Market/Financial Thread

[he gone.]

1 hour ago, caulfield12 said:

Should a 17 or 18 year old be able to set up their own trading account?  Why/why not?   We certainly wouldn’t have taken the money away had he earned hundreds of thousands.  

It kind of merges with student loan questions. should you be able to borrow hundreds of thousands of dollars without understanding possible outcomes. 

 

[Texsox]

Can you imagine what the conversations must have been like around their house? 

"Hey dad,  I need $750,000 to cover my losses. Would you mind transferring some money? "

Parents discuss being homeless, starving,  broken in the streets. 

Kid commits suicide. 

Parents become millionaires with a fast settlement and a possible movie deal. 

America. 

[caulfield12]

20 minutes ago, Texsox said:

Can you imagine what the conversations must have been like around their house? 

"Hey dad,  I need $750,000 to cover my losses. Would you mind transferring some money? "

Parents discuss being homeless, starving,  broken in the streets. 

Kid commits suicide. 

Parents become millionaires with a fast settlement and a possible movie deal. 

America. 

It’s still not clear whether he owed that actual amount of money, whether just his exposure was potentially -$730,000, whether he understood the trades he’d made, or if the brokerage notified they were shutting his credit lines down...or he simply didn’t understand that he’d hedged his positions and could possibly be coming out even or at least not hundreds of thousands in debt.

 

As far a movie deal, it sounds so depressing that I’m not sure who would want to watch.  The Redditors have their “stick it to the man” storyline, this would be sticking it to the trading platform that wants to get back at the man but is pretty much an illusion created by hedge funds...that they’re still just getting caught up in the man’s web?   Too complicated, and too bittersweet/ironic that the process of empowering individual investors is actually putting them more at risk. Who’s the compelling villain? Greed itself?

 

 

Edited February 9, 2021 by caulfield12

[southsider2k5]

2 hours ago, caulfield12 said:

Not take down obviously, but it (the situation outlined here) certainly dovetails with the discussions over the last couple of weeks, especially margin trading and short squeezes being terms that the majority of Americans, let alone high schoolers, aren’t 100% familiar with.

My guess is the lawsuit was partially a result of recent events, but maybe it was happening all along and the timelines just conveniently converged.

And with so many billion+ companies emerging in the last five or so years, there will undoubtedly be even more lawsuits.  For example, at what age can we hold corporations at least partially responsible for the actions of customers?  Should a 17 or 18 year old be able to set up their own trading account?  Why/why not?   We certainly wouldn’t have taken the money away had he earned hundreds of thousands.  
 

In the 2000’s, despite so many fraudulent subprime loan applications being approved without even simple salary checks, how many of those Mnuchin-esque firms were held accountable in any way?   How many homes were foreclosed on?  Or student loans taken on that weren’t repaid, or could never realistically be repaid?

Legally, one is a no, one is a yes.

[turnin' two]

1 hour ago, Texsox said:

Can you imagine what the conversations must have been like around their house? 

"Hey dad,  I need $750,000 to cover my losses. Would you mind transferring some money? "

Parents discuss being homeless, starving,  broken in the streets. 

Kid commits suicide. 

Parents become millionaires with a fast settlement and a possible movie deal. 

America. 

Do you somehow know this conversation happened?  Seems disgusting to somehow imply the parents are making out like bandits an celebrating over their kids death.  

Edited February 9, 2021 by turnin' two

[bmags]

I doubt he told his parents. I mean worst case, he actually owes and he files for chapter 7 right? 

[Chisoxfn]

3 minutes ago, bmags said:

I doubt he told his parents. I mean worst case, he actually owes and he files for chapter 7 right? 

This story goes back a number of months and was horribly tragic. Kid misinterpreted his dashboard and thought he lost a ton. Panicked like crazy and kept looking - supposedly never asked his parents (which doesn't sound like a shocker to me) and I'm sure he literally couldn't sleep for days until he made an extremely tragic choice.  

Customer service could have stepped in anywhere along the way and changed things. It also highlights why you want to make sure your kids tell you anything and feel safe doing so (but that is a small note and we all know kids are going to internalist at least some things).  By all accounts it seems like he was a pretty big kid who thought he was doing something, got over his ski big time and thought he ruined his and his parents lives.  

[bmags]

Now that we have some daylight for getting through one catastrophic event, the other we should really try to hedge against has to be this unbelievable reliance on taiwan semiconductor to provide nearly everyone with their semiconductors right? I mean you have climate events that have happened before, easily realistic geopolitical events that could cause huge issues for manufacturing of cars and tech that nearly every industry uses.

