Audio Length: 01:04:00

Transcript:

S2: Hello.

S3: Welcome to the What’s Going On with GameStop (GME) episode of Slate Money, your guide to the only business and finance story of the week. As far as we can tell, there has been exactly one story. It is very rare that we devote an entire episode to one story, but the demand has been so great that this entire episode is going to be about GameStop. I’m Felix Salmon of Axios. I’m here with Anna Shamansky of Breakingviews. Hello. I’m here with Emily Peck of Huff Post. Hello. And because this story is so big and so gnarly, it wasn’t enough to just have the three of us. We have a special guest, Hope King Hope, welcome.

S4: Hi. Thanks so much for having me.

S3: Introduce yourself. Who are you?

S5: My name is Hope King. I’m a business journalist based in the New York City area. I have covered business for CNN, for Business Insider and most recently, etc. where I was an anchor.

S3: Hope is going to help us uncover what people are really saying about GameStop, because she has done the the hard legwork of spending like twenty seven hours on clubhouse. It’s a hard job, but someone’s got to do it. Anna is going to explain why market manipulation is bad. Emily is going to try and work out whether there’s a whole Marxian take to all of this. Apparently there is. I am going to add some stupid asides. This is going to be fun. And we’re going to have a Slate plus segment about AMC (AMC), which is the mini GameStop, which is interesting in its own way. I hope that many of your questions will be answered, although I fear that many of them will not be. But do stay tuned because we have a lot of GameStop content coming up on slate money. So let’s get right into this. Emily, how many emails and tweets and random people stopping you on the street? Have you had saying, like, oh, my God, I can’t wait for you to talk about this? Please tell me you’re going to talk about this honestly at me.

S6: Oh, my God, Felix, I have never seen anything like this. Nothing to compare to the interest in this GameStop story in all the time. I swear to you that I’ve been reporting on business and finance and all this other junk. I mean, a long time, right. From Wall Street Journal, from the financial crash. I have never seen this much interest in a business story as GameStop. We have gotten so many tweets directed to us saying that people are excited to talk about this. We have gotten a lot of emails. Felix went on the political gabfests and did like a whole thing. There are already you can listen to that, too. I mean, it’s just people are interested in this for some reason, which we should get into. Why why the interest?

S3: Let’s start with that hope. What is your theory? You’re sort of like Metromedia theory here for why? What nerve has been touched here? Why is everyone obsessed with this story?

S5: It’s actually easier to understand on the surface. You hear it. You know the name GameStop. You’ve probably been to a store repassed buy one. So from that sort of headline aspect, it’s easy to understand and get into. And then you see a trending, of course, on social media. But then I know we’ll talk about this. Once you start to unpack what is actually happening, it starts to get confusing. And that always then gets people talking about it, trying to figure out what’s going on.

S3: Right. And that’s the one question we got this most recently, about twenty five seconds ago from Jessamine. Molly, she’s like, I can’t wait for you to talk about this because I want you to explain what’s going on. Let the three words I’ve heard most frequently over the past week is what’s going on, what’s going on with GameStop? And it’s really hard to know where to start on this. Emily, where would you begin? You begin with Wall Street bets with short selling, with Melvin Capital, with the share price. Where do we begin?

S6: I think we begin around the summer fall and we begin by knowing the GameStop is, you know, one of these mall stores that is from a previous era that everyone kind of thought was going to go to zero because no one goes to the store to buy video games anymore. In my family, when we want a video game, we just press buy on the PlayStation and we buy it. And that is the end of the story. So I think the place to start is OK. A lot of people thought this company was mayor. And then this guy, I think the CEO of Chewy (CHWY), stop me if I’m wrong. He gets interested in the company and involved founder.

S3: Yeah, the founder of Chewy who exited Chewy too early. And he was like, no, I can turn this retailer around. And then most importantly for our story, this isn’t just a corporate turnaround story. This is also a financial story, because if GameStop went from being a struggling retailer. To being a slightly less struggling retailer, honestly, no one would care. The reason people care is the roaring kitty got involved and Anna is here to tell us who roaring kitty.

S6: Let me just finish let me just finish for a second, because I feel like there is a little confusion and people think like while that Reddit just jumped on the stock for no reason. And I think the kernel of the reason was a few people saw some potential here. And from that, things went like wild.

S3: Exactly. I would have thought that it wasn’t that people thought that it wasn’t a $4 stock and it should be like a $20 stock.

S1: Yes, perhaps. Although I think the bigger reason was the fact that it was one of the most heavily shorted stocks and it was a relatively small company that is incredibly heavily shorted, which makes it a big fat target so that if you want to engage in a short squeeze, you do that company. I think that’s the main reason why this company was targeted.

S3: I want to go back to what Emily was saying and agree with her that that wasn’t the reason back in the summer, that that has certainly been the narrative for the past few weeks. But if you go back to when Roaring Kitty first put on this trade, in fact, he started buying the stock back in twenty nineteen, like this was a very long Yes. Tooth overnight success for him. And back in twenty nineteen, this was not you did not have short interest of one hundred and fifty percent of the free float then that kind of thing. There was a turnaround narrative there. His name on Reddit is deep fucking value. He considers himself to be a value investor. And while he did certainly become a short squeeze and the financialization of the whole thing and it became this crazy bet and valuations got completely divorced from reality, eventually the little grain of sand that turned into the pearl of crazy was actually a value play.

S1: I think whether or not one individual or two or a hundred individual investors decided that, hey, maybe this stock is worth slightly more than we think it is, is not the real story here. Although Wall Street Bets is notorious for engaging in strategies to pump up or push down, prices usually push them up. So I think that the much larger story and the reason we’re talking about this and the reason that this guy is doing so well is not because this company really turn themselves around and has some new board members. It’s because they figured out a whole in market structure that they could exploit. Yeah.

