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rain man david hey everybody welcome to the all in podcast
it was a slow news week so we decided we'd
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give you a special episode we're gonna go around
the horn with our special picks we're each gonna
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pick three picks everybody we're gonna pick our
favorite recipe our favorite new hobby and our
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favorite streaming guilty pleasure because there
was no news uh with us today the dictator chamath
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palihapatiya rainman david sachs with his new
track from young spielberg just ripping across the
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charts uh young spielberg added again this time
with a a track focused on the rayman himself and
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the queen of quinoa who everybody says
we should upgrade to the king of quinoa that's so sexist why is that an upgrade the
queen of quinoa i don't know people just felt i was being i don't know how people could say that
anointing him as queen would be derogatory i think
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these people are not woke and they need to be
canceled jason here you go again making a lot
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of assumptions about people's pronouns yeah they
they queen of quinoa they i take no offense i take
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no offense your insults to me and uh today i'm
having the emotion of excitement and i am ready
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uh for the conversation good we got the firmware
upgraded all right so uh i think we might as well
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start with uh i don't know if you guys caught
this but there's a red subreddit called um wall
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street bets and what they do on wall street bets
is they find angles and uh a thesis and then they
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bet on a stock the stock they picked uh for
the past couple of months has been gamestop
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and boy jason hold on a second um that's that's
that's not true so um do you uh i had actually a
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guy on my team put together two really important
documents and i'm just going to read them
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because it's full of so much interesting and
then we can talk about um where are these
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from did you say from the wall street bats no no
no i had a guy go in uh one of my team members
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one of my colleagues and go and summarize
the entire saga from the beginning and then we can talk about the the corporatist scumbags
that robin hood and other [ __ ] people over
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so let's let's do that in that way okay um this
is the way they call him the dictator let's uh
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you're an idiot because you you just want to
defend people because you blindly stumbled into a [ __ ] trade that actually made a little money
lo and behold you actually invested in a company
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that literally they got on television yesterday
and they [ __ ] lied to americans right to their
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face this is a company that was insolvent because
now let's just put a pin in the following data point which i believe to be true i know more about
this than you do because i live in these markets
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okay so i understand what it means to be putting
on trades to being short to being gamma-squeezed
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to have longs to do all of this risk management
you're an early-stage investor so i know the intricacies of this stuff and what's happening
in here this company was insolvent they did
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not have the capital requirements to post the
margin that was being asked of them by their
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partners and so this was a platform level decision
to ban and block people from trading securities
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it cost individuals hundreds of millions
probably billions maybe even tens of billions
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and these [ __ ] should go to jail now let me
give you the timeline before we get into that
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june 2019 in june of 2019 a wall street
bets user named deep [ __ ] value began buying long dated january 21 calls what that
means is in june of 19 this person was betting
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that the stock would go up by january of 2021. he
spent 50 000 um which by the way today is worth
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about 25 million dollars by the way we should just
highlight that there are forums where individuals
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that are trading stocks talk to each other and
share tips and promote things to one another that's where this was taking place yeah and by
the way those forums exist uh in the professional
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organized world too amongst hedge funds you know
i've been invited to idea dinners where we all get
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together and we talk about the ideas that we have
and we're all expected to do fundamental analysis
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but some of those ideas are actually momentum
driven ideas and a lot of the biggest dislocations in the market just as a setup here have been
because of momentum driven trading by organized
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capital okay so we've we've been stuck with this
for a while so so this guy deep [ __ ] value
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posts this and every month since he's posted a
screenshot of his position and he's titled it
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gme yolo update august 22nd of 2019 michael bury
who is this guy famous from uh the big short
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who's the guy that caught the mortgage thing he
discloses a three percent position in the company
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and he highlights that ninety percent nine zero
percent of gamestop's 5700 stores are free cash
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flow positive that's like pretty good he urges a
buyback and he notes that the company was trading
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at or near net cash levels so he's making a deep
value oriented fundamental thesis as well i think
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also it's worth saying what gamestop is because
even my wife asked me what the hell is gamestop last night gamestop is a retail store where
people buy video games i used to go to the
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mall all the time and consoles and headphones and
other stuff and they'll buy back your old games and so the stock got beat up over the last
couple of years as people stopped going to malls
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and stopped buying stuff in stores and everyone
thought the company was going to die and so these guys observe that maybe there's real value in this
company and it's making money digital downloads
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no one buys dvd roms anymore
or anything like that so and and the chewy founder who is
very successful at e-commerce came in
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june 19 was the original post august 22nd of
19 michael bury comes in and says i'm long
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then a year later august 31st of 2020 ryan cohen
who's the founder of chewie takes an almost 10
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position in gamestop about two or three
weeks later on september 19th of last year
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a member of wall street bets writes a post on
gamestop and he notes that gamestop has a hundred
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and twenty percent short interest which i'll get
to in a second so hold on what what does that mean
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120 short interest and he defends the company as a
result of a few things he says number one there's
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a new console cycle coming just as jason mentioned
number two consoles are are not going all digital
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immediately gamestop loyalty programs have 55
million users they have a strong balance sheet
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ryan cohen just bought a stake and the shorts
were underwater and would be forced to cover
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if the stock ran up he predicted the convergence
of all these factors would lead to a big squeeze
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now november 16th of 2020 ryan cohen writes a
letter to the gamestop board and he urges the
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company to conduct a strategic review and share
a credible plan to capture market share in the
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gaming industry he said that they need to evolve
into a technology company that delights gamers and delivers exceptional digital experiences i'm
just quoting here not remain a video game retailer
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that over prioritizes its brick and mortar
footprint and stumbles around the online ecosystem
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november of 2020 someone in wall street bets
highlights that a hedge fund called melvin capital
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was going long gamestop puts what does that mean
that they are synthetically shorting the stock
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by buying the right to sell it at a different
price in the future okay um and that they had
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been longed that position for more than four
years so all the way going back to 2016.
