Market Takeover: What GME Trading Means for You
Look out Wall Street elite, Main Street millennial investors are taking over the market!
These young investors backed GameStop Corp. (GME), as well as other nostalgic companies like AMC Theaters and BlackBerry.
I do NOT think this was a one-time thing.
And that means a clear path for our America 2.0 stocks!
Millennials clearly have a larger influence than Wall Street realized. But it’s no surprise here.
Today, we’re going to answer your questions about this market takeover. And what it means for you and your portfolio:
Crowdsourcing of a Short Squeeze
Amber Lancaster: Today, Paul is joining us to answer questions regarding recent breakout short squeezes in small-cap meme stocks that have been pushed higher in recent weeks by retail and Main Street investors in a phenomenon known as crowdsourcing of a short squeeze.
Also, I’d like you to stay tuned to see results of a research project I recently conducted via Bloomberg that shows the most shorted U.S. stocks with market caps greater than $1 billion. It’s quite interesting to take a look at.
Paul Mampilly: I believe it’s an historic time. In the 1990s, regular people like you and me started to have access to the stock market.
Before that, it was so expensive. Trades used to cost $25 or $50 in commissions. Who could afford that? It was an exclusive club. In the 1990s you had a series of brokerages like E*Trade come along that allowed anyone to get online and open an account. Before, it was very complicated.
This, I believe, is the next step in this. In other words, social media has now made it all equal. I said on the Iancast, it used to be if you were a company that had a stock that was trading public you had to go bow down to the powers that be. You had to bow down in front of investment banks, analysts, portfolio managers, mutual funds, hedge funds or these family offices.
GameStop, Wall Street Bets, the meme trade, whatever you want to call it, what it really is doing is giving equal access to all the smart people in the world who can do the same kind of analysis that all these folks used to claim only they could do.
This capability was always out there. There was always a ton of smart people who were able to go and work things out, but they were given no access. They were denied access to capital. To start a hedge fund is expensive. To get a job as a portfolio manager or an analyst you have to go to Harvard or Yale to be selected.
However, just about anybody can get on Reddit. Just about anybody can get on Twitter, Snapchat, YouTube or TikTok. So it’s a democratization of ideas and information. It’s essentially free speech. If you believe a stock can go up and you lay out your analysis, people can read it.
If they agree with you, they can choose to invest alongside with you. I took some notes on some of the thing I think this really means. You mentioned that there’s this buying that is now going on that has always happened. I can tell you from working on Wall Street what happens at the Wall Street conferences.
Everybody talks to each other. They ask each other what they are buying. Of course it ends up influencing. There are what are called “key opinion leaders.” Those people are not appointed officially, it’s just people think they are smart and their analysis is right. People end up copying each other.
So much of this is already replicating before that existed, except it was in very exclusive circles. Really Reddit or any of these social media platforms are simply doing what hedge funds, mutual funds and portfolio managers have done for ages. There’s a second element to this which is interesting.
It has to do with what I believe is a takeover, the economy, the markets and the way things are going to keep happening by the millennial generation and gen Z. If you look at the stocks they target, you see a nostalgia effect. It’s a harkening back to their teenager times and their childhood.
Of course they picked GameStop. They all went and bought games at GameStop, they all traded games at GameStop. There’s a huge nostalgia factor. Then look at the second stock that’s part of this meme trade: AMC. It’s theaters, movies and the coming of megaplexes that came out at the time the millennial generation were kids.
They probably spent a lot of time going from one theater to another. Blackberry, Nokia — their first phones. There’s a huge element to this which is reminiscent of other Wall Street activity where activist hedge funds can help old companies survive by injecting capital into them.
It’s kind of what these social media platforms are doing. If you look on Reddit or other places there is a lot of talk about saving AMC. Where Wall Street and the so-called sophisticated investors have targeted this company for demise, you have a group of people saying, “Hey, that’s part of our childhood. That’s part of who we are and we want this company to survive.”
You can see a lot of what is going on is reminiscent of things already being done, except by big money players. It’s the same effect, the same things and the same activity, now simply being translated to regular folks through a social media platform everyone can access.
A Shift of Power
A lot of people think this is going to be a one-time thing. I disagree. I believe this is going to continue and we are going to see more of it. The biggest thing reason I think we’ve seen these restrictions on trading are the calls for it by the media.
The media is calling for these restrictions because it shifts power from where it used to be with the Wall Street elites to regular people than can affect stock prices and where money flows to. That is a significant power. It means that you can affect what companies survive, you can support certain products, technologies and services.
For us, it’s a great sign. What it means is that so much power and money right now is concentrated in Apple, Microsoft, Google, Facebook and companies like that. What it’s doing is moving money from that top layer. These companies are worth trillions of dollars and then you have tiny companies that have been effectively starved of capital for 15 or 20 years.
