Mentioned in Video:
#Wallstreetbets#GameStop (#GME) short squeeze being halted on #Robinhood is a generational #stockmarket story and #Chamath Palihapitiya has a lot to say about it. Unfortunately, I couldn't find the full interview on YouTube so I'm sharing it here. We also discuss market mechanics and past market manipulations, as well as the decisions that brokers went through before deciding to halt trades. Let's see what shakes out!
And buying into and that includes our next guest, he tweeted on Tuesday that he'd gone long through call options. Chamath Palihapitiya is the CEO of Social Capital. He joins us now on the phone. Chamath, thank you for being here.
Hi, Scott. How are you?
I'm good, thanks. So you tweeted yesterday that you bought one hundred and fifteen dollar calls in GameStop. Can you tell me what your position is as of this very moment?
Yeah, can I can I tell you a little story before all of that or now, why don't you tell me that first and then we'll go from there?
So this morning I woke up after spending all time all last night in Wall Street. That's reading about all of this stuff. I ended up closing up my position this morning and I wanted to announce that I'm taking all the profits that I made, plus my original position. So I'm going to take five hundred thousand dollars and I'm going to donate to the bar stool fund for small businesses. But I really want to tell you, beyond the 500 grand donation or the money that I invested, which is, you know, not a huge amount in the grand scheme of that stock or the entire market, what I learned, because I think what I learned over the last couple of days is important for everybody that's watching CNBC.
And that is:
I think that what you're seeing is essentially a push.
So just to be clear, what you're seeing here is a call that happened yesterday. But if you try to YouTube this particular interview, it's getting taken down everywhere. CNBC is flat out taking it down. So the only way to keep it up right now is by having other creators talk over it, add value to it, show their face on top of it, because that doesn't follow the same copyright laws. When you do that and you substantially transformed the material to make it your own, CNBC can't just claim it and take it down.
So what we're doing here is we're going to go over this interview at key points and we're going to talk about it. And that way you get to see the whole thing without it being cropped into three minute segments and the community gets to leave it up on the YouTube channel.
Back against the establishment in a really important way, you have a lot of people, and I would encourage anybody who is dismissive of this thing to go into Wall Street bets and actually just read the forums. And I think that you're going to see three kinds of posts. The first kind of content are a lot of people doing some incredible fundamental diligence on companies trying to think about long term value. And in my opinion, many of them are doing as good and frankly, a better job than a lot of hedge fund analysts that I work with.
That's number one. The second for a lot of people who believe that, you know, coming out of 2008, what happened was Wall Street took an enormous amount of risk and they left retail at the bag holder. And a lot of these kids were in grade school and high school when that happened. They lost their homes, their parents lost their jobs. And they've always wondered, like, why did those folks get bailed out for taking enormous amounts of risk and nobody helped and showed up to help my family.
And then the third thing is a realization that instead of having idea dinners or, you know, quiet whispered conversations among hedge funds in the Hamptons, these kids had the courage to do it transparently in a forum. And I'm not saying all of it is perfect by any means, but I think it takes an enormous amount of faith in the system to be that transparent, to talk about things, and then for each individual to make their own mind up and to do things, whether it's to buy and to sell.
And I think that's what it proves is this retail phenomenon is here to stay. There are two point seven million people inside of Wall Street bets I think that they are as important as any hedge fund or collection of hedge funds.
This is a good time to pause. I just want to bring up this tweet for everyone. Hopefully you can see it on the side there. You know, I think tumults point about 2008 is really important here. I'll leave this up for just a minute. But I was definitely in college during 2008 and I'm lucky I didn't graduate that year. But for example, I have plenty of friends who graduated that year and the year after with, you know, six figures worth of student loans that they couldn't pay off because, for example, bankers somewhere decided to take on too much risks.
You know, the market tanked and then they just got bailed out. Right. So just to drive that point home, I think no matter what your age, you have definitely felt the consequences of 2008 and beyond. And now we're kind of just seeing the flip side of that, right, where people are facing the consequences of their actions. But because they're big institutions, they get to keep changing the rules of the game. So I think we're going to be seeing a lot of fallout from this for days and days to come and hopefully for weeks, months and years to come.
But I just want to bring to your attention that this 2008 analogy isn't just like, oh, hey, remember when the establishment did something bad this one time? I think everyone on Wall Street Bets, I certainly and others in my community definitely feel that way for real, where, you know, there's almost two sets of rules. And that's not only unfortunate, it's flat out unfair. So let's keep going with the interview.
And I think the most important thing is that in a world of zero interest rates and quantitative easing, I don't know how you can run a typical hedge fund strategy and make money anymore, because, for example, when you looked at GameStop, you know, a normal person would say, how can you have one hundred and thirty six percent short interest? How can you be short 40 percent more shares than actually exist in the world? To a normal person,
that doesn't make any sense. But to a Wall Street mathematician, that's the game that has been played for years.
By the way, just a quick note here. The way you can be sure over one hundred percent on a stock is something called naked shorting, where you can actually short a stock without actually buying the underlying stock in order to sell it at a cheaper price later. So if you're interested in that, go look up naked shorting and you'll see how this wonky voodoo magic can actually happen. But that's what happened with GameStop. And it was a really great target for Wall Street bets.
They were really smart. This wasn't a lucky pick. They went and honed in on a stock that was over 100 percent shorted, knowing, you know, what their actions would cause. And I think that's awesome. I don't think that's crazy. I think Wall Street bets and retail in general, as I preach on this channel all the time, is much smarter than institutions give us credit for, give you credit for. And I think that's what we're going to keep seeing more of, is people championing the cause, like Chamath, like Elon Musk, you know, coming out and saying, hey, retail investors are just as important to the picture, if not more so than the slow, junky institutions.
And that gain came undone. Well, I mean, that may be somewhat of an extreme example. Let me just go through a couple of things you said here. I have a hard time believing. I mean, you suggested that there's a good amount of fundamental research going on underneath the GameStop Reddit situation. Do you truly believe that, that there's actual research? Not to disparage in any way the people who are actually making these trades, but this seems to be momentum rather than deep fundamental analysis.
Scott, there's momentum in traditional hedge funds and how they move stocks as well. But it's really disparaging if the starting position is these guys can't do the same quality of research as an analyst in a fund, that's just not true.
I didn't say they all I didn't say I didn't say they can't do that kind of research.
I think what we're seeing here is a fundamental misunderstanding of what institutions and, you know, CNBS analysts think that retail investors are doing before they hit that buy button as opposed to what we're actually doing. You know, I can attest in my own community, we do a bunch of great research in multiple channels focused on disruptive innovation. I know in other communities, people are laser focused on doing deep fundamental analysis stock by stock, sector, by sector, industry, by industry.
So I can't you know, frankly, I can't stand it when people in fancy suits and ties come and say things like, you know, retail investors are unsophisticated, they're unable to do anything. They should stick to index funds and just put their money in the S&P. And what the big boys play, you know, the real game, you know, retail investors were the first ones right on Tesla and they're going to be increasingly in front of, you know, slow money.