S6: So let’s talk about that, because I think that the start of the story was a little glimmer of interest or whatever. But the real the story and the reason why it went viral was because of Wall Street bets and the short squeeze and the idea that this band of rogue traders or whatever could team up and like, screw over the short sellers. So I feel like Anna should explain that.

S3: I think we’re jumping from part one to three. Right. But one is like this, a cheap, struggling retailer. Part three is there’s a short squeeze in between. You have part two, which is a bunch of large hedge funds. Most prominent among them, this one called Melvin Capital, decide to put large short positions on the stock. So, Annette, explain part two to me, explain what they thought they were doing and why they did it.

S1: So any short seller you’re looking at a company or saying, I think this company is overvalued or I think this company, I think the value of this company is going to decrease. That is why I’m putting on a short position. You’re also likely you’re going to be using leverage, so you’re going to amplify the return that you can make. Right. And in a company like this where clearly all of the fundamentals are not particularly good. It is not unreasonable that this would be a target for shorts.

S3: Let’s stop there. Let me bring hope and this is a bet that is very close, I think, in my mind, to the efficient markets hypothesis. What you have is a bunch of hedge funds who are believers on some deep fundamental level that there is like some truth about how much the company is worth in the real world and that the financial value of that company is bound to converge on that truth at some point, and that when it does, they will make money. I mean, it seems almost pure in that. Is it the short selling hedge funds? Who are the like the the pure naive?

S5: You know, I think what you said and short sellers would agree with you, hedge funds who do this would agree with you that they play a role in making sure markets are efficient and that to every very bullish story, there is another interpretation of where certain number where the future of a company could go. So if you look at it away from just the stock market in quotes and you look at just what the company is going through, that will the word you use fundamental is how people on Wall Street talk about this. The fact is that people are not going to malls. They’re buying video games online. There are cloud services that provide this. So the future of the company is not rosy. So these companies, like hedge hedge funds are coming in. They know that that is the fundamental story and they think that then the company ultimately will not be worth very much. And so they’re putting their bet on this. And this is also something that retail investors understand. I have spent the past probably thirty six hours on clubhouse. And if you don’t know what clubhouses it is, the twenty, twenty one version of public AOL chat rooms, all audio based. And I have been listening to dozens of retail investors, probably hundreds at this point nonstop, six, seven hours a day. Talk about the fundamental lack of understanding that the quote unquote financial media have and why does that sound familiar about them? They’re not a monolith. People are actually looking at these companies just as closely as maybe some of these hedge funds in a different way. They don’t have access to the same platforms, but they see the same fundamental story. And the reason why the story is also incredibly viral is because there are almost no wrong takes on what’s going on here. Almost everyone can understand some aspect of the story, whether it’s what the company is, GameStop, whether it’s on Reddit, whether it’s about financials. So everyone can talk about this. And that’s what also makes it incredibly viral. I’m getting away from your question. But yes, essentially, Felix, this is about people who feel like there’s a different story to a company and they’re playing a role to make this market around the stock efficient.

S1: Kind of jumping off that a little bit because we haven’t maybe I’m sure we will talk about this a lot more. But, you know, part of the reason, as this story has also become so viral is because there is frequently this idea that short sellers are doing something bad, that sticking it to short sellers is somehow a good thing, which is I think I imagine most of us will probably agree is a fairly ridiculous argument, because you need people to go short. And actually in this market where you have so many forces pushing asset prices very, very high, we really definitely need short sellers.

S3: So I don’t understand that because what we seem to have learned over the past couple of months, but certainly the past couple of weeks is the short selling is a mechanism whereby stocks go up. It’s not a mechanism whereby stocks go down. So we just saw on Friday that Citron Capital, which is one of the big short sellers, announced that it was no longer going to put out any YouTube videos explaining its short thesis. Once upon a time, if a big short seller put out a YouTube video saying, this is why we think a company is bad and this is why we think it’s going down, that would encourage people, other investors to say, oh, yeah, I think you’re right, I’m going to put on short bets as well. And it would cause the stock to go down. Now, that’s been flipped on its head. And if you put out a YouTube video saying I think the stock is going down, then I’m sure that’s just going to encourage a whole bunch of people to buy it and try and squeeze you. And so in that sense, the existence of short selling does not make markets more efficient. It makes markets less efficient. All it does is it creates short squeezes and it creates crazy things like game stock trading at four hundred and eighty dollars a share, which I think everyone can agree is far more than any conceivable fundamental value.

S1: We’ve had short sellers basically since the 17. Century, I don’t think because we’ve had activity in the last three weeks that we will completely change the function of people talking down stocks of saying like this company is a lousy company. Now, is it likely that short sellers are going to react to what has happened and are going to use techniques to take advantage of the retail investors and what they assume they’re going to do? Yeah, I’m sure they will, because that tends to be how markets work. But you certainly need forces in markets on both sides putting out information. And, yes, no one here is naive enough to think that, especially in this market right now, that we’re getting fantastic price discovery and many different types of assets. But that doesn’t mean we should discourage this type of activity. That is saying this lousy companies, a lousy company. Yeah, we need that.

S3: I haven’t seen a lot of people saying that we should discourage short selling, but I have seen a lot of people saying that if gazillion hedge fund managers like Gabe Plotkin, who just dropped forty four million dollars in a pair of houses in Miami, because why not? If he loses a bunch of money, no one’s really shedding any tears for him. Like, that’s not a sad outcome. That’s not a bad outcome. And if a bunch of relatively small traders on Reddit wind up getting a large chunk of that multibillion dollar loss, I mean, that’s real Robinhood, right? That’s taking from the rich and giving to the much less rich. It’s a redistribution of wealth in the right direction. And in a world where financial markets generally exacerbate inequality, this seems to be one of the few stories in financial markets where inequality has gone the other way and we are taking from the gazillions and giving to the poorer first.

