tv Boom Bust RT October 2, 2021 5:30am-6:01am EDT
pasco, host, ben and j t. i kristi, we'll start with you here. so how have sites like robin hood so dramatically changed the face of retail investment? yeah, the rise of retail has really force wall street to take notice, especially after the catastrophic losses they face when institutional has got squeezed and started losing billions in names like game, stop and blackberry. so they are completely changed the landscape of investing, especially after blowing up on the biggest hedge funds like melvin capital, institutional they trade on fundamentals. they look at earnings, catalyst financials and global climate, and all that to determine price points of dames and their market cap to look for opportunities, but then retail, they rely more on sentiment and hype and to that end, it's a complete divergence from fundamentals because you look at a name like game, stop are an see and any institutional of b, like that's dead money, short it. but then all the retails ban together under their love of gaming and saving the movie theaters and movie business and managed to squeeze out all the hedges game. stop rallied over 2000 per cent this year,
which is just unheard of. and now credit suisse estimates that a 3rd of all u. s. market trading this year has been dominated by retail. and they've seriously managed to move the markets and make ways and really all thanks to robin hood who wanted to bring trading to the masses by making it a super easy user interface with beautiful u i, u x. and most importantly, game of fi at making it a social experience, because this is the aid of social media where everybody tries to gain cloud, whether it's followers are twitter or on instagram or tech talk. this is just another platform to brag about how many followers you had, how many people you can get to listen to. how big of an influence are you are. and robin hood, basically capitalize and game of fight by giving these amateur traders a platform to band together an army, which is more powerful than any hedge fund or tells about these investors. who are they and what makes them unique compared to say, the traditional investor? yeah, there's a, there's a couple of things that are pretty significant here and talking about the median age, right. the median age of the retail investors, it's 31 years old,
which is pretty remarkable. if you consider the fact that this isn't, i guess you can say this is not your daddy's investing game anymore, right. it's a, it's a totally different group of people from the past. i think everything chrissy just laid out explains why that is right for the 31 year old and younger. these are folks who want a game of fight system who love the idea of being able to move markets by moving in mass together. if you think about, you know, older investors, they would never have considered a time when you would kind of move markets together by going online 1st discussing what traits to make and then making something go to the moon diamond hands and all the other thing you have to look at is the fact that some of these other entities like apex clearing, take a look at some of the new folks who have been signing up for accounts in the last year since 2021 over a 1000000 new accounts have been made on these retail brokerage sites for people who are 19 years old, a 1000019 year olds have joined into the system. so it gives you an idea of how
young the people are who are involved in this. and the fact that for them it is social, and it's a totally different kind of experience than anything that we've seen in the past. and christie, traditionally it's large institutional investors, not the individual retail investors that we're talking about have had this profound impact on stock prices because they make large trade. but recent research shows that the new wave of retail traders are making their own impact health about that yet seriously, the large hedge funds they have these big impacts because they buy huge blots given their size and assets under management. know me, tell investor i can even match a fine, but now as we tell traders are banding together in one name and trading individually . all of the common goal of popping up a name. it's having a really big impact on stock pricing. and now they're buying stock with ernie surprises that are positive or negative that's pushing up their prices. because usually when a company misses earnings, it gets a sold off. it gets sold off with very heavy discrimination in normal market
condition. but now even with amiss, retailers, they continue to pile in and this research paper by wharton used aggregated trading data from robin hood as a proxy to conclude that retail investors react to these earnings announcement itself. and not the actual news contained in the announcement whether it was good, whether it was bad, it found that these robin hoodies are more active and buy a company's shares around earnings announcements, as a catalyst event, rat with garlic of whether it's good or bad. and this influence, it's even more pronounced and smaller firms where their shares are relatively more expensive to short sell. and while this is good news for retail, it kind of disrupts the market a little bit because short sellers have their place in the market. they're like the shark that keeps a seal population check because short sellers lead out bad companies. we'd weak companies and they punish them. and then invest in the profits in gaines into growing companies. they have a role in distributing and redistributing and allocating capital where it's needed to put the greatest possible use by rewarding growing companies. and that entire ecosystem has now been disrupted by retailers who only want name to go up. boom