This is part of money moving to America 2.0 companies, Fourth Industrial Revolution companies, innovation companies. These are the kind of companies we focus on in Profits Unlimited and across all our services at our publisher Bold Profits. If you are interested in these kinds of companies, you should check into our services.
Profits Unlimited is our flagship service. You can see we’ve been focused on this opportunity in a similar way for a long period of time. For us, there is no disruption. We anticipated a lot of this would happen.
We are in the companies that are going to benefit from this democratization of information and ideas. They are going to flow in to our companies. Our readers are already positioned to benefit in a big way. The last places, which we focused on in the Iancast that I recommend everyone go watch, is crypto.
A lot of these crypto platforms have already begun to list offshore and away from U.S. restrictions, access to tokens for GameStop, AMC, Nokia, Blackberry and any of the other trades that are being restricted on some level. More democratization in terms of where you can access trading.
For us, we see no great systemic threat. I have seen an article where some folks from Goldman Sachs and Interactive Brokers are claiming it will lead to a snowball effect. However, there’s no sign of it yet. Also, when I look at it, there is plenty of capital out there.
You have reported on Market Talk that there are trillions of dollars sitting out there. People have access to capital. I believe anyone who wants it today can get it. Robinhood recently raised $1 billion in a day. I’m pretty sure if they want another billion it’s available to them.
Most people know that, in the long-term, platforms like Robinhood and the brokerage model is very sticky. Once you are with a brokerage firm, it’s hard to move. Robinhood’s user interface is way better and way easier. It’s gamified like nobody else is.
My guess is while there’s a lot of protest right now, there’s very few alternatives. Everyone is restricting trading. The money that’s going to move is going to move to the crypto market. Our colleague Ian Dyer has been on top of this. We are looking to start a crypto service soon.
Subscribe to Bold Profits Daily, which is our free e-letter. Check into ProfitsUnlimited.com to keep track of all this news. Follow my amazing colleague, Amber Lancaster, who does a phenomenal job of keeping Main Street informed of what matters. Thank you for doing an incredible job, Amber.
Gamestop, Robinhood and Market Manipulation
Amber: You’re welcome, Paul. I am so glad you are with us today because we reached out to Twitter followers last week and they had quite a few questions for you. I have a few I’d like you to chime in on. The first question we have is from Judy. Judy says,
“I have eight different stocks on Robinhood. Not a lot, but it is for me. Should I sell it all and get out of Robinhood? I am very upset over all this — GameStop and Robinhood’s actions. Please help me.”
Paul: We are the wrong authority to tell you this. In the end, there’s risk in every single brokerage company. They are subject to capital requirements of various kinds. Anything I said about Robinhood is no endorsement of them. It’s just based on my history of having seen a lot of these companies being able to raise money.
It’s possible for Robinhood to be something that people flee in mass. However, when I look at what everyone else is doing, they are all doing some variation of what Robinhood is doing. They are restricting trading to some extent because their business model no longer can allow them to continue to take in these kinds of trade.
They themselves have to find someone to take the opposite side of the trade. Is Robinhood going to survive? I want to say nothing about this because I don’t want to be blamed if something were to occur. Robinhood is still a private company.
They have access to their venture capital investors who have billions and billions of dollars. It’s a judgement that people are ultimately going to have to make on their own. There are people on social media who are fear mongering on this.
You have to take what they say with a grain of salt given they often have their own vested interest they are trying to push.
Amber: Right. Juliana writes,
“Robinhood and other brokers are blocking the buying of GameStop, Nokia, AMC and many other stocks. Is that legal? Can that be seen as market manipulation?”
Paul: Yes it is legal. When you read your brokerage agreement it does include a number of clauses that can allow them to stop you trading in certain securities, certain quantities or stop trading in full. The brokerage business model is that they are not the ones filling your order.
They give your order to someone else to fill. If that other party is unable to fill it, they are unable to give you that stock. They put themselves at risk if they buy into something that is unavailable in the market. There is a limited amount of GameStop stock or Nokia stock out there.
The only way to deliver stock at a certain price, for some, might be to take the other side. That is not part of their business model. They depend on somebody else to do that. If somebody else is unwilling to do that, they are forced to restrict trading. It’s something that they have no choice but to do to some extent.
Amber: @Stacktothetwotwo, also known as Thackery, writes,
“I’ve been using Robinhood and having great gains. What are some respectable exchanges to use now?”
Paul: There are exchanges and brokerages. For exchanges, we have two dominant in the United States: The New York Stock Exchange (NYSE) and the Nasdaq. Those are places where companies are listed, meaning that’s the official place they are supposed to trade.
Then there are a number of digital exchanges like BATS and others where stocks on any exchange trade on. So there’s exchanges and brokerages. Brokerages are the ones where you open an account and put your money in there. Then they facilitate the trading of the stocks you want to buy and sell.