S6: We don’t really know who these dudes are on Reddit, do we? I mean, I think of friend of the pod, Ben Walsh has been posting like, yes, we should definitely be trusting these anonymous people named Roaring Khidir whatever, telling us they’ve made twenty million dollars so they can pay off their pets. Doctor bills like we don’t fully know who they are. I would say I would say that and I’m a little worried. There have been so many takes and most of them, like Hopa saying, are good and justified. But there have been mistakes that are like this is just men with nothing to do spanning. There’s government like Leon Cooperman, a billionaire was like, this is just men spending their checks from the government sitting around, which kind of feeds into the thesis of like this is like the poor getting their revenge on the rich. I just feel like that’s too simplistic a narrative. We don’t know enough about these people. I definitely don’t want to see people blaming stimulus checks on this GameStop situation, which I could see someone doing someone who is against stimulus checks.

S3: But stimulus missing ten days, man. Those are the me ten days, right? Whenever you get a huge amount of volatility in a stock like we’ve seen with GameStop, there are big players on both sides. There’s no doubt about that. I’m sure there are massive hedge funds going along, the massive hedge funds going short, the massive hedge funds that are just trying to go long volatility. And if Gabe Plotkin lost a billion dollars, there’s probably some secret hedge fund manager somewhere else who made a billion dollars. But by the same token, I don’t think we can write off. All of Reddit is like fake sock puppets, which are actually sophisticated and, you know, rich people like we know. But that doesn’t we know who Lauren Kitty is. We know that he made a lot of money. He’s a real person. There’s a profile of him in The Wall Street Journal. And in terms of the what people are saying that the, you know, three or four million people in that sub Reddit now talking about stimulus, the stimulus checks, talking about ten days, the profits they’re making, which they refer to as ten days after chicken tenders, which I think it’s the one of the loveliest parts of this whole story. There is like a purity. And the goodness to it is actually really hard to find in most Wall Street stories.

S1: I disagree. I know this is not a popular take like look. Yes. No one is shedding a tear for one individual hedge fund who didn’t properly factor how much risk he was actually taking. Like no one’s going to shed a tear for that. Yes, it is hypocritical when you have a lot of Wall Street players who may have done really bad things before the financial crisis now coming out and complaining about market manipulation. Again, all of those things are true. However, it doesn’t change the fact that the activity that enabled these types of profits is manipulating prices, which is, if you like, care about markets functioning well is is not a good thing. And ultimately, especially if it really starts to discourage people from taking short bets, all that’s going to do is increase income inequality because it’s just going to pump up asset prices further. Like this isn’t solving. No, not really. Nobody saying this is solving income inequality, but this isn’t even helping income inequality. All of this is doing is. One more thing to make markets less efficient for no good outcome.

S6: One thing Matt Levine said, and I assume everyone is reading Malawian because but one thing that he said today was just like hedge fund type short seller types. These guys, like spend their days messing with each other and that’s how markets usually work anyway. It’s just that they don’t like this new crop of people doing the messaging. It’s not that simple, efficient market you’re looking to save.

S3: Exactly. So Matt Levine had this wonderful story about Phil Phalcon, who’s like one of the great sort of moustache twirling villains of the hedge fund world, doing basically exactly what the Wall Street crowd was doing or the GameStop lungs were doing. But in a just an even more egregious and sort of like, fuck you, efficient markets kind of way. And on some level, it’s just like, yeah, that’s what happens in markets. That’s glorious. And the idea that, like, it was fine just so long as the likes of Phil Phalcon were doing it. But now we should get worried about market efficiency because Wall Street is doing it. That seems weird. And I think that’s the thing that Elizabeth Warren is coming out and saying, like, I’m sorry, like now is not the time to start worrying about market efficiency. The time to start worrying about mass market efficiency was when you had all of the hedge fund managers doing it and everyone else is left out in the cold.

S1: Yeah, yes. Of course. If you have large institutional investors doing things to manipulate share prices, that is something that should be regulated. Obviously, like most reasonable people think that, yes, there’s always going to be some craziness in stock markets. And I think that’s what Matt Levine was saying. And yes, there’s always some ridiculousness and that will always be it. But when you have extremely public instances of market manipulation, it is a really bad look. If the regulators just sit back and say, like, OK, who cares?

S5: I want to jump in and talk about the word manipulation, because I think it’s a very triggering word right now, depending on which form, in which which story, reading the people that I’ve been listening to and that are sometimes posting in these forums. And I don’t think they’re always the same audience, the same people. They look at what these hedge funds are doing as manipulation as well of their money. And they understand that there is a completely different customer base that these hedge funds serve, that they may only have seven clients who are all billionaires. And, you know, there are tens of millions of them with their fifteen hundred dollar accounts investing. And they see that they are being manipulated because there is this clubhouse, to use the pun and extend it over there of very entrenched investors who have been gaming the market for a while. And one woman when I had opened it up to this group yesterday said, I don’t even care if I’m going to make money or lose money here. I just I just want to stick it to the man. Now, that’s just one person. There are other retail investors who don’t feel that way. Exactly. But but there is an aspect of that where they think that they’re now finally able to speak the same language because of a platform like Robin Hood and also play the rules to their favor, even if it’s just for a little bit. I think there are other implications of this down the line and some other folks are brought up. Well, what about nations getting into this nation, states, countries who might want to manipulate the market? So I think it opens the door. It shows what else is possible and where it could go in a bad way and in a larger sense.

