 I'm Dave Marcus, New York correspondent for the Federalist here. I'm joined again by Melissa Armo with Stock Swoosh. And she's going to talk to us a little bit about this massive GameStop story. So thanks for being with us. Thanks for having me. It's an exciting couple of days here. It seems like it, but so do me a favor. Let's pretend that I'm a complete idiot when it comes to the stock market. This shouldn't be too heavy of a lift. And if you were going to explain to someone like me, who's very confused about things like short selling and hedge funds and all that kind of stuff, how would you explain the basic contours of the story and what's happened over the past couple of days? Well, first things first, I want to explain to people what shorting is. A lot of people understand when you buy something and the price moves up, you can make money. So if you bought a stock, say at $5 and it moved to $10, you make $5 per share on that stock that you bought it. Lots of people like to buy. Not a lot of people know how to short. Even people who trade the market actively and invest in the market actively do not know how to short. I will tell you that at the stock switch, what I do is I teach people how to short. I teach people how to go long too, but I teach people how to short, which is a niche, because a lot of people don't know how to short or they don't know how to do it well. Now that being said, we're going to talk about what's happened in the game stock stock, but hedge funds do go long and hedge funds also short. OK, and hedge funds can short a lot too. So that is part of the pressure that happened on the stock that we're going to talk about game stock, but just to explain who short is, it's basically like you're betting that the stock is going to go down. So you're going the opposite direction. So you can short a stock at $10 and it drops in price down to $5. You would make what $5 per share on that. So you can make money betting on something going lower. People don't understand that that's possible. That it absolutely is. You have to have a trading account out of broker in order to short or go long. But the reality is you can make money on basically betting on something to go to the downside. So how do you do that? That involves borrowing stock and then selling it under the assumption that you can buy more back to repay your loan and keep the profit. Well, the proper handles all that. Really, it's really not that difficult. You just have a buy and sell button on your platform. You just press sell or short or buy to buy to cover to exit it. The proper handles all that. Most traders trade on something called margin, which is one of the things we're going to talk about here today that happened with Robinhood. So when you're shorting, you're borrowing the stock from the broker temporarily and again, a lot of traders trade on margin, which which was what caused some of the problem that happened here in the last 24 to 48 hours because Robinhood and interactive brokers and some other places as well will be strict people then to not be able to take certain positions in certain stocks and GameStop was one of them because the brokers were trying to protect themselves because again, they're giving people margin. Now, let me just quickly give you a lesson on margin. What is margin? If the stock costs, say, for example, $100 a share, if you're trading the stock with cash, you need $100 to buy that stock or even short it. But in something where you were trading on margin, you can trade at a broker and if it's for the one margin, you would only need $25 to buy something that costs $100. So you can lose money in the flip side and then end up only money to the broker where they come to collect, but they don't really want to do that. That's not brokers are not in business to go after people for losses. They just want people to not lose more than they have in their account. You understand what I'm saying? Yeah. OK. So. OK. So so we had apparently a lot of people running short on GameStop from these hedge funds. What did the Reddit characters do? Well, I've never used Reddit personally. So I went on there to look in the chat. The interesting thing about it is there's a group of people in there that were buying stock. And then there was a lot of people that were buying the stock. And one of the sites, the guy had one about one million followers. So we had a lot of retail traders that were following him and buying the stock. Today, it's he's got over five million. So this just happened within a 24 hour span of people that are following him and they're jumping on the bandwagon and going after the stock and buying it. But because of the restrictions today, like I said, for some of the brokers, people were having difficulty with it. And now there's several lawsuits that came out today now where people are still in Robin Hood for restricting these trades. But the bottom line is was what happened going to be investigated? Probably now, because it's gotten so much publicity and so much. So many people are talking about it. People are trying to figure out is what happens here legal today? What were these people allowed to basically pump up the stock and then push off the shorts? Because what happened with this GameStop specifically this GameStop is a hedge fund came in and they had a short position in the stock. That happens. The stock price in was really low. It was super different low. Like it was five dollars. And so most of the stocks that these Reddit people are playing on are stocks that are so, so, so inexpensive. So they kind of were to buy them, all right, whether they're in margin or not. It's not like they couldn't possibly do something like this in Tesla would be way too expensive. Many of these people small accounts, many people have accounts for the either risking a hundred bucks, five hundred dollars. So these are cheap stocks that they bought, moved up