I don't know if the USG should take an active interest in helping Intel, or using our relationship historically with TSM whatever it takes to manufacture more of their product here (TSM was started by American citizens), but this seems like a pretty realistic disaster. They are opening up an Arizona fab it looks like this year, but it seems to make sense to coax more here just to hedge against a bunch of US jobs being lost to something like that.

[bmags]

https://www.bloomberg.com/news/articles/2021-02-09/gm-extends-production-cuts-through-mid-march-on-chip-shortage?sref=vuYGislZ

[Texsox]

6 hours ago, turnin' two said:

Do you somehow know this conversation happened?  Seems disgusting to somehow imply the parents are making out like bandits an celebrating over their kids death.  

I don't believe they are celebrating at all. The parents did know he was being asked to pay $173,000 towards the $750,000 according to the article and while not as clear seemed to know at the time the attempts he made to contact Robinhood for help. 

I started the post with can you imagine? I can't believe the horror and panic that the kid was going through and probably what the rest of the family must have been going through as well. I can imagine the sorrow and anger the parents are feeling over their child's suicide. 

[Texsox]

6 hours ago, Chisoxfn said:

This story goes back a number of months and was horribly tragic. Kid misinterpreted his dashboard and thought he lost a ton. Panicked like crazy and kept looking - supposedly never asked his parents (which doesn't sound like a shocker to me) and I'm sure he literally couldn't sleep for days until he made an extremely tragic choice.  

Customer service could have stepped in anywhere along the way and changed things. It also highlights why you want to make sure your kids tell you anything and feel safe doing so (but that is a small note and we all know kids are going to internalist at least some things).  By all accounts it seems like he was a pretty big kid who thought he was doing something, got over his ski big time and thought he ruined his and his parents lives.  

In the article he went from 1st email from Robinhood to suicide in 13 hours. 

11 pm he sees what looks like a ($750,000) balance. At 3:30 am Robinhood sends an email asking for $178,000 to be deposited within a couple days.  By noon he killed himself. So up all night in what  I'm guessing is a more and more frantic state without getting any answers beyond automated responses. 

Now that I see the timeline perhaps he never did speak to his parents. 

Is the app as game like as some of the articles make it out to be? 

 

[Texsox]

6 hours ago, bmags said:

Now that we have some daylight for getting through one catastrophic event, the other we should really try to hedge against has to be this unbelievable reliance on taiwan semiconductor to provide nearly everyone with their semiconductors right? I mean you have climate events that have happened before, easily realistic geopolitical events that could cause huge issues for manufacturing of cars and tech that nearly every industry uses.

I don't know if the USG should take an active interest in helping Intel, or using our relationship historically with TSM whatever it takes to manufacture more of their product here (TSM was started by American citizens), but this seems like a pretty realistic disaster. They are opening up an Arizona fab it looks like this year, but it seems to make sense to coax more here just to hedge against a bunch of US jobs being lost to something like that.

My first career was in the electronic component distribution industry. Allocations have been around forever. I remember when DOS lifted the maximum memory config and 64K DRAMS were impossible to find. Even simple logic chips went on allocation back in the 80s. Then prices skyrocket, chip manufacturers buy additional capacity, and soon there is a glut and prices drop.  Obviously what makes this different in a worldwide pandemic. 

[Chisoxfn]

50 minutes ago, Texsox said:

In the article he went from 1st email from Robinhood to suicide in 13 hours. 

11 pm he sees what looks like a ($750,000) balance. At 3:30 am Robinhood sends an email asking for $178,000 to be deposited within a couple days.  By noon he killed himself. So up all night in what  I'm guessing is a more and more frantic state without getting any answers beyond automated responses. 

Now that I see the timeline perhaps he never did speak to his parents. 

Is the app as game like as some of the articles make it out to be? 

 

No - the app is not a game.  I don't buy those articles at all. It is a super easy way to open an account - maybe too easy. Their issue is more the fact that they approved too many people who shouldn't have been for option trades and maybe provide too much credit to places, but I don't think they have technically "gamified" investing.  

They aren't a bad company and this is just a horrible story.  And that timeline you mentioned sounds right and I honestly can't blame any shop for not responding in a day. But the bigger shops have #'s to call. That said - I have had an issue with one of the larger shops - where I need to talk to someone - and when I call it is like a 2 or 3 hour wait - so I just hang up. Its ridiculous.   

[Texsox]

2 minutes ago, Chisoxfn said:

No - the app is not a game.  I don't buy those articles at all. It is a super easy way to open an account - maybe too easy. Their issue is more the fact that they approved too many people who shouldn't have been for option trades and maybe provide too much credit to places, but I don't think they have technically "gamified" investing.  

