Thoughts on GME and This Week in the Stock Market

Jacob Hess

January 28, 2021

• Markets
• Commentary

In the current state of the world, information is abundant. The age of the internet and computers has thrust humans into an indigestible world of data points that has invaded our consciousness. This trend is even more true in the world of the stock market where investors scramble for any information that could give them an edge over their peers. Financial and economic reports and data are countless, these being the things this website hopes to surface and make available to all.

The growth of information has not levelled the playing field. In many ways, the stock market is still “pay to play” with the hedge funds raising the ante every day as they advance their edges against each other and the retail investor. The peek behind the curtain that Michael Lewis’ Flash Boys paints the picture well, hedge funds can have their way with the stock market. Of course, regulators like the SEC and FINRA have “done their part” in protecting the small traders by forcing some sort of transparency. We can after all see selected data on short interest and other long positions. And CNBC is there to keep that information circulating in front of you.

But up until August 2020, Robinhood shared what stocks its investors were holding. That data was available publicly through a portal, and not even slightly as revealing as what it sells to its customers. The platform that first introduced no commission trading, freeing the little guy from the chains of $5-$10 commissions, sells its order data to hedge funds. This means that hedge funds, the same ones that are massively short stocks like GME and AMC, can see what these retail traders on Robinhood are doing. A little like how Google can see your every search and prescribe ads for you before you realize you wanted something. With this data, massive financial firms set up algorithms to beat them before they’ve even started playing.

This game has never been one of symmetric information. Never. Hedge funds and big banks and other financial institutions “winning” this game have known everything that the ordinary person has and then some. Even the Reddit community beating them at their own game, WallStreetBets, is entirely public (for the most part) and has been allegedly spammed by bots from the hedge funds. To say that this community has done anything more than work together to punish the big traders for walking a tightrope on leveraged trades and insane shorting positions is ludicrous. And for Wall Street to think that they could avoid taking the loss by doubling down on their shorts is equally ludicrous.

The stock market should be a free market. There should be no distortions created by brokerages restricting anyone’s trading privileges, and the regulators should seek to condemn those who did the restricting. Guess what. Wall Street lost this one. Just like LTCM lost in 1998 after a Russia financial crisis. Just like Lehman Brothers and many other companies lost in 2008 in their dark pools of mortgage-backed securities and derivatives. But this time the little guys didn’t get dragged down with them, and they have the audacity to have disdain for that. $70 billion in losses is not enough of a lesson for them.

But they didn’t lose because the retail trader knew something they didn’t know. The game of asymmetric information continues even in a world flooded with data. Imagine playing chess without knowing where the opponent’s pieces are while he or she knows the positions of yours. MTS Insights will continue to contribute to transparency in the stock market and the economy. We support the pursuit of a level playing field for the retail investor in finance no matter how impossible it may seem to achieve. Onwards and upwards (GME and the like).