The suits have done it again and they have pissed off everyone. Today brokerage platforms across the United States halted the buying of certain securities. GameStop was halted. AMC Entertainment was halted. Koss Corporation, halted. The brokerage houses forced our hands. The only thing we were allowed to do was sell.
Robinhood Trading took the heat of it. It’s where the majority of the Wall Street Bet crew hangs out. Degenerates and gamblers looking to make a quick hundred thousand. Flip a heavily shorted stock and bet set for life. Think you are a genius and try to make a few million. So when Robinhood restricted trading on the hot meme stocks, it was the shot heard around the world.
Politicians, celebrities and businessmen stepped up and took to the side of the common man. Dave Portnoy lead the charge tweeting rapidly throughout the day saying how Robinhood was dead. Mark Cuban tweeted for the degenerate. And even AOC took to our sides.
But since everyone was restricted from buying shares of their favorite meme stock, the meme stocks fell - and they fell hard.
Theories spewed on why they were doing it. “It was to protect the suits,” someone said. “They don’t want the little man making money,” another said. I even saw one rumor that the founder of Robinhood was short GameStop and he was about to lose his entire net worth. I think it was done to protect the liquidity of the Robinhood trading platform.
You see, when your biggest client is losing billions on a botched short trade, Robinhood could become liable for those lost billions itself. The entire business would fail. A Government bailout. So they protected themselves. At the cost of the small man. Indirectly benefiting the Suits.
What is moving?
GameStop is up 61% post-market after Robinhood announced the stock will be freely traded tomorrow.
AMC Entertainment is up 31% after the stock will become freely traded.
BlackBerry Limited is up a cool 12%.
Dogecoin is up 400% after Elon Musk tweeted about it.
A ton of silver miners are up post-market which some are calling a “short squeeze of the century”
I’m 40% in cash and waiting patiently
Big money comes to those who buy when there is blood on the streets. If you haven’t figured out, I’m a die hard value investor. Value investing works over the long-term. And the long-term is what matters if you want to make real money.
I was 20% cash going into the pandemic. When everyone was panicking during the March lows I started buying like a madman. My biggest move was picking up $SLV when it was at $11/share and sold a few months later for over $25.
I bought movie theatres, retailers, oil and gas companies and a host of other random beaten down companies. I made a killing. Up over 100% in one year. Insane return.
The market is literally insane today. It smells of the dot.com bubble. Thousands of people are getting rich too quickly. Sure it seems like a lot of fun and you might get some FOMO, but this will end quicker than it started.
All bubbles will eventually burst into a beautiful carnage of smoke and blood. Thousands will be ruined. Valuations will plummet into the ground. And that is when I will put my capital to work.
I have around 40% of my portfolio in cash. I’m waiting patiently for the merry-go-round to grind to a stop. There is no telling when it will happen, but we are not at the bottom. Valuations are stretched beyond all means. And if this debt the Federal Government has ever comes due, you better watch out.
What we read today
A broker on why brokers shut down Reddit/WSB stock trading in GameStop, AMC and others
Silver rallies after Reddit post about executing a ‘short squeeze’
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It turns out the issue with why so many brokerages restricted trading on certain "hot" stocks is not because of secret overlords directing them to do so, but because some of the clearinghouses (DTC) that settle the trades couldn't handle the counter-party risk - specifically covering the sale and actually delivering the funds to the seller. This is called settlement, and currently it takes T+2 days to settle where T=date of transaction (used to be T+3, and prior to that...literally the time it took for one physical stock certificate to exchange hands between people). - side note: this is where blockchain can actually solve settlement and make it immediate (or however long it takes for the blockchain to validate - currently 15 min or so for bitcoin for example).
When you buy a stock, a small down payment - usually 1%-3% (set by the clearinghouse) of the value of the transaction is sent from the brokerage to the clearinghouse who then fronts the rest of it to the counterparty selling you the stock. They generally have enough liquidity to cover the trade and allow it to proceed.
However, when you now inject volatility where billions upon billions of a single stock are exchanging hands where the spread is between $8 to $500+ (and likely higher as this short squeeze is taking place), suddenly even the clearinghouse won't have the funds to cover the trade. So what did the clearinghouses do? They raised the down payment from 3% to...100%. Some of the newer brokerages just don't have that kind of liquidity, so instead of sending 100%, they temporarily stopped buy orders which stopped new order flow which stopped new positions from being opened on the clearinghouse.
This requirement was up in order to protect the solvency of the entire market...
This is why Robinhood just raised $1 billion in an effort to try and comply with the 100% requirement.
Okay, so why then are you allowed to sell?
When you close a position (e.g., sell a stock you own), the brokerage already holds the stock. They don't have to front anything for the sale and the clearinghouse requires no collateral.
I am currently short the $9 amc puts Jan 29 puts that I sold on Wednesday and was up almost 40% in a matter of hours and then today was down almost 200% at one point because IV skyrocketed even though it was still trading above $9. I can't wait for them to expire tomorrow... nervous about them. Anyways, value stocks underperformed for more than a decade and possibly it's time for them to outperform the next decade. However, I am hoping to capitalize on the 5G trend stocks soon but alot of them have already gone up. Have waited for a correction and still hasn't happened yet. Why not sell out options to acquire shares.?