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fast forward to now 2021 of
this year january of 2021 game stop strikes an agreement with ryan
cohen and adds him to the board of directors
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and gives two of his affiliates his former
ceo and and cfo of chewie also two board
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seats they collectively you know bring their
experience in e-commerce online marketing
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finance and strap planning the stock goes up 13
on that day and closes at about 20 bucks a share
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one day later and then over the next day after
that so for january 12th and 13th of 2021
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there's a ton of activity around
gamestop in wall street bets and now in discord and in stock twits claiming
that brian cohen is going to be the savior
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and then by january 14th so three days later
the stock closes at 40 bucks so now it's up
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125 so now comes the setup the pros versus
the joes from january 12th to today there has
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basically been a battle by institutional
investors on one side shorting gamestop
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and retail investors on the other buying the
stock and also buying the right to buy the
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stock or what's called call options and this is
what has created this crazy nonsense we've seen
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so on the institutional side after you know retail
drives the stock up the institutional guys are
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like hey wait a minute you know ryan cohen's an
idiot you know this company is [ __ ] [ __ ] these
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guys they have too many you know cyclical and
secular tailwinds and they become so massively
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short that the infrastructure that's supposed to
even count all the shares can't keep up and now
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they are short more than the actual number of
shares that actually exist so now they're 140
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short the joes retail they start to aggressively
purchase all these cobble options and on january
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13th and 14th um this price keeps ticking
up then a bunch of quant funds and momentum
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hedge funds notice all this activity and
they also participate on the long side
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and then over the past seven trading days we
have traded over 100 billion dollars of stock in
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gamestock which is well in excess of what retail
can support so here's what's crazy to realize
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a bunch of value-oriented non-computerized
non-quantitative hedge funds short retail notices
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of dislocation initially fundamentally but then
momentum-oriented buys other hedge funds realize
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also buy and this is what's created this massive
short squeeze on january 19th citroen research
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a research firm that basically tries to you know
find shorts in the market announces that they
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were short game stop and they gave five reasons
why it should go to 20 bucks the stock was at 35
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50 on january 19th then over the next two days
gamestop calls hit an all-time high and it runs
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a two-day rally of almost 70 percent and this is
what really starts what's called a gamma squeeze
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okay which is what we saw in the first part of
this week so january 25th ken griffin stevie
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cohen they inject almost three billion dollars
into melvin capital the firm that was short
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two billion from citadel and 750 from from stevie
cohen stevie cohen had a billion in it from before
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and then now all of a sudden the squeeze keeps
happening the squeeze keeps happening and then it starts to spill over to the rest of the market now
all these hedge funds these original hedge funds
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they are getting called by the bank saying hey
wait a minute you've run over your collateral limits you need to post more collateral
we need more money in your bank accounts
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so now not only do they have to cover gamestop
they have to cover all their other shorts so those go crazy and they have to sell their longs
so now they're selling you know facebook netflix
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alibaba so those things are going down that
accordion is what's been happening in the market
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in the last couple of days and then the coup de
gras is what happened on january 28th of 2021.