S3: OK, so expand on that a little bit. What is the downside of as you say, it’s a very charged term, market manipulation, and it’s also a kind of quasi legalistic term, which kind of implies securities fraud and being illegal. And I don’t think I honestly don’t think there’s a case to be made that what, like Warren Kitty was doing was illegal market manipulation. So let’s let’s not do this sort of like legal analysis here. But what the sort of. Downside of like if you play this out and you’re like, OK, so Russia’s is going to come in and start manipulating BlackBerry’s stock or something like, what’s the bad outcome of that?

S5: That’s exactly right. I mean, that could be in somebody else said this. So I’m just paraphrasing from him sort of a phase three of this. So if you look at the tick tock story from last year where teens apparently took to tick tock and bought all of these tickets to the convention, the Republican convention, and no one showed up, if you apply that to any group that can mobilize around a big event, you know, a big stock, let’s say even in the future, that’s where I think some of these regulars might be more concerned and have to figure out is there a way to stop that, especially because lots are still a problem right now. You know, Wall Street bets and some of these other forms. I mean, you can sit here and you can see that they’re real people. But what if there are other ways where this phenomenon spreads to in very opaque level? And I think that’s what people are afraid of.

S3: I guess what I’m trying to ask. I understand what you’re saying is the regulators will be concerned. We might not be able to see what’s going on. That could be some kind of market manipulation. But beneath all of that, if that happens, what would be bad? Why would it be bad if that happened?

S5: It could cause a major disruption to the markets. It could cause a collapse. And I think that’s the biggest concern.

S3: So just to be clear, I just want to take this slow here, like not here. Like right now we’re just talking a bunch of talking about a relative handful of handful of very small stocks. But in theory, if it can happen to small stocks, it can happen to big stocks. If it happens to big stocks, they can go up. If they can go up, they can go down. That could be a market crash or market crash is bad.

S5: Right. And people have talked about Apple and Tesla in these rooms as well. They said, hey, if we can do this with GameStop, why not target these other companies next? And I think that is some of the chatter that should and maybe is what concerns these regulators or, you know, people who feel like these are, quote unquote, bad guys, they’re market manipulators.

S1: Yeah. I mean, I’d say that we’re in a very different universe right now in terms of trading. While we’ve certainly had bubbles in the past, while we’ve certainly had bubbles driven by day traders in the past because of how technology has changed, because of how no fee trading has changed, because of how central bank money flooding the financial systems has changed. Because of all of these things, we are in an environment we have never seen before, and so we don’t fully know what the result can be. And while I certainly don’t think that GameStop is going to lead in itself to the destruction of the markets, and I think if GameStop went to zero, it wouldn’t really matter. It does suggest that there are larger questions here. Like this is not the first thing we have brought up in the last year about something in the market that just doesn’t seem right, that markets don’t seem to be factoring in any type of fundamentals, that markets don’t seem to be allocating capital properly. The markets don’t seem to be engaging in price discovery. And markets are an extremely important part of the financial system. We are in a very, very, very financial ised economy. We have shifted risk from banks to the capital markets, which is good. But that also means that the capital markets fund a lot of companies. The idea that there’s no risk to hurting trust in these markets, to potentially causing massive distortions that can cause a tremendous amount of volatility, that can then factor into other types of trading strategies. We just don’t know. And I think it makes perfect sense that regulators will say we’re in a new world. We need to really probably figure out rules to mitigate some of the biggest risks.

S3: And it seems to me that what we’re really looking at here is a function of zero interest rates with zero interest rates. Everything can be a good bet, like if it could take 20 years to pay off. But because zero interest rates, your discounting at zero percent. So it’s still worth a fortune today to zero interest rates mean much more liquidity, much more money. People just coming in and betting on just about anything. And most importantly, zero interest rates mean the cost of shorting goes to zero. It doesn’t cost you anything to short the stock. It used to be that shorting was expensive. Now it’s much, much cheaper. And so all of these things encourage more speculation, more trading and more volatility. And I was just talking to a friend this morning about how free markets, people love to talk about free markets, free markets, so incredibly volatile things. If you look at what markets used to do, you know, in the 17th century or 18th century or something, they would go all over the place. Markets left to their own devices look very similar to what we’re seeing with GameStop. GameStop looks like what we saw with tulip bulbs in Poland, right, so free markets are not like orderly places where you get efficient price discovery. We have got used to this idea. The markets can and should be orderly places where you get efficient price discovery and we’ve kind of normalized is this is this thing that we need. And it’s true that it’s the job of regulators to try to encourage that, but especially when money becomes so cheap that it’s almost free. I think the sort of animal spirits and the crazy volatility and the natural nature of free markets to just go all over the place and go crazy starts revealing itself.

S1: Yeah, I mean, I think that most reasonable people think that you shouldn’t have completely unregulated markets, that in order for markets to function properly, you actually do need some guardrails.

S3: And I. Would that be a financial transactions tax? I mean, this is the thing that everyone’s been sort of talking about in at least the axios slag is like, fine, there’s a problem here. Volatility is too high. There’s a problem with this. There’s a problem with that. There’s so much concern trolling going on, especially on CNBC like that. There’s no end to it. Fine. You know, you get all of these statements. Elizabeth Warren and say, what are you going to do about it? And then when you ask that question, what is the actual thing that regulators or lawmakers should do about this, suddenly people go very quiet. They just kind of say, oh, I think we’ll hold a hearing. And the only thing I’ve heard that really seems remotely like an actual policy proposal is a financial transactions tax.

