But that never came... it was just positive feedback in perception.
2. It's not "usually" crazier than you expect. Most everywhere, we have feedback loops that keep things stable. Demand rises, prices rise, people think, eh, too expensive, and demand and supply are in balance again. Airplane gets bumped nose-up a bit, angle of attack increases on the wing and the horizontal stabiliser creating upward forces, but everything (centre of gravity, tail volume, etc.) is carefully designed such that this results in a nose-down momentum until the plane is in equilibrium again. And I could go on.
That's why it is so unusual when things spin out of control (nuclear bomb, anyone?).
3. As for GME, I trust that the forces of the market will pull it back down where it belongs soon enough.
EDIT: closed parenthesis
As for GME, there’s fundamental analysis and financial experts telling us it is only a matter of time before the price free falls. But there’s a serious behavioral dissymmetry here. The market is rich with GME stock buyers who don’t care to listen to any of these traditional buy/sell signals. I’m not sure you’re wrong, but I’m personally a little bit less certain that the price will drop — at least soon — due to this reason alone. As this article points out, feedback loops can be extremely powerful. And I suspect they can play out over longer periods than we expect.
Intriguing, and (lamentably) not entirely impossible. But, you know: bubbles do have the habit of bursting.
It is this week. But let's be honest: (1) wallstreetbets isn't a very large community compared with the whole market, or even the capitalization of GME or AMC and (2) these are investors engaged in a fun revolution.
This won't stay fun for months. These folks want to trade in those portfolios. And if this doesn't go up any farther (it's been flat at ~$300 since Thursday), how many of those will get bored and sell so they can trade whatever the next meme stock is? Not that many, sure. But enough to push the value down lower, to a threshold where more Robinhood traders decide to get out. And we have exactly the kind of feedback loop described in the linked article.
GME is going to fall because there's no reason for GME to stay high. Once the short squeeze is over and the lols play out, it's just another failing company.
(And I continue to believe that this is going to turn out to be a big astroturfed scam when this is all said and done and I'm betting a bunch of the early players will turn out to have been executing a pump and dump.)
Bitcoin is a completely different proposition however, because so much of the demand is driven by black market commerce, and other equally inscrutable factors. Both the supply of and demand for Bitcoin are completely volatile. There’s basically no hope of performing a reasonable analysis of where it’s value might be heading.
Wouldn't surprise me if GME does the same thing - just the sheer number of shorts will blunt the price declines a bit, as they cover.
Traditional buy/sell signals are irrelevant, because of the short seller shenanigans. The short sellers created this perfect trap for themselves, now they are scrambling to get out of using every dirty tricks. The more WSB crowd is aware of this scenario, the more they jump in to the diamond hands philosophy.
I'm having trouble scrounging up links, but a lot of good research came out of the Santa Fe Institute and associated folks.
Well, it still failed to compile because you didn't have a trailing ";" and the rest of your comment wasn't even in programming code.
Current GME situation is not investing, it's short term speculation and gambling and ideological tussle and class fragmentation thrown in. All investing strategies and tactics are thrown out the window.
The billionaire vulture short sellers got careless and lazy by shorting 140% of stock. Then, they got caught with their pants down with naked shorts and now squealing to everyone to bail them out. They could have just ate the losses, but they decided to pull all the dirty tricks and shenanigans. It may or may not work.
The WSB crowd battling the billionaire vulture short sellers are out for more than gains.
like what?
>The WSB crowd battling the billionaire vulture short sellers are out for more than gains.
I'm personally skeptical of this. It's easy to say you're doing this with noble reasons on the way up, but it's hard to tell whether the people are serious, or they they're trying to ensure there's enough bagholders to sell into.
Therefore the gamma squeeze has a timing component, while short squeeze can happen at any time irrespective of when options expire.
Squeezing shorts is trying to make sure that the shorts (that need to buy back shares) don't find any shares to buy, thus driving up the price (as they'll offer more and more to buy the shares they're obliged to return to those they borrowed them from).
