Last week, in a historic sequence of events on Wall Street, the struggling mall-based videogame retailer GameStop (Ticker: GME) was the subject of an epic “short squeeze” ignited primarily by individual investors on the Reddit message board r/wallstreetbets (WSB). Members of WSB implored each other to purchase shares of GME; a buying frenzy ensued. The stock, heavily “shorted” by certain hedge funds and other professional investors increased to nearly $500, up from just ~$20 in early January. Additional stocks including AMC Entertainment (AMC), BlackBerry (BB), Bed Bath & Beyond (BBBY), and a few others were caught up in the buying hysteria. Hedge funds and other professional investors suffered severe losses. After the fact, certain WSB members and other retail investors were in a jovial, celebratory mood. Together, they bet against the supposed smartest people in the room…and won. It was an apparent victory for the little guy. Or was it?
During the speculative mania’s zenith, the retail stock and options trading platform Robinhood enacted sudden changes to their platform. Without warning, account holders were banned and or severely curtailed from trading in the shares of GME and other heavily volatile stocks; only sell orders to liquidate existing positions were permitted. Immediately thereafter, a collective rage took hold.
Politicians on both sides of the aisle, Robinhood customers, market pundits, and even entertainers lashed out at Robinhood. In their view, the brokerage firm’s actions unfairly punished individual investors while professionals were left unscathed. Said David Portnoy, founder of the popular website Barstool Sports, “@RobinhoodApp entire business model is to cater to the exact people they are now trying to fck with and scare into selling. They will never recover from this.” As usual, Senator Elizabeth Warren (D-MA) blamed “hedge funds, private-equity firms and wealthy investors…for…treating the stock market like their own personal casino while everyone else pays the price.” Gavin Wax, President of the New York Young Republican Club accused Wall Street of “corporatizing the American dream and making a mockery of American freedom.” Curtis Sliwa, founder of The Guardian Angels, a “volunteer organization of unarmed crime-prevention,” apparently had a change of heart when he encouraged his followers to “get these hedge-fund monsters before they get us.” In a rare moment of unity, Alexandria Ocasio Cortez (AOC) (D-NY) & Ted Cruz (R-TX) both voiced their displeasure at Robinhood for helping hedge funds to the detriment of day traders. How ironic, for the first time in political history, AOC and Ted Cruz agreed…and they were both wrong. Let us be clear, the optics (and explanation) of what transpired were abysmal. That said, the statements above are categorically incorrect, highly irresponsible and were spit by people who share one important property in common. They have absolutely no clue what they are talking about.
In truth, the happenings of last week were complex, multi-faceted, and extremely granular. They involved the plumbing of financial markets that very few people, except dedicated experts, fully comprehend. In fact, many people who work in finance themselves do not fully grasp the magnitude of terms such as T+2 trade settlement, margin calls, margin loans, collateral, collateral calls, implied volatility, and so forth, that are closely intertwined and imperative in maintaining an orderly process of buying, selling, and shorting stocks and settling those trades. In this post, we will try our best to explain, in plain English, what transpired and dispel many of the falsehoods that are circulating on (and off) line.
Capital Punishment: Why Robinhood Restricted Trading
Did Robinhood restrict trading to “screw the little guy,” as Curtis Sliwa so eloquently espoused? How about to bail out hedge funds that were caught in a short squeeze? Or to help Citadel and Point72, two firms that injected capital into a hedge fund called Melvin, that had suffered losses in GME? Or did Robinhood throttle back because they are in the view of Mr. Portnoy, “the biggest frauds of them all” and because “too many ordinary people are getting rich”? The simple answer(s) to all these questions is unequivocally “no.”
Robinhood curbed trading because a sudden onset of activity concentrated in a few stocks, combined with the volatility of those stocks, left them desperately short of cash. If they did not take decisive action, they risked insolvency. In fact, in addition to restricting trading, Robinhood simultaneously drew down all their existing credit lines. Worth noting is that drawing on credit lines is an expensive form of financing. Firms draw on credit lines when they must, not because they want to. Finally, to further strengthen their balance sheet, Robinhood raised billions of dollars of additional capital as expeditiously as possible.
