So you understand exactly what’s going on why robin hood and gamestop is now the center of controversy for market manipulation and how this impacts you as an investor, no matter what you’re investing in, because i have a feeling for most of you watching this story goes a Lot deeper than you realize, and it’s so important to understand, what’s going on by the way, if you want to help this post reach more people go ahead and diamond hand that, like button for the youtube algorithm that way youtube could recommend this post to an even Bigger audience, which means this could potentially reach way more people who deserve to know the significance of what’s going on and how this impacts them.
So, thank you so much for doing that and now let me quickly bring everyone up to speed, because a lot has unraveled over these last 24 hours and by the way, if you’ve already been following this extremely closely, and you want to skip some of the background Information just go to this time stamp right here and that way you get to go right to the current events, but for anyone who wants to be brought up to speed here, you go. This is basically the explain. Lincoln 5 tldr version of the entire story summed up in about a minute, because this explains exactly how we got here. Gamestop, as i’m sure we’re all aware, is a retail gaming shop. That’S been slowly declining in business as more and more people resorted to online downloads versus buying in-person games. Because of that hedge funds and large institutional investors felt like the price of the company, was overvalued and that eventually gamestop would take the same path as toys. R. Us and blockbuster, which declined in business and had to file for bankruptcy, so those big institutional investors shorted the company, essentially betting, that the price of the stock would be going down. However, out of nowhere, gamestop had a series of positive news that began driving up the price of the stock, as investors believed that maybe things could turn around. This included a 519 jump in online sales, the billionaire co-founder of chewy.com wanting to restructure management and a multi-year strategic partnership with microsoft. At that point, though, a user on reddit’s wall street bets discovered that large institutional investors actually shorted more shares than exist on the market, meaning that there weren’t possibly enough shares to buy. In the event, the stock price begins going up. Of course, by now, you’re probably wondering how on earth are you able to short more stocks than even exist on the market? Well, here’s where things start getting really good anytime. You short a stock you’re, actually borrowing it from person a and then immediately selling it to person c, with the expectation of being able to buy it back from person c in the future at a cheaper price. So that way, you could eventually give it back to person a while. You pocket the difference in profit, but shares like this could actually be borrowed multiple times and there’s nothing: stopping person c from loaning the stock to person d, who also wants to short the stock by loaning it to person e, and this continues, while the same stock Is shorted multiple times transferring from one person to another to another until eventually, more stocks are shorted than actually exist for sale?
Well, reddit saw this and they knew that the good news, combined with an increased demand by the stock, would cause a lot of these institutional short sellers to lose money and when they’re unable to find enough shares to buy so that they could return it to the Person they borrowed it from they would be forced to pay whatever price that you would want. However, institutional hedge funds caught on to this and they saw the stock price rising up, so they literally doubled down sunk billions of dollars into an even heavier position to stay afloat. And now it’s become a full-on game of chicken to see who sells first retail traders who could stand to make billions of dollars or hedge funds, which could go bankrupt now, because of this unique situation, there’s been a few rather serious implications for all of us, as Investors that we haven’t really seen before first, the trading of these meme stocks have been halted multiple times due to extreme volatility. This happens when stocks increase so much so quickly that it completely detaches from its fundamentals, and when that happens, the new york stock exchange reserves. The right to temporarily suspend trading to give investors a small time to cool off well as it would turn out trading in gamestop was halted for volatility nine times on monday and five times on tuesday, because it went up and down too much in price too quickly. The nasdaq ceo also said in response to this that they would halt trading in a stock if they link it to unusual social media chatter. But where do you draw the line between recognizing a market to inefficiency in a public form for everyone to see and market manipulation? Now, i’m certainly not a lawyer, and everything i’m talking about here is complete nonsense, so you should not even be listening to me, but how is wall street bets publicly calling gamestock to potentially hit a thousand dollars a share any different than kathy woods talking about tesla, Possibly hitting 7 000