the price. You had a hedge fund that already had a short position in this prior to the buying coming in and pushed it out and went like that and flipped it up. Now, the interesting thing about this is I always get people because I teach people that are traders and they always say, oh, if I had more money, this that thing, I wish I had more money. At the end of the day, you can make money in the market. If you know what you're doing, whether you have a hundred dollars or a hundred thousand dollars or a billion dollars, if you don't know what you're doing or if you do not manage your position properly, which in this case, you're this hedge fund didn't and I don't explain that in the minute, but the reality is you can make money with small money, you can make money with a lot of money. If you know what you're doing, the problem is a lot of these red people really have no idea what they're doing. The jumping on the bandwagon, the stock tight now today. Some people got out with with profits. Some people are losing money now because of the because they basically did a trade that didn't make any sense. It's not like a stock of great earnings. It's nothing really changed in the stock itself to create this massive, massive price jump up because, like I said, it was about around five dollars and around 20 last Friday was around 70 bucks. And then all of a sudden today it flipped over 500. So to have a move like that for no empirical fundamental reason at all is very unique and strange. And that's why the regulators are going to look at that because the regulators want to see, even though people hate things being regulated, the regulators really want to see orderly markets. And this stock was halted several times today and halted yesterday too. In fact, I'm surprised the stock made it through the day till four o'clock because I thought at one point they were just going to halt it, close it down, reopen it tomorrow morning and tomorrow is probably going to be the same thing. It's going to get halted a couple of times too because they're trying to get a handle on what's happening. There's too many order flows going through in both direction. But getting back to what happened with the hedge fund and risk money in the market, they had a big position in the stock. And what happened was, we don't know the exact numbers, but they came out and made a statement. It was on CNBC where they disclosed that they had lost about a bill. They got out of the position. I don't know if you're out of the whole thing, but they said that they lost about three billion dollars in hedge fund has about 12 billion in it. So they've lost a tremendous amount of the fund in this one position, which it really was poor planning and poor decision making in my mind. And when the stock lifted over the high and they brand all time highs last Friday, the 22nd, when the prices around 70 something before blew up this week, they could have gone out, put it done out with a loss. A lot less have lost than they have right now. They had no risk management on that position. And so so what the hedge fund did really was poor money management. And again, goes back to the point that the day traders that were in this today, yesterday and the other day, if they didn't manage their positions correctly, even though they were up a lot, as much as you can make money in the market, you can also lose money in the market too. And so people have to know what they're doing if they're going to trade. You can't just say, Oh, this is great idea. I've seen on TV and I'm going to buy the stock. Right. I mean, that's gambling. And that's not what I teach people to do. And that's not what I personally do. And I don't think it's a good idea. And now the scrutiny that's going to come in, now they're talking about Congress is going to get involved with this. I mean, it's become a massive, massive problem. And I think they've opened up a can of worms. These Reddit guys open up a can of worms now where everything's going to be scrutinized so that it may not have benefited them in the end. Now, is this is this a case where, say, unlike 20 or let's say 30 years ago, not even 20 years ago, I think, when the technology didn't exist for this guy to have a million followers, that you could have, you know, a AOL chat room or something where a couple hundred or thousand investors were, you know, doing things together, but not on a level that was going to have this kind of impact on the market. Is this something that would have previously been impossible without what a technology like Reddit allows a million people to do simultaneously with small amounts of money? Well, well, first of all, electronic trading, not just social media, but electronic trading has changed. It's much, much faster now and also places like Robinhood. You can open up an account with a couple hundred dollars. You couldn't necessarily do it in the past, who also don't have to have a license to trade. You don't have to have a a series seven license in order to trade your own money. So you can do that. They have no prerequisite requirements at these places for the amount of money that you have to put in compared to years and years ago, where you need the license, you needed a minimum of twenty five thousand dollars. There are so many things that have changed in the last twenty years. It's not just social media. People could have done it back then in the chat rooms, but the way that trades are executed right now within milliseconds so quickly allows it's a it's a combination of fast trading, OK, and execution in the trades on these platforms, more people in the market because they're allowing more people to trade that have not just wealthy people, but people that have a little bit of money, which is great. OK, it adds volume to the market. It creates though the volatility sometimes when you have these fast movements and a lot of people show what's dangerous for