S6: This is not about the financial transaction tax, which seems fine, like the guys on Reddit should pay a tax. It seems fine. My question is, is this the price we pay? I mean, it’s kind of you just said it. This is the price that we’re paying for the zero percent interest rates. Everyone saying, where is the inflation? There’s no inflation. So instead, we’re getting crazy. Volatility in the stock market like this is the downside. It’s the new downside. Everyone’s waiting for, you know, inflation and stuff like that. But instead we’re getting this like wild stock market.

S3: And to be clear, it’s only a downside in some people’s minds. Right. And the thing is the downside and think the inflation markets are important and this is an inefficient market. Therefore, that’s a bad thing. Like it is definitely the case that a lot of people own clubhouse. A lot of people on Reddit don’t think of this as a downside at all. They think if this is an upside, they think of this as a democratization. They think of this as like, hey, I get lots of money in a small amount of time.

S1: They like they think it’s a democratization on the upside, not the downside.

S6: That’s one thing I’d say about the downside. And I don’t know what it is, but the thing that that worries me and keeps me up is that we all have all our money in the stock market to retire on like there’s trillions of dollars there that normal Americans are depending on. And it’s weird to think like the bedrock of your financial future rests in the hands of people who see it as a game to be played like that. That seems like at bottom, like that’s not good. We don’t like that.

S1: That is an excellent point. I think that’s an excellent point, partly because that also affects how governments respond to markets. Is that at a time when you, as you said, that you have so many people who are responsible for their own retirements and thus have their money invested and really primarily have to invest in equities because you are earning any yield on fixed income are really in danger if there is a significant decline in equity values. Right. And so that means the political impact is much, much larger if there is a massive decline in equity values than there may have been in the past when equity didn’t play the same role in people’s lives. And so I do think that’s important because I think that’s another reason why it encourages people to think that markets can never go down, that we will never be able to have a crash.

S3: But I want to come in and take the other side of this, which is that if you’re worried about the risk of people having an incredibly large proportion of their net worth in the stock market and the stock market as a whole being very high, like, that’s a conversation that we have had over the past months and is a thing like people are worried about the stock market as a whole being very high. But the stock market as a whole, as far as I can tell, has barely been affected by this whole GameStop fiasco. Right. The stock market as a whole, it goes up a percent, it goes down two percent. It’s at high levels. If you all you are is a long term investor invested in like a Vanguard target date fund. This entire GameStop thing has not affected you in the slightest. And while it’s totally reasonable to worry about that long term investor in a bank target date fund, I think it’s a real stretch to connect it to the.

S1: Craziness in GameStop, I disagree because game, it’s not GameStop itself, GameStop is one tiny company, it’s what GameStop is symptomatic of. It’s this this idea that markets are becoming far less efficient, that you are having so much frothiness in markets, that you are having all of these disruptions, that you are having regulators having no idea what’s going on and no idea what they should do about it. That is the concern at GameStop itself, what it says about the larger market.

S4: I think it’s important to recognize that there are still a large majority of people out there who don’t have retirement funds in the stock market and who have never had a chance to invest. And GameStop, yes, is a symptom of what’s going on. And if you actually pull back even further from people like you and I who have had the privilege of full time jobs with 401. KS and have had the opportunity to save that, that is a concern from that perspective. And I totally hear you on regulators thinking about that. But I think, again, what the story illustrates is that you’ve got this app that made it possible for people to trade for the very first time for maybe just one share of a stock like GameStop or even one dollar Horschel shares. Yeah, and they really, for the first time, have a taste of what it’s like to be a participant in the market. And they think the feeling and again, it’s not everybody in this Wall Street or these groups that I’m listening to, but for some of them and people who have written about this this week are concerned about these other folks who might get hurt down the line, but they actually have gotten a taste of what that’s like. So to them, they have no concept of the fact that what they’re doing could ultimately hurt other people who have their retirement in the market. And I think that’s really important to bring out here. And one of the frustrations and what’s really driving some of this FSU mentality is because it’s another group of people who have felt left out. And if you listen to them on these clubhouses, if you’re if you’re reading between their lingo on these forums, these are people who really feel hurt. And for the first time, they have a say. Reddit CEO Steve Huffman last night was on clubhouse for an hour and he talked about how, you know, his bottom line was, if you think these guys are idiots and are just a bunch of hooligans, you need to spend some time in these communities to really understand kind of what they’re going through and what they’re doing. And so I just want to bring that context in, because I think most of us who write for financial publications are writing for an audience who are doing this professionally, and that is our audience. But what’s happening here is so much larger because it is, again, the first time that people who have never been able to do this are doing this and they’re exercising and they’re practicing in their learning.

S6: That’s really a great point.

S3: So that’s a perfect segue way. Hope into the second part of this story, which is Robin Hood and the crazy that happened on Thursday when just before the market opened, Robin Hood announced and it wasn’t the only one, but it was definitely the most high profile one, that it wouldn’t allow people to enter into new positions in GameStop. If you had a position, you could close it out, but you wouldn’t be able to enter into a new position at GameStop and AMC and cost headphones and I think a couple of others and the unanimous and broad anger and ire that was. Focused on Robin Hood as a result of this decision was something to behold across every single platform, across politics, across Reddit and. Robin Hood basically spent all day not explaining why they had done this, and then after the markets closed or just before the markets froze, they were like, yeah, basically. It wasn’t the SEC telling us to do it. It wasn’t the White House telling us to do it. It wasn’t Sequoia Capital telling us today. It wasn’t the Citadel telling us to do it. It wasn’t us trying to paternalistically protect our investors from potential losses, which is what a bunch of people also thought it was this really boring technical reason about how they needed to post a bunch of collateral, the DTC, because trades take two days to settle and there’s settlement risk in their central clearing counterparty risk, and they didn’t have the collateral and so they had to prevent a bunch of trading. And this to me is symptomatic of the fever that has landed upon this whole story. The GameStop story is it’s been such a huge media story that everyone started jumping to conclusions. Everyone started getting incredibly angry. Everyone had conspiracy theories. And, you know, we can talk a little bit, if you want, about how Robin Hood just wasn’t set up for the kind of volatility that it basically helped to create. But is this really just a sign, Emily, that we all need to just take a little bit of a breather and dear got this weekend should have come like three days ago. We all just need to do a sort of 10 minute head space tutorial here.

