tv Boom Bust RT December 25, 2021 9:30am-10:01am EST
for we dare to ask in join me as a 1st aid on the alex salmon show. i'll be speaking to guess with the world of politics. sport business, i'm sure business. i'll see you then. mm. this is boom bust the one business show you can't afford to miss on bridge a board. and i'm rachel levins in washington coming up today. we bring you at the very special them, but we'll take you inside the world of retail training. where will it for several aspects of the new movement to democratize training for the individual investor. c then we'll take you through some of the latest developments in the sector from mean stock to regulation and how average traders are shaping market. got a lot to get through today. let's dive right in.
and we leave the program with robin hood's 1st quarterly earnings report since going public, the retail trading app that has become increasingly popular over the last year. so it's revenue more than double in the 2nd quarter of this year. pushed up by increased interest in trading crypto currency on the platform. the company reported revenue of $565000000.00. a jump of more than $100.00. 31 percent from where it was just a year ago. more than half of its transactions based revenue totaling $233000000.00 was due to crypto trades, as more than 60 percent of funded accounts traded the digital asset. now prior to the report being released on wednesday after market close, shares were up just over 6.5 percent, but on thursday sure, spell nearly 10 percent as the company warned 3rd quarter results could be hindered
by a slow down and trading. the rise of the retail trader has taken the country by storm in 2021, with individual investors showing wall street just how much power they can, how when they come together. in fact, earlier this year, the volume of retail training grew so much that it rivaled hedge funds and mutual funds combined. it flourished as many of barragan's works from home and discovered online platforms like robin hood where trading was easy and simple. the movement they created has had a lasting impact as the industry looks to reckon with, with the internet has created and how to respond to it. so joining us now to discuss our boom bust co host bend t i. kristi, let's start with you here. so how have sites like robin hood so dramatically changed the face of retail investment? yeah, the rise of retail has really force wall street to take notice, especially after the catastrophic losses they face when institutional is got
squeezed and started losing billions in names like game, stop and blackberry. so they completely change the landscape of investing, especially after blowing up some of the biggest hedge funds like melvin capital institutional they trained on fundamentals, they look at earnings, catalysts financials and global climate. and all that to determine price points of things and their market cap to look for opportunities. but then retail, they rely more on sentiment and hype and to that. and it's a complete divergence from fundamentals because you look at a name like game software anthy, and any institutional would be like that money short it. but then all the retail band together under their love of game a and saving the movie theaters and movie business and managed to squeeze out all the hedges game, stop rally over 2000 percent this year, which is just unheard of. and now credit suisse estimates that a 3rd of all us market trading this year has been dominated by retail. they've seriously managed to move the markets and make weights and really all thanks to robin hood who wanted to bring trading to the masses by making it a super easy user interface with beautiful u i, u x. and most importantly,
game of fi it making it a social experience because this is the age of social media where everybody tries to gain cloud, whether it's followers are twitter or on instagram or kick talk. this is just another platform to brag about how many followers do you have, how many people you can get to listen to? how big of an influence are you are? and robin hood, basically capitalize and game of fight it by giving these amateur traders a platform to band together and which is more powerful than any hedge fund. now better tell us about these investors, who are they and what makes them unique compared to say, the traditional investor? yeah, there's a, there's a couple of things that are pretty significant here and talking about the median age, right. the median age of these retail investors is 31 years old, which is pretty remarkable. if you consider the fact that this is and i guess you can say this is not your daddy's investing game anymore, right. it's, it's a totally different group of people from the pad, but i think everything chris just laid out, explains why that is right for the 31 year old and younger. these are folks who
want a game of fi system who love the idea of being able to move markets by moving in mass together. if you think about, you know, older investors, they would never have considered a time when you would kind of move markets together by going online 1st discussing what traits to make and then making something go to the moon diamond hands and all the other thing you have to look at is the fact that some of these other entities like apex clearing, takes a look at some of the new folks who have been signed up for accounts in the last year since 2021 over a 1000000 new accounts have been made on these retail brokerage sites for people who are 19 years old, a 1000019 year olds have joined into the system. so it gives you an idea of how young the people are, who are involved in this and the fact that for them it is social. and it's a totally different kind of experience than anything that we've seen in the past. and christie, traditionally it's large institutional investors, not the individual retail investors that we're talking about have had this profound impact on stock prices because they make large trade. but recent reward and
