417/

AMC Entertainment said Silver Lake Group is converting $600 million worth of the theater chain’s debt that it holds into stock at a conversion price of $13.51 a share...

... As part of its recently announced fundraising, AMC yesterday finished issuing a further $300 million of equity at $4.80 a share.

It’s been a wild ride for the nation’s largest exhibitor but CEO Adam Aron told Deadline Monday that the chain should have cash enough to ride out the year.

What happened here? Seems the share price increase caused by Redditors piling in has led to a ton of debt being wiped out.

(Genuine question, I don’t fully understand the mechanism here.)

[bolo]

Some bonds are convertible into shares at a predetermined rate. It's part of the terms of the bonds when they are first issued, to make them attractive to buyers at a slightly lower interest rate. They function as ordinary bonds unless the bondholder chooses to convert them, so this wasn't something AMC chose to do or not do. It was the choice of the bondholder. And it wasn't something that was just arranged between AMC and the bondholder in light of current events. It was built into these particular bonds back when they were issued, probably years ago, and the bondholder just decided this would be a good time to exercise their right to convert.

[Millennie Al]

There are plenty of other things in life where you risk losing everything. You might suddenly step out into the road without looking and be killed in a crash, or you might vote for the wrong government and bring on economic disaster or a public health disaster.

If you lose everything in short trades, it's your own money. If your investors lose everything, it's their fault for trusting you with their money. If the lenders of the shares lose their shares (note the losses here are capped to the total shares you borrowed), it's their fault for letting you borrow them and the risk is, presumably, built into the loan fee. All of the people involved are wealthy, sophisticated investors. Do you think these are the sort of people who should be protected from themselves?

Depends on whether they ask for a government bailout when they lose their shirts.

No. But it may depend on whether the government gives them a bailout. Which depends on the voters, who are responsible for electing the government.

[Millennie Al]

+ 1 x Black Monday (1987)
+ 1 x dotcom bubble (2001)

Please point to the "gigantic crash" of Black Monday on these graphs:
https://en.wikipedia.org/wiki/File:DJIA ... _(log).svg
https://en.wikipedia.org/wiki/File:FTSE ... e_1984.png

Then you can have a look for the dotcom bubble as well.

[bolo]

I should have added that although this does away with a bunch of debt, it's not "free money" for the company. The conversion means new shares have been issued, so that each of the previously existing shares is now worth a somewhat smaller fraction of the company. Theoretically that should be a wash, with the value of a smaller fraction of a less indebted company coming out the same as the previous value of a larger fraction of the more indebted company before the conversion happened. In practice, at the moment, the share price of AMC has no connection whatsoever to the actual value of AMC, so until that settles down, who knows?

[Millennie Al]

Jesus, BoaF, you must be a shocking credit risk. Tesco do unsecured loans from 2.9%. There must be some way you can consolidate all that into lower interest charges.

I probably am. (To be fair, it's not a huge amount - £3k left on the loan and £300 on the credit card, which I only use for short-term PhD expenses which I have to pay up front.)

According to https://www.moneysavingexpert.com/loans ... nal-loans/ it's possible to get an unsecured loan of £3000 for 1-5 years at 6.9%, so yours at 9% is probably quite reasonable (the 6.9% is "representative APR" so any particular individual might not be eligible). With your credit card rate being more than double the rate on your unsecured loan, it would obviously be much better to owe £3300 on the loan and nothing on the credit card. The interest rate on a credit card should be almost irrelevant as they are a very expensive way to borrow money so should be paid off in full every month - if necessary by using a much lower rate loan obtained elsewhere.

When I took it out I had just finished a masters and was working part-time on a zero-hours contract, so I just had debt from studying and very little provable income. None of the cheap providers would touch me (though I think those ultra-low headline rates are typically for homeowners with high salaries anyway).

Part of the rate is based on how likely you are to repay the loan, and householders are very good for that - not just because the house is a valuable asset that can be seized, but because they are tied down to one place by their house and it's much easier to find them and take them to court to recover money. However (as you can see at the link I mention above) the amount being borrowed also makes a big difference. This is because there is a fixed overhead in assessing a borrower etc, but people taking out small loans cannot pay a significant fixed fee up front so it gets collected through a higher rate on the loan.