With a gamma squeeze, you also aim to drive up the price, but the mechanism is a different.
As you might know, the payoff of a call option (as a function of the stock price S at expiry) looks something like this:
__/
The price of a call option before expiry looks basically similar, but smoothed out.
The delta of an option is the first derivative of that graph, or, to put it differently, the change in the price of the option as S goes up. You can convince yourself that when S is very low, the delta of the option is very close to zero, and as S approaches K, the delta increases, and with S much higher than K, delta is basically 1.
(Take an option struck at 50. When S = 10, it's worth basically nothing, and when S = 11, it's still worth basically nothing. So, delta = 0. When S = 200, option is worth about 150, when S = 201, it's worth about 151. So, delta = 1.)
[Gamma is the second derivative. It's basically zero when the stock price is very low or very high, as delta doesn't change. But near K, gamma rises - delta changes!]
Now, if an option trader sells you a call, you're long (you win if the stock goes up), trader is short. Trader doesn't like that risk, so they'll buy the stock to cancel out their price risk. How much stock? Well, depends on delta. If S is small, and delta, say, 0.1, they only need to buy 0.1 stock. Then, for small movements of S (say, a small increase), what they lose on the option, they gain on the stock.
However! If the stock moves substantially, particularly if S approaches K, the delta of the option goes up (gamma is not zero anymore). So, the trader needs to buy more shares to be flat again.
So, here's the strategy: Cheaply buy way-out-of-the-money call options (S << K). Then, manage (somehow), to drive the share price S up towards K. The trader who sold you the options will then buy S, potentially driving up S even further. That's the gamma squeeze.
[Note: The trader that sold you the call charged you a fixed premium at the beginning. Now they must buy the stock when it has gone up, and sell it when it has gone down. So, as the share price goes up and down, they lose money (since they buy expensive and sell cheap). If the share price goes up and down a lot, they'll lose more than they got on the premium. If the share price goes up and down only a bit, say when it moves smoothly in one direction only, or not at all much, then they'll lose less than they got on the premium, so they'll win.
That's why we say that someone that wrote a call is short realised vol: if realised vol is high (higher than the implied one that he charged you for the option), they'll lose, and vv.]
When you wrote an option, you're short vol, short gamma, and long theta. When you bought an option, you're long vol, long gamma, short theta.
* Reflexivity is a theory that positive feedback loops between expectations and economic fundamentals can cause price trends that substantially and persistently deviate from equilibrium prices.
* Reflexivity’s primary proponent is George Soros, who credits it with much of his success as an investor.
* Soros believes that reflexivity contradicts most of mainstream economic theory.
https://www.investopedia.com/terms/r/reflexivity.asp has some additional info.
I wonder if there's a way to marry "efficient market hypothesis" with "reflexivity on the edges" somehow. Well outside my ballywick, in any event.
"It is not a case of choosing those [faces] that, to the best of one's judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees."
Another way to put it: You might be the best poker player at the table, but you might not be enough better to beat the rake. Or, sure, you can count cards and win at blackjack, but the casino ensures through table limits that on average they'll still come out ahead. Card counters will spend too much money finding a table with a good count that they won't win enough back exploiting the count to make up for the cost of information. On average.
The hypothesis is just false. Markets do seek efficiency, but not the way it states. But the Efficient Market Hypothesis leads to tractable mathematics, so people try to approximate the real world into it.
The key to this synthesis is that there is sometimes genuine, fundamental value to be had in creating a Schelling point for a resource or a certain kind of transaction. This is (part of) why online marketplaces are valuable and defensible businesses, for example.
"Reflexivity" is simply what it looks like when a Schelling point is in the process of forming. There are some very rare but very real cases in which a bubble really does create its own reality, and that reality sticks around because a shared delusion turns out to create enough real value to justify its existence. There is an art to identifying those cases, and that art is as well-compensated as one might imagine. (Most of the time, though, a Ponzi is just a Ponzi.)