bust runs on and christy, i think you both for your time. thank you. thank you. while retail trading has grown in popularity, it caught the air of wall street and even the united states congress as the means dot creates picked up earlier this year. now the most prominent means stuck as we just mentioned to gain attention was video, game retailer, game stop it all started as read. it uses on wall street bet sub read. it moved forward with a short squeeze game stop. after the citrus research predicted, the stock price would fall. now the global pandemic had taken a toll on retail as a whole, and game stop was struggling to keep up in digital delivery and video game became more and more popular. the move, it was so severe it pushed the price from just over $17.00 at the start of january to highs of nearly $350.00 by january 27th. now, dow jones market data showed it became so popular $175000000.00 shares in the
company were traded on january 25th alone at the end of january read, it's moved on to a short sweet movie theater chain m. c, which was also struggling amid the pandemic. us trading volumes as a whole on the 27th of january when both were taking place. hit new hi, surpassing those scene during the financial crisis of october, 2008. think about that. now since then, we've seen other companies entered the mean stock trend, including many outmoded companies like blackberry, kodak, or even nokia, as well as fast food chain. wendy's, which had a brief moment in the sun, because rudders loved to use the term. 10 bees for chicken tenders. so for more on all of this, let's bring in tobin's met the to see of transformed research, and peter schiff, he is the chief economist and global strap just at euro pacific capital. thank you both for coming on to join us to talk about what seems silly, but look at those number. that's pretty important. tobin we had you on the show when all this started back in january and you pointed out a short squeezes,
nothing new. so it is all about the power being put into the hands of regular people in retail trading. well, it's a couple of things. first up. if peter and i wanted to get together and make a stock go up and we had an agreement, we'd buy x amount of stuff that would probably be illegal. there's no law here that says though you can't be on read it or beyond, you know, wa street bags and assemble a team of, you know, 50000 people who want to buy it. and there's no law yet. that says you can't do that. but clearly if you punch the, you know, the good guys are the bad guys in the nose, depending where you're coming from. there's going to be blood and you're going to see, i believe that you can't go in, in a situation where you organize, clearly tell lies. clearly have people on youtube and other things telling. also the expansive lies to get for one thing that people who shorted that stock to get the price rise in the people who did it early are going to make
a lot of money. so it's like a ponzi scheme. so it's fun while it last, but you can have price discovery in the stock market if we're going from main stock . that means stock. now to that point, peter, i mean, we can talk about how fun it is for the moment, but do you think retail investors really understand the risk involved with trading? highly volatile means docs. most of them, probably not. i don't think they have much of a conception of investing at all. you know, the, the whole thing is, is, is, as tobin said, it's a ponzi. it's a pyramid. by the way, it's nice to be i with you, toby, it's been a while, but a long time for, you know, i don't think there's, if i don't think there's a future in mean stops, i think this is a flash. and unfortunately, a lot of people are going to lose a lot of money. a small number of people will make a lot of money. and those are the people that get in early, get the crowd all you know, ginned up and get them to buy. and then get into hold on, but then there's going to be a lot of bag holders because these stocks were being shorted for
a reason. they've got flaw business models. maybe they're going out of business, smart money, new enough to bet against these stocks. now done money piled in, they bid them up to these ridiculous prices. there's no way these prices can be sustain like any ponzi scheme or chain letter. you run out of chain and eventually the bottoms going to drop out. and there's going to be a lot of bag holders. i left it when this crazed over i was in is they've done lenny as a way to this guy. they are a tow van. i the big corporations behind these companies that have been able to take in all of this cash i. they benefiting from something that was almost started as a joke. oh my gosh. game stop played it perfectly. by issuing almost what $3000000000.00 were the stock when the stock was probably worth $4.00 and it was selling for $385.00. sorry. about a bag holder. when they sold those shares, they sold those to institutions. they didn't sell it visual. so there's