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brokerage firms and this is where jason we should
talk about this like robin hood and interactive
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brokers because in fairness it wasn't just robin
hood prevented their users from buying gamestop
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and a handful of other stocks they were only able
to sell which resulted in such a one-way pressure
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it caused a 44 sell-off yesterday
now that's been reversed today and so what it speaks to is a bunch of questions
there are questions as to whether or not this was mandated by the platforms or the regulators given
the fact that it didn't impact all the brokerage
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accounts it was a platform level decision so
some organizations like robinhood banned it
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some organizations did not and it could be
that some of these platforms that banned it
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is likely because and this is where
we get to the insolvency question didn't have enough margin and so they knew that if
they opened the doors there would be a run on the
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bank and there would be a run on robin hood and
that's why they basically i believe had to stop
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um allowing people to trade and it
just shows how um how fragile um the whole system is the last thing i'll say
and then we can talk about this is uh how does robinhood make money which i think is also
important to understand this robinhood makes money
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through a mechanism that's called payment
for order float so they don't make money from
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consumers right what they do is they watch and
monitor your orders they create a data file about
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that and they give it to these prime brokerage
prime brokerage institutions like citadel
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milliseconds before you do the trade what
that allows citadel to do is if they see a lot of people buying milliseconds before you
buy they can buy and that allows them to make
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money so to be clear citadel is responsible for 47
percent of all the payment for order flow volume
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they paid robinhood almost 60 million dollars in
the third quarter okay um plus another i think
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you know seven and a half million for s p 500
stocks and 31 million for non s p 500 stocks
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they paid them almost 100 million in the
quarter or a 400 million dollar run rate so
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if we had to summarize all of this in a nutshell
that's what we know we know that it started out as
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people debating the true fundamental value of
gamestop and it morphed into a momentum trade
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where a bunch of folks got dogmatic about a short
a bunch of folks got dogmatic about being long
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and belongs one and in the middle
what happened was a bunch of firms basically decided at some point to gate the
ability for people to transact in all of this
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which i think caused a lot of economic
disruption and that was because they didn't have the margin requirements and i think
it's because they were insolvent i.e robin
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jason over to you okay um i think we probably
agree on a lot of things here uh thank you for
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the concise over we agree that wall street
vets and retail investors are incredibly
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powerful now and we agree that that's a good thing
we also probably agree that there are shenanigans
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going on with shorting of stocks i.e 120 or 130
percent short and we agree i think that some of
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these uh hedge funds do manipulate the markets
with these we also agree that it's unfortunate
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that uh in order to stay solvent robin hood
apparently if this is the information we don't
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have complete information right now so the thing
i do think that you're being tremendously unfair about and i'll try not to make it personal to mop
is that you've been uncouth and you're attacking
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people without with partial information i'll let
you respond to that in a minute and i think we agree that robin hood is responsible robin hood is
responsible for this revolution in retail trading
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they created the platform and they created the
innovation that got millennials to on mass embrace
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trading stocks how did they do it they figured
out a clever innovation of how to make it free and friction free they did that because they
did this selling of the data in the order flow
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okay we can debate whether that is fair or
not but facebook did the same thing they
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created a data business they provided amazing
products and services that you yourself built for five years and made a billion dollars off
of in order to make it free for consumers now
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there are unintended consequences of any
company at scale whether it's uber robin hood tesla etc and they will all have to weather
these storms and i think that there are pieces of
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information that you do not have chamoth and for
you to say that they're criminal and for you to say their scumbags and to act this way is i think
unprofessional does you a disservice and does your
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argument a disservice and you did this as
well with uber another one of my investments and that company weathered the storm and
they've done great things in the world
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and they and i'm very proud of that no no no no no
no no and i will be very proud of what i believe that and they brought in dara who cleaned
it up oh agreed agreed but they got there