research shows that the new wave of retail traders are making their own impact. tell us about that. yeah, traditionally the large hedge fund, they have these big impacts because they, by huge blocks given their size and us under management. no retail investor can even match a fun. but now as retail traders are banding together in one name and trading individually, all the common goal of propping up a name. it's having a really big impact on stock pricing. and now they're buying stocked with ernie surprises that are positive or negative, the pushing up their prices because usually wanna company misses earnings. it gets a sold off, it gets pulled off with very heavy discrimination in normal market condition. but now, even with a miss retailer, they continue to pile in. and this research paper by wharton used aggregated trading data from robin hood as a proxy to conclude that retail investors react to these earnings announcement itself. and not the actual news contained in the out that whether it was good, whether it was bad, it found that these robin hoodies are more active and buy
a company shares around earnings announcements as a catalyst event with, regardless of whether it's good or bad. and this influence is even more pronounced in smaller firms, where their shares are relatively more expensive to short sell. and while this is good news for retail, it kind of disrupts the market a little bit because short sellers have their place on the market. they're like the shark that keeps a seal population check because short sellers meet out bad companies. we weak companies and they punish them. and then invest in the profits and gaines into growing companies. they have a role in distributing and redistributing and allocating capital where it's needed to put the greatest possible use by rewarding growing companies. and that entire ecosystem has now been disrupted by retailers who only want name to go on. and christy, i thank you both for your time. thank you. thank you. while retail trading has grown in popularity caught the air of wall street and even the united states congress as the means dock crates picked up earlier this year. now
the most prominent means stuck as we just mentioned to gain attention was video, game retailer, game stop it all started as read. it uses on wall street bet sub read. it moved forward with a short squeeze game stop. after the citrus research predicted, the stock price would fall. now the global pandemic had taken a toll on retail as a whole, and game stop was struggling to keep up as digital delivery and video game became more and more popular, the move, it was so severe it pushed the price from just over $17.00 at the start of january to highs of nearly $350.00 by january 27th. now, dow jones market data showed it became so popular $175000000.00 shares in the company were traded on january 25th alone at the end of january read, it's moved on to a short. we the movie theater chain m. c, which was also struggling amid the pandemic us trading values as a whole on the 27th of january when both were taking place. hit new hi, surpassing those scene during the financial crisis of october,
2008. think about that. now since then, we've seen other companies entered the mean stock trend, including many outmoded companies like blackberry, kodak, or even nokia, as well as fast food chain. wendy's, which had a brief moment in the sun because rudders loved to use the term 10 days for chicken tenders. so for more on all of this, let's bring in tobin's met the to see of transformed research and peter shift. he is the chief academy and global strap just at euro pacific capital. thank you both for coming on to join us to talk about what seems silly, but it's a look at those number. that's pretty important. tobin we had you on the show when all this started back in january and you pointed out a short squeezes, nothing new. so it is all about the power being put into the hands of regular people in retail trading. well, it's a couple of things. first up, if peter and i wanted to get together and make a stock go up and we had an agreement, we'd buy x amount of stuff. that would probably be illegal. there's no law here
that says though you can't be on read it or beyond, you know, wa street bags and assemble a team of, you know, 50000 people who want to buy it. and there's no law yet. that says you can't do that. but clearly if you punch the, you know, the good guys are the bad guys to know depending where you're coming from, there's going to be blood and you're going to see, i believe that you can't go in, in a situation where you organize, clearly tell, lies clearly have people on youtube and other things telling also the expansive lies to get for one thing, the people who shorted that stock to get the price rise in the people who did it early are going to make a lot of money. so it's like a ponzi scheme. so it's fun while it last, but you can have price discovery in the stock market if we're going from main stock . that means stock. now to that point, peter, i mean, we can talk about how fun it is for the moment, but do you think retail investors really understand the risk involved with trading?
