Robin Hood And Wall Street Are Trying To Screw You (What’s New?)
Wall Street is a tough place.
It’s got gangsters like the Tier 1 investment banks which literally have divisions that never have down trading days because they trade in front of and to the government itself.
It’s got fraudsters who will promise and say anything on their fancy presentations and websites about how their company will some day do something great but really the people in charge are simply selling as much stock to as many fools as they can while they can.
It’s got every day corruption from people like ex-Fed Head, current Treasury Head Janet Yellen who get paid millions of dollars by the same firms she’s supposed to regulate whenever she’s in between being paid millions of dollars by those same firms.
Wall Street is stacked to make sure the big boys always win and if they don’t that they get bailed out.
So what’s new?
Oh, you say that Robin Hood, whose entire business model is built upon it selling your stock order flow to a giant hedge fund, isn’t on your side since they shut down your ability to risk your money in the stock market on certain stocks that destroys their business model?
Is this supposed to be surprising?
To be sure, places like Interactive Brokers and TDAmeritrade (both places, in full disclosure, happen to be where I do a little business) are also shutting down people’s along with their other corporate customers’ ability to open new positions in stocks that are no longer trading orderly on the exchanges whose main jobs include to make sure the stocks trading on their exchanges do so in an orderly fashion.
The brokerage firms have real money at risk when you trade stocks at their firms which are then tied into the exchanges which don’t have nearly as much, if any, capital at risk when you trade stocks at their exchanges. When a brokerage firm has capital at risk, that’s a real thing and in case you don’t remember, a giant collapse in asset values that the investment banks are allowing to be traded at their banks can destroy century old firms like, say, Bear Stearns or Lehman Brothers.
In fact, you might recall that IB actually lost a bunch of money when it allowed its customers to trade oil futures that then went to negative value back in April last year. Remember that?
“Interactive Brokers Group Inc. on Monday said it would recognize a revised $104 million loss as a result of the negative settlement as it fulfilled margin settlements with clearing houses and moved to compensate some customers for losses.” IBKR can’t take chance of losing a billion dollars when the markets aren’t making any sense. When the markets aren’t orderly.
If there’s anyone to blame here, it’s probably the exchanges for not being able to clear these trades orderly.
Whoever is to blame is important but isn’t as important as this theme: if the exchanges and the brokerages and Wall Street at large don’t get this un-orderly, scary, bubblicious and easily-manipulated action in these many individual stocks back in order, it’s going to hurt the economy as money flows inefficiently to the wrong places. To be clear, I suggest steering way clear of the Reddit retail crowd battleground stocks that are gyrating (and mostly spiking for now at least). GME, AMC, even NOK do not seem like viable investments or trades right now.
To be sure, long-time readers and TV viewers of mine from my days on Kudlow on CNBC and my own show on Fox Business know that I have long been a vocal Wall Street critic. I even stopped by Occupy Wall Street back in the day. Indeed, I encourage people to be vocal about the problems with Wall Street and how the system is always getting more complicated in order to keep propping up the already inefficient status quo. But I’m not sure fighting the system by daytrading wild stock movements is really all that much of a way of fighting the system. In fact, it’s probably going to cost millions of people billions of dollars in losses at some point. Are we even sure it’s not some other giant hedge funds who are in control at Reddit Wall Street Bros?
And this action is going to hurt the stock market as it becomes the reason for that inefficient allocation of capital. Seasoned, reasoned investors, including me, are starting to consider moving much more cash to the sidelines and removing the newly elevated risks that come from a stock market that doesn’t trade orderly.
When stock prices for companies that are worth tens of billions of dollars, not to mention the smaller caps, look like simple random number generators on a minute to minute and day to day basis, it gets impossible to use any semblance or risk/reward analysis, by definition!
So, I’ll tell you that I continue to look for great long-term Revolution investments at fair values every day. But I am not keen on gambling on random numbers so I’m looking to be cautious and defensive for now.