I don't really like the words fast money or excuse me, smart money and dumb money. But retail investors are fast money and institutions are definitely slow money. And we're going to be seeing a lot of that over the coverage of Wall Street, what Wall Street Bets did versus how long it took institutions to realize and respond to it.
Questioning whether they're actually doing the research. When it comes to things like GameStop and AMC and some of these other things.
There's a distribution. And obviously at one end there are fundamental analysts. But on the other end, there are momentum traders that follow trends. But by the way, the dirty little secret of Wall Street is that existing hedge fund money, the reason why this GameStop trade has caused so much pain is because at the top of the pecking order was Melvin Capital. Those guys were incredible stock pickers. They are incredible fundamental modellers of companies. OK, Gabe Plotkin is one of the sort of giants of our era, of my era.
Right? But at the end of the day, what happens is irrespective of what he puts on his trades or mimicked and copied by umpteen other hedge funds that follow along for every LP that can't get into Melbourne, they get into a copycat fund that works basically like Melbourne. And so when the trade goes against them. Then it goes against all these people all at the same time, so the reality is there are fundamental momentum investors in the market that are organized capital, i.e. hedge funds and disorganized, loosely affiliated capital, i.e. Wall Street Bets.
And I think what you're seeing is the push and pull of that. And the realization should be that if every person was forced to publish their fundamental research, it would be hard to distinguish the best version of research from Wall Street Bets and the best version of research from a hedge fund. They don't have an edge. And this is what you're exposing is that that edge is gone. And now all of a sudden, you know, retail can be on the same footing and they don't have to be the bag holder to Wall Street.
But let me let me ask you this. But somebody from retail is going to eventually be the, to use your words, bag holder in this situation, are they not? And do you think it's responsible for you and some other big names who tweeted about it yesterday and to get involved yourself, knowing that you guys are considered the pied pipers, that people are going to follow you into these trades and someone is ultimately going to get hurt after you and others are long gone, Chamath?
Where was that message in 2008, Scott. Really? I mean, that's a joke. For example, let's look at Tesla, who was right on Tesla. I'll tell you who was right. Every single retail investor. I was right. Elon Musk is right. Let me tell you who is wrong. Every single hedge fund, name after name when it comes to innovation, when it comes to growth, when it comes to people trying to do fundamentally useful things in the world, if it doesn't fit into the mold that Wall Street wants, they try to organize against it.
And there has been pushback after pushback, after pushback in individual names, and this is yet another form of pushback. And all I'm trying to say is the mechanics of how Wall Street has worked. And again, I wish you would ask this detailed question, why is it allowed for somebody running a hedge fund to basically claim that they are market neutral but be levered up? They take a 10 billion dollar fund and they're prime brokers, allow them to run a hundred billion dollars of notional experience, a notional exposure.
Who thinks that that's fair? It's not fair to the retail investor because when that blows up and a hundred billion dollar hole exists in a fund, which, by the way, this is exactly what happened in 2008, the government bailed them out. Who is the government? All of us. So, you know, retail has been the bag holder before. Retail has caused these things before. Hedge funds have caused these things before. So if you're going to talk about taking the gun away from the baby, let's make sure we figure out who the baby is.
But do you think that you helped fan the flames and others like you, whether it's, you know, one of the Winklevoss brothers tweeting about it, Elon Musk tweeting about it, that it's ultimately driving this stock up well beyond what the fundamentals say that it should be? I mean, I don't think you think. Can you tell me you think do you think that GameStop is is worth three hundred and fifty dollars a share?
What I can tell you is that when I put that position on one hundred and twenty five thousand dollar position, I used it to acquire knowledge and learning. And what I was trying to figure out is how these positions move in the modern trading era. And what I can tell you is up until that point, the set up made no mathematical sense. How do you be short 140 percent of a company shares? That was at retail.
Well, maybe that's a question for for regulators that that maybe the whole the way that that's allowed to happen needs to be be examined.
But I'll tell you how it's how I tell you how it's allowed to happen. It's allowed to happen so that hedge funds can charge two and 20 to their limited partners independent of consequences. I'll tell you another way that it's allowed to happen. Hedge funds are allowed to take their money, go to a prime broker, and all of a sudden they get 10x multiplication on that money. That's the problem. You have trillions of dollars of notional being traded by these organizations.
You have maybe billions of dollars being traded by retail.
I want to get back to the issue at hand, which I don't feel like you answer the question.
By the way, just a quick note here before we move on. You know, governing is one thing, but sometimes the government is in on it, too. And if you don't believe me, I invite you to remember back when the whole pandemic started and senators got caught selling out of all of their positions right before all the announcements went public and the markets crashed, right? So I invite you to look at the tweet that I'm showing now, and then I invite you to look at the image that I'm showing now on the four senators or Congress people that, you know, took their portfolios and minimized the damage before any of the news went public.
So, you know, insider trading doesn't just happen inside institutions and in companies. It definitely happens in the government that tries to regulate them as well. So that's all I'll say about that. By the way, thank you so much for all the donations. I really appreciate it. I'm just trying to get this piece of media out there and to stay up on YouTube because it keeps getting taken down. So if you're coming in, wait, all I'm doing is showing my face over it so that I can't get taken down because I'm adding value as a content creator to it.
This idea of, you know, somebody is going to get hurt, you sound like you're an advocate for the for the little guy, so to speak. Right. But yet by getting involved, why did you get involved in the first place? I mean, you said that I get information. I mean, you wanted to make money on the trade. Come on. Right. You wanted to make money.
To move the needle,I need to strap on hundreds of millions of dollars.
So I wanted to learn why did I want to learn? When I saw that article in The Wall Street Journal, I had no idea about Melvin Capital. Really. I had no idea about Wall Street. That's really I had no idea about GameStop, except that it had been mentioned to me in a couple of tweets throughout the year. So I tweeted out after I read the article, hey, folks, tell me an interesting trade that I can put on tomorrow for a few hundred cases.
I can learn basically that that tweet got ten million impressions and 13000 comments. And when I went through there, a lot of people pointed to GameStop and pointed to Wall Street Bets. And when I went in there and started to look around, what I thought is, my God, here is a dynamic about trading, about momentum, about stocks, about short interest, about gamma squeezes. These are not things that I know a lot about. And so I put in a small position to learn.
And what I learned is that people can do fundamental research, come to a point of view that's diametrically opposed to organized capital. And they can be right. And I'm allowed to be on the right side of that. You know, it's not my job to go and defend a bunch of, you know, highly compensated hedge fund managers against losses and just the fact that up for one time those folks lost. We can bellyache and cry on national television. To me is a joke.
Well, I mean, I think…
A lot of kids, hold on a second. There's a lot of kids and a lot of people on Wall Street but who have made money to pay off their mortgage. I read about a close yesterday of a kid that was able to pay off his entire student loans and posted it. That's amazing progress.
I don't even I'm not suggesting and I'm not trying to come off that way that I'm suggesting what's happened on Wall Street Bets or or what these this cohort of traders is doing is is wrong. It's not I don't think that there's much of a difference from and I know it's been mentioned on this network already today, but the first thing I thought of in this situation was back to the Herbalife episode where you had a fairly sizable group of well-known hedge fund managers decide to take the other side of Bill Ackman straight.