highly volatile means stocks. most of them probably not. i don't think they have much of a conception of investing at all. you know, the whole thing is, as tobin said, it's a ponzi, it's a pyramid. and by the way, it's nice to be with you tube, but it's better while, but on time, i don't think there's i, i don't think there's a future in mean stop. i think this is the flash, the ad. unfortunately, a lot of people are going to lose a lot of money. a small number of people will make a lot of money, and those are the people that get in early, get the crowd all ginned up and get them to buy. and then get a hold on, but then there's going to be a lot of bag holders because these stocks were being shorted for a reason. they've got flaw business models. maybe they're going out of business. smart money knew enough to bet against these stocks now. got money piled in. they bid them up to these ridiculous prices. there's no way these prices can be sustain like any ponzi scheme or chain letter. you run out
a chain and eventually the bottom is going to drop out and there's going to be a lot of bag holders. left it with this crazy over a done money as a way to describe it. all right, so i the big corporations behind these companies that have been able to take in all of this cash, or they are benefiting from something that was almost started as a joke. oh my gosh. game stop played it perfectly. by issuing almost what $3000000000.00 were the stock when the stock was probably worth $4.00 and it was selling for $385.00. sorry. about a bag holder. when they sold those shares, they sold those to institutions. they didn't sell it visual. so there's a bunch institutions that are sitting with $250.00 game stock stock. that's not trading for $250.00. you know, you listen, this is a motion. this is also sort of a tribal behavior. i've written a few books on travel media behavior, and when you get all together it's fun, you get the dope, i mean, go and you're like, how much put it look,
how much smarter i am and those stupid idiots who are not making money as soon as you identify as a tribe member, then man, if you're subject to the tribe psychology on the up and the down. peter, you know some of the go ahead go ahead. yeah, i said some of the real winners were the bottom holder. there are a bunch of bottle, there's now we're going to get pennies on the dollar when the company went bankrupt . and now they get paid in full. i mean that was the thing is if you remember back in amc in last summer, so about july, august of 2020. there was a lot of talk about amc going bankrupt. obviously they got funding from other folks . but the fact was that was where they were, and this because doc craze happened now. now, peter, we hear about the diamond hands. they were a big deal in the middle of the crazy. the renters you know, wanted you to hold on to stand strong on those stock. i mean, does the bottom eventually drop out or do they just hold it? and amc for some reason continues to be a stock that is way, way over value. both the diamond hands is all part of the height because the people
who want to sell have to make sure that other people don't, because you don't want to be in competition with other sellers. so you have to convince everybody never sell, hold on forever. well, what are you holding onto? it's a company that doesn't have any earnings. it doesn't pay any dividends. you're holding nothing. you're holding air. you're holding hype. the smart money is dumpy, while those people with diamond hand have been conned in the holding on. ever peter just wanted more follow up on that. i mean, i do, we talk about this regularly and i know we tend to talk to you occasionally about crypto, what you're not necessarily a huge believer it, but is there some truth to the idea that something has value if you decide to have value? well, not really, because something actually has to have legitimate value. there is a difference between price and value. warren buffett talks about that price is what you pay, the value is what you get. you can put a price on game stop. you can put a christ on bitcoin as long as somebody is willing to pay,
that's the price and as long as the bins are there and you own whatever it is, you can get out by hitting that bid. but there's a big difference between what something is fundamentally worth and what's some idiot is willing to pay for it. but eventually, the supply of idiots runs out, and all these bubbles collapsed. you just never know how big they're going to get before they do. unfortunately, there's a lot of foolish people out there to be full, but eventually the last school again is old. the bag is going to happen with amc. it's going to happen with the game stop it is going to happen with not only bitcoin, but all these crypto cards. all right, so when do you see this trend continuing as we move forward or will it die out as wall street continue to win? well, if we're, if we're talking to bit kind of crypto, your listeners have to understand that particularly bitcoin is a religion, it's an instrument of faith. it is tribal, digital tribalism. when you say i'm a crypto person, that means those