Allegedly, from https://www.moneysavingexpert.com/banki ... ts/#virgin you can get 2.02% interest on a current account with Virgin Money.

[basementer]

Theoretically that should be a wash

Could you explain that idiom, please? For me, a wash is something that comes before a dry or after a boat.

[Millennie Al]

If people weren't investing money in speculation - I share the both noggins's sense that there's a distinction, and also a sense that I might be missing things - mightn't that money then be invested in something more directly productive instead?

Well, you'll have to define what you mean by speculation, as the most common definition I have come across is investment in things the speaker disapproves of. But, to answer your question, it seems very unlikely. Interest rates are very low, which means that there is lots of money available but a shortage of ways to spend it which return a monetary profit.

[Martin_B]

+ 1 x Black Monday (1987)
+ 1 x dotcom bubble (2001)

Please point to the "gigantic crash" of Black Monday on these graphs:
https://en.wikipedia.org/wiki/File:DJIA ... _(log).svg
https://en.wikipedia.org/wiki/File:FTSE ... e_1984.png

Then you can have a look for the dotcom bubble as well.

Well, you can see Black Monday fairly clearly on both graphs, where the FTSE dropped from ~2300 to ~1600 sharply.

It's a little more difficult to see on the Dow Jones graph, but there is a drop from ~2600 to ~1900.

Black Monday was a fairly significant event worldwide (in Australia, New Zealand, Hong Kong, and I think Japan) it's called Black Tuesday because those stock markets had closed before stocktrading-caused panic set in.

[lpm]

You are making a very basic mistake.

The amount of cash or debt a company has is not related to the share price.

https://deadline.com/2021/01/amc-entert ... 234682417/

AMC Entertainment said Silver Lake Group is converting $600 million worth of the theater chain’s debt that it holds into stock at a conversion price of $13.51 a share...

... As part of its recently announced fundraising, AMC yesterday finished issuing a further $300 million of equity at $4.80 a share.

It’s been a wild ride for the nation’s largest exhibitor but CEO Adam Aron told Deadline Monday that the chain should have cash enough to ride out the year.

What happened here? Seems the share price increase caused by Redditors piling in has led to a ton of debt being wiped out.

(Genuine question, I don’t fully understand the mechanism here.)

Its worth noting that the "correct" price of an AMC share is about $4, at least that's about what it's been trading at for the past 3 months before the market manipulation. Looks like the pandemic has left the company on the ropes, down from $15 to $20 in 2019.

It has only been able to raise equity at $4.80 because that's all long term investors are prepared to pay. The short term froth of a few days driving the price to $20 (now back to $15) hasn't meant the company can raise long term equity that cheaply.

The Convertible holders have taken an enormous gamble. They've effectively had an option to buy shares at a price of $13.51. An option is valuable, even if it's not yet "in the money". Imagine you had the option to buy £, sell $ at an exchange rate of $1.60 at any time of your choosing in the next two years. But the rate is only $1.35 currently and doesn't look like it'll ever get back to the $1.60 range. Your option is "out of the money" and will probably expire unused in two years. But it's not completely worthless. Maybe something will happen and the £ will soar to $1.90 next year. You would then exercise your option to sell dollars at $1.60 while simultaneously buying dollars in the open market at $1.90. Instant profit.

The Convertible holders are in the same position. They have the choice to buy shares at $13.51 at any time they choose. That option is worth something, even if the share price languishes at $4 for months. Sure enough the share price recovers to $20. The owner promptly exercises the option to get shares at $13.51 and quickly heads into the open market to sell them at a profit.

But the other holders of the Convertible aren't exercising their option. They think Silver Lake are mad to try it. Will Silver Lake manage to sell all $600 million at above $13.51? Or will the froth promptly collapse once that sort of weight is dumped on the market? Are there enough fools left still buying? If the share price slumps back to $5 then Silver Lake will take a huge loss.

Time will tell.

[plodder]

Global interest rates have been very very low due to the financial crash, followed by being knocked down again by the pandemic. But the margins we all pay are also getting lower and lower. We used to pay 6% or 8% margin on credit cards which has been cut to 3% or 4% by the sophistication of predicting risk by the financial markets. That's the real saving we are all getting.

OK, look. You need to stop and listen to yourself for a bit.