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and so well what happens so why do you know that
i don't know well i i haven't talked to vlad i
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saw what he cares about vlad he lied on he lied on
television i don't believe he lied i liked it he
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lied on fox where did he know his life yesterday
what is the lie well jason he was confronted about
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whether there was a liquidity crisis and he
said to their face no that is not true i think
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this is being misinterpreted and
there'll be a clarification that occur i think because they were able to draw down
600 million and because they were able to
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take down a billion dollar investment from the
top investors in the world that they s resolved
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their liquidity problem nobody in history
has ever created this many retail investors
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than robin hood they are responsible for the
movement when they pitched me the company
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they wanted to create this revolution it is
paradoxical that they are now the enemies of
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the revolution because they actually created and
enabled this and i pre and they have been number
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one in the app store since this whole fiasco
nothing you're saying convinces me this is the
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they are the lehman brothers or bear stearns of
2008 to me they will not be they will get through
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this and there has this is an unprecedented
black swan event i think we would all agree
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nobody had exactly what lehman and bear said that
is exactly what they said and this and they will i
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believe robin hood will write it out because they
throttle the number of people coming to platform
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las vegas is not designed for everybody in
america to come to las vegas in the same weekend
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what's happened will you admit that that the tens
of millions of people that had their hard-earned
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money inside of robin hood was prevented from
participating in trades that could have been
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executed other places because of an arbitrary
decision by robin hood that they had it was an arbitrary thing to stay insolvent how is that
how is that jason an arbitrary decision do you
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think they wanted to make that decision jason
that's me telling you that they were insolvent that's not them saying it this is what i'm saying
right now communication was not perfect i'll agree
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the communication was not perfect they should have
just said we had no choice but to stop this or we would have been insolvent we cannot take this
many trades is that but is that what we call lies
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when people's money gets [ __ ] over just it's
inconvenient let me just say one thing i'm going to interject your your your vigorous debate um the
the important thing i think to note is robinhood
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makes money effectively as chamath pointed out
um through arbitrage of pricing in the markets
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and by providing leverage to their clients so the
clients can trade beyond their means i used to
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be an investor in a forex trading company
was the largest forex trading platform in the world for retail investors and 60 of those
accounts went bankrupt uh over time so there was
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a lifetime value on an account because the
uh the customer would come in they'd trade foreign exchange rates up and down they would
ultimately just get burnt up and that was it
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robin hood makes money when the market is
non-volatile when there isn't a lot of swings
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suddenly when there is a swing and that's how
they're able to provide their free pricing to people they're making a spread but suddenly when
there is a swing and the spreads start to widen
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they are actually exposed to losing money so
jason it's true what chamath is saying like they
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did face a liquidity crisis to some extent that's
why they had brought out they all agree but it was
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a function of their business model right their
business model provides great benefit and value in some extent during good times but when times
get bad it's like oh [ __ ] things are at risk
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and that's very similar to kind of the lehman and
and you know i don't disagree i don't disagree
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i i think this is an unprecedented situation with
the number of participants it reminds me of surge pricing with uber during snowstorms and that also
was an unintended thing that you know who knew
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that it would go up to 400 to take a ride and
that's something that companies will be faced with and they will have to then adjust and then
make it work and i think you know in the case of
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robin hood they should have just came up on
wednesday and said we can't take any more orders we can't take any more new customers we're pausing
signups you'll be on a waitlist because we will
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be insolvent if you guys make any more trades
and that would have i don't know if you believe that would have i agree with that so jason let me
just communication it's beyond poor communication
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people were blocked out of their accounts like
there was hundreds of mill incalculable amounts of economic loss that i don't know if that's gonna
wind up being true because all these trades are
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occurring now and the stock is rock is a rocket
ship who's to say that oh no i mean look i mean
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jason aren't the shorts all covered by now that's