S6: I mean, you got to think that part of the reason this has happened is because Donald Trump left a little bit of a vacuum on the Internet and we’ve been looking for things to fill it. I think for a while it was Bernie Sanders and his men sitting in a chair. And we haven’t seen a lot of that lately because now it’s GameStop. And it’s like I was saying earlier, it’s like one of these stories that is both easy to understand and impossible to understand and endlessly interesting because you can come at it from every angle. Whatever your take is, you can find it in the GameStop story. Like we saw the Marxists come in and say, see, this is what Marx has been saying all along. My colleague Zach Carter was like, this is a Keynes thing. He wrote a whole take on that. It’s really a Minsky thing, I feel. Yeah, like Elizabeth Warren. Of course, she has her talking points. It fit for that. So it’s this Trump vacuum. Plus, the palette of GameStop allows us all to inscribe our own theories. And it’s like a Rorschach test basically for the whole Internet at this.

S3: Do you know anyone whose priors weren’t reinforced by this whole thing? I feel like I might be the only person who changed my mind about anything by watching this whole thing. I did actually change my mind on Wall Street. That’s where I came into this. I wasn’t hugely aware of Wall Street bets before this whole saga blew up. And I did think of Wall Street bets as being a bunch of, like pros pumping up stocks. And now I think I’m much closer to what hope is talking about, that there’s just there’s genuine feeling of being left out. And also it’s just a much nicer community than I thought, the much friendlier to each other. They support each other. And I think, yeah, that’s one of the few things I’ve changed my mind on Hope. I know if you have changed your priors on anything in the past couple of weeks, I’ve been sitting back and just trying to watch everything, Cleide.

S4: I mean, I think it’s just been fascinating to see all aspects of the economy and media, as you said, just try to pick this apart. And yeah, I think everyone here had already mentioned this. But I mean, Robin Hood was not set up to do this. And the CEO was on CNBC close to seven o’clock last night trying to clarify that this was a proactive move, that there were absolutely no phone calls, that the reason for doing what they did was these boring reasons, as you said, Felix. And ultimately, they still stand for democratizing, you know, investing.

S3: Do you think that Robin Hood, like they claim to be a mission driven company, they claim to be all for the democratization of finance. They claim that all of this activity, you know, with people buying one dollars worth of GameStop share is good for democracy and good for finance and markets. Do you agree with that? Or do you think they are a malign force that’s just creating chaos and volatility?

S4: I mean, it’s intention versus impact. You can write out all your nice intentions, but the impact is ultimately a factor of how it grows. And it’s not unlike how Facebook set out to connect the World and then ended up being this bomb of misinformation. And I think Robin Hood, similarly, you know, there is no free lunch here either. I mean, I think people also realize that you get to trade on Robin Hood for free. But the trade off is that your data is also being trickled out to the same exact hedge funds. You’re trying to stick it to people. Understand. And that’s why these conspiracy theories are also bubbling up, because they get that Robin Hood also gives. Business to the same people that are shorting the stocks that the investors and Robinhood are looking at, it’s trying to level out the playing field in some way of investing information. But at the same time, because Robinhood is still free, there are still things that people with professional trading platforms have that Robin Hood you just don’t have. And so if you’re a retail investor, you can be one of two retail investors. You could be a really good day trader and invest in that, or you’re only trading on Robinhood. And I think that’s also where the question of democratization comes from is the access is there, but it’s still there are tiers of access. So it’s a nice intent on their part. But the impact is going to play out very differently depending on where you started from in the game.

S1: Yeah, and I would also say that, you know, I think we’ve said this a million times on Slate money that the worst way to make money long term in investing is to be picking individual stocks and doing a lot of active trading. So this is very good for well, in theory, it’s very good for Robinhood as a company if you have people engaging in lots and lots and lots of active trading. But long term, there is essentially zero evidence that that actually helps people long term.

S3: Right. This is what I have been trying to ask Robin Hood if that if you’re a mission driven company, are your interests aligned with the interests of your users? And in the long term, it is good for Robin Hood to have lots of individuals trading a lot, trading every day, getting notifications on their phone, jumping in and out of options because Robin Hood makes much more money from options trading than it does in stock trading. So it’s clear where Robin Hood’s interest lies. It’s in maximizing trading activity. It’s also clear in the long term where its users interest lives, which is in not trading and just doing boring things and investing should be boring. And so it seems to me that’s the big paradox of Robin Hood or that’s why it rings false when they call themselves a mission driven company, because they just don’t have their interests aligned with those of their users. Their users may make lots of money on GameStop in the short term, but the short term is fun right now. And Robin Hood wants to be around forever. And there’s no way that these kind of like fund spikes in stocks is going to be a permanent part of how people make money or one of you.

S6: Can you just remind me how Robin Hood makes money again? I know we’ve talked about it before, but it does not stick in my head.

S3: Robin Hood makes money by something called payment for order flow, which basically means that the stock market has a ticker. The ticker at any given millisecond has what’s known as NAWBO national best bid offer. There’s a little gap between the best price in the market to buy in, the best price in the market to sell. And Robin Hood feeds, all of it sort of flow to, you know, high frequency traders like Knight and Citadel and Virtue. And they basically take that spread and they pay Robin Hood for the privilege of being able to take that spread. It’s you know, I don’t think the Robin Hood traders are being ripped off by the HFT, but that’s how Robin Hood makes its money. So and that’s the only way Robin Hood makes his money. If I go into Robin Hood on day one and put a thousand dollars into an S&P 500 index fund and then sit on it for thirty five years and do nothing, Robin Hood will make no money off me. That’s a good investment strategy. But it’s a terrible way from Robin Hood to make money and they don’t want to incentivize that.