You’re saying that interest rates are historically low because of two things: the economy is f.cked (due the financial services sector mispricing risk) and because financial services allow us to sail closer to the wind than ever before due to their amazing sophistication at pricing risk?

Are you sure you don’t want to backpedal a little?

You've got a serious correlation = causation problem going on there.

Unless you're an anti-Semitic Corbynite, global bankers are not the ruling powers of the world. Governments are. Governments control economies through spending, taxing, interest rates and money supply.

Sadly we have a German superpower obsessed with solving international imbalances by the imposition of severe austerity, causing several years of economic devastation in the Eurozone. In the US superpower there's a near fascist party that imposes austerity upon opponents while embracing government handouts to the ultra rich. And in the China superpower we have the biggest global imbalance in history - a massive exporting economy with a huge savings rate, sending funds flooding out into the rest of the world which sends asset prices soaring and yields on those assets plummeting.

Meanwhile in a pathetic little island in the North Sea there's been a decade of sh.t government with absurd austerity and poor investment opportunities.

The notion that evil hedge fund managers are wrecking our lives is silly childishness. Ultimately we're all being drowned by the flood of Chinese savings - and until that vast imbalance of China's huge trading surplus offset by financial deficit solves itself over the coming decades, we're all in a pretty nasty situation.

So only anti-semites believe the 2008 financial crisis was caused by the financial services sector?

I was hoping for a sensible conversation...

[lpm]

If you've been hoping for a sensible conversation, why have you run with the faux-childish approach throughout? All capitalists are c.nts, etc.

It's now emerging who some of the Reddit pump-and-dump scammers are. Guess who. How could we have known who these highly skilled people are? With their access to Bloomberg terminals, knowledge of short fund positions, expertise in the complexities of derivatives, knowing what a gamma squeeze is, have serious money to play with, and are highly experienced in executing complex trading strategies.

An uprising of the common people against Wall Street? Come on, man.

[noggins]

https://www.theonion.com/u-s-economy-gr ... 1819571322

[Bird on a Fire]

Jesus, BoaF, you must be a shocking credit risk. Tesco do unsecured loans from 2.9%. There must be some way you can consolidate all that into lower interest charges.

I probably am. (To be fair, it's not a huge amount - £3k left on the loan and £300 on the credit card, which I only use for short-term PhD expenses which I have to pay up front.)

According to https://www.moneysavingexpert.com/loans ... nal-loans/ it's possible to get an unsecured loan of £3000 for 1-5 years at 6.9%, so yours at 9% is probably quite reasonable (the 6.9% is "representative APR" so any particular individual might not be eligible). With your credit card rate being more than double the rate on your unsecured loan, it would obviously be much better to owe £3300 on the loan and nothing on the credit card. The interest rate on a credit card should be almost irrelevant as they are a very expensive way to borrow money so should be paid off in full every month - if necessary by using a much lower rate loan obtained elsewhere.

Yes, the loan was to sort out credit card debt that piled up during my masters - I was living abroad and wanted to do some interesting things, and my €500/month scholarship wasn't quite enough. No regrets

All I use the credit card for is PhD stuff. When I do courses at foreign universities, or attend conferences, I can normally claim the costs back, but the funder only pays after it's happened, so for a few months I'm out of pocket. Obviously I'd rather use savings, but I don't have any. But most of the time there's nothing on there, and I'm trying to keep it that way.

My wife's just got out of long-term unemployment which is a help, too.

[Bird on a Fire]

I liked the "Actually it was China all along" gambit.

One for the "I miss Donald Trump" thread.

[bolo]

Theoretically that should be a wash

Could you explain that idiom, please? For me, a wash is something that comes before a dry or after a boat.

Six of one or half a dozen of the other.

[plodder]

If you've been hoping for a sensible conversation, why have you run with the faux-childish approach throughout? All capitalists are c.nts, etc.

It's now emerging who some of the Reddit pump-and-dump scammers are. Guess who. How could we have known who these highly skilled people are? With their access to Bloomberg terminals, knowledge of short fund positions, expertise in the complexities of derivatives, knowing what a gamma squeeze is, have serious money to play with, and are highly experienced in executing complex trading strategies.

An uprising of the common people against Wall Street? Come on, man.

