Robinhood App Exposes Hedge Funds And Commits Suicide
Robinhood App Exposes Hedge Funds And Commits Suicide
The Robinhood App is all in the news. The app has been used by young traders to build portfolios through brokerage fee free trades. The app’s motto is “We’re on a mission to democratize finance for all.” Then the GameStop short squeeze happened and the hedge fund elites were exposed and Robinhood committed suicide.
Most of us who have savings and retirement accounts are in indexed funds. Our funds follow closely along with the returns of the Russell 2000, Nasdaq or S&P. We want our money as safe as possible. But, young folks, who are not risk adverse and can afford to start again, may choose to invest in hedge funds to get higher returns on their investments.
Hedge funds need managers. If Wall Street bankers are considered Masters of the Universe, hedge fund managers are Alpha Masters. Yes, there is a hierarchy.
The Robinhood App was founded in 2014 by former Stanford University roommates and 78% of the app users are under the age of 35. They like to invest in brands they know. Which brings us to GameStop.
I haven’t been in GameStop in ages and didn’t even know it existed anymore. When my son was a teenager and I was in my early gamer days, we bought hard copies of games the day they came out. Apparently, some people still do.
Reddit users found out that hedge fund managers were selling stocks in GameStop, Blackberry and AMC movie theaters short. When you sell stocks short, you are betting that the stock price is going to go down when you “borrow” the stocks. The Reddit users started buying the stocks, driving the stock price higher and putting a short squeeze on the hedge fund managers. The hedge fund managers were unhappy. This does not happen to the Alpha Masters of the Universe. They don’t get squeezed. They squeeze everyone else. They were not happy:
Short sellers betting against mall retailer GameStop have lost $5.05 billion mark-to-market in 2021, according to a note published yesterday by S3 Partners when the stock was 16% higher in intraday trading.1 Up over 600% since the start of the year on a surge of retail investor interest and resulting short squeezes, GameStop closed up 93% yesterday and is set to continue its mind-bending run higher today.
One of the biggest GameStop short seller “victims” is Melvin Capital, a hedge fund that started the year with $12.5 billion in AUM and lost almost 30% through Friday last week, according to The Wall Street Journal.2 It announced an emergency infusion of $2.75 billion from fellow hedge funds Citadel and Point72 on Jan. 25, and told CNBC today that it closed out its short position in GameStop on Tuesday afternoon.
How dare these little day traders beat the Alphas. Just like Donald Trump exposed the rigged system in D.C., the Reddit kids exposed the rigged system in investing. The Alphas whined and cried and stomped their Gucci’s. Starting January 27, Robinhood responded to the hedge fund managers by restricting the individual investors ability to make moves.
Senator Elizabeth Warren, who has always claimed to be on the side of the little guy but has never actually been, wants more regulation:
Democratic Sen. Elizabeth Warren of Massachusetts on Thursday called for the Securities and Exchange Commission to do more to deal with “market manipulation,” with her comments coming as the stock market has seen huge moves lately for GameStop GME, -44.29% and other heavily shorted stocks. “The bigger issue for me is the SEC’s inability and unwillingness to deal with market manipulation,” Warren said in a CNBC interview, referring to the Securities and Exchange Commission. “To have a healthy stock market, you’ve got to have a cop on the beat. That should be the SEC. They need to step up and do their job.” Warren also said “there’s going to be an investigation,” and the SEC on Wednesday said it’s monitoring the market’s volatility.
It’s cool when the Alphas manipulate the market, but it’s jank when the average guy does it. Market manipulation for me, but not for thee.
The Robinhood fiasco was picked up by Hot Air:
Robinhood has already been hit with a class action lawsuit over the shutdown:
The lawsuit, filed in the Southern District of New York on Thursday, alleges that the app “purposefully, willfully, and knowingly removing the stock ‘GME’ from its trading platform in the midst of an unprecedented stock rise, thereby deprived [sic] retail investors of the ability to invest in the open-market and manipulating the open-market.”
And, AOC has weighed in. For the first time ever, on the right of a subject:
This is unacceptable.
We now need to know more about @RobinhoodApp’s decision to block retail investors from purchasing stock while hedge funds are freely able to trade the stock as they see fit.
As a member of the Financial Services Cmte, I’d support a hearing if necessary. https://t.co/4Qyrolgzyt
— Alexandria Ocasio-Cortez (@AOC) January 28, 2021
I told you that the Robinhood App committed suicide. Here is why: First, they threw their clients under the bus when they stopped the trading, even temporarily. That will destroy brand loyalty instantly. They crumbled like a decade old fruitcake under the pressure of the hedge fund managers. Dave Portnoy of Barstool Sports explained it best. He speaks at about 15 minutes into the video:
Remember when the Democrats changed the rules for the 2020 election in the middle of the game. That’s exactly what Robinhood did. I doubt the Robinhood creators will go to jail, but they have committed suicide for their brand. Who will ever trust them again?
One more thing, stay away from REITS. Don’t ask.