a theory guys are knucklehead. i feel great about that. it makes me feel great and smart when the things go up and value man, i'm getting dopamine hits like crazy. i love it. that is an addiction. and it's, it's tribal psychology and period if your listeners really want to learn something to look up tribal psychology because everything that happens with bitcoin and with any of the criptos follows the path. there's a leader, it's like you get to go to heaven and religion. well here you get to hang out with you on musk, i mean it's, it's, it's an absolute construct of digital tribalism and digital tribalism. as long as it's giving you the dope, i mean hits the psychological rewards it's, it's got to stay, it's not going anywhere. and you're right there and they're always trying bring in new converts me. it's like there that mot, modern day, harry cursors. i think they're always trying to get into the, into the face. you know, so believers, it's work for more. it's work for mormonism, for like a 150 years. you go out and proselytize, you go out and, you know,
bring new people into the flock. and what people don't understand is if, without that of really religious fervor, there is no crypto. so hovens, smith of transformative research at peter ship of euro pacific capital. thank you both for your time. thank time now for a quick break. but when we come back, we turn to the regulatory side of retail training. as the u. s. government has ramped up as scrutiny companies like robin hood will bring you expert insights on the other side. ah, working room or should in the back. she popped in. she said, well, i'm getting ready to go shopping for christmas and we, we snuck up there was a good buy another shooting another safe part of american life shattered by
violence. the gunman was armed with an a r 15, semi automatic rifle. when the issue comes home, it's time to act when we're silent on this issue, the other side wins by default, lady that lived over there. i was walking one of the jobs, which is why do you where again, when you scale and nothing they take it off of it. i think the people need to take responsibility into their own hands and be prepared if those kinds of weapons were less available. we wouldn't have a lot of the shootings and we certainly wouldn't have the number of deaths ah, one of the major fights chance or murder. good with president bush junior, was in 2008 this so called bucharest company. and that state the united states actually wants it for georgia and ukraine to get them and
nato membership to start the so called membership action plan. and it was germany that stop that and then said, no, no, we don't want to do that because these countries will not add to the stability of nato, which is one of the prerequisites and the nature of treaty with fun as it. then each one i was just my with
water with junior was, wasn't feeling that the appointment was for that if you teach cuz you machine that it did with no, i need to put that amount with power. so on with welcome back. the viral means dot craze. and the response from some online firms to cut off and limit trading was quick to attract attention from congress. earlier this year, the ceo of robin hood was called to testify, where he was asked about whether his company was acting in the interest of the hedge funds that were losing billions of dollars. robin,
the securities put the restrictions in place in an effort to meet increased regulatory deposit requirements, not to help hedge funds. we don't answer to hedge funds. we served the millions of small investors use our platform every day to invest. robin hood was hit with dozens of private lawsuits and it went on to face charges of $70000000.00 over sweeping regulatory allegations at the brokerage, misled customers approved ineligible traders for risky strategies, and didn't supervise technology that locked millions out of trading. as a result, the company's ip filing mentions the numerous class action lawsuit that is currently facing and it also warns of the risk of regulation from the federal government. while robin hood has made its name popular with the promise, 0 commission stock trades its practice ever lying on payment for order flow or sending customers. dr. 3rd party firms has drawn criticism from the fcc. the agency hasn't made any moves to band practice just yet,
but the question of what it can do has created concern that it could change the trend of retail training, as we know it is running as discusses international, regulatory attorney miles edwards miles is great to have you on the show to day and we know that when we look at fcc chairman gary again lar, he has repeatedly pointed to the fact that payment for order flow is illegal and other countries like the u. k. but even though there is some bipartisan support here in the us, do you think that there's enough support for a full ban on the practice? i think there is no support at all for the ban. i mean, if you look at it in the $200.00 to $20.00 election financial services firms contributed over $2000000000.00 to politicians. and most of those people are now currently serving on the house financial services committee. and you know, the financial services firms did it correctly, they gave about 47 percent to republicans and 53 percent to republican. so if it
has to go through these legislative hurdles, it's really going to be dead on arrival. i don't see any sort of support currently for any type of repeal on payment for order flow. and even if they did it, it would still have to go through the scc rule making process as well. so it's a, it's going to be a very long and difficult process to begin with. so i just don't see it happening at all. i am, sorry, miles, i just have to clarify something. you're telling me that big business in the united states donate millions of dollars to congressional members and whole you and so in your bill in hopes that they will follow through with the policy that they want. i'm, i'm absolutely shocked. i know you're shocked and you can ask michael bloomberg, why they contributed a $160000000.00. insist ma the trade organization for financial firms like robin