He was, of course, short. They all went long. They sure made a fundamental case in their own mind. And whatever worked for them to have the conviction that they did to take that trade, part of it was undoubtedly trying to hurt the short, who was Bill Ackman at that time? Maybe some of them did it through going to an idea dinner or whatever other forum through personal phone calls or emails. And there was a large group of people on one side.
I'm sorry. I don't think it's any different. I don't think…
You just you just said it's not different. You're right. Idea dinners, idea dinners. That concept has existed for decades on Wall Street, where people get together in closed rooms, behind closed doors and usher around names of companies and they coalesce and decide to cooperate together. The guys on Wall Street best just do it in the public, completely transparent in my
and we just do it completely, publicly and transparently in our free Discord.
That takes a lot more courage because you could actually be wrong. Somebody can actually say, hey, listen, what you said makes completely no sense whatsoever. And so what is the difference? In my opinion, this is the modern day instantiation of that dynamic just writ large and at scale.
The only thing I'm concerned about is that there are inevitably going to be people who get hurt. Not I'm not talking about hedge fund managers. I'm not talking about them. I'm talking about the people who follow people into the trade who think that this stock is going to continue to go up because that's what they've been conditioned to think when the pandemic we do is all stocks go down, apparently.
What should we do not allow, folks? Here's what will happen. If you basically if you follow your logic, then you'll say, you know what, retail doesn't know what they're doing. I think you're wrong. Then the next thing will be retail shouldn't be allowed to participate in the stock market. I think you're wrong. And then you know what will happen, Scott? The inequality gap will grow and grow and grow. Because then if you what are they supposed to do, then buy an ETF, a passive fund.
They can't find the hedge funds because the rules don't allow them to do so. Now, systematically, what you've done is you entrench poverty.
No, I mean, that's pushing it too far. This is just accentuating those thoughts that Wall Street's a casino and nothing more. That's what this is.
I don't you know, I don't think so. I think this is an example of if you are going to sell massively, oversell a company to the extent that you're selling 40 more shares of that company that don't exist. And all of a sudden other folks are like, hey, wait a minute, this is going to get squeezed and they buy it.
That's just a smart trade retail side. Wall Street missed it and they paid the price. So maybe to your point, Scott, what regulator should do is say, hey, wait a minute, how can we allow companies to be one hundred and forty percent short? That doesn't make any sense. Maybe that's what should happen.
You think this that this overall situation is is fine for the market? I'm also curious as to look you have taken companies public through SPACs at a rate that that others have not. You're relying on the integrity of the stock market itself to be able to do what you do and be successful doing it. You don't think what we're witnessing now calls into question the integrity of the stock market, that a lot of different stocks with seemingly no fundamental story behind them to this degree, can see their stocks rise in this magnitude.
And all of that is just fine.
So, before we keep going, I want to take this moment to answer questions in the chat. I'll keep it short and sweet, I promise, and also just separate the two things that are being said by the interviewer whose name escapes me, escapes me at the moment. I apologize. But basically there's two things that we care about in the stock market, right? The actual stocks and then the mechanics of the stock market. So one thing is that he's not doing a good job of disassociating the two.
Right. It's not a casino because we're all doing research on companies. It appears like a casino because sometimes there are these wonky mechanics like short squeezes and shorting over one hundred percent of the stock and being able to, like, do arbitrage on options and all these other things, right.? So, you know, when we all get together and say Tesla is a good company because it's solving a fundamental energy problem, we're doing something in part in that first part.
Right. Fundamental deep research on a company that's publicly traded. The thing that happened here has nothing to do with that. Right? We picked a bad stock bad in terms of fundamentals. Right. A company that's depressed because it sells a physical good in a physical store. But that was subject to a strange mechanic in the stock market. It was overly shorted. And if you buy an overly shorted stock and cause the price to go up, it squeezes people out dramatically because everyone who had that stock had it in a short position.
Right? So, column A, deep research. Column B, the actual mechanics behind buys and sells for big institutions, totally separate parts of the stock market. The only time they meet is when you decide what kind of position you want to take on a specific company. That's all I'm trying to say and all I'm trying to do is disambiguate those two things because retail is really good at the first and we just don't have the same level of access and power on the second as big institutions.
That there's nothing wrong with the integrity of the system if that is occurring.
The lack of integrity in the system is the precursor that caused GameStop to be sold short 136 percent and for people to try to pile on and destroy a company in front of our eyes. That, to me, feels wrong. That feels pretty un-American if you ask me. I think GameStop is a reasonable business. You know, I think what they do is reasonable. And so the fact that they shouldn't be allowed to exist because all of a sudden, like, we decide that they should be obliterated into the ground, actually…
Exist, they should be allowed to exist at whatever their stock is, should be valued at based on what their earnings are.
And the stock was like
FreeMarkets, I've been telling you
not that long ago.
Who said that? Who says that? Are you do you want to make the same argument about Tesla? It's gone 10x in a few months. You don't know what it's worth. Let's be honest, OK?
And you don't think that Tesla's growth prospects…
I have got I have my own model for the company I'm allowed to underwrite. However, I want to own it. Everybody that bought that stock is also underwriting how they want to own it. And the point is, just because you're wrong doesn't mean you get to change the rule, especially when when you were wrong, you got bailed out the last time. That's not fair.
If it doesn't mean that that these investors who were short, the stock were necessarily wrong. I mean, I still haven't heard I still haven't heard you tell me what the fundamental case is for GameStop at 350 or AMC theaters, which have been closed for months and months and months, is worth what the stock's trading at now or any number of these things, the way that they're trading, there's no fundamental reason why they're there. They're trading because there's this momentum cohort behind it, whether it's on Reddit or RobinHood or wherever else.
But why, Scott, why? Why is that all of a sudden so wrong to do this kind of momentum trading? Because, for example, if you look under the hood on every quant strategy, organize quantitative strategic hedge funds on Wall Street. Those things are all momentum shops.
By the way, quick note, if you want to stay after this video, I have another video where someone from CNBS literally tells us exactly how they manipulate the market. I realize AOC is going to be on Twitch, but if you want to stick, if enough people stick around, I'll show that video next.
They trade day over day, massively levered small swings. So basically what you're saying is, hey, if retail runs a momentum play to squeeze a short, that's wrong. But hey, if Renaissance Technologies and somebody else does it, that's OK. That's what you're saying. You may not know that that's what you're saying, but that's what you're saying. And to me, that feels very unfair.
You know what I'm saying? If someone's going to get screwed, OK, someone it's going to get screwed and it's going to be that one of the retail. It's going to be a retail investor who gets screwed because they think that this is the way the game works, that this is the new Wall Street. There are new to this game. Maybe they haven't been in the game that long. Not everybody, not trying to say that at any way, shape or form somebody is going to be hurt.
I'm not talking about the billionaire with a big house in the Hamptons. I'm talking about the person who thinks this is cool, fun and an exciting way to spend their time.
I'm not I'm not I'm not taking away that there's an element of that. But you're really discounting how smart so many of these people are, OK? And all I would encourage you to do is spend a little time in these forums, go into the Discord server, and you're not going to hear a bunch of pros just sloshing around. You're going to hear a bunch of really, really smart people talking about things in a fundamental way.