a bunch institutions that are sitting with $250.00 game stock stock. that's not trading for $250.00. you know, you listen, this is a motion. this is also sort of a tribal behavior. i've written a few books on travel media behavior, and when you get all together, it's fun, you get the dope, i mean, go and you're like, how much put it it look how much smarter than those stupid idiots who are not making money as soon as you identify as a tribe member than men in your subject have tried to psychology on the up and the down. peter, you know some of the go ahead go ahead. yeah, i said some of the real winners were the bottom holder. there are a bunch of bottom holders now we're going to get pennies on the dollar when the company went bankrupt. and now they get paid in full. i mean that was the thing is if you remember back in amc in last summer, so about july, august of 2020. there was a lot of talk about amc going bankrupt. obviously they got funding from other folks . but the fact was that was where they were, and it's because doc raise happened now. now peter,
we hear about the diamond hands. they were a big deal in the middle of the crazy rhetoric you know, wanted you to hold on to stand strong on those stock. i mean, does the bottom eventually drop out or do they just hold it? and amc, for some reason, continues to be a stock that is way, way over value. both the diamond hands is all part of the height because the people who want to sell have to make sure that other people don't because you don't want to be in competition with other sellers. so you have to convince everybody never sell, hold on forever. well, what are you holding on to? it's a company that doesn't have any earnings, it doesn't pay any dividends. you're holding nothing. your whole, the air you're holding height. the smart money is dumpy, while those people with diamond hands have been conned into holding on a bit or just one more follow up on that. i mean, i know we talk about this regularly and i know we, we tend to talk to you occasionally about crypto, which are not necessarily a huge believer it. but is there some truth to the idea that yes of that has value?
if you decide it has value, well, not really because something actually has to have legitimate value. there's a difference between price and value. warren buffett talks about that price is what you pay. value is what you get. you can put a price and game stop. you can put a christ on bitcoin as long as somebody is willing to pay, that's the price and as long as the bids are there and you own whatever it is, you can get out by hitting that bid. but there's a big difference between what something is fundamentally worth and what's some idiot is willing to pay for it. but eventually, the supply of idiots runs out, and all these bubbles collapsed. you just never know how big they're going to get before they do. unfortunately, there's a lot of foolish people out there to be a fool, but eventually the last fool again is all in the back. it's going to happen with am . c is going to happen with game stop. it is going to happen. would not only bid coin, but all these crypto currencies. all right, have been sending this out for us. do you see this chain continuing as we move
forward, or will it die out as wall street continues to win? well, if we're talking kind of crypto, your listeners have to understand that particularly bitcoin is a religion, it's an instrument of bait. it is tribal, digital tribalism. when you say i'm a crypto person, that means those that theory him guys are knucklehead. i feel great about that. it makes me feel great and smart when the things go up and value, man, i'm getting dope me hits like crazy. i love it. that is an addiction. and if it's tribal psychology of period, if your listeners really want to learn something to look up tribal psychology because everything that happens with bitcoin and with any of the criptos follows the path. there's a leader, it's like you get to go to heaven and religion. well, here you get to hang out with you on months. i mean it's, it's, it's an absolute construct of digital tribalism and digital tribalism. as long as it's giving you the dope, i mean hits the psychological rewards it's, it's got to stay,
it's not going anywhere. and you're right there and they're always trying to bring in new converts me. it's like they're the mot, modern day, harry cursors. they're always trying to get into the face. you know, so believers it, it's work for more. it's work from mormonism for like 150 years. you got to proselytize, you go out and, you know, bring new people into the block and what people don't understand is it without that really religious fervor, there is no crept up. so smith of transformative research at peter, chef of euro pacific capital. thank you both for your time. so thank time now for a quick break, but when we come back, we turn to the regulatory side of retail trading. as the u. s. government has ramped up in scrutiny of companies like robin hood will bring you an expert insight just on the other side. the chance will be right back with
a robot must obey the orders given by human beings, except where such order that conflict with the 1st law show your identification. we should be very careful about artificial intelligence. at the point obviously is too great truck rather than a with artificial intelligence, real. somebody with a robot must protect its own existence with who oh is your media a reflection of reality in the world transformed what will make you feel safer?