They themselves usually are different than the people who are getting you the stocks. Those folks are called market makers. They represent a completely different group. In some cases they are investment banks or hedge funds or just official market makers.
What their job is is to keep the flow of money going in the stock market. If you want to buy, they will either sell you shares from their inventory or they have to take the other side naked. In other words, they sell you something they do not have. Now they are depending on the price going down in the future to be able to make their money back.
If they sell you something and the price keep going up, now they are in huge liability. That’s a problem for them. They can choose to stop transacting in this because they see it as a risk to their business model. The brokerage firms out there is a small group now.
There’s Fidelity, Schwab, TD Ameritrade, Robinhood, Interactive Brokers. We get no money from any of them. We are completely neutral. We don’t recommend any of them. Ultimately, you have to decide who you want to stay with based on your judgement as to their safety.
It is possible for brokerage firms to go bankrupt. People are wondering about that with respect to Robinhood. However, the fact that they were able to raise $1 billion would tell you their investors are willing to put capital up. It’s a private company, so no one can actually know what the state of their finances is.
However, Schwab, TD Ameritrade and others are publically traded. You can see what their financial situation is. If they feel they are taking on too much risk, they are also going to restrict trading in these stocks for this reason. We are not in a position to recommend a broker.
Our lawyers and legal department would have a complete fit if we did that. Ultimately, this is a judgement call you are going to have to make. There are a lot of resources on the internet you can google for and they will give you various ratings that can help you in your decision.
Amber: RJ has a question.
“If a grown adult wants to go to a casino with his hard-earned money understanding the risk of losing it all, can someone stop him to go there or lock the casino for him? I hope you understand my question.”
Paul: I have seen this. I believe there’s two things here. Casinos will periodically simply shut down a table if they are losing too much money. It’s never done easily because they don’t want to anger a client that they want to come back. The truth is, the markets have a certain organization.
There is only a certain amount of capacity to take on bets. If everyone decides they want to own one stock, someone has to take the other side. There’s no magical other side created because everyone decides they want to own one stock today. Someone has to take the other side.
The only way that can be facilitated is for the price to be set at such a high price that it reduces the demand for that stock. This is the demand and supply balance that’s usually played by market participants like hedge funds, investment banks. This is how markets are managed.
If there is a lot of short-term demand, the markets are used to have enough time to balance that out so they can lift prices up if everyone wants to buy. If everyone wants to buy XYZ stock right now and there’s a market interruption, maybe the stock opens with a price of $1,000.
At $1,000, the number of people willing to buy is a lot of less. The market then sorts itself out. People say, “I wanted my bet in at $100.” The thing is, there was no one willing to take the other side of it. Just because you want to buy it, does not create the other side at that price.
There may be someone who wants to fulfill that trade, but it might be at a much higher price where their downside is also accounted for. So that’s an in-between answer to that question.
Amber: Ray asks,
“When a stock is shorted beyond the available float and the hedge fund has the entire audience of the financial media to post their short report and manipulate, they have no right to cry about retail investors pushing back. Does the SEC have any rules against Reddit’s Wall Street Bets in your opinion?”
Paul: The SEC regulates all the stock markets and has a series of requirements. There’s a list of stocks called hard-to-locate stocks because when you go to short a stock you are selling something you do not actually own. The way that is facilitated is it is lent to you within the market structure.
There are lending rates for that. The idea with shorting is you sell something with the idea you are going to buy it back cheaper. Various people engage in it, either on the basis the company is overvalued or on a short-term basis there’s too much short-term demand right now.
People can see based on historical patterns, artificial intelligence and algorithms that this demand is likely to fall off. So if you sell people something for $100 today because there is a lot of excitement and enthusiasm, that excitement might fade and then the price will fall back down and somebody is willing to take the other side.
However, if there is a relentless amount of pressure put on it, then there is no one willing to take the other side. With respect to short interest, I personally believe stocks should never be shorted beyond the 100% mark. I have no idea how this has continued to happen for years and years.
I believe the SEC has tried to stamp it out in various ways. Nonetheless, for any number of stocks this has continued to happen. Shorting in and of itself has a market function to balance out demand and supply. However, a stock being short beyond 100% defies a little logic.
Nonetheless, there are real world things you can think about. For example, airlines oversell planes because many people don’t show up. It’s hard to know what the exact function is. I believe in some stocks it’s something that happens where the balance sifts out quickly.
However, for something to be 140% shorted for multiple years, that’s a little difficult. I believe if a hedge fund has taken that bet they should pay the price for it. They’ve made a bet and the outcome is not what they wanted. I believe they should pay the price for it.
Amber: We have one from @sbycraft.
