Punching Shorts
Forcing a response from multiple institutions, making them reveal their hands and show their naked face.
This whole short squeeze saga is an interesting thing. As with most populist movements, they inevitably have longer term consequences we can’t see yet. Gun control only hurts legal gun owners by restricting their ability to protect themselves. Raising the minimum wage only squeezes smaller companies and lowers possible employment opportunities everywhere. Clean energy that is more expensive hurts poor people trying to get to work, or heat their homes. The capital “riot” gives the State the space they need to enact new domestic terror laws.
We’ve already seen in the last few days how these trading apps like Robinhood, or TD Ameritrade have locked down certain stocks. The ability to control their platform has always existed, they just didn’t have a reason to. Now they do. Don’t you think that will have negative consequences? These apps already limit your ability to day trade. Robinhood gives you three day trades in 5 consecutive trading days. Unless you have 25k in your account. Where do you think that rule came from? Do you think your average soccer mom, or young adult has 25k just sitting around that they can gamble with? I think it’s an actual law, but that’s a topic for another time. The powers that be in the finance space can just ask their buddies at these tech firms to change rules to protect their interests. The big league day traders can clean up pretty good making these kinds of moves, but you’re not allowed to. The people moving on these short squeezes are totally correct in their assessment here.
Yesterday Robinhood was allowing you to sell stocks like AMC or GameStop, but you can’t buy them. That could have allowed the price to come down before the end of the month. They wanted to try and let the waves smooth out, and get their friends in a better position to respond. It sounds like they are going to turn it back on again today, but in a limited fashion. People are saying (thank you Trump) that Robinhood uses a company called Citadel to handle their order flow, and that Citadel lent Melvin Capital 3 billion dollars to help cover their short position on GameStop. Now Citadel is probably using their influence as one of Robinhood’s biggest financiers to help cover for their investment. The explanation that Robinhood gave last night was that they ran out of collateral to cover their exposure or something. Who knows if that is correct. I would bet it might be a little of both. Plus, now RH has a class action law suit to deal with.
Discord and Reddit even shut down the popular channels for hate-speech, or some other stupid reason. I think they’ve all been re-instated, but these platforms are just grasping for any means of control they can. It will be interesting to see how the memevestors on Reddit can respond to the moves these trading platforms are making and if they can keep the pressure on the market or their hedge fund targets. My guess is most of the popular apps will quickly restrict trading on those targeted stocks going forward. They pick a new target down the road? Just shut that down for a bit, no worries. Since these investing spaces are heavily regulated, and the entry cost is extremely high, they are insulated from competition big time. You can’t just start your own. Assuming these people are able to get around the trading apps somehow and continue punching up, Apple and Google might try to intervene by pulling these apps off their platforms. Who knows what reason they will give.
My guess is that Melvin Capital will be one of the few actual corporate victims here, mainly because it started as a surprise attack. Now they will see you coming.
Long term this will impact the everyman who just wants to try his luck on the market with a few bucks, like me. The volatility introduced here sent ripples though the entire market. This time it feels like it will sort itself out. Next time it might not. We’ve seen the trading platform’s initial response. Who knows what the Biden Administration will try to do about this. It seems both the red and blue teams are together in condemning the Robinhood response. Those financial lobbyists are probably going to earn their keep this week.
It’s a bit of a white pill to see a bunch of nerds from Reddit taking on one of the most powerful institutions and actually claim a victory. Forcing a response from multiple institutions, making them reveal their hands and show their face. My guess is these firms are powerful enough to pull this one back a bit, but the masses will never forget what happened here. We’ve entered a new era.
Mike
Bonus! In the last few weeks I have really tried to dive into the crypto space. To learn about it, and to start investing. If you have any tips or recourses please let me know!
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I found this crypto start up called Pi Network that lets you mine their currency from your phone just by clicking a button once every 24 hours. You can’t pull it out yet, and I don’t believe it has a dollar value currently, but it might eventually. It’s free and takes zero effort so why not give it a try. Here is their white paper.
In order to sign up, you have to use an invite code, so please go ahead and use mine. DontStatistOnMe
You can also find me on MeWe! Mike Lastname with the same doggo icon. Let me know in the comments if you can’t find me.
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