people who don't know what they're doing and have small amounts of money is that they can lose it very quickly and they can lose. And that is, I think, one of the reasons why Robin Hood, even though everyone's criticizing Robin Hood about the decisions they made today to not allow certain trades to go off this, they're concerned about people showing them that have accounts with them and saying, I lost money today because you, you know, you didn't let me do this or you didn't cover the order or whatever the case may be. So but in reality, a broker, when you open up an account, there's so many things that you sign. They really can. They can do what they did today. They can close out people's positions. They can say you can't short this stock. They can say you can't buy this stock. They can close out your account. They when you open an account, you sign all this stuff. I mean, they can do many, many things. They have the flexibility to do it because again, they're protecting themselves, specifically accounts that are on margin where they're actually giving you more money than you really have in cash and you are supposed to be responsible to take the trade in place, the trade and get out of the trade. OK, I think that answered the question. Yeah, I think so. So let me let me try to tie this into something that is a little closer to my expertise, which is the politics of this particular moment because this is a situation where we see strange bedfellows where, you know, Ted Cruz is agreeing with, you know, Alexandria Ocasio-Cortez, where we've seen some progressives sort of suggesting that these redditors, if not that they had a political motivation that like they were extremists and that that that seems to be part of Robin Hood's justification for what they were doing. Like, how is this intersecting with the with the political moment because it really did, you know, dominate Twitter. I see it on on CNN and on Fox News. And what are the politics here? Are they are they clear or are they just kind of jumbled? I know I don't think it's any clear line as far as political goes. But I think in general, it's just kind of fueling the fire of where we've been heading for the last couple of months and really probably the last year where tensions are high. People are in lockdown. People are on unemployment. People are waiting for this $2,000 stimulus check that they never received and who knows when they'll ever receive it. And so people are at home and they want to trade and they want to make money and they also have free time. So they're in these chat rooms and it's a socialization. People are at home and they're locked down and they can't go out and things are closed here in New York. You can't even go to a restaurant, you know, unless you want to sit outside in 28 degrees. So people are looking for means of socialization and talking. So the chat room is a way for people to talk about things that they have common interest in. One is stocks, one is politics. I mean, I'm not in these chat rooms. I just briefly looked at them after what happened last night. I think people, it's just a means for them to socialize like any other place. As far as what happened with AOC and Ted Cruz, it's interesting because she apparently doesn't really want to work with anyone that's a Republican. Even if they agree on something, she can't have said she would work with them. So I don't really know where that's going to happen or again what's going to come of this. Because the Biden administration so far in the press conferences really hasn't wanted to touch on this issue whatsoever at all. But I think it is going to come up as the couple of days go on if it continues to be heated, if the stock continues to be volatile, they're going to have to come out and make a statement about it or something that they're going to do about it. So it'll be interesting to see what that is. So, you know, in terms of the future of the market with the development like this, you know, there's an old story. I think it might be apocryphal, but the JFK's dad, right, managed to get out of the stock market before the crash in 1929 because he heard Shushine Boys talking about their sort of penny investments and stuff. And this spooked him, right? I was talking to a colleague of mine who had a similar modern day story. He apparently has a friend whose favorite stripper is like trading in futures. So how worried are you about, I don't know, call it the lack of professionalization or whatever it is in terms of the stability of the market and people who really are just using it to say like, I want a 401K for my retirement. I don't want to look at the stock page every day. I just want it to be steady and good. I mean, is that under risk at this point? Well, that's why the regulators are probably gonna come in and put the kibosh on us in some way if it continues. That's why Robinhood restricted traders from trading other stocks besides GameStop. AMC was another one of them. I think BBBY was another one. And there was a couple stocks that they said you're not going to be allowed to trade these. In fact, they took them off the platform. Interactive brokers the same thing because they don't want this to turn into something where regular people that don't trade, that just have their money in a 401K and the long-term investments that they're affected by this or that it would in fact affect the overall long-term market. The one thing I will say again, getting back to the cost of these stocks are not stocks that will move the market. If GameStop goes up or down, if AMC goes up or down, it's not gonna affect the S&P. Apple would, okay? But these people would not be trading Apple like that. Why? Because they can't afford to buy Apple at the price that it is right now to do this. They don't have the money to do that. The 5 million people that are in it don't all have the money to do that. Some might. Supposedly one guy