Because the Internet - Are the Banks going to go?:

Credit Suisse announced it dumped some of its Archegos position today, but they’re not finished. They’re going to announce how much they lost tomorrow. Their CEO is getting fired/resigning.

This is the tipping point. This is where the rest of the world starts to wake up to margin calls and what’s happening on Wall Street. They’ll learn about what leverage is and how hedge funds make money. They’ll learn what shorting the market means. They’ll learn about Reddit.

Reddit will be blamed. The people of Reddit will be blamed. There will be headlines in the media talking about how the guys in their mom’s basements took down people’s pensions and old people’s retirement money.

But the question everyone should be asking is how could hedge funds manage that much money? How could they operate with that much leverage? They were because of free money printed by the government last year. It went to the banks. The banks could give that money basically for free because there’s no interest on the money.

When money is free, everyone thinks it’ll be free forever. People want to enter the market like is happening right now with new, younger investors.

I almost fell off my chair when I heard from my mom that her friend’s son has a classmate who trades stocks.

Guess how old he is?

8.

Eight.

Yes, read that again.

Eight years old and investing in stocks.

If that doesn’t tell you were at the top, then I don’t know what will.

Everyone is making money now, and it’s too good. Life is not always this good. The 2010s will be remembered as a decade of prosperity for most. The 2020s will be completely different. It will be about inflation and the inequality gap and higher taxes and wealth redistribution. Wealth has to get evenly distributed to the rest of the citizens because if it doesn’t, there will be social uprisings similar to what happened pre World War 2. As Ray Dalio has said, don’t take democracy for granted.

Guess who will be at the heart of a market crash again? Wall Street. Billionaires. Hedge funds. The Banks. They gave them the leverage. 

Only this time they didn’t account for the Internet. They didn’t account for retail investors. They don’t understand how many more people are now learning about investing.

Covid was the perfect storm for this.

A significant number of people have been at home for the last year scrolling the Internet. A number of them got interested in the stock market because they were hearing people they knew enter the market and make money. So more and more people came into the market.

You traditionally have to go through a bank to participate in the market. So how did they get in? Robinhood, Wealthsimple, Questtrade, Etoro, etc. all offer the ability to participate in the market with the utmost convenience. 

You can do it from your phone!

Enter Gamestop.

The first place where people saw some people make millions of dollars very quickly because of a short squeeze. But the story gets better because it’s a company people love. It has sold video games for decades. I used to go to Gamestop’s as a kid growing up to buy games. A lot of people on the Internet are gamers and remember this place fondly.

So when the Internet found out hedge funds were shorting the stock, they turned against them. It happened as a collective. Thousands to millions of people bought into the idea based on the info on Reddit. It pushed the value of people’s shares from the long single digits to close to 500.

Then these same people were watching hedge funds short the stock again, along with others. AMC is one of them. This knowledge is public so people kept looking at the information and passing on their information on Reddit. They’re explaining to people all the time what the hedge funds are doing and how you shouldn’t trust the media.

Hedge funds right now are using their old tactics of shifting people’s attention away from the stock. Writing media articles, going on talk shows, getting most people to believe these are bad investments. 

But the Internet doesn’t forget. The Internet is so much bigger than you think and boy have the hedge funds underestimated the power in it.

The Internet will find anything on you. There are so many people doing so many different things online so you don’t think several of them are going through public filings? Learning about short data, and dark pools? Digging up old interviews from Jim Cramer giving out the hedge fund playbook from an interview in 2006? He literally talks about how you don’t want to be short a stock when a bunch of people are long because you will get pumped. That’s what’s happening now.

Side bar: Shout out to Treys Trades, Joshua on Twitter, Kong, and Horror_carrob2817 for their excellent analysis. If you ever read this, I hope all of you do amazing things with your lives and wish you all the best. Thank you for making an ape like me believe in the impossible.

***

What’s the conclusion of this whole ordeal?

Because the Internet by Childish Gambino (Fantastic album btw, go listen to it if you haven’t).

The Internet is about to take down Wall Street.

It’s gunning for hedge funds, but the banks could also be in the way.

Could the banks really crumble?

Some might.

We’ll have to wait to find out.