They aren't a bad company and this is just a horrible story.  And that timeline you mentioned sounds right and I honestly can't blame any shop for not responding in a day. But the bigger shops have #'s to call. That said - I have had an issue with one of the larger shops - where I need to talk to someone - and when I call it is like a 2 or 3 hour wait - so I just hang up. Its ridiculous.   

I'm thinking of opening an account with them just to check it out.

I'm feeling old. I kind of remember with slightly trembling hands writing a check to open an investment account while sitting across from a broker in an office. LOL I thought I was big time when in actuality it was probably the minimum necessary for an account. I didn't even know enough to know I didn't know enough. I was afraid to ask any questions for fear of being thought of as ignorant. Tom I believe was the broker's name and he must have taken some pity on me because he tried to educate me. I easily would have loved an anonymous app and probably lost a bunch. 

[Chisoxfn]

Just now, Texsox said:

I'm thinking of opening an account with them just to check it out.

I'm feeling old. I kind of remember with slightly trembling hands writing a check to open an investment account while sitting across from a broker in an office. LOL I thought I was big time when in actuality it was probably the minimum necessary for an account. I didn't even know enough to know I didn't know enough. I was afraid to ask any questions for fear of being thought of as ignorant. Tom I believe was the broker's name and he must have taken some pity on me because he tried to educate me. I easily would have loved an anonymous app and probably lost a bunch. 

So I actually was part of a feedback group for a Robinhood competitor and I recall after setting up the account on my phone - my feedback was along the lines of, I don't know why - but the whole process felt too easy.  It wasn't necessarily a negative comment - it was just so different compared to any other financial account I had ever set-up in my life and I even gave them the reaction - that it was almost uncomfortably easy.

I literally had an account open in 60 seconds - it was super super seamless.  The problem is - I don't know that I want super seamless when it comes to investing decision - buying something from amazon - yes - going from no account to buying on margins in 5 minutes - probably not.  

[Texsox]

7 minutes ago, Chisoxfn said:

So I actually was part of a feedback group for a Robinhood competitor and I recall after setting up the account on my phone - my feedback was along the lines of, I don't know why - but the whole process felt too easy.  It wasn't necessarily a negative comment - it was just so different compared to any other financial account I had ever set-up in my life and I even gave them the reaction - that it was almost uncomfortably easy.

I literally had an account open in 60 seconds - it was super super seamless.  The problem is - I don't know that I want super seamless when it comes to investing decision - buying something from amazon - yes - going from no account to buying on margins in 5 minutes - probably not.  

Interesting. That was my experience with Acorns. I didn't really look that close. It seemed like an interesting way to save a few bucks by "rounding up" on purchases. It wasn't until the balance grew that I realized it was basically a mutual fund with higher fees. It didn't seem like "investing". It was a fun app, an interesting concept, etc. So I can understand what folks see in these apps. 

[Texsox]

I was just reading another story about this kid and was wondering, this is a right hand left hand kind of deal.  RH showed the kid down 750k but somewhere else he was close to 750k ahead.  I wonder if their platform would have allowed him to cash out the 750k and run like hell. 

The more I read the more my heart breaks for the kid and his family. 

[southsider2k5]

12 minutes ago, Texsox said:

I was just reading another story about this kid and was wondering, this is a right hand left hand kind of deal.  RH showed the kid down 750k but somewhere else he was close to 750k ahead.  I wonder if their platform would have allowed him to cash out the 750k and run like hell. 

The more I read the more my heart breaks for the kid and his family. 

Realize that there are a few different numbers that could be at play here. 

When you trade on margin, there are three different basic sets of numbers going on.  There is your profit/loss, your initial margin and your maintenance margin.  In order to enter a position, you have to have enough to clear the initial margin.  Typically that is 50% of cash value of your position.

Once you are in the position, you have to have enough in your account to be above the maintenance margin.  Typically that is 25% of the value of the position.

If a position holder falls under maintenance margin, they then go on what is called a margin call.  At that point they owe the difference between their cash and that maintenance margin figure.  The other option is typically that a person can liquidate positions to both reduce margin requirements and to raise cash.  This works unless a user has run into a negative equity, which at that point they still owe whatever amount they are upside down to the firm.