But Wait, How Could Robinhood “Run Out Of Cash”?
When an investor purchases (or sells) a stock, they see (and have come to expect) the funds credited (or debited) to their account instantaneously. Typically, they can use those funds to purchase another security, withdraw the cash, and or for collateral. What they do not see is the backend complexities that must work seamlessly for the aforementioned to be facilitated.
Unbeknownst to most investors is that almost all stock trades take 2 business days to “settle.” In Wall Street parlance, this is called T+2 settlement. Because there is a lag from the time a trade is executed to the time it settles, an investor’s broker – in this case Robinhood – must ensure they have enough cash on hand to meet customer demands until the trade settles. And since so many customers were trading GME at one time, often on the same “side” of the trade, Robinhood’s cash position dropped precipitously.
Like all brokers, Robinhood allows qualified clients to trade on “margin,” or with borrowed money. Robinhood earns a fee for providing this financing. However, should one of their customers fail to meet a margin call (pay back the loan), Robinhood would be on the hook for the funds. Some customers were buying shares of GME using borrowed funds (or margin). If the shares of GME dropped by a certain percentage, a customer might face a “margin call,” meaning the balance in their account had fallen below a minimum maintenance level required by law. When this happens, an investor must deposit more funds into their account. If they fail to do so, their broker is obliged to liquidate some or all their remaining holdings to satisfy the margin call. If the cash derived from liquidating a customer’s account is not sufficient to cover the margin call, the broker (Robinhood) is responsible for the balance. A disproportionate amount of customers trading shares in one extremely volatile stock, GME, thrusted Robinhood into an extraordinarily difficult and highly unusual situation; too many customers might be unable to meet margin calls simultaneously, forcing Robinhood to draw down their cash reserves to fill the difference.
Finally, all brokers clear and settle trades through an intermediary called The Depository Trust and Clearing Corporation (DTCC). To better understand what DTCC’s function is, imagine it as a broker to all brokers, or a reinsurer to all brokers. The “buck” excuse the pun, stops with them. The DTCC demands cash collateral (think of it as an insurance premium) from all clearing brokers, including Robinhood. The amount of capital they require depends on various quantitative factors (think of how an insurance company prices a life insurance policy). When market conditions change, the DTCC can, and often does, demand more (or less) collateral from clearing brokers. Last week’s buying binge in a few highly speculative, volatile stocks prompted DTCC to raise cash collateral requirements to protect the financial system’s integrity. Because Robinhood had a disproportionate number of retail accounts trading in these securities, they had to come up with a lot of cash, and quickly. Robinhood was far from the only affected broker. Noted Thomas Peterffy, the well-respected chairman of the brokerage firm Interactive Brokers, (we were) "concerned about the ability of the market and the clearing systems, through the onslaught of orders, to continue to provide liquidity. And we are concerned about the financial viability of intermediaries and the clearing houses.”
Paying For Order Flow
Robinhood does not charge brokerage commissions for stock and options trading; customers can trade for free. Indeed, the lure of zero commissions has been a huge driver of demand for retail brokerage services throughout the financial services community. This then begs the question: How does Robinhood make money? One way is by charging interest to customers who trade on margin. Another way is through something called “payment for order flow.” Here is an oversimplification of how it works: Retail brokerage firms like Robinhood, Ameritrade, Fidelity, etc., route customer orders to sophisticated firms called market makers in exchange for cash payments. Two of the largest market makers are Citadel Securities and Virtu Financial. These firms and other market makers pay for this order flow for the simple reason that they can trade against it for a profit.
The merits of paying for order flow go well beyond the scope of this post. In short, detractors say there is an inherent conflict of interest. Advocates say it facilitates low or no cost trading for individual investors and the opportunity for “price improvement." In this post, we only mention payment for order flow to dispel some nonsensical arguments from a peanut gallery of ill-informed charlatans. Suppose Robinhood was out to “screw the little guy” and or involved in a conspiracy with other professional market participants to illegally profit at the expense of individual investors. Why would they restrict trading in their most heavily traded stocks and by doing so, have less customer order flow to sell and earn a profit from? They would not. Bottom line, the more Robinhood’s customers trade, the more order flow Robinhood can sell; the more order flow Robinhood sells, the more money Robinhood makes, not the other way around.