“I would love to hear from you and Paul on GameStop. We held it in one of Paul’s portfolios but sold (unfortunately) before the huge run up. Would love to know your/Paul’s thoughts on this.”
For this Market Talk I will post this just to show what people did gain in GameStop in your Extreme Fortunes service, which was more than 200%.
Paul: I have to put my hands up and say guilty as charged. We owned GameStop at a very cheap price. Sometimes the negativity and the news put out by regular media and the pressure from readers when a position goes down affects me. I fully admit to being human.
We made something around 200% on GameStop. I had no idea at that moment in time there was this meme trade developing. I have never followed Reddit. I do follow stocks on Twitter and YouTube, those are the social media platforms I tend to look on to see and test what people are thinking.
I had no idea this was unfolding. In truth, GameStop is part of a declining industry. The brick-and-mortar retail industry is in deep decline. We have seen multiple bankruptcies — JC Penney, Sears. It seemed reasonable to sell at that time even though GameStop had a lot of cash and was buying back stock.
Then, what happened is, after we sold a number of events happened to lift the stock. The billionaire that founded Chewy put hundreds of millions into GameStop and joined their board. There were other events to support the stock to take in the shares. We missed out.
What it does for me is makes me make sure to think there is a new power in the market, which is regular people putting out analysis. Also, they can support the companies, technologies and products they believe in and want to survive. It’s no different than before where sometimes the U.S. government [does it].
They wanted General Motors to survive so they pumped money into it. There have been times when private equity comes in and puts money in a company because they felt it had a good shot to survive. Well, the people have that right too. They want GameStop to survive and AMC to survive.
I guess they want Blackberry and Nokia to survive. Those I’m a little more questioning of because there is so much more competition in those markets. Nonetheless, I see the nostalgia value in the first two. Yep, I got the sale of that wrong. It’s going to happen.
I tell our folks all the time I can get things wrong and I can make mistakes. I will put it as a learning experience, take it into account and use it in the future.
Amber: Our last couple of questions are outside of what we have discussed so far today. One is from Denise. She would like to know,
“Should Intel, an old world, America 1.0 company, be dumped for an America 2.0 company?”
Paul: I believe if you subscribe to Profits Unlimited — yes, I am shamelessly selling Profits Unlimited since we do give away a lot for free on this channel. We do have what we call an America 1.0 list, The Blacklist. If you go in there it has a list of companies we believe are on the outs.
They are the targets of disruptification where their business models, companies, products and services are in declining demand. That is going to lead to a decline in the demand for their stock. If you have a decline in demand for your products and services, it’s going to ultimately lead to the demise of your company.
It’s no different than Sears or any of these others. We generally do not comment on single stocks here. I will stock to that policy and shamelessly sell Profits Unlimited and say the answer is actually there. You can find it there.
Amber: Our last question is from Asif. Asif writes,
“Would be interesting to hear some war stories from Paul about his time working on Wall Street. Thanks!”
Paul: I’ll tell you what, Amber, next time I come on. Save this question for next time and we will put a little segment of war stories from Wall Street. I definitely have them but perhaps today we have gone long enough and we should save that for another time.
Amber: I think that’s a good idea, Paul. We will save the second part of his question which was actually about buying a home versus renting a home, which is an interesting topic in itself.
Paul: We can do that one another time. Perhaps we can have our terrific colleague Tamara who covers the housing market. She can chime in with what she thinks about the housing market. We have a phenomenal team. If you subscribe to our channel you can have access to all of them.
Amber: Brilliant job, Paul. We want to thank you for coming on the Market Talk today. I am sure everyone is helped for your knowledge. Thank you for sharing it with us.
To wrap up, as seen in this performance chart for GameStop, which is up more than 1,600% to date. It’s a meteoric rise. My Bloomberg news wires this morning were red hot with reporting how silver is now breaking out as retail investors push this metal to the highest level since 2013.
For me, it’s just another example of the massive momentum individual stock investors are bringing to this market. One last note before I leave today, Robinhood has reduced the number of companies with trading restrictions to eight, from 50. The eight stocks are listed on your screen now.
Per Bloomberg News, open positions in these eight securities is limited. Investors can only hold a maximum number of shares and options contracts as seen in this image. Know that you do not have to navigate these markets alone. Paul is here to help with a proven stock-trading track record, as seen in his Extreme Fortunes stock trading service.
We hope you learned some information to help with your trading endeavors. Until next week, have a healthy week ahead and take care.
Editor, Profits Unlimited
I’ve been investing for more than 25 years. I started my career on Wall Street in 1991 as an assistant portfolio manager at Bankers Trust. I quickly advanced to prominent positions at Deutsche Bank and ING, managing multimillion-dollar accounts. In 2006, the owners of a $6 billion firm named Kinetics Asset Management recruited me to manage their hedge fund.