isolation, whole community. are you going the right way or are you being led to somewhere? direct? what is true? what is faith? in the world corrupted, you need to descend a join us in the depths or remain in the shallows. imagine picking up a future textbook on the early years of the 21st century. what other chapters, cold gun violence, school shootings, homelessness? first, it was my job then it was my family didn't was my savings. i have nothing. i have nothing and it's not like i don't try. i look for resources, i look for jobs, i look for everything i can to make this pass. and i end up doing is passing the
road to the american dream paved with dead refugees. it's this very idealized image of our america, native americans look past the deaths that happen every single day. this is a modem. history of the usa, my america manase with ah, welcome back. the viral means dock craze. and the response from some online firms to cut off and limit trading was quick to attract attention from congress. earlier this year, the ceo of robin hood was called to testify, where he was asked about whether his company was acting in the interest of the hedge funds that were losing billions of dollars. club in the securities put the
restrictions in place in an effort to meet increased regulatory deposit requirements. not to haul hedge forms. we don't answer to hedge funds. we serve the millions of small investors use our platform every day to invest. robin hood was hit with dozens of private law suits, and it went on to face charges of $70000000.00 over sweeping regulatory allegations at the brokerage, misled customers approved ineligible traders for risky strategies, and didn't supervise technology that locked millions out of training. as a result, the companies i p o filing mentions the numerous class action lawsuit that is currently facing and it also warns of the risk of regulation from the federal government. while robin hood has made its name popular with the promise of 0 commission, stock trades is practice of relying on payment for order flow, or sending customer stock to 3rd party. firms has drawn criticism from the se. see,
the agency hasn't made any moves to ban the practice just yet, but the question of what it can do has created concern that it could change the trend of retail training, as we know it says earning it's not just us is international, regulatory attorney miles edwards miles, it's great to have you on the show to day and we know that when we look at s c c, chairman gary gansler. he has repeatedly pointed to the fact that payment for order flow is illegal and other countries like the u. k. but even though there is some bipartisan support here in the u. s, do you think that there's enough support for a full ban on the practice? i think there's no support at all for the van. i mean, if you look at it and the $200.00 to $20.00 election financial services firms contributed over $2000000000.00 to politicians. and most of those people are now currently serving on the house financial services committee. and you know, the financial services firms did it correctly,
they gave about 47 percent to republicans and 53 percent to republican. so it has to go through these legislative hurdles. it's really going to be dead on arrival. i, i don't see any sort of support currently on for any type of repeal on payment for order flow. and even if they did ed, it would still have to go through the se, see rule making process as well. so it's a, it's going to be a very long and diff, difficult um, process to begin with. so i, i just don't see it happening at all. but i am, sorry, miles, i just have to clarify something. you're telling me that big business in the united states, donates millions of dollars to congressional members and whole. yeah. and so does, in my millions, 1000000000 in hopes that they will follow through with the policy that they want. i'm, i'm absolutely shocked. i, i, i know you're shocked and you can ask michael bloomberg, why they contributed a $160000000.00 and sigma the trade organization for financial firms like robin
heard contributed $15000000.00. so they've always been politically active in this area. and so how much power to the fcc happier, even if it doesn't move to ban as you just mentioned, there's no appetite to do so. are there other ways of looking at moving to limit companies like a like a robin hood or td ameritrade that focuses on retail banking or retail on trading? i absolutely. and i think the easiest way to do it is through finra. so robin hood is not only registered with securities and exchange commission, they're also a fin, remember, broker dealer, the fcc has complete authority over finra. so i think the essie see puts pressure on finra. to look at robin hood to look at their practices, to start examining them, and to put pressure on them to change the way that they do business. and more importantly, to change a relationship, say, have with both the retail and institutional customers. now when it comes to as law