The action taken by Robinhood and many other retail brokers last week was not only correct, but it was also well within their legal rights. Still, it is also worth calling out certain market professionals on their hypocrisy; for in the past, they have profited from the very thing they are now complaining about, which is a coordinated a short squeeze. This time, however, they were the ones nursing losses.
Said Nicholas Colas, co-founder of DataTrek Research, “Retail investor wolf packs are new, but if you’ve ever sat on a hedge fund trading desk you know squeezing shorts has been a Wall Street blood sport for decades.”
Most professional investors are honest, hard-working people that adhere to the rules and (try to) earn legitimate profits. They do not get involved in activities that stretch the bounds of legality. Still, we can certainly understand and appreciate why the general public has little if any sympathy for a few hedge fund managers crying foul because now, instead of them orchestrating and profiting from a short- squeeze by sharing information at an idea dinner or investment summit, it is retail investors on reddit doing something similar.
Short Sellers & Short Sightedness
True to form in acting reactively instead of proactively, the Senate Banking Committee and other regulators will hold hearings on the “current state of the stock market.” Among the topics of discussion will be restrictions or even banning the practice of short selling. This is a terrible idea.
Short sellers are good for the stock market. And despite what some ill-informed people say, short selling specialists protect individual investors in a myriad of ways. How? Traditional Wall Street analysts almost always (~90%) have “Buy” or “Hold” recommendations on stocks. One reason for this is because financial malfeasance is often extraordinarily difficult to identify. Short sellers are experts at rooting out nefarious behavior. They provide a vital service to individual investors, sniffing out corporate misdeeds such as aggressive accounting and even outright fraud. Their research helps keep companies honest and investors well-informed. Worth noting, it was not Wall Street analysts that alerted the investing public (and regulators) about the multi-billion-dollar frauds Enron, WorldCom and SinoForest. It was short sellers. Finally, during normal stock market corrections short sellers often purchase shares they have previously sold short to close out their trades. This helps stabilize the market during a downturn, when most market participants want to sell. Eliminate short selling, and you eliminate a natural buyer of stocks, at precisely the juncture when you need them most.
WASHINGTON: Last week, the International Monetary Fund sent $350 million in cash to the Myanmar government, part of a no-strings-attached emergency aid package to help the country battle the coronavirus pandemic.
Days later, military leaders seized power and detained elected leader Aung San Suu Kyi and other elected officials, in what the U.S. State Department said on Tuesday constituted a coup.
There appears to be little the IMF can do to claw back the funds, part of rapid-dis ..
Days before coup, IMF sent Myanmar $350 million in emergency aid; no precedent for refund
- The IMF said in a statement on Jan. 13 the money would help Myanmar meet "urgent balance-of-payments needs arising from the Covid-19 pandemic". Unlike its regular financing programs, which disburse funds in smaller increments the coronavirus emergency aid has been sent quickly, often all at once.
Global Intel Hub - Charlotte, NC -- BREAKING 2/6/2021
US Taxpayers file typically either 1099 or w2 (except for the wealthy that have hundreds of various methods). 1099 filers may be self-employed or receive income as independent contractors from small businesses. Those business owners receive K1s, which become part of their personal returns. Most of them use something like TurboTax or the equivalent (TurboTax has emerged as a standard because it's easy and reduces audit risks). See the message from filing a small business:
We have filed taxes for 20 years using TurboTax for as many as 50 filers in a single year (our business partner was in the tax business) - we have never seen this message before. Another point, it's now February 6th and many small businesses file as soon as they can, such as January 1st (after the tax year closes on New Years Eve.) Why are people in a hurry to file taxes? Because when you file, you get your REFUND. Also if you wait until the last minute, and file on tax day with the majority of people, processing and refunds are always delayed. Early filers get many benefits other than peace of mind, they get quickly processed deposits.
And this year is even more worrisome, as millions of stimulus payments went to the wrong accounts. The IRS has said they will attach the stimulus to your tax filing (if you missed it) which is making those who didn't get a stimulus or a refund biting their nails.