hood contributed 15000000, so they've always been politically active in this area. so how much power does the fcc happier? even if it doesn't move to ban, as you just mentioned, there is no appetite to do so. are there other ways of looking at moving to limit companies like, like a robin hood or, or td ameritrade that focuses on retail banking or retail trading? absolutely, and i think the easiest way to do it is through finra. so robin hood is not only registered with the securities and exchange commission, they're also a sin, remember, broker dealer, the fcc has complete authority over finra. so i think the c c puts pressure on finra to look at rob and her to look at their practices, to start examining them, and to put pressure on them to change the way that they do business. and more importantly, to change the relationships they have with both their retail and institutional customers. now, when it comes to those lawsuits that have been filed against robin hood by
customers who had their trades limited earlier this year, that companies user agreement requires just needs to be settled in arbitration rather than civil court. so are these lawsuits likely to stick and are these people likely to actually have their day in court? no, because the courts have even recently said, arbitration agreements are binding as long as they are in writing and the customer agrees to it. so what's gonna happen is it's not only arbitration, it's sinner arbitration, which means that you're going to have to go through the finra process, and you're gonna have to appeal to the arbiters, arbitrators, to have it removed to maybe a state or federal court. and that's a very, very difficult situation to be, and because all these claims relate to their accounts with the securities firms, which is a member of finra. so i think that it's a, it's really an up her up uphill battle for these lawsuits to survive and miles before we go quickly here. there's also been
a call for real time settlement, which also could have avoided some of the issues that all of these major retail brokerage firms had. now offices with the c c say would be a massive undertaking. is the move to real time sentiment, something we're likely to see in the future as this becomes more and more popular or not. maybe in a decade when the technology and maybe even employee block chain technology to do it. but right now the technology is not in place for this to occur, and i just want you to know that back in 1969 wall street basically shut down because they couldn't process and settle the trade. they want to technology. now we're back to the point where we cannot get away from trade plus to for settlement unless the technology increases. so i don't see that happening any time soon. excellent. wednesday consider here international regulatory attorney, miles. edwards, thank you for your time. thank you for rachel. i mean, you know,
we've covered a lot of this retail trading boom, and it seems like, you know, there is some criticism we see from both the training side, the regulatory side. but, but the fact is, i mean when you look at the way wall street has always worked for big, institutionalized, it definitely feels nice to see that real every day. people can have an impact on markets and, and be able to trade and make money in the back, gave them a taste of what could happen, even if we don't see a mean stock crazed, quite like that one. they're still the possibility for them to rally together and really cost us as friends and money. and if you're, if you're betting on shorts, you definitely want to be careful in this situation. that's for sure. and that's it . for this time on boone bus catches on portable t v. you can find it at portable dot tv, will see you next time. ah, oil and gas manufacturing, electricity,
telecom transportation from all of them. now have i o t type of infrastructure connected to the internet for clarity, realizing there's disruptive potential so that those countries cons, ignore it because it threatens national security issue. but if we take them to you countries, well actually all of them subscribe to certain doctrines and maintains selling but tell us closes they are a cyber army on behalf of a country that's their job. oh, he came on the test bed for medical and then later recreational marijuana and it started with some things so innocent. i was wanting to socialize. everybody . does it? so why can't i and then it just keeps going and going and going. i'm just gonna do it one. yeah. and then it's, oh, i'm just going to try this website but never do it again because they want my phone
. gosh, once in the morning, i'll be right on inside. okay. and you surround yourself with people who are encouraging you to do it and not just stop. it felt like my life was over, jumped offices all balcony and died. mm. with just for is your media reflection of reality. ah, in the world transformed what will make you feel safer? high selection, whole community, are you going the right way or are you being led somewhere? direct. what is true? what is faith?
in the world corrupted, you need to descend a join us in the depths. or remain in the shallows. with the headline coronado international. huge q is that dwindling us testing centers. as all monochrome sweeps the nation with a daily infection rate, increasing 7 fold and some states. we have a surge when we do need more testing centers. i mean, look at these lines that is, are horrible on it for, you know, most of my friends have to wait on line for hours and hours to get tested. i've had to wait, i'm blind for hours to get tested. and.