The best I could summarize it is that "reflexivity" postulates that economic equilibria are usually not stable, but metastable. That is, they can be easily pushed out of their stability regime, at which point the feedback loops will no longer balance, and the equilibrium will get re-established elsewhere (if at all).
That's the only thing I can see that requires some empirical justification. Other than that, the postulates seem to be basically "feedback loops 101", and the "mainstream economics" concepts, as I understand them, are built on the same principles too.
The GME rally amazingly even exceeds the biggest bubbles of 1997-2000 in %-change and volume.
Actually, he pushes this idea even further: in the book, our solar system was already engulfed in a few spheres millions of years ago. He suggests that this why Venus is such a hellscape: the aliens came, took the resources they wanted, and left behind a polluted mess. In the case of Venus, they left lots of greenhouse gases behind as the result of some chemical process used to extract resources; as a result, Venus quickly became the warmest planet in the solar system. It's a fun twist on the Fermi paradox: signs of aliens are actually all around us, we are just too dumb to notice them.
Another interesting idea he explores a bit is "ownership" of resources. Do the resource-rich asteroids in our solar system really belong to us? Or are they available to any alien race who happens to pass through? In the book, we first notice aliens by observing unexplainable infrared radiation from the asteroid belt (later revealed to be thermal emissions from their resource extraction). He suggests that these aliens will potentially crowd out humans; even if they are not overtly hostile, they could gobble up all the resources we would have used to expand our civilization.
Highly recommend this book.
Put it another way, is there any predictive power here or is it only something that can be observed after the fact? Seems like the latter.
100%. We're certainly not yet after the fact.
This is almost the opposite of Jevon's Paradox:
> the Jevons paradox occurs when technological progress or government policy increases the efficiency with which a resource is used (reducing the amount necessary for any one use), but the rate of consumption of that resource rises due to increasing demand.
but the hunter that figure out how to farm elephants will be even richer. So the problem becomes one of technological breakthru coming first, or extinction coming first.
What makes the future difficult to predict is that negative feedback loops and positive feedback loops are often fighting each other and you never know early on which will ultimately dominate.
Previously: https://news.ycombinator.com/item?id=24793170
And in 2008/09, people probably didn't want to buy from a bankrupt GM because it's hard to get spare parts from bankrupt car manufacturers. At least for the common definition of bankrupt (i.e. shuttered).
However, the author made it sound as if "momentum" is the only thing that drives human behavior. While it's certainly a part, I wouldn't say it's the only force driving human decisions.
Or maybe simply selling tusks is profitable and there does not need to be a feedback loop for elephants to go extinct.
but that's not logical, because if selling tusks is profitable, then more people will want to join in, thus increasing the number of tusks being sold (implying more elephants being killed for it). Until profit goes away due to drop of demand at least.
If people weren’t trying to get rich selling tusks we would have more elephants and if people weren’t trying to get rich with GME stock we would have less fear of our other investments being randomly targeted.
I don't want to strawman anyone. Are there really Anachrocapitalists who believe that the market should decide whether or not we have mass extinctions, or is this post mostly satirical?
There are so many problems with this idea, not the least being that markets aren't designed to eliminate niche ideas, they're designed to support them -- and because wild populations of elephants are a shared common resource, even a small number of people who are happier owning tusks means that their preferences suddenly outweigh the vast majority that want them to stop killing elephants.
Markets aren't designed to stop people from irreparably damaging commons and messing up the world for everyone. That doesn't mean markets are bad, it just means... that's not what they were ever designed to do. You're using them to try and fix a problem that they're not optimized to fix.
This is very much a, "if all you have is a hammer, everything looks like a nail" proposal. We don't need to solve literally every single problem with Capitalism. We especially shouldn't look at every single problem and say, "Capitalism doesn't solve that, so it's not a real problem."