what they've been saying on cnbc no there are still people how do you know how many people are
short right now and how many shares because it's
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the primes put the data together and they send
it to us do you have it handy because i've been looking for it online and they said ten times the
number of shares short have traded hands in the
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last ten days or five years i mean jason i don't
know i don't have it literally in front of me but i could get it in the next yeah just text one
of your people you've got all these researchers
00:22:54
there um go ahead zach okay look i'm going to
try and thread the needle here um i think j-cal
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is right that um we shouldn't impugn people's
motives without having all the information and
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furthermore you know building these uh rapidly
scaling startups is really tough and it could
00:23:13
have just been you know a function of you know
not knowing how to deal with unprecedented growing pains so i don't think i don't want to
be too judgmental can i just stop people hold on
00:23:24
yeah nobody that's not right no but david
that's not can but you guys are not being accurate they have known for decade for years
sorry dears how this business work when somebody
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buys a call option they are legally
obligated when they send that order through
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they have to post margin on behalf of that person
so they saw this building this happened in march
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of 2020 they went through this liquidity crisis
they've had to draw credit lines before they saw
00:23:53
it building in the system so this was nothing
except negligence yeah so so i was about to
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that i hadn't gotten to the part where i was
about to agree with you chamath i mean look all i'm saying is even if it was negligence i'm
not sure i would impugn all the motives to them
00:24:08
that that's all i'm saying i'm trying to find some
common ground with j column that point but where i totally agree with yuchimoth is with respect to
the effects of their decision i mean the effects
00:24:19
of that decision they made to stop trading and
specifically they didn't stop people from selling
00:24:24
they only stopped people from buying so they shut
down one side of the trade and the effect of that
00:24:29
was we had these hedge funds from wall street they
were on the ropes right i mean let's discuss who
00:24:34
these guys are these are the apex predators of
wall street they are in the business of shorting
00:24:41
companies to destroy them i mean that is their
business model and they are not academic traders
00:24:47
okay who are just speculating on outcome they
engineer the outcome right look at their tactics
00:24:52
just watch the show billions right they hire pr
people they hire private investigators they're
00:24:58
participating on these message boards uh spreading
disinformation look at the the year of hell that elon went went through right they tried to destroy
like five years yeah yeah exactly they try to
00:25:08
destroy uh companies to engineer that outcome
they create nothing they're in the business of of of destruction now the beautiful thing is you
had these reddit kids these pirates who published
00:25:19
this manifesto right on reddit basically being the
heirs to occupy wall street they recognize look
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occupying like a like a physical space does
nothing to these guys we are going to hurt them
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where accounts in their pocketbook we are going to
get together and we're going to basically create a trade mob that's even bigger than their cartel
and they did they got 2.7 million people taking
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the other side of this trade and then when the
hedge funds doubled down they said [ __ ] you we're gonna double we're gonna triple down and
the guy on reddit said listen he uh paraphrasing
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john maynard kane said we can be [ __ ] longer
than you can be solvent and they were winning
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that was what they said right and they were
winning the trade okay and melvin was dead busted and citron was on his way to being dead
busted and they had to go to big papa stevie cohn
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okay and ken griffin to get to get their rebuys to
buy their revised to get back into the game okay
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and then they had these guys on the ropes they
had them felted okay and then what happens
00:26:21
just at the moment where they're gonna like
basically bust them out of the game for good
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robin hood shuts down the buy side of the trade
and so what does that do it gives these hedge funds time to regroup to unspool the tray to
reposition and save themselves and to get out
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of the trade if they want to get out of the trade
you can never take that 24 hour time period back no matter what robin hood does now and so i agree
with jamaat this was like don't you this was
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tremendous david on that point i think it's i am
in agreement that the hedge funds deserve to get their assets kicked 100 i also as i said we don't
have complete information of why um you know robin
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hood had to pause trading and the other platforms
and it was like five platforms by the way that had to stop or else they would be insolvent
because nothing like this has ever happened before
00:27:08
this is a run that nobody's ever seen and now
we're back in the game and don't you think all
00:27:13
this attention then drives more people to buy
gamestop which is what's happening today and
00:27:18
that they're still going to get crushed because
they're still going to have to cover i mean look i i i don't like like i said look where i
agree with you is i think the consequences of
00:27:28
this decision by robin hood were i mean they
were really bad right i mean we finally had
00:27:33
these shorts on the ropes where they deserve
to be finally they're getting a taste of their own medicine yes and it was really bad to pull
the plug on on the though i wish they were they
00:27:42
wish they didn't have to i'm sure okay exactly
and i don't know what went into that decision but here's the thing that i think kind of stinks
about it is the point that your mother is making