Is this all due to stupidity? Are we now seeing the fruits of the labor, from a decades long dumbing down of new generations of workers who can't accomplish basic tasks? Or is this part of a greater plan, a 'great reset' of the tax system, which is going to go live before March 15, 2021 (deadline for corporations and partnerships to file)?
We will shortly see.
To make things even more exciting, there is absolutely nothing filers can do but wait. The IRS is receiving a 'heavy call volume' due to "COVID 19" like all other corporations, thus leaving us no choice but to take it in the orifice requested.
With the ushering in of the "Biden" administration, a silence can be heard around the world. That sound is the silence of relief, the Elite feel that populist Trump is out of office and no longer a threat, and it's back to business as usual. The well is no longer dry and the pumps have already been primed for a return to the greasing of the pigs, an American tradition going back to Eisenhower. Most notably, Erik Prince didn't waste any time getting to work in Myanmar, where he has been operating publicly since 2019:
So at least some of the good news for now, we don't have to listen to the loud screams of terror from the Elite who are not [were not] raking in billions from their corrupt schemes like regime change, market manipulation, and other fun hobbies they have we can't get into in case children are reading this.
Here's what it's really all about, controlling business contracts:
China Inc. in Myanmar – an inauspicious history
China’s hefty economic footprint in Myanmar has arguably been a pilot for its Belt and Road Initiative. Back in the 1990s, Myanmar’s military dictatorship was hemmed in by western sanctions, had no friends and few sources of financing. Beijing stepped in and, from the turn of the century, Chinese investments in Myanmar proliferated. These sketched out priorities now hard-wired into the Belt and Road Initiative globally: access to natural resources and access to infrastructure to convey them to China. Myanmar has offshore gas, timber, minerals and precious stones, not least jade – the country’s most valuable natural resource – whose main beneficiaries have been military hardliners, crony tycoons, drug lords and shadowy Chinese financiers. It also has a strategic location which enables resources not just from Myanmar, but other parts of the world too, to be transported into China via a land corridor, rather than a much longer and riskier seaborne route.
Not surprisingly, around the same time, Myanmar tapped into US Dollar swap lines (which is Fedspeak for money) created in 1997 to avoid another Asian financial crisis:
..the Chiang Mai Initiative Multilateralization (CMIM). A surveillance unit, the ASEAN+3 Macroeconomic Research Office (AMRO), was created to monitor member economies for signs of emerging risks and to provide analysis of countries requesting funds from the CMIM, much as the International Monetary Fund (IMF) does for its member countries. The fourteen countries participating in the CMIM agreed to a certain financial contribution and were thereafter entitled to borrow a multiple of this, ranging from 0.5 for China and Japan to five for Vietnam, Cambodia, Myanmar, Brunei, and Laos. In 2014, the size of the agreement was doubled from $120 billion to $240 billion, and the amount a country could access without being on an IMF program was raised from 20 percent to 30 percent.
It is not clear how much each country received from the $240 Billion, but that's a lot of money for Burma (Myanmar) a country with only $76 Billion GDP (2019), according to the CIA World Fact Book.
For a detailed overview of the inner workings of how the CIA enables US interests from industry, banking, and technology to expand their global markets, this article on Foreign Policy is a good start, and definitely read "Economic Hit Man" available here at ubuy.me books.
Bottom line, there are proxy wars between superpowers in countries rich with assets, whatever those assets may be. And, as explained in Splitting Pennies - this is all backed by a policy supporting the US Dollar. In other words, the mission has multiple goals. Goal one is to establish the US Dollar as the reserve currency, and if possible to make the US Dollar to be used in local transactions. Even Cuba, a long time foe of the United States, used the US Dollar as an alternative currency in Cuba.
Moving on to the next point, what's $240 Billion for the Fed to hand over to the IMF to dole out to Burma and their neighbors? Take a look at some scary QE charts:
Does this chart remind you of something?
Or pretty much most markets, from the stock market to select real estate markets, and of course, physical Silver which is not manipulated, according to the regulators, who are currently investigating Reddit users for 'market manipulation' - but what's interesting, not only physical Silver is trading at a huge premium to $SLV and other paper silver products, most providers are totally sold out at any price, see this ridiculous catalog from the U.S. Mint:
Currently Unavailable, Coming Soon, and Sold Out - why display them on the site?