In a case like this with short options and a huge rally, I posted a couple of weeks ago how easy it is to leverage yourself into a huge hole.  My guess without knowing the details is the kid was probably on a $750k margin call, and thought he had to come up with 750k, and not that he could also reduce his risk by selling positions to cancel his call if he was still positive equity.  If he was a  A) 750k call, and had 800k worth of positions, he could sell off positions and meet his call.  If he was on a B) 750k call, and has 700k worth of positions then he could sell and still have to figure out how to come up with 50k to pay the brokerage back.  If he had C) 750k call and worthless positions, then he actually had to come up with 750k to the brokerage.

I don't know what the details were in this case, but because of the ambiguous language in the article it would be my guess that it was somewhere between scenarios A and B versus C, which the kid seemed to think.  Someone new to trading might not understand that a margin call isn't typically and obligation to send cash.

https://www.investopedia.com/ask/answers/033015/what-difference-between-initial-margin-and-maintenance-margin.asp

[Texsox]

Thank you.  

So, how the hell does a 20 year old kid get in a position that he could lose even 15 or 50k? I started to write he should have been restricted to a cash only account. But then I can see why there shouldn't be general restrictions. 

I'm realizing what a neophyte I am. ETFs, a couple mutual funds, a few single stocks. 

[southsider2k5]

49 minutes ago, Texsox said:

Thank you.  

So, how the hell does a 20 year old kid get in a position that he could lose even 15 or 50k? I started to write he should have been restricted to a cash only account. But then I can see why there shouldn't be general restrictions. 

I'm realizing what a neophyte I am. ETFs, a couple mutual funds, a few single stocks. 

At 18, they are "adults".

[Texsox]

6 minutes ago, southsider2k5 said:

At 18, they are "adults".

Exactly why I backed off. 

But it is mindblowing that a twenty year old could be given an opportunity to run up a big six figure debt.  How difficult would it be for that kid to get a credit card with even a $75,000 limit? Hell did he qualify for even a $7,500 Visa? 

Perhaps this is linked to my complaint about student loans. Kids with no financial experience can put themselves in a huge financial hole that will impact the rest of their lives. 

[Chisoxfn]

Just now, Texsox said:

Exactly why I backed off. 

But it is mindblowing that a twenty year old could be given an opportunity to run up a big six figure debt.  How difficult would it be for that kid to get a credit card with even a $75,000 limit? Hell did he qualify for even a $7,500 Visa? 

Perhaps this is linked to my complaint about student loans. Kids with no financial experience can put themselves in a huge financial hole that will impact the rest of their lives. 

$500 discover card - or maybe that is old times - but I remember that was the limit on my first credit card - which I got sometime in college.  I also remember thinking - $500 - why would I ever need a bigger limit than that.  

[Texsox]

15 minutes ago, Chisoxfn said:

$500 discover card - or maybe that is old times - but I remember that was the limit on my first credit card - which I got sometime in college.  I also remember thinking - $500 - why would I ever need a bigger limit than that.  

JC Penny at 18. I ran up a few hundred dollar balance and it took forever to pay off. 

First Visa at 22,  ran up a $1,000 weekend golf trip tab including taking a cash advance to cover my bets. That was taking forever to pay off and after paying the minimum payment for five years I discovered how the credit card trap works. 

I can't imagine how much trouble I would have been in if I was given a six figure line of credit. I'd still be in debt. 

[gatnom]

On 2/9/2021 at 10:24 AM, bmags said:

Now that we have some daylight for getting through one catastrophic event, the other we should really try to hedge against has to be this unbelievable reliance on taiwan semiconductor to provide nearly everyone with their semiconductors right? I mean you have climate events that have happened before, easily realistic geopolitical events that could cause huge issues for manufacturing of cars and tech that nearly every industry uses.

I don't know if the USG should take an active interest in helping Intel, or using our relationship historically with TSM whatever it takes to manufacture more of their product here (TSM was started by American citizens), but this seems like a pretty realistic disaster. They are opening up an Arizona fab it looks like this year, but it seems to make sense to coax more here just to hedge against a bunch of US jobs being lost to something like that.

Does TSMC manufacture most of these chips for cars? I'm not horribly familiar with chip manufacturing supply lines, but it would make sense to me based on the kind of cars that are being halted (i.e. not self driving Teslas) that the chips which are missing are more on the lower end, meaning that they are probably capable of being manufactured by any number of outdated fabs.

As far as your supply lines comment goes, Samsung (the other cutting edge manufacturer) just announced today that they are opening a plant in the US in a couple of years. It seems somebody in the government is thinking the way you are. Intel is also still competitive and could regain its form, but one wonders if their architecture and manufacturing abilities have fallen too far behind.

[Texsox]

BTW smaller and medium size customers of chips buy through authorized distributors like AVT and ARW. When a components are in short supply profits go up.