00:27:52
about who is doing the the trade execution
for robin hood those trades are flowing to
00:28:00
citadel well that's part who is that's part of it
but 40 47 but who is now on the short side of the
00:28:07
trade citadel went in and bailed out melvin and
citron and so they're on both sides of this trade
00:28:13
now how does that make sense well citadel yeah but
i mean what i would like to know specifically okay
00:28:20
is did anybody from citadel reach out and touch
robin hood did anybody at citadel put in the
00:28:29
fix and saying to robin hood of course that's a
good question we're gonna we're gonna cut you off
00:28:34
you know unless you freeze out the buy side now
look 99 chance that didn't happen i don't know but
00:28:40
that is a legitimate question we need to actually
can i just tell you the the question is important but the way that you phrase it is you call them
and you basically say listen uh you need to post
00:28:50
500 million dollars of margin why oh well these
trades uh you know what we're going to arbitrarily
00:28:55
change the margin requirements okay oh eight
you need to raise uh you need to post so then what they did was they pulled all the credit
lines okay they post margin trades are still
00:29:05
happening like crazy right all these people are
buying gamestop calls they have to go because look
00:29:11
when you buy a call when you as a user with david
friedberg quinoa buys a call robinhood becomes
00:29:17
synthetically shorted right robinhood doesn't have
the share to sell you but it's giving it to you
00:29:23
so they're technically short they got gotta go buy
it okay so this is what creates this dynamic where
00:29:29
robinhood knew they knew every second of every
moment what was happening and more importantly
00:29:37
what could happen at a minimum it's negligence
and at a maximum it's the fix well it was and it
00:29:43
was it was fine to do it before the market started
to swing volatile right and and so when the market
00:29:48
wasn't high volume and when it wasn't volatile
it didn't matter because they had appropriate levels of surplus capital or statutory capital
or whatever the definition is in this market
00:29:58
uh to be able to cover the quote-unquote var or
the value at risk of their portfolio of their
00:30:04
customers worst-case outcome but as soon as that
spiked as soon as the var spiked they had to go
00:30:10
get more capital and so what do you do if you're
the manager of robinhood in that situation where
00:30:16
your clients who've been making you a bunch of
money by trading stocks over the last couple of
00:30:21
years suddenly they all get themselves in a bind
where the var on the portfolio is more than the
00:30:26
cash robin hood has to clear assuming all these
people go bankrupt that's where robin hood had to scramble and so in that circumstance they drew
down debt and they had to go get a billion dollars
00:30:36
of equity but if you guys were running that
business and i'm not speaking for robin hood's uh i'm not making the case for robin hood but what
would you guys have done in that circumstance
00:30:44
you know suddenly all your and by the way i'm
saying they created the problem for themselves because they allowed people to trade on margin
with low bank with low account balances and
00:30:52
volatile stocks prior to this it got away from
them and because you can't you cannot run a
00:30:57
business like that and be selective and arbitrary
you can't say some stocks on certain days some
00:31:03
stocks on other days some options over here some
puts over there that means you're a [ __ ] [ __ ]
00:31:10
what do you do on tuesday or wednesday when all of
a sudden you're not tuesday wednesday this if you
00:31:15
were a reasonable manager of a business like this
this conversation would have been happening at a board meeting quarters ago hold on a second let me
finish please okay it needs to happen quarters ago
00:31:27
and in quarters ago what they would have said
is hey guys we've run some scenario analyses we've done some sensitivity analyses here's what
happens if all of these things can go against us
00:31:36
that's a typical stress test that a bank has to
do right when you're a structurally important bank you have legislation that forces you to be
under these conditions where you have to make sure
00:31:46
that that you can understand some of these
scenarios and then you have any any trading entity or insurance company they all have to have
that analysis of what's the worst case scenario
00:31:55
and how do you plan for it and you have to you
and by the way coming out of 2008 we actually
00:32:00
legislated that we needed to have these two and
three sigma you know event scenario planning and you needed to have proper credit so here's what
happened really number one it was under equitized
00:32:10
right at a minimum the business was massively
relative to what they were letting their customers do exactly and that's really important because the
point is they let people trade with high margin
00:32:20
and they let people trade in volatile
stocks and it was working until not just stocks but options which is what which
is what creates the real spin up the feedback
00:32:29
loop that blows this whole thing up and and then
number two is they don't know what they're doing
00:32:36
i think one thing that's really
important i just want to say this we should stop pretending that trading in
stocks is investing in businesses and uh this
00:32:46
is something we've said for a long time on wall
street but stocks shorting margin and derivatives
00:32:54
those um those four things no longer look like
what the capital markets were originally set up
00:33:00
for which was to help capitalize businesses and
allow people to exit their investment in helping to capitalize that business to another investor
that wants to come along it has effectively become
00:33:10
a synthetic casino or a synthetic gambling model
that lets people trade things up and down and
00:33:15
this has been the mainstay of wall street for the
last couple of decades and as you pointed out saks
00:33:21
uh it really is a leech on the system because the
amount of money that trading firms and traders and
00:33:27
hedge funds make doing this ultimately is taking
away from capital that could be invested in actual
00:33:33
businesses that could drive job growth drive
economic prosperity drive innovation and um the
00:33:39
volatility that i think we've seen is the ultimate
feedback loop that emerges from when you allow
00:33:45
a casino to operate that sits under the guise of
being business capital and investing in businesses
00:33:52
it's not i'll give you guys a statistic i
downloaded the data from cboe that analyzes
00:33:58
how much volume was traded across all the
equity markets last year in the us stocks traded
00:34:05
a total volume last year are you guys ready
for this 121 trillion dollars of notional