Chamath, don't tell me that yesterday AMC Entertainment was was no stock and today it's up one hundred seventy seven. That's justified. Don't tell me that some of these names are justified to being where they are.
It's one company in one moment of time. What I'm saying is you're
There's like ten companies, fifteen companies, twenty companies.
You're broadly sweeping with a broad brush that says these guys don't know what they're doing and they don't deserve to do what they are doing. And what I'm telling you is there is a small part of momentum. There is a part that's fundamental analysis, and then there's a part that's just sticking it to the man. I'm not taking you away from that. But the reality is it's all allowed in a free market. And all of a sudden, if you start to gate decisions by individual people, all you're going to do is systematically lock in institutional ways of making money for institutional clients.
And I don't think that's the solution. If you want to go and address the solution, fix how risk taking happens at the institutional level, fix the precondition, fix the ability for these stocks to be so massively shorted in the first place. Change the business model of funds so that they're not forced to be the small, that highly leveraged funds change the leverage ratios. Those are all institutional decisions. But don't all of a sudden look at a short squeeze where money is being made by retail and all of a sudden say, hey, they could and may be the bag holder in the future, so let's make sure that they can never participate in the future.
So just a super quick note, basically what Chamath is saying is, hey, the stock market is a valuable tool and it has some mechanical issues. We need to fix those mechanics and regulate how people can use those mechanics, like over shorting. And that has nothing to do with the first part we talked about, which is the fundamentals and understanding the companies you invest in and being able to be a retail investor alongside these institutions. Right. So completely separating the mechanics of the market from the things that are on sale inside the market.
I'm just bringing that up again because they're both equally important to the story. But there are only fundamental issues with one of them. And it's the mechanics side. And that's what led to this whole situation.
Yeah, I mean, I didn't say that, I didn't say they shouldn't do the thing that I'm not saying they shouldn't participate. I'm not saying they shouldn't be able to participate.
You want to say you're saying they should participate on your terms? On Wall Street's terms. In a way where they get when when Wall Street can have the best of it, they can maybe participate on the side. But then when Wall Street gets the worst of it, they, their parents, their relatives will just come and bail them out.
Not what I said. I'm glad they're participating. I'm glad they're making a lot of money. I just think it needs to come with a warning sign that this would be a hazard sign. All right. There needs to be a hazard sign.
The hazard should be, hey, FYI, for example, why isn't there more transparency in the reporting that hedge funds have to make every long position, every short position and all the leverage they're taking every day? Why don't we do that?
Just so you're aware, hedge funds don't have to report their short positions currently, only their long positions, so they can have a lot more positions in a fund as long as those positions are short and no one can know about it, which is fundamentally different from how we all do Yahoo! Finance searches to figure out what institutions are along which stocks. Right, which is pretty important as a buy signal to a lot of the ways a bunch of us invest.
But we have no idea right now who is shorting what, for example, who is shorting GameStop.
You would have a warning sign. You know why? Because people in retail would analyze that stuff so intricately and we would know where the trip wires were. OK. The reason why GameStop happened, Scott, was not, again, because of a fundamental disagreement about valuation. It was because of portfolio construction arbitrage, too much leverage, too much short selling, too many calls. You know, part of me, too many quick buying, all of that stuff contributed to this dynamic.
That was an institutional dynamic that was created by institutional capital. So if you create a transparency in reporting, that probably wouldn't have happened because the regulator would have said, hey, guys, I'm not going to let you be short 140 percent of a company, that's all right. And then you know what would have happened? The squeeze would not have happened. Now, so if you want to fix it, I think you've got to go and ask for the same transparency because you can't all of a sudden have your cake and eat it, too.
Let's have hedge funds operate in the shadows, but let's then basically lambast Wall Street Bets because they actually have the courage to write their stuff down publicly where anybody can see.
I mean, my point is that I'm not lambasting anybody, OK? I'm glad these people are making money. That's the way that's the way it should be.
That's the way it should be.
Let's face it. No, no, you're not, okay?. And you know the person that was on before, you know she's not. And that's the issue. It's like because the rules are changing underfoot. People don't like that. Now, I'm not saying that there can't be better regulation and there can't be tighter rules. I get all of that. But what I am saying is that you have to be cognizant that we are moving to a world, moving to a world where normal, ordinary folks have now access to all the same information as institutional organized capital.
And they will come to many of the same conclusions, sometimes at the same time, oftentimes faster and sometimes to the opposite conclusion and sometimes at the same time, sometimes faster.
And that's what I've been saying this whole time on Discord, on Twitter and on my channel. Retail investors are not only the smart money, they're also the fast money. They come to conclusions much faster. And that's important because even if Wall Street comes to the same conclusions, if they come to after retail gets into a position, they're driving up a position that retail is already in, that fundamentally means that retail is the smart money.
You will see more volatility like this in the future. Hold on a second. The solution to this is more transparency on the institutional side, not less access and ability for retail.
I want to see the white papers on all of these companies that are that are flying in all of the deep, fundamental research that suggests that all of these stocks and there are way more than one. This is not one stock or one story. There are a lot that are judgment fundamentally challenged in this environment. Right.
But how, for example, if we went back to Herbalife, were you supposed to adjudicate that and decide that one short thesis was better than one long thesis? Who are you to judge?
That wasn't my job.
And that's what Chamath is saying, is you're mixing two point one with point two. You're mixing the fundamentals of a company up with the mechanics of the stock market that let this situation happen. It doesn't matter if a company has bad fundamentals. You can let people short it. It was the overshorting and then targeting an overshorted company. Again, both stock market mechanics has nothing to do with the underlying stock. The underlying stock could have had great fundamentals. It's just why would you go short a stock with great fundamentals?
Oh, wait, that's Tesla, right? And then this happened because of the mechanics around shortselling.
Whose job, and is that the regulator's job before they can put the trade on. What are you saying?
Don't come here and tell me that you're suggesting that all of these stocks are up because they're fundamentally wrong, and that's something…
You and I, you and I both know that there's a massive distribution of reasons why people buy and sell securities. There's there's some that are purely value oriented about backward looking, discounted cash flow. Some other people all think about future cash flows, future product innovation, future margin construction. Other people think about momentum and that is allowed.
If you look at hedge funds, there are strategies for any which way you want to play. Some folks, only short companies, some folks only go long companies. Some folks write, you know, run a totally net neutral strategy. They all exist. And I think what you're seeing is a proliferation of that kind of diverse thinking and risk taking in retail now, because before, retail was largely known as long only. And now for the first time, you're starting to see more sophistication in retail.
And I think, again, I'm just predicting the breadcrumbs here. And it could and it could be wrong is that over time, retail sophistication will catch up to institutional sophistication. That's the strategies that exist institutionally will exist on the retail side. And so my point in all of this is, if you want to make the system better and healthier, force more transparency on the institutional side, Gary Gensler should get these guys to be just like what Cathie Wood does at ARK.
