Robinhood, Hedge Funds, and Class Warfare
International Man: We seem to be entering a new paradigm in the financial markets. Social media has allowed a large number of small investors to band together and move markets in ways that were previously inconceivable.
What are your thoughts on this and what lies ahead?
Doug Casey: To start with, most of the people on Robinhood are ultra-unsophisticated—mostly unemployed kids living in their mothers’ basements. A lot of the money that the government sent them—the COVID checks—went into the market.
Of course, Robinhood itself is somewhat problematic with its commission-free trading and no minimum trade size. How can a company make money if it doesn’t charge its customers anything? It does so by having cozy arrangements with hedge funds. In essence, you get what you pay for, and if you don’t pay anything, you can expect to be treated like you’re a product, not a customer. I don’t have any problem per se with Robinhood’s business model, but Robinhood’s real customers are probably the hedge funds, not the public.
I don’t have any sympathy for anybody involved in this—hedge funds, the brokers, or the public. In the markets, eventually, everybody gets what they deserve. Still, the fact that some hedge funds have lost billions is front-page news. And the stock running from like $3 before collapsing from $450 to under $50 at the moment means plenty of late-arriving small fry will have been wiped out on the way down.
Especially now, under the Biden regime, it’s likely to provide an excuse for more regulations. Among the main beneficiaries of that will be the SEC. Which, from a practical point of view, means its upper-level employees. After logging a few years with the SEC, they’re able to walk through the revolving door and retail their experience and their connections to major law firms for high six- or even seven-figure salaries. The bigger the scandal, the more they’re worth.
I’m sure that the SEC is going to “step in” and “do something” as a reaction to the GameStop episode. We have an activist government on our hands.
International Man: The established large institutions and hedge funds are not happy with the new reality.
Many brokerages have put restrictions on certain stocks, like allowing people to only sell, not buy. Others have limited buys to 1 share, which is effectively prohibiting buys. Other brokers have allegedly sold shares without the consent of the owner for “their own good”—even when no leverage was involved.
Article from LewRockwell