00:34:11
um across 2.7 trillion trades do you think
that 121 trillion dollars of notional equity
00:34:20
value trading provided capital to businesses
anywhere close to one percent of that total
00:34:26
amount of trading volume it really is a synthetic
instrument that allows people to participate in
00:34:32
i bet that something is going to go up and
i bet that something is going to go down with other people of an of a similar ilk and
one person makes money and one person loses
00:34:40
money and at the end of the day the underlying
business entity doesn't benefit whatsoever and you see it when shorts go against
businesses like happened with elon and tesla
00:34:48
and you see it when derivatives like cdos blow up
the [ __ ] housing market where people basically trade these derivatives that sit on top of
housing and that capital did not find its way
00:34:57
into homes to help people buy homes it ultimately
led to the uh collapse of the only the only reason
00:35:04
that lehman and bear stearns was shut down was
in 2007 and eight when they were in a liquidity
00:35:09
crunch in the same thing and they basically
had all these trades blowing up against them and they couldn't collateralize them was that
the people on the other side were hedge funds
00:35:18
and that's why you know they were put into the fed
and that's why we were able to basically like you know come out relatively unscathed and but i mean
by relatively unscathed is like a global calamity
00:35:28
um the the tragedy of this is that this is
the tragedy of the commons it's like you
00:35:33
know there is no organization of people that
can say hey listen i'm really rich and wealthy and what happened here was wrong even though it's
probably on the same scale and so everybody that
00:35:44
was a participant in it is in in my opinion
i think is guilty of all of this they were they were complicit in the robbing of america
do you think calls and puts um and shorting
00:35:55
should be allowed should those markets exist i
i do have a sense of common sense solutions and
00:36:00
let me uh let me kind of give you them and then
you can tell me what you think so the first is we need to use modern technology let's
just start with that right to ensure that
00:36:08
you know one share of stock right isn't loaned out
multiple times so that you can't have a scenario
00:36:15
where you have more than a hundred percent no
brainer right that's a no-brainer so you still support shorting some up yeah let me let me
just go through the list and then you can tell
00:36:22
me what you think if if high-frequency firms
can trade tens of millions of shares per day there's no reason why we can't reconcile who
the beneficial owner of every share is so
00:36:31
maybe that's a you know now maybe we found the
first obvious use case for a blockchain right um
00:36:38
like you can't borrow a share unless you can prove
beneficial ownership in a in a you know nanosecond
00:36:43
which can only be done on a you know decentralized
ledger but the point is number one is we need to
00:36:49
rebuild this infrastructure you can't have 136
percent of a company be short that makes no sense
00:36:56
the second what we've learned is that again
the it's like are we going to basically have these blow ups every 10 years before we actually
address the elephant in the room which is leverage
00:37:05
like you need to have leverage limits so for
example banks coming out of 08 have super strict
00:37:11
oversight and leverage limits and because they're
dubbed systematically important we don't do that
00:37:17
for hedge funds and i think we need to and i think
that we need to have the ability to realize that these these guys can cause systemic risk right so
um just on this example i don't know if you guys
00:37:27
have ever heard about long-term capital management
yeah this guy john merryweather the asian
00:37:34
currency crisis the whole thing collapsed so good
there's a good book on it well so it's it's funny but if you guys think this is the second financial
calamity it's not the first it's the third because
00:37:43
the first one happened in 1998 so in 1998 it was a
firm call it was the whole uh economic system was
00:37:51
going to collapse if the bailouts didn't happen
so listen to what these guys did long-term capital management borrowed they had 4.8 billion dollars
of capital that limited partners and investors
00:38:02
gave them okay these [ __ ] crooks were able to
then borrow 125 billion dollars 125 billion on the
00:38:14
4.8 billion of notional so they were able to lever
themselves up 26 times by the way synthetic margin
00:38:20
right no actual capital was allocated to these uh
to this transaction uh set it was all synthetic
00:38:25
like no no money moved accounts when no money
moved accounts so it was literally just writing stuff against debt that couldn't have existed yeah
so they so they built 60 000 trading positions
00:38:38
and those individual positions represented
again 1.4 trillion right us dollars so you took these guys in a room took 4.8 billion
got knucklehead over here to give them 125 and
00:38:56
then got these knuckleheads to sell them positions
and all of a sudden 4.8 billion equaled 1.4
00:39:03
trillion and so then u.s u.s regulators
had to step in they had to orchestrate a bailout from a consortium of banks because
they were concerned that if ltcm collapsed the
00:39:14
whole system would collapse because they didn't
understand so right so we have to we have to put
00:39:20
leverage limits on top of hedge funds the third
is we need to improve disclosure the the rules
00:39:26
at the sec right now is to discourage
disclosure that doesn't make any sense we should force everybody to publish what they own
on a weekly or monthly basis you have the ability
00:39:37
to do it the technology is simple so you need to
imp improve disclosure because then watchdogs and
00:39:44
other people can basically be looking at it all
day and identifying these risks faster not slower
00:39:53
the third is we need to do
something around open trading like why is it that you're you know people are
allowed to go to casinos why can you uh you know
00:40:02
buy lottery tickets um but all of a sudden like
we're gonna decide who's financially literate
00:40:07
a platform like robin hood can decide what's
bought and what's sold i don't think that's fair um and then the last thing is i think that
we should have a short-term trading tax
00:40:17
um we tried to pass one in 2018 10 basis points
if you had passed this 10 basis point tax in 2018
00:40:24
on short-term trading it would have created a
trillion dollars almost i did the math on this because i actually the reason i ran all the
equity numbers was to figure this number out
00:40:33
so in the u.s we generated 160 billion dollars in
capital gains tax last year and if you look at the
00:40:40
volume i described earlier in terms of notional
traded of equities and number of shares traded