It's so healthy for the ecosystem. What am I buying? What am I selling every day? What are my risk limits? Just make it transparent. And these kinds of dislocations may or may not happen in the future, but if it does, it'll be completely transparent and you will see it coming. And there's nothing wrong with that.
Now you know why my channel is almost exclusively ARK Invest and Chamath content. I couldn't have said any of that better myself.
To this because we've gone off because we've gone on for a while. At one point yesterday went short. GameStop, I don't know where he is now. Jon, are you still with me?
Yes, I am. Scott, I am still with you.
Are you still short? And you tweeted at Chamath yesterday something to the effect of this is how it's done. And then the stock just surged.
Yeah, well, but I know you'd find this hard to believe, Scott, but that's those spreads that I put on. I put on put spreads. And the reason for that, as you know, but I'll explain to the viewers quickly, is that you are limited in any potential loss to what you paid for the spread. So I put on hundreds of thousands of dollars of positions just like Chamath, but I then spread it against other short positions in thus creating a position where I know for sure, Scott, if the stock is above 60 by April expiration, I lose forty five thousand dollars.
If on the other hand some sort of rationality returns and that hundred and thirty six percent short interest comes down and the stock comes down by April, if it's between say sixty and thirty dollars, I'll probably make two or three hundred thousand. So it was just it was me saying to Chamath, here's a way to put on a bet against the squeeze that's going on here. Chamath did a fabulous job, find calls trading out of those calls and making a nice profit.
And by the way, Chamath, I also donated to the bar stool fund this morning before we came on air, even before I heard that you did. And any of the profits I make from this trade up at sixty or below, all of that is going to be going to the bar stool fund over with Dave Portnoy and the guys.
I think that that's awesome. Can I say something, I just think like this is the exact thing that I'm talking about.
I don't think that, you know, Jon, you did a one pager and a massive DCF. I think you're a sophisticated investor who threw a lot of experience, has figured out what you're good at. And, you know, and when you saw this opportunity, your spidey senses went off and you look trade on. And it's a momentum driven trade. There is no difference, Scott, between Jon. And to be honest with you, most of the people on Wall Street Bets. Nothing.
Maybe the net worth. But I'm telling you, these kids are catching up fast because they know what they're doing, too. And the reason they know what they're doing is because of companies like Google and things like the Internet that just make every piece of information available. They give you access to compute resources. You could be a kid sitting at home writing models into Google Cloud that give you the same compute power as the best hedge fund as the best investment bank.
That's you. That's us.
And this is what I'm trying to get across to you guys, is we are leveling the playing field. It is happening. And so there are a lot of people as compelling and as smart as Jon that you guys don't know about that are just behind a screening. And I think that's OK. And I think we just have to embrace the fact that this is where we're going.
Sure. I think we also need to be cognizant, though, and
I want it paid for. By the way, are you going to hold Johnson and make sure that, you know, you know, before he crosses the street? Is that what you all know?
No, because unlike you, John didn't suggest otherwise that there were fundamentals involved. He didn't, right? So I don't need a one pager. That's part of my point. But that's what we know you want.
So what about what are you, the free speech police now to I mean, come on, Scott. Not like what is the truth?
I mean, that's that sounds funny. And I'm sure that'll play well on Twitter, but I don't know. What does that mean? I mean, I'm saying that that clearly we're in a moment of time in the market, where's fundamentals for some stocks obviously don't matter. OK, nobody I don't care who they are, is going to come here and tell me that the fundamentals are behind a lot of the moves in these stocks. They're just not, OK?
And he's still stuck on the fundamentals. Again, Chamath is pointing out a mechanics' issue in the market, the way the market is driven by allowing people to short a stock, buy more stocks that are available in the total float. What along the actual float that's being held, you know, when Wall Street Bets, locks ninety percent of the float down, you know, we can't sure. Against that because nobody's willing to sell. That's what causes the squeeze.
Right. So everything Chamath is talking about is mechanics. And everything Scott is talking about is fundamentals. They're not talking the same language. And that's why Chamath is making fun of him, not just to make fun of them and sound good on Twitter, but literally because he can't grasp the point that this is a mechanics issue. Mechanics that are traditionally left up to sophisticated investors until the tables get turned.
Period, end of story, they're just not it's a moment in time. Some say this is emblematic of something that is long gone. Some say this is emblematic of a bubble.
OK, and I ask you a question.
I'm concerned about people getting hurt in what may end up being a part of the market that's in a bubble.That's all.
When stocks trade down in moments of dislocation. I don't know if over the last three or four years you guys can throw up a chart. But there are there are times where you see the tail drawdowns, as you know, five, 10, 15 percent over the course of days and weeks. What are we supposed to do in those situations? Just stop the market so that it can't go down?
No, but this is a market going out like this is a you admit I mean, you're getting you're getting into trying to judge. And my point is you can't judge, so don't try, OK? You have to understand and believe that there is so much information out there that people can be on a level playing field and that the most important thing we need to do now is shine the light into the corner of the market that is still opaque.
And there is only one area. Companies are forced to publish every single thing about themselves transparently every quarter. OK, ETFs publish their positions every day in some cases. Retail talks about what they're doing with transparency every minute. But institutional capital can still high, and so if you want to create a truly level playing field that evens these things out and minimizes volatility, force these folks to show you what they're actually doing under the covers. And when you see that some of these funds are taking 50 billion dollars and running it like 500 billion, I think we will all say, wait a minute.
Now, that's the real risk in the room, not a bunch of guys, you know, momentum trading like Jon's doing.
Look, I understand I'm glad we had this conversation. I think it's an important one to have. It's a moment in time that we're going to look back on. And this may be the story of 2021. We shall see. It's a long year and it's early. Last but not least, because I don't want to leave this out. And Kara Swisher would be mad at me if I did. The governor thing. Is that real? You really want to be the governor of California?
Here's what I will say. I think Gavin Newsom has done a terrible job. I think that people are leaving in droves. The crime is really high. Our education outcomes are the worst of any state. Our taxes are the highest of any state. Our air quality is the worst of any state. And so this is a state that I think is just so absolutely incredible. But right now is being run off the rails. And to the extent that we can recall him and to the extent that my agenda, which I just tweeted out and explain, resonates with people, zero state taxes, a minimum teacher salary of 70 K school vouchers so that you have school choice, 2000 bucks for every kid born in California, I think you would see a renaissance in California that would be glorious.
So that's what I'm willing to say right now. First step is we need to recall governors.
All right. We'll leave it there to be continued. Thanks for your extended time today. I'm glad we had this conversation.
Scott, can I just say one thing? I love you on the other side of history because the on the right side is.
So that's it for that video. I have one more surprise video for you that I hope you really enjoy.
I don't know why, but today seems like it's going to be a great day…
Oops. Not that one. Sorry.
Welcome to Wall Street Confidential, I'm Aaron Task, joined again by Jim Cramer. Jim, welcome. Good to see you. Thanks for being here. A lot of economic data out today. I want to talk about something else first. Again, today, we have the misdirection from the futures, the futures pointing up market. And as of right now, stocks are down again. Is this just because it's the holiday period that we're seeing? As you know, a lot of times when I was short, if you don't understand that gag, listen to how many times Jim Cramer sniffles during this interview. At my hedge fund and I was positioned short, meaning I needed it down.