say, that have been filed against robin had by customers who had their trades limited earlier this year, that companies user agreement requires just these to be settled in arbitration rather than civil court. so are these lawsuits likely to stay? can i these people likely to actually had their day in court? no, because the courts have even recently said, arbitration agreements are binding as long as they're in writing and the customer agrees to it. so what's gonna happen is, it's not only arbitration, it's finra arbitration, which means that you're gonna have to go through the finra process, and you're gonna have to appeal to the arbiters, arbitrators, to have it removed to maybe a state or federal court. and that's a very, very difficult situation to be, and because all these claims relate to their accounts with a securities firms, which is a member of finra. so i think that it's, it's of, it's really an up her up uphill battle um, for these lawsuits to survive and miles before we go quickly here. there's also
been a call for real time settlement, which also could have avoided some of the issues that all of these major retail brokerage firms had. now, if it is with the se, se, se would be a massive undertaking is the move to real time sentiment, something we're likely to see in the future as this becomes more and more popular or not. maybe in a decade when the technology and maybe even employee block chain technology to do it. but right now the technology is not in place for this to occur. and i just want you to know that back in 1969 wall street basically shut down because they couldn't process and settle the trade. they want to technology. now we're back to the point where we cannot get away from trade plus to for settlement, unless the technology increases. so i don't see that happening any time soon. excellent wins against that. are here. international, regulatory attorney,
mouse edwards, thank you for your time. thank you. well, rachel, i mean, you know, we've covered a lot of this retail trading boom. and it seems like, you know, there is some criticism we see from both the trading side, the regulatory side. but, but the fact is, i mean when you look at the way wall street has always worked for big institutional . so it definitely feels nice to see that real every day. people can have an impact on markets and, and be able to trade and make money in the sense that gave them a taste of what could happen, even if we don't see a mean stock crazed, quite like that one. they're still the possibility for them to rally together and really cost us has run some money. and if you're, if you're betting on shorts, you definitely want to be careful in this situation. that's for sure. and that's it for this time on boone boss, catch us on portable t v. you can find it at portable dot tv. we'll see you next time. ah
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let's learn about be allowed. let's say i'm a true, i can hear great pam grief on banks of the fight. wall street, broad thing. ah, joy, that's right, fell out it. will dest slavery? join me every thursday on the alex sarlin. sure. i'll be speaking to guess of the world of politics, small business, i'm show business. i'll see you then. oh, if you had expressing the of non government put me in the image with a seat, and i'm sorry, this is a wrong expectation. be you will have to see that is non, you want me to go on, but the big julie entities you've got to impose the democratic system on both on
sunday he was and didn't go to order. the lack of universal health care makes america the country of every man for himself. we have a retirement crisis in this country and we have a health care crisis for seniors in this country as well. so private business has come up with a special mechanism for that is called the life settlement market. we are a life settlement provider, which means that we buy life insurance policies from primarily seniors throughout the united states who are no longer want or cant afford their life insurance policies. if you're sick and for the want to live a few more years, you consillio life insurance that way you get more money right away in the company . collects your insurance payment off to your death either there's a group of people out there, i guess, hoping that people die soon. what kind of motivation is i give them?
when i start crying about him dying? that's usually what it's about as just the sheer unfairness of it all. i think i authorities call in the army to alleviate pressure at the pet full pumps is paper panic by fuel the public blaming the media. the crisis according to light suppose will though many also question the government the news is the need, like the media with a gas prices in europe, hit a new hi with the german government warning people to prepare for chile month ahead and countries. any key regulator is still yet to grant a license for rushes, nor string to gas pipeline. and the paramount challenge shaken by offices at spoken criticism and the hasty.