You need to stop putting words in my mouth, especially ones that distract from the rubbish you've been talking. The financial services industry is demonstrably dangerous and has a vastly over-inflated sense of its own utility.

[nekomatic]

If it’s demonstrable that the financial services industry is dangerous, I’m sure you’ll have no problem demonstrating it.

I’ll wait. Oh, you can’t use unevidenced potato analogies.


I’m perfectly sure there are things going in in the financial services industry that aren’t to everyone’s benefit. I’m equally sure it’s not as easy to draw a line around them as you seem to think.

[plodder]

If it’s demonstrable that the financial services industry is dangerous, I’m sure you’ll have no problem demonstrating it.

I’ll wait. Oh, you can’t use unevidenced potato analogies.


I’m perfectly sure there are things going in in the financial services industry that aren’t to everyone’s benefit. I’m equally sure it’s not as easy to draw a line around them as you seem to think.

2008

[lpm]

You know what you could read about 2008?

The non-fiction book "The Big Short".

If you don't want to read a book, you could could watch the movie "The Big Short".

The heroes of the book and movie undertake a short of mortgage bonds and the short is portrayed as "big".

[dyqik]

If it’s demonstrable that the financial services industry is dangerous, I’m sure you’ll have no problem demonstrating it.

I’ll wait. Oh, you can’t use unevidenced potato analogies.


I’m perfectly sure there are things going in in the financial services industry that aren’t to everyone’s benefit. I’m equally sure it’s not as easy to draw a line around them as you seem to think.

Do you have any evidence that the financial services industry as it currently exists isn't dangerous?

[Millennie Al]

+ 1 x Black Monday (1987)
+ 1 x dotcom bubble (2001)

Please point to the "gigantic crash" of Black Monday on these graphs:
https://en.wikipedia.org/wiki/File:DJIA ... _(log).svg
https://en.wikipedia.org/wiki/File:FTSE ... e_1984.png

Then you can have a look for the dotcom bubble as well.

Well, you can see Black Monday fairly clearly on both graphs, where the FTSE dropped from ~2300 to ~1600 sharply.

It's a little more difficult to see on the Dow Jones graph, but there is a drop from ~2600 to ~1900.

Black Monday was a fairly significant event worldwide (in Australia, New Zealand, Hong Kong, and I think Japan) it's called Black Tuesday because those stock markets had closed before stocktrading-caused panic set in.

Yes, it is visible, but it's just a variation which is a bit bigger than usual. It's also fairly short term. In February 1986 the FTSE 100 rose above 1500. Black Monday, in October of the following year, brought it back down to a level which was still above that and from which it resumed climbing. If someone showed the graph with that period blanked out, I doubt many people would fill in the gap with a rise to 2,300+ in it. Despite all the fuss over it, it should have had minimal effect on ordinary people who use the stock market for their pension - which is a long term investment. For people who make their living exploiting the stock market, it was much more significant. If you are dealing in large amount of money and you expect to get millions of dollars in commission for 1987, then you might have ended up bankrupt as you can't afford the payments on the loans for your $20,000,00 house, other house, private plane, and large yacht.

[secret squirrel]

If it’s demonstrable that the financial services industry is dangerous, I’m sure you’ll have no problem demonstrating it.

I’ll wait. Oh, you can’t use unevidenced potato analogies.


I’m perfectly sure there are things going in in the financial services industry that aren’t to everyone’s benefit. I’m equally sure it’s not as easy to draw a line around them as you seem to think.

You don't have to draw a line around the dangerous parts to say the whole thing is dangerous. If 90% of what the financial services industry does is for the benefit of mankind, but 10% has a high risk of causing the catastrophic meltdown of civilization (hypothetically), then the whole thing is dangerous, even if you don't know exactly which 10% is dangerous.

As an analogy, a minefield is dangerous even if most of it is safe space.

But if you do want something more specific, lots of respected economists have criticisms. Here's Ha-Joon Chang, for example:

The problem with financial markets today is that they are too efficient. With recent financial ‘innovations’ that have produced so many new financial instruments, the financial sector has become more efficient in generating profits for itself in the short run. However, as seen in the 2008 global crisis, these new financial assets have made the overall economy, as well as the financial system itself, much more unstable.