I would create a level of activity beforehand that could drive the futures. It doesn't take much money. Similarly, if or if I were long and I would want to make things a little bit rosy, I would go in and take a bunch of stocks and make sure that they are they're higher and maybe commit five million in capital to do it. And I could affect it. What you're seeing now is maybe it probably is bigger market now, maybe 10 million in capital and knock the stuff down.
But it's a fun game and it's a lucrative game and you can move it up and then fade it. That's what often creates a very negative feel. So let's say you take a longer term view intraday and you say, listen, I'm going to boost the futures and then when the real sellers come in, real market comes in, they're going to knock it down. That's going to create a negative, negative view. That's a strategy very worth doing when your value when you're valued on a day to day basis.
And I would encourage anyone who's in the hedge fund game to do it because it's legal and it is a very quick way to make money and very satisfying. By the way, no one else in the world would ever admit that. But I don't care. That's right. And you can say that here. I can't I'm not going to say it on TV. Well, don't know, there's so many more hedge funds today than when you were managing your hedge, right.
Do you think that that does that exacerbate the moves or does it make.
Well, the hedge funds are positioned long, short, not just long with mutual funds. So it's really vital these next six days because of your payday, you've really got to control the market.
Just just so we're clear, he's this is in 2006, the next six days, close out the year. So what's happening is Cramer is talking about market manipulation towards the end of the fiscal year and the end of the fiscal quarter so that hedge fund managers hit their numbers and their targets for the quarter and, you know, the fiscal year.
You can't let it lift when you get research in motion. It's really important to use a lot of your firepower to knock that down because it's the fulcrum of the market today.
So let's say our I was sure what I would do is I would hit a lot of guys with for him. Now, you can't foment, that's a violation of government. You can't foment you can't create yourself an impression that the stock's down, but you do it anyway because the SEC understand it. So, I mean, that's the only sense that I would say that's illegal. But a hedge fund that's not up a lot really has to do a lot now to save itself.
So this is different from what I was talking to at the beginning where I would be buying the Qs and stuff. This is actually just completely illegal. But when you have six days and your company may be in doubt because
I feel like I should replay that. So I'm going to.
I think it's really important buying the Qs and stuff. This is actually just blatantly illegal. But when you have six days and your company may be in doubt because you're down, I think it's really important to foment. If I were one of these guys from an impression that Research in Motion isn't any good because Research in Motion is the key. So you would you would hit this guy in that guy when you would see an offering. When you see a guy's bidding, he'd wipe out that guy very quickly.
The what I used to do was called if I wanted to go higher, I would take a bit taken bid, taking bid. And if I wanted to go or I hit and offer, hit and offer, hit and offer. And I could get a stock like RIM for maybe that might cost me 15, 20 million.
So he's talking about literally pumping and dumping or doing the opposite, coming out with hit pieces and offering low prices over and over, or pumping a stock and then selling at high prices over and over just in case you're not catching him because his sniffles are causing him to talk too fast.
In any to knock RIM down. But it would be fabulous because it would beleaguer all the more on longs who are also keen on Research In Motion. So I was on today with what we're seeing.
That's you again. When your company is in survival mode, it's really important to defeat Research in Motion and get the pazhani to the world. People talking about it as if there's something wrong with RIM. Then you call the journal and you get the Bozo report on Research In Motion and you would feed that. There's a Palm's got a killer. It's going to give away. These are all the things you must do on a day like today. And if you're not doing it, maybe you shouldn't be in the game.
Another stock that a lot of people are focused on right now seems to be Apple.
Yeah, Apple is very important to spread the rumor that both Verizon and Bell and ATT decided they don't like the phone. It's very easy one to do because it's also you want to spread the rumor that it's not going to be ready for Macworld. And this is very easy because the people who write about Apple want that story. And you can claim that it's credible because you spoke to someone at Apple because Apple.
They're not going to comment.
And so it's really an ideal short. And I would again, if I were short Apple, I would be working very hard today to get that in the way. You would do that. I should pick up the phone. You call six trading desk and say, listen, I just got off the phone with my contact at Verizon, he's already said, listen, we're not we're a lucky house. We're Samsung house. We're Motorola. There's no room for Apple.
They want too much. We're not going to let them in. This is not we're not going to let them do what they did to music.
This is so. Wait, where does Kramer work again? What channel is he on? I can't remember. It's probably not important.
And I think that's a very effective way to keep a stock. Right. I might also, by the way, because the stock at eighty four, he thought a little bit of capley go buy some January eighty puts. That makes it look like there's going to be something going on. So maybe you give Morgan in order to buy a thousand Jannati puts and you go position limit with you know use a firm that doesn't know what that could still maybe go to UBS for puts and you just kind of create an image that there's going to be news next week and that's going to frighten everybody.
Then they will go out and say let's put by UBS, then they call Pazhani again. You have to use those guys and say, listen, I'm a big buyer. Puts it. I'm told that it's like it's S.A.C.. You would do that, too. And these are all of what's really going on under the market that you don't see. Nobody else talks about. What's important when you're in that hedge fund mode is to not do anything remotely truthful because the truth is so against your view.
Right. That is.
Playing that again.
It's important to create a neutral in that hedge fund mode is to not do anything remotely truthful because the truth is so against your view of what's really going on under the market that you don't see nobody else talks about. What's important when you're in that hedge fund mode is to not do anything remotely truthful because the truth is so against your view that it's important to create a new truth, to develop a fiction. And the fiction is developed by almost anybody who's down like two percent, up six percent here.
You can't take any chances. You can't have the market up any more than it is if you're up six, because starting Jan 2, you'll have all your money come out. So what would you do if you're in that situation and you feel like you're desperate, is that you would do these actions?
So you're talking about the mechanics of the market so much more important than fundamentals?
Well, there you go. That's the first piece of the puzzle that I want to address tonight, except I'm addressing it backwards. Mechanics are more important than the fundamentals. And that's exactly the argument that Chamath was just having. Right.
OK, well, but in terms of the fundamentals, even writing about how you feel about the fundamentals,
Research in Motion just blew out the corporate. But look what people can do. I mean, that's a fabulous thing. It's a great thing about the market. This has nothing to do with the stock right now. And you feel like you're desperate is that you would do these actions. So you're talking about the mechanics of the market so much more important than fundamentals.
Well, but in terms of the fundamentals, even writing about how you feel about the fundamentals,
Research in Motion just blew out the corporate. But look what people can do. I mean, that's fabulous thing. It's a great thing about the market. This has nothing to do with the actual stocks right now. Look, over maybe two weeks from now, the buyers will come to their senses and realize that everything that they heard was a lie. But then again, Fannie Mae lied about the earnings for six billion dollars.
So it's just fiction and fiction and fiction. And I think it's important for people to recognize that the way that the market really works is to is to have that nexus of hit the brokerage houses with a series of orders that can push it down, then leak it to the press and then get it on CNBC. That's also very important. And then you have a kind of a vicious cycle down. It's a pretty good game and it can be played. You pay four percent or two.