made 48 million dollars and had been buying this GameStop and talking about it in a spread it for the last several weeks and possibly even more than a month. Someone like that, they could investigate that person and that person may be in trouble. I don't know if they're gonna allow it. Again, all of those downs to the fact is how far are they gonna take it because they need to have normal markets moving in just in a nice flow where sometimes you move up, sometimes you have a move down, but overall you don't have something getting halted all the time. You don't have something where people are losing their life savings. While some people made a lot of money in this overall, it'll be interesting to see what the percentages are of people that made money or lost money on this. So I think the regulators will make sure that markets stabilize and they will do whatever they need to do to make this happen. There's been a lot of talk as far as people being altruistic about this. They're going after the hedge funds. They're tired of this. They're doing this for a reason. It's a, this is a whole big thing or whatever you wanna call it. In my mind, when I read the chats on Reddit and just knowing what I know about the markets for the last 12 years, I'm telling you right now, I just can't buy into it. People did this to make money. That is it. Boom. Whether they were the reddits, whether they were the hedge funds, people trade and invest money in the market for one reason and one reason only to make money. There might be secondary other things that they, that they're talking about or reasons that they're doing this to teach the hedge funds a lesson. But at the end of the day, in my opinion, people did it for the purpose of making money and people are doing it even now for the purpose of making money. So they will try to regulate this as much as they can, so it doesn't affect people's long-term 401ks. And one of the reasons why you saw, we remember when the market sold off really, really hard it was almost a year ago. It was right before the lockdowns, right before the lockdowns, in the beginning of March, we gapped down one night and saw the clip when all everything went. It was China, right? Well, that was the China travel ban, right? Yeah, yeah, yeah. And it just got out of nowhere. I'm sure that people, like you were talking about this guy that I knew about, I'm sure people knew about that. I'm sure people knew about that. I'm sure people knew about that. And in my opinion, one of the things that Trump was criticized about was not closing down the country as far as the travel earlier. You know what? If he had closed it down January 1st, I don't think it would have mattered. I think it was here in December. I think it was here. There's so much travel that comes back and forth just from New York to China. I think that it was here long before, at the beginning of 2020, anyways that it wouldn't have mattered. It was gonna spread worldwide and that was the end of it. So I think that, I think that as far as these things go, sometimes people do have information. It may not necessarily be insider information, but they, your state, or they may have known someone in China and said, wow, this thing is deadly. And people may have sold their positions before that they sell up, but the recovery, the recovery that we had after that bounce that happened then into those loans that were at some point in March had been astronomical. This rally, they made so many brand new all-time highs in the year 2020. So people in their 401ks are up. People are up. And I always tell people, when you go to your financial advisor, if you don't know anything about the market, you don't know how to recharge, you don't know how to pick stocks to trade in, and you're just in a, most people are like in a bucket. Like they have their 401k, they're in a bucket. They're in this one, this one, this one. If you don't understand it, ask your person to explain it to you or take a class like mine and learn how to rate it yourself if you don't trust the person that they know what they're talking about. Most people are not heavily invested in one thing. I say, don't risk the farm. And one whole thing, and that was the problem with this GameStop. And even the AMC, people are just throwing, I don't think they're just throwing all their money in these stocks. And that's very dangerous. And no one should do that. There was a saying by Jim Kramer, I don't know what year he said this, but he said, bears make money, bulls make money, and pigs get slaughtered. And I think people were saying that this GameStop is gonna run up to a thousand. I didn't see that happening. You can't have a stock like that, go 1,000% without hedge funds buying it as well. And once the news came out that this hedge fund and shorted it and lost a lot of money, I think at the end of the day, a lot of people kind of just wanted to stay away from it. Just wanted to stay away from it. I personally didn't trade it. I have no interest in trading it. It's way too crazy. Like I said, it's basically gambling. I have a strategic reason for why I'm doing something. And that's how you can keep consistent in the market and consistently make money in the market. This idea of getting rich quick, it's kind of like winning the lottery. Could it happen? Yes. Could it happen to a lot of people? No. No, it's not. Yeah. Well, I really appreciate it. This clarified a lot for me. I think I'm gonna continue to stick my money in random drawers around my... No, just the other day, I opened a drawer I hadn't for a while. They were like 13 bucks and a half a pack of cigarettes. So I was thrilled. But this is... Yeah, see? I don't think the money grew in there, but it was there at least. So thanks a lot. I really appreciate this. I think it was very useful for our viewers. And I guess we'll see whether this goes. Talk to you next time. Thanks, David. Okay, thanks.