Think about it, large institutional investors do this all the time and their message is circulated through tens of millions of people throughout the entire world in a matter of hours. Now i’ve been saying this for quite some time, but this is going to be extremely difficult to regulate because it becomes impossible to figure out where to draw the line and at which point you’re liable for what you say online. Is it based on the size of their audience? Is it based on their influence who’s to say what that is and when that mark is crossed? If everyone collectively agrees on a certain sentiment who’s to blame, is it the person who started it or do you go after the entire group, or maybe the website the group is hosted on is now responsible? Then, once you go beyond that, how do you actually prove damages or intentional wrongdoing? What, if you just happen to like the stock and have diamond hands honestly? All of this is just open to interpretation and while i always think it’s a good idea to be completely honest with full disclosure, it’s probably going to be a very lengthy battle. If they try to regulate what someone can and cannot say in a public forum about their investments and most likely it’s something that is never going to be easily regulated. Second, i realize this is what everyone wants me to talk about, and that would be robin hood and the alleged price manipulation on the morning of thursday january 28th, robin hood, along with several other brokerages disabled, their users, from being able to buy certain stocks like amc, Gamestop blackberry, nokia and a few others only allowing them to sell their positions, thereby inadvertently causing the price of those stocks to drop substantially. That completely eliminates the natural price discovery of the stock market. Where people are free to buy and sell a stock for whatever they feel it’s worth, because of that users are alleging that robinhood is guilty of price manipulation, as defined by the sec one intentionally controlling or artificially affecting the price of securities to intentional interference with the Free forces of supply and demand three could be designed to drive the stock’s price up or down, and even the sec says that this affects the integrity of the entire stock market. It undermines fair and honest orders, and investors are going to be less likely to participate. If they feel like the market is ranked against them, whereas instead the price of the stock should really be set by the collective judgment of both the buyers and the sellers.
That’S why now there’s a big push for a class action lawsuit against robin hood, claiming that robin hood has been pulling stocks from its platform in order to slow growth and help benefit robin hood’s, large institutional investors and partners, not its customers, to who it should owe A fiduciary duty to robin hood did respond to this after the market closed, saying that this was done as a financial requirement to meet sec net capital obligations and clearinghouse deposits, and they ended it. By saying to be clear, this decision was not made on the direction of any market maker we route to or other market participants, but there’s also certainly another theory – that’s floating around out there in the interwebs. Now i want to make a very important note here that none of this is a fact. This is all just a theory and my uninformed opinion that you should definitely not listen to, but some people think that it might have to do with exactly who routes robin hood’s order flows, and that would be citadel. Here’S how that works. When you place a trade on robin hood, robin hood is not the one who executes that trait. Instead, they instantly outsource it to another company that pays robinhood for the right to execute your trade, and in this case, that company is citadel, but that same company citadel. Recently lent 2.8 billion dollars to melvin capital, who was on the brink of bankruptcy because they had shorted, gamestop lost 13 billion dollars and the stock wasn’t going down. So this is now potentially in theory, allegedly where some of this starts piecing together. According to other people, who think this is true, so many people argue that this is a conflict of interest and blatant price manipulation to protect citadel, who loan money to melvin? Who is losing money because of gamestop and robin hood now to be fair to robin hood. This did happen to other brokerages as well, who happened to use apex clearing to process their trades, or maybe it has less to do with the brokerages and more to do with the companies that route? All of that order flow. Well, many people seem to think that these companies would rather face a class action, lawsuit and pay. A fine then potentially risk billions of dollars and go bankrupt. Today, i’m really trying to do my best to be as neutral as possible when it comes to this, because i don’t think it’s fair just to point our fingers at robinhood when most likely. This is a lot deeper than i’m sure. A lot of us realize – and it’s certainly going to require a lot more research to get down to what’s really going on. But i hate to say it guys as interesting as it is to think about robin hood, trying to protect citadel trying to protect melvin capital by disabling the buy button.