Right. And then you get long before Macworld in the expectation that it's going to be all right. And then you go back, you use the other side. Yeah.
You know, you drove it down. So, you know, you might as well buy it low, obviously. Right.
There's a case where I would say the January 80 puts can be justified because after I've got the stock down by a lot of common and then play it right into Macworld, where they'll probably introduce the iPhone and Verizon is going to take it, well, maybe the fundamentals don't matter.
But let's talk about the fact…
What Wall Street Confidential is. Yes. Is is not giving you the party line. Oh, here's the bottom line, by the way, the I spoke to Apple, the phone.
I hear the phones are good and Verizon might take it. As a matter of fact, the Research In Motion sellers, they I don't think they know what they're talking about it.
But even when the cell market cell phone market.
You think is the in the form of the cell phone market, frankly, is is that these guys are killing each other. Someone has to take a dove. Motorola and Nokia have to get in a room and just fix price.
They've been reluctant to do that because of the various Justice departments and because they.
And it's illegal, right?
Well, that hasn't stopped a lot of other companies.
This is true.
This seems to be a case where they seem to be directly worried about the authorities. It's almost as if they have a lawyer that matters, unlike, say, the Bristol-Myers lawsuit. And what eventually happens is the shareholders demand that you get phony lawyers and you sit in the room and they'll have some.
Real quick. The fair the numbers out today, weaker than expected.
So obviously got a cut. But if you call it you call the various guys who cover the bonds and you say ignore the bond action. What's really happened is the Fed is very frightened about chin up the number that they're really frightened about. The Fed is actually desperate to try to figure out how quickly they have to cut without looking like dopes that they that they regret because they've been talking about they're worried about inflation.
All this stuff you don't want to raise in May and then cut in January like Mexico, for heaven's sake. I mean, this is like a distinguished group of people who went to really good schools.
These are smart guys.
But they don't want to look like dopes.
When we were talking earlier, you said you think it be some sort of crisis, possibly Ford being a trigger.
Well, Ford went and did all that they pledged all this investment banking to all these guys.
So now that they're very reluctant to say negative things, it makes it much tougher for the Ford story to play out. I mean, the amount of business that Ford has to do for me be the big client of 2007. So if I were in the corporate finance room, I would say, listen to the research guy. I said, listen, I spoke with Mulally. I actually have the inside. The plan works. So then you're the research salesman.
What do I do? It's bonus time. I'm not going to be a total idiot. Spitzer's going to Albany. Let's get back in the game. I think that's important.
Is it possible? Because a year ago at this time, a lot of people are saying GM's about to go bankrupt. And of course, the stock's up 50 percent. Well, they're outs there.
The GM, the difference between Ford and GM was the chief's balance sheet was never really turned up, it
Wasn't that bad. Ford balance sheets are pathetic. And you know that because they're willing to screw over the common for the bonds. That's kind of if it weren't Ford, if this were Qualcomm, we'd be saying Qualcomm is desperate. But no, it's Ford, but it's an American. I thought I owned the Ford once.
And so he's talking about spinning the narrative based on what company and giving preferential treatment, right? Oh, this company. Oh, it's really bad, right. Versus Ford. I know. It's OK. It's Ford.
This is our country.
Well, right now she's pathetic and you know that because they're willing to screw over the common for the bonds, that's kind of if it weren't for it, if this were Qualcomm, we'd be saying Qualcomm is desperate. But no, it's Ford but it's an American I like report. I own the foreign ones. And this is our country. Well, right. And Jim Cramer, again, you know what I'm trying to go for in the Wall Street confidential.
And I'm not saying you're send me I have to talk about what it's like at my hedge fund, OK, because and what other hedge funds do, because the difference is, is that if this is an intraday show and you need to know what's going what I know is going no, we step back. Research in Motion was a real blowout quarter. It was a really good quarter. And I was quite surprised how strong the margins were. It looks like the other guys have really dropped out.
It's a terrific story. Should it be up six? Yeah, I think so. But, you know, look where we are. It's Friday. You got five more days to make you. Can you really risk having RIM up this much? I don't think you can.
OK, and they're not. And if I'm correct, you're off next week. Yes. And I am as well. So we'll be back in 2007.
I'm hoping that we get that we finish the year at twelve sixty because that's at twelve thousand four hundred and sixty because that's what I said at the beginning of the year was now yesterday we came in and we were twenty points away from what I predicted. I want to nail it.
Do you have a forecast for 2007?
Yeah, but I'm not going to come out. It's over a series of five days, so people have to go check it out on money.com. And Jim, thanks very much for being here.
I'm Aaron Task. Stay tuned for more of the street.comTV.
So. What did everyone think of that? What do you think of what's going on? That is a clip of Jim Cramer from a long time ago, back when he was a hedge fund manager. By the way, just to be clear, in case you couldn't tell by the poor quality. That's not because it's some weird rip of the video. It's because that was the actual quality of video back then. This took place in 2006. He's talking about RIM Research in Motion, BlackBerry, Palm Pilot and the first iPhone.
Right. So all those conversations, Qualcomm chips in the first iPhone, those are the things that so hopefully they give you some some context as to the time frame of that interview. But that was really Jim Cramer really talking about ringing the market with mechanics and not caring about the fundamentals of a company. Right. Driving the narrative of Qualcomm different than Ford just because Ford is an American company like. So I just want my point is to show you.
Right. Like I'm not trying to be overly sensational. Even that, though, that was a very sensational video. Mechanics and fundamentals are clearly two different things. Right? We can do this all night. I have videos like ready to go that show CNBC only cares about narrative. They choose their guests based on which one is going to get them more clicks that day, which is totally dependent on whether the stocks they're talking about are up or down.
Right. We can talk about this all night. I'm happy to be here and stay here. I know some people want to go watch AOC on Twitch, so I'm trying to be sensitive to that. I will definitely post this live stream to Ticker Symbol alive. So just so everyone's aware of the mechanic, Ticker Symbol: You is my main channel. These live streams are obviously a little bit off color for the type of curated educational content I try to put out on Ticker Symbol: You.
So they're going on Ticker Symbol live, which is meant to be a little more like uncurated, unrefined, my personal thoughts, real time. Right. So I don't want anyone to get confused. I'm definitely going back to creating videos after video that will be more curated and I plan on releasing more soon. Obviously, this is a hot topic that's still unfolding, right? The mechanics, the manipulation, the stock market. So I want to get something out in real time to stir a conversation while I'm doing my due diligence and forming like a more curated, you know, streamlined, video worthy thing on the main channel.
So hopefully that kind of like. You know, I've done two live streams back to back, so I just want to separate that out. So now what I'm going to do is I'm going I might be quiet for a second here while I just catch up to the chat, which I've been ignoring all night. If you've donated, thank you so much for donating. I saw a few supers pass me by. Thank you so much. I really appreciate it.
If people join the membership, I really appreciate that, too. I'm sorry that I missed it in real time. I thought commenting on the video would be adding more value. And now I'm going to go through the chat real quick until I see the concurrent viewers kind of drop off here. We can keep going. You know, we can watch hyper change, talk about the mechanics of getting on CNBC. And you know who's talking about AOC is Alexandria Ocasio-Cortez.