So where does all this M1 go? It filters through the economy and creates inflation, we found a great example from a consumer product of real inflation on a chemical cleaner product that costs (or should cost) pennies to produce, blue glass cleaner (off-brand) -
This glass cleaner is the off-brand product sold on WalMart.com the cheapest and roughest consumer marketplace in the world. This is the bottom, rock bottom price. If you buy this product in your local Kroger, Publix, or Albertsons, bet on paying a premium. If you get the "Windex" or other premium brand, add another few basis points.
It's back to business as usual, this is not a groundbreaking article - simply a return to the normal. Manipulated media, manipulated markets, in an attempt to create a Brave New World. The good news for traders and investors is that, if you are as smart as Zero Hedge readers - you'll be able to make a killing, going short the USD and buying up bubble assets, or by taking advantage of unique situations.
Something is obviously brewing, as the trend of power players stepping down, jumping off high places, disappearing, and/or getting hit by a bus is continuing into 2021. In case you aren't following this trend, take a look at this Medium article:
To date by July 2020, well over 1300 CEOs from massive corporations throughout the world had stepped down from their positions in the preceding twelve months.
To the recent list, add Jeff Bezos, Merck CEO Kenneth Frazier, Leon Black from Apollo - and here is a list of politicians that have died or vanished in the last 10 days:
-Bobby McKee, Northern Irish politician
-Jean-Pierre Michel, French Politician
-Moshe Moskowitz, Israeli politician
-Bootie Neal, American politician
-Patrick O'Donoghue, Irish roman catholic bishop
-Joseph Donna end, South African politician
-Sifis Valirakis, Greek politician, drowned
-Steven T. Kuykendall, American politician, U.S. house of representatives
-Nilda Pedrosa, American politician, public affairs
-Robert Rowland, British politician, drowned
-George Weatherill, Australian politician
-Gunawan Wirosaroyo, Indonesian politician
-Jean-Pierre Baeumier, French Politician
-Jacqueline Berenstein-Wavre, Swiss politician
-Jose Manuel Botella Crespo, Spanish Politician
-Aenenas Chigwedere, Zimbabwean Politician
-Routouang Yoma Golom, Chandran militant & Politician
-Jerzy Grelewski, Polish Politician
-Feliks Gromov, Russian Commander-in-Chief
-Meherzia Labidi Maiza, Tunisian Politician
-Joel Matiza, Zimbabwean Politician
-Raphael Steger Catano, Mexican diplomat
-Hank Coe, American politician & Senate
-Mauricio Herdocia Sacasa, Nicaraguan, integration systems
-Jackson Mthembu, South African Politician
-Jose Pampuro, Argentinian politician, minister of defense & defense secretary
-Joyce Hearn, American politician
-Justin Lekhanya, Mosotho Politician
-Sibusiso Moyo, Zimbabwean Politician
-Brian Hillery, Irish politician
-Emanuele Macaluso, Italian politician
-Toleafoa Ken Vaafusuaga Poutoa, Samoan Politician
-Felipe Quispe, Bolivian politician
-Carlos Tapia Garcia, Peruvian Politician
-Jim Vickerman, American politician & Senate
-Jean Dumont, French Politician
-Savavar Gestsson, Icelandic Politician
-Nombulelo Hermans, South African politician
-Akos Kizra, Hungarian Politician
-Joshua Kyeremeh, Ghanaian politician
-Dundar Ali Osman, Turkish Royal
-Henryk Ostrowski, Polish Politician
-Gatot Sudjito, Indonesian politician
-K.V. Vijayadas, Indian Politician
-Aminuddin Ponulele, Indonesian Politician
-Billy Kinoi, American politician
-Sergei Prinkhodko, Russian politician
-Carlos Holmes Trujillo, Columbian Politician
-Ihwan Datu Adam, Indonesian politician
-Soichi Aikawa, Japanese Politician
-Avelino Mendez Rangel, Mexican Politician
-Debbie Bath Hadden, Canadian Politician
-Robert Canas Lopez, Salvadoran Politician
-Antonio Cardoso e Cunha, Portuguese Politician
-Abdullahi Ibrahim, Nigerian Politician
-Dave Arnold, American politician & Senate
-Joevana Charles, Seychellois Politician
-Victor Crisologo, Peruvian Politician
-Barbara Gronemus, American politician
-Marlin Kuykendall, American politician
-Jubril Martins-Kuye, Nigerian Politician
-K. G. Shankar, Indian Politician
-Jon Sullivan, Australian politician
-Marius Swart, South African politician
-Vicent Tur, Spanish Politician
-Maynard Wallace, American politician & House of representatives
-Salleh Abas, Malaysian Politician
-Mahaveer Bhagora, Indian Politician
-Xavier Hunault, French Politician
-Sergi Mingote, Spanish Politician
-Bheki Ntuli, South African politician
-Phuong Mai, Vietnamese Royal
-Om Prakash Sharma, Indian Politician
-Sayidiman Suryohadiprojo, Indonesian diplomat
-Mauro Telles, Brazilian Politician
Politicians and diplomats who have died in the past 10 days....