S6: So have have the high frequency traders been cleaning up the past week because volatility has been so high and so many people are trading in and out of their stocks like are they the real winners? Not Wall Street bets?

S1: Most likely. Most likely. The middle men always wait, unlike the people who are writing all of these calls. And a lot of them will probably end up expiring, you know, like the people who are collecting all these premiums, like, yeah, at the end of the day, they’re probably going to be the real winners, that there has been a little bit of confusion about two different Citadel’s, the Citadel Investments and the Citadel Securities.

S3: And one of them is like the high frequency trader that Robin Hood sends, it’s sort of flow to. And the other one is basically the hedge fund that invested in Melvin Capital. And there’s a lot of conspiracy theories. They’re both largely owned by Ken Griffin. But it’s kind of important not to confuse the two too much. It is probably a safe assumption that the HFT have made an absolute fortune in the past couple of weeks.

S5: And thank you for clarifying that, because that that was I can conflated to that as well. I mean, what you have one name is two different companies. It’s obviously going to. But but I mean, that’s also where the conspiracy theories are coming from. And it’s also a symptom of all the misinformation that’s out there around what’s happening and why people are are so angry. And I mean, these investors also understand that this is how, again, Robin Hood makes money. And so even if they could stick it to the man and, you know. One tree, just for a little while, it’s almost worth it for them.

S1: Yeah, the one thing I do find it interesting in the response yesterday was that there seems to be this glee that a lot of the smaller traders had in taking advantage of certain weaknesses in market structure. The things like the way buying options can force the market maker to buy shares and all of that gammer squeezes and all of that kind of squeezes. Yeah, but then when it was the other side and then it when it was this like, boring part of markets, which is that, well, you have to clear your trades and you have net capital requirements. And then when that reality was there, they were like, what? We have our constitutional right to you know, there was a little part of that had to laugh about. It’s like there’s this idea that there are no consequences. It’s like, no, no, no. Like, yes, this may have been a loophole, but market structure gets you every time.

S3: I mean, I do want to just mention the market structure thing because it’s a fun, little nerdy point. One of the things that happened after the financial crisis is we had a lot of deep regulatory reforms to the way that markets were structured because people didn’t want banks blowing up and financial institutions blowing up and bringing the entire financial system down with them, Lehman Brothers. And so what you wound up with was a lot of the risk getting transferred to what’s known as these central clearing counter parties, things like Dixy, like basically the stock markets where you do the trading, because we still have a surprisingly old fashioned system where when you buy a stock, you don’t actually pay for it until two days later. And so there’s a risk there that you buy the stock on one day and then you won’t actually pay for it when you have to settle that trade through days later. And that risk is a real risk, which is all concentrated in this company that no one’s ever heard of, called DTC. And DTC requires all of the brokers and the broker dealers, people like Apex Clearing and Robinhood to deposit a bunch of money with them to make sure that these things will always settle. And that was the thing that wound up causing the trading halts and that kind of stuff. It’s the market working in exactly the way that it was supposed to work under Dodd-Frank after the financial crisis. It’s these institutions which no one’s ever heard of, like Dick saying there is too much risk going on here. So we are going to require higher capital requirements and we are going to like d risk the system. It was not regulators. It was not the White House, it was not Citadel. It was the one entity in the middle of it all in the middle of the spiderweb, just making sure that they were staying on top of the risk situation.

S6: Which is funny, then, for Elizabeth Warren to be like, this is terrible when it’s kind of the thing she’s railing against.

S3: It’s kind of Dodd-Frank, which if you ask what she wanted back in 2008 and 2009, this is kind of what she wanted anyway. I think we could talk about this for at least another four hours, but we don’t want to do that because we have day jobs. So I think maybe we should just have a numbers round. Hope, since you’re the guest. Did you bring a number?

S5: This week I brought a number. It’s not a great number, but it’s a number. This number doesn’t tell a great story, I should say. My number is forty eight percent of the Asian men who are unemployed. Forty eight percent have been out of work for 27 weeks or longer. If you’re breaking it down by race, ethnicity, folks who are in the Asian diaspora, most of them have been out of work longer than any other. So 40 percent is Asian men and Asian women. Second to that. Forty four percent. And it’s important because the unemployment story is obviously not going away. And the longer that you are unemployed, the harder it will be for you to get back into the workforce. So this is, I don’t think often talked about that. The Asian community is actually really hard hit. They have been the slowest to recover from the unemployment crisis.

S6: Wow. Why do you think that is?

S5: I think many of them work in potentially Asian restaurants. You know, I mean, around the country, that business has been decimated by the pandemic. And I think that is one large group of the unemployment story for them. And it could also be if you look at the quote unquote model, minority myth, you know, if they’re performing high enough, maybe they got caught up in the layoffs. And if you’re almost too senior, you can’t find jobs that may now be filled by people who can do this at an entry level position. So I think it’s being squeezed by by that as well.

S3: Well, Emily, you have a number. I have a number.

S6: My number. OK, well, my number is two percent and it’s going to require a little bit of unpacking. OK, the two percent is how much United Way Worldwide wants to charge its local branches in dues now.

S3: And it’s doubled is because of legal fees, because you’ve been all over them and you’re making them like it’s all your fault, isn’t it?