I hope I'm saying her name right. She's a Democratic congresswoman who's going to be on Twitch. She's already started her live stream about fifteen minutes ago. I'm sure there will be a billion recordings of that. She's pretty charismatic, you know, so some people like to see if she's going. Keep going. We can watch AOC later. It's a party. All right, let's do it. But here we go.
And there's like GameStop and AMC joining us now. And a first on CNBC interview, Interactive Brokers chairman and founder Thomas Peterffy. Thomas, thank you for joining us, it's great to have you on a day like today to clarify what is what is going on. So explain to us, to our audience why you have decided, like Robin Hood, to restrict trading in shares of these companies like GameStop and AMC.
So simply put, we are worried about the integrity of the marketplace and the clearing system. This is a new scenario in which fundamental values do not matter. Stocks that are single digit dollars go to several hundred dollars. For example, Game today jammed up and hundreds of dollars at the time. We are concerned about the ability of the market and the trading systems to withdraw the onslaught of orders to continue to provide liquidity. And we are concerned about the financial viability of intermediaries and the clearinghouses.
Now, I hope that your audience can follow this for every option trade, there is a buyer and seller as many long options as there are short options. So when the stock moves, either way, some options make money on the wrong side than the other. And the other side they lose money. The broker stands between these customers and the clearing house so that some option holders make money, the clearing house has to give us the money to give it to our customers, while other option sellers or buyers on the wrong side lose money.
We have to collect money from them and give it to the clearing house. If we are unable, if our customers are unable to pay for their losses, we have to put up our own money. Now, luckily, we have five billion dollars of equity so we don't have a problem. And we also have very well automated risk management system. So we haven't really gotten hurt.
So this is pretty interesting. Here's a guy with a brokerage who stopped some of the trades from occurring. Right. He stopped, for example, GameStop trades from going through, but he's claiming that he's in a fine financial position and that he was able to cover all of the trades even if his clients weren't right during the short squeeze. What he was saying is, hey, if my clients can't turn around and cover their calls, we have to. And then he said, but we have five billion in the bank, so we're OK. So I wonder why he stopped those trades.
However, I cannot say the same thing with full confidence about other brokers. I really don't know where they stand. So I think the concern as Game moved from seventeen dollars to five hundred dollars that are roughly three million contracts outstanding in the options market. If one of those options is fair, say, average option, estimated worth about ten thousand dollars and all. So that is a loss of roughly 10 to 15 billion dollars on the one side and 10 to 15 billion dollars of gain on the other.
I'm afraid that I just want to brokers who may not be able to meet these margin calls, so that is the suggestion.
Just to be clear, you're worried about the middlemen. Are you doing this move to protect yourself or to protect your customers?
Partly to protect ourselves.
I think that's all we need to hear. I mean, I guess I'll play the rest of the video, but mostly to protect, of course,
To protect your customers. And are you doing this move to protect yourself or to protect your customers?
I guess this would be a good time for a short channel poll. I don't know.
Partly to protect ourselves, but mostly to protect, of course, to protect our customers, but most of all, to protect the marketplace, to protect the clearinghouse. So if there are 10 to 15 billion dollars of losses in there, somebody has to pay them, will they be able to pay it is the big question. Thomas, do you understand people's anger, your customers anger, given that essentially you changed the rules of the game right in the middle of the match at the most important moment in the match, even if your terms and conditions allow you to do that, do you understand their anger that you changed the terms of trade for them just as things were getting heated up?
I do. But when you say right in the middle of the game, then you're saying as that squeeze is going on stronger and stronger.
That is what he's saying. He's saying that the mechanics of the market are the mechanics of the market. Those are the rules of the game. It's not about fundamentals always. Right. Like it's about understanding the mechanics and the rules of the game you're playing, such as short squeezes occur when the majority of people are short on a stock and it gets hot enough to drive up the price and force people to cover their calls. So what he did was he protected people from covering their calls, even though those were the rules of the game.
But that's illegal. That's manipulative. So it cannot be done.
Nothing, by the way, nothing about this short squeeze was illegal. It was all rules of the game. They were not rules based on fundamentals. They were rules based on mechanics. And hopefully you're seeing the common thread between all three videos that I've shown you tonight is that we're fundamentally arguing about the fairness of the mechanics of the stock market, the structure of the stock market itself, not the evaluations of the companies that get bought and sold on it.
Right. The mechanics of the buying and selling are rigged in one team's favor or the other and all leave it up to you to decide which team is favored by those mechanics today.
So do you think so? I think somebody's responsible for what our customers are doing. Shepard Smith here, thanks for watching CNBC on YouTube.
All right, I'm seeing a lot of questions like, can you explain GameStop? GameStop is a physical store that used to sell physical games. You would literally walk into it into a mall and you would like shop around for video games, you know, think PlayStation, Nintendo, Xbox, whatever, and you would buy the physical copy of the game at this physical store. So GameStop over the years has been hit twice. It's a depressed stock. Sorry.
I mean, in two ways, right? The first way is physical storefronts. Physical retail is on the decline. Right. Because of things like the pandemic and increased sensitivity to, you know, going contactless, social distancing, staying home, not going out and all that stuff. The second thing is it sells a physical product in the digital era. Right. And back to ARK Invest, we see that everything is going digital and software is eating the world.
A clear example of this is simply you can digitally download a game and you don't need, you know, the plastic box, the physical CD, whatever. You can just download the game and have it. You don't need to, like, leave your house to go buy it. And more importantly, because GameStop's, actual trade in prices and selling model is pretty bad. You're never really encouraged to trade in and sell games anyway, which is arguably one of the only reasons to own a physical copy.
Besides letting a friend borrow it, which now you can do digitally with most things, it wasn't worth selling your physical copyright. So the only differentiator GameStop has allowing this physical exchange of a video game, it didn't really take advantage of that in a meaningful way. So, again, GameStop is akin to or was akin to at the time of the depression of its stock price. It was akin to the blockbuster of video games. As people have pointed out in the chat, it's not it's trying to pivot into the digital era and do all these other cool things in the video game space.
But back when the shorts started and people took their initial positions in the company, you know, and these mechanics started playing out, I think it's fair to say that GameStop was like the Blockbuster of video games. Mental issue type of behavior is allowed. Yeah, exactly, that's all I'm trying to point out with all these videos is this kind of behavior is not only allowed, but as we saw in the Jim Cramer video, it's encouraged and big financial institutions to pay mathematicians and scientists lots of money to understand things like, you know, covered calls and all these spreads and, you know, put to short ratios and like, you know, all the different options, calendars and all that stuff are encouraged to manipulate the media, which is why I'm harping on CNBC so much.
Right. The one thing you might have noticed is that all of these videos are from this same channel. Right. And why is that? Because that's the soapbox that all of these people go on to pump a stock up to sell it or, you know, secretly whisper that this stock is bad in order to buy a low right before a big event where they can sell at high later. Right. The one common thread through all of these videos besides them being, like, hilariously corrupt, is they're all taking place on CNBC.
If you want to comment on this, please do so on the YouTube Video Here