The actual reason could possibly be a little less exciting than you think. Remember the buy button of gamestop was temporarily disabled across multiple brokerages extending way beyond just robinhood. Even the ceo of weeble went on record yesterday to explain that their clearing house apex was dealing with a behind the scenes issue and had to disable trading against their wishes. See when you buy or sell a stock that money does not immediately change hands, even though it’ll show up instantly for you in your account. Instead, the money goes through a clearing process where all of those transactions are recorded and settled about two days later. But what happens if the person you bought your stock from goes bankrupt before the clearinghouse is able to settle the transaction? Then, all of a sudden, the broker can’t deliver your shares, so they go to the clearing house, but they can’t deliver your shares because the person they were getting it from went bankrupt. So they now have to pay out of pocket. But when the price of the stock skyrockets to unbelievable numbers, the clearinghouse simply doesn’t have that much in reserves and that could cause them to go under as well. Essentially, there weren’t enough shares of gamestop available to buy. They couldn’t margin, call the short sellers fast enough to provide liquidity. They couldn’t guarantee that those stocks would be available when you bought them and they didn’t want to be on the hook for the next two days. If they couldn’t provide you with the stock that you bought to the price that you bought it for, then, apparently the depository trust company who clears transactions, saw this happening and told their clearinghouse that starting immediately, they will need a hundred percent collateral on hand in order To cover the price of the stock being bought, but clearing houses didn’t have that type of capital on hand with a moment’s notice and brokerages didn’t want to be on the hook for delivering shares that might not exist. So the only option was to refuse to clear gamestop purchases which in turn caused brokerages unable to offer those shares for sale. Unfortunately, the robin hood ceo did a really bad job explaining this, but the ceo of weeble was very upfront about the situation and this probably makes more sense, plus weeble’s gonna, be offering you four free stocks when you deposit a hundred dollars on the platform using The link down below in the description and that could be worth all the way up to one thousand six hundred dollars now anyways what they said. One hundred percent confirmed to be the case.
Maybe maybe not is it possible that the clearinghouses are all in on it and trying to crash the stock as well? Who knows, i know it’s fun to band together and try to pick an enemy, and robin hood is definitely the easy target. But at least i’m going to be giving you all the information. And then you can make a decision for yourself as far as where we go from here. We have two sides to the coin: one we have the sec who wants to monitor market volatility and communications around stocks like this, alongside with regulation, around communities like wall street bets and two, we have hundreds of others who want to monitor the stock trading platforms, to Ensure that stocks are readily open for buying and selling without restriction. One side argues that reddit artificially drove up the demand in the price of gamestop, while the other side says that they just took advantage of greedy wall street funds who exploited the system by overly shorting. The stock and trying to drive down the price to me, robin hood disabling, the buy button is just like pouring gasoline on the fire, but the way i see it, this event is most likely almost guaranteed to cause further regulation to prevent something like this from happening Again in the future, most likely the sec is going to find a way to prevent more than 100 of the shares from being shorted all at once. That way, there’s not going to be this cataclysmic slingshot of value in the event that the price starts going up, and that would end up definitely softening the blow for something like this happening again and even though i’m 100 sure they’re going to start to pay very Close attention to communities like wall street bets that’s going to be very difficult to ever enforce, especially if a lot of people just like the stock and it’s going to be difficult to calculate how much market perception influences the price that someone is willing to pay for. Whatever stock they want to buy or how much value is attributed to hype versus someone’s real conviction about buying a stock that they believe is undervalued, but i think one thing is for sure disabling the buy button was not the right way to do it, and i Was upset that this was seen as the best solution to what i think is a much greater problem, if you agree with me on this, just make sure comment below, and with that said, you guys. Thank you. So much for watching, i really appreciate it as always make sure to also follow me on instagram. I post it pretty much daily. So if you want to be a part of it, there feel free to add me there. As my second channel, the graham stefan show i post there every single day – i’m not posting here. So if you want to see a brand new post for me every single day, make sure to add yourself to that. And lastly, if you guys want four free stocks, use the link down below in the description and weeble is going to be giving you four free stocks when you deposit 100, on the platform with those stocks potentially worth all the way up to 1 600. Thank you so much for reading and until next time,