S6: It’s not my fault, Felix, but I’m sure they would like to blame me for it. I talk about this today. I have a story out, some shamelessly plugging my story. But basically United Way worldwide is squeezing its locals at a time of great need in the US. And I feel like this exposes a little bit more of what we talked about when I brought up the story the last time, which is that this is this big, sprawling nonprofit that’s spending too much money on administrative overhead. And when I dug into why did they do this to their locals, it was because they’re trying to update their business model. They made this deal with sales force to create an app. Like so many people, they thought an app could solve all their problems, but it hasn’t.

S3: At least this time. It’s Salesforce is not McKinsey. Normally it’s McKinsey.

S6: Yes. Yeah. And I don’t even know if it’s sales forces fault or United Way’s fault. It just seems like it’s again, and this is something I’ve been thinking about a lot. It’s like because I cover sexual harassment so much, but often sexual harassment is a red flag for just bad management overall. Like if you dig a little deeper and I’m not saying there’s bad management, that is what my reporting has found so far. If you dig a little deeper into these stories, these like me, two stories that only, you know, women are supposed to care about. Underneath that, there is financial mismanagement. There’s people being put in charge of things they’re not as good at as they should be. So I think there’s kind of like this ripe area now where people can go look back at some of the the sexual harassment stories and see some other kind of bad stuff happening or crisis.

S3: And what is your number?

S1: My number is one hundred and fifteen point two, three billion dollars. And that is the amount of emerging market, sovereign and corporate debt that was issued in the first twenty seven days of this year. And that is a new all time record. The previous all time record was last year, but it’s something that’s grown significantly. So, you know, partly I’m saying this because I like to talk about emerging markets, but but also because I think it speaks a little bit to what we’ve been saying, that things seem a little off in capital markets and we have a lot of countries that are really struggling and able to sometimes issue very cheap debt. It suggests that this zero interest world may create some problems down the line.

S3: So my number is ten billion dollars, which is along those lines like do I think I know this happens?

S1: We work back as though we were expecting that was my second number. I literally haven’t run it.

S3: It’s hoped, you know, that we were back story.

S5: I saw it come through yesterday and I just I shook my head. I can’t believe that this has been being brought back from the dead.

S3: We work from the dead people that do. It’s back and everyone is saying they’re going to be valued at ten billion dollars, I’m not sure.

S6: That includes, though, nothing you could do but shake your head.

S3: I really wish that all of you guys listening could see Emily’s face and the way she’s just holding in her hands and say, well, what have you done a podcast on Xbox yet?

S1: Have we done the brings back? Maybe next week? Yeah, early on we had a very, very brief discussion of Theremins.

S3: But we should do a spectacular we should revisit the spark back to Yesler. That’s spectacular. What I did there so far is going public via Spaak. It now looks like we work is going public. MASBACK Yeah, this is its end times nine group nine BuzzFeed slash Huff Post.

S6: There are rumors I don’t know anything insider about this, but there are rumors.

S3: And the thing that I’m monitoring pretty soon Slate money will go public via spec so you can all buy stock in slate money. But until that point, we’re just going to have to leave it here for this week. Hope King, thank you so much for joining us. It’s been awesome having you on the show.

S4: Thank you for having me. It was really, really fun.

S3: Thanks, all of you guys, for listening and for writing in and telling us to talk about GameStop. I hope that we covered a bunch of it. Oh, my God. I can’t believe we didn’t even talk about AMC. There’s so much more to this than we do. AMC in the blue could do it. So I think we should talk about this on the slate. Plus, thank you, Jasmine Molly, for producing this hit show. Thank you for giving us all of the lovely ratings that you give us on Apple podcast.

S2: We will be back next week on Slate Money, but do you hang around the full slate plus member because we have more of hope king for you.

S3: So I wanted to do a sleepless segment about AMC, because this is the one company of all of the meme stocks out there that has been AMC, that’s been GameStop, that’s been Tootsie Roll, that’s been Bed, Bath and Beyond. There’s there’s a whole list of them. But AMC is really interesting to me because it looks like it’s really benefited from all of this. It converted 700 million dollars of debt into equity, crazy prices. It raised another five hundred million dollars of equity. This struggling movie theater chain that, you know, was very close to going bankrupt now looks like it has all the cash it needs and is actually in a pretty good financial position just because of Wall Street bets. How awesome is that?

S6: I did again, Matt Levine saying that it’s unethical for these companies to announce if this is true. I’m not sure I agree to leverage their outrageous inflated stock price to get more cash for themselves. I think he said it was unethical. What did he say? Well, you tell me what he said, Felix. He just gets sketchy.

S3: I think it’s I think it’s awesome. I think it’s great when Tesla does it. I think it’s great when AMC does it. It’s taking crazy fictional world financial ised gambling money and turning it into real world investment. Now, at least you’ve delivered the company so it has a chance of surviving. The reason why it was going bankrupt was not because it’s a fundamentally bad company so much as it was because it just had so much debt. And now that that debt has been converted to equity has a much higher chance of survival. Hope is nodding along.

S5: I agree.

S4: I mean, it’s very unorthodox the way that they are coming back, but I guess innovative.

S6: I don’t think AMC has much of a future. I’m just going to say that I’m going to I’m going to go out and short them.

S5: I won’t look the same. I don’t I mean, I think maybe when we all come out of our homes will be rushing to do these things, but it’ll look very, very different.

S3: Maybe the pandemic is going to change things, though. We’re all so sick of watching movies on our laptops that maybe we actually want to get out into the world and see movies on TV.

S6: I feel like I never want to see a movie again.

S3: I will find out. Sleepless folks. If you are long or short, AMC, let us know and we will see which side is more popular. Thanks for listening. We do appreciate all of you sleepless folks a lot.