Is this the beginning of the 'great reset' or is there something else brewing that we don't know about? One thing is clear - for now it's "Game On" for the DC crowd, business as usual for the Military Industrial Complex, which is supported by the Federal Reserve Bank, a private bank owned by it's bank owners.
If you're looking for a Robinhood alternative, checkout LevelX - Zero Commission Stocks & ETFs.
1. Medical Doctors Declare That The Pandemic Was Planned
2. Hundreds Of Spanish Medical Doctors Say The Pandemic Is Planned
3. In 2015 A Testing Method Was Patented For… COVID-19
4. Millions Of COVID-19 Test Kits Sold In 2017 And 2018
‘Quick! Hide It!!’
6. The COVID-19 ‘Project’ Is Planned Until 2025
7. Anthony Fauci Guaranteed A Pandemic Within The Next Two Years
8. Bill And Melinda Gates Guaranteed An Imminent Global Pandemic
9. Practicing For A Pandemic
10. Excitement About Selling Vaccines In The Next Year
11. 2020 Coronavirus Pandemic Predicted In 2013
12. Global Preparedness Monitoring Board In Sept. 2019: ‘Get Ready For A Global Coronavirus Pandemic’
13. Outbreak From China Announced
14. In 2015 Anthony Fauci Gave This Very Lab 3,7 Million Dollars.
15. Chinese Biological Experiments To Infect Humans With Coronavirus Exposed In 2015 By Italian State Media
16. Movies Predicted The Coronavirus Pandemic
17. Pandemic Depicted During Olympics Summergames In 2012
18. Worldwide Lockdown Predicted In 2008
19. Journalists Predicted Planned Pandemic
20. ‘Scenario For The Future’
Handbook For Global Control
21. Bill Gates Negotiated $100 Billion Contact Tracing Deal With Democratic Congressman Sponsor Of Bill Six Months BEFORE Coronavirus Pandemic
Everyone’s Contacts Must Be Checked
A Whole New Level Of Global Control
The Plan: Inject Mankind With DNA Altering Vaccine
20 Years Of Research Say: The Vaccine Will Change Our DNA
Depopulate The Earth By Means Of Organized Epidemics
Maintain Humanity Under 500,000,000
Using Vaccines To Reduce Humanity
Covid19 Vaccine For Population Control?
SUMMARY: WAS THE PANDEMIC PLANNED?
All Predictions Were Done Shortly Before It Happened
Are There Signs That The Pandemic Is Being Manipulated?
The Plan To Control The World
Nobody Wants These Organizations
World Health Organization Is Run By A Terrorist
More And More Pandemics, Untill Mankind Submits
Leaders Of Catholic Church Warn Humanity
Is There Hope? What Can We Do?
Reading about how YouTubers and Redditors with screennames liike "RoaringKitty" and "DeepF*ckingValue" contributed to last week's financial mania with posts and videos expounding the virtues of GME, AMC, BBY, BBBY, NOK, KOSS and the other "Wall Street Bets" stocks has been a big part of the drama in the aftermath of last week's trading chaos.