00:40:45
if you charged 0.1 every time someone sold a share
on the value of the share they sold it would equal
00:40:52
the capital gains tax so what you could do is you
could charge 0.1 on every trade it would reduce
00:40:58
all of this high frequency nonsense where people
trade in and out of stocks it would force people to trade for the longer term or basically invest
in companies and you could get rid of the capital
00:41:07
gains tax think about that if we didn't have to
pay capital gains tax and we were only taxed when
00:41:12
we traded out of a stock 0.1 percent you could
see an incredible amount of capital making its way into businesses and this would fuel economic
growth and jobs and prosperity um and so i think
00:41:23
if you could pull that off put the two together a
0.1 percent sales tax on every share sold and get rid of capital gains tax the lobby is incredibly
powerful the lobbyists got to that bill but that
00:41:33
10 basis point tax on high frequency trading it
just means like look if you're going to trade a whole bunch of [ __ ] every eight seconds you just
have to pay 10 basis points in and out 777 billion
00:41:43
dollars of incremental revenue to the federal
government and it was lobbied out and i agree with you and by the way the more more money goes
in more money makes its way into companies right
00:41:52
and that's the best you stop all the nonsense
where people are basically trading to bet that something will go up in the short term and you
get people to make investments in the business as
00:42:00
opposed to the momentum lowering the capital gains
rate is genius because i think that if you if you
00:42:06
are a retail investor and you can for every year
you hold if you can decrease your cap gains rate
00:42:11
by 20 by the fifth year now all of a sudden retail
folks aren't necessarily gambling they're owning
00:42:17
and their cap gains rate would be zero
after five years that would be amazing i i have a a basic question i'm interested in
your position saks and maybe even around the horn
00:42:28
what happens to the if the short positions get
covered which they're going to be at some point in game stop i would think or some large amount
of when the short squeeze is off what happens to
00:42:39
the people who are buying in you know to the meme
stock as a retail investor let's say over the next
00:42:45
10 days are they going to be left holding the bags
is there any way this company could be worth 20 billion or 25 billion because as freeberg points
out there people are not buying gamestop they're
00:42:54
they're trying to destroy a hedge fund
uh who made a stupid manipulative bet great we all love the the robin hood story of that
not robin hood tm but the generic term robin hood
00:43:06
um what happens to those people are they
gonna be the last people holding the bag probably this is not going to end well there's no
question about that i totally agree with you that
00:43:14
people engaging in this kind of speculation and
buying at these prices it's not going to end well now i do think that the redditors actually had a
brilliant strategy right when they noticed that
00:43:24
these hedge funds were over short overexposed and
they seized on that vulnerability they did to the
00:43:30
hedge funds what the hedge funds usually do to
everybody else which is find the achilles heel right and pile in so i think the strategy started
brilliant now anyone who's piling into it i'd be
00:43:41
real careful because i think the hedge funds have
regrouped you know and um you know the idea that
00:43:47
you're gonna be beat them at their own game you
know when look i mean citadel is executing your
00:43:53
trades i mean right that the trades are the
order flow is going from robin hood to citadel
00:43:58
they're not going to be caught flat-footed they're
on the other side of this trade and so you know i just think the house always wins i'd be real
careful about getting into it at this point
00:44:11
robin hood just tweeted that now the list of uh
restricted names is now up to almost 35 or 40.
00:44:18
i think it's worth um randomly picking companies
guys rlx what is rlx uh i think that's uh
00:44:25
ralph lauren nope you're
not allowed to trade that um sndl i don't know what that is but you
can only buy 10 shares would a better
00:44:32
solution chamoth be for them if they can't
handle this and they have the risk of ruin to just say we're not adding any more accounts
until we can digest all this and raise enough
00:44:41
capital to float all this and do you think there's
a chance the sec is telling them you got to pump the brakes on this because we can't have a market
crash two questions jamal um i i think that the
00:44:52
the the issue isn't um robin hood uh ability to
grow it's that they don't have their ability to
00:44:58
run their business and so their incompetence is
gonna cause them to i think have to deal with if they had well if they had 20 billion dollars
in cash right now this would not be an issue right
00:45:07
i think you're right okay so assuming they can
line that up because that's probably what's going on right now is a 10 billion dollar uh
investment is going to go into this company
00:45:15
pre-ipo so that they can actually take advantage
of this situation and grow so despite the fact that you have an axa ground with them because you
have sofia competitor that's very far behind them
00:45:24
that had its own colossal problems let's put
that aside for a second you're talking your own book without even mentioning it do you think
that if they had that 10 billion they would just
00:45:33
open up all the doors or do you think maybe they
should say hey we're not going to add anybody else i think that what's going to happen is
they're going to get sued into oblivion
00:45:42
i think that the class action lawsuits here when
people talk about the uh implied losses that that
00:45:48
they that they had over the last 24 hours david
sachs is right you can't undo it the thing is like
00:45:53
what in all of these other situations like in the
uber fiasco you know you can't claim much damage
00:45:59
right because you can't measure it you could have
taken a bus you could have taken a taxi you know you could have taken a lift maybe you could have
walked who knows what it is but the point is that
00:46:08
the the economic impacts um i think were much less
than maybe the psychological impact right like you
00:46:14
were angry here it's the exact opposite which is
that you prevented people from transacting in an open market and when people signed up to use
the service that's what they thought they were
00:46:22
signing up for and they thought that the risk on
the back end would be managed you have to remember
00:46:27
it's not that the individuals did
anything wrong by buying or selling it's that robinhood did something wrong by not
being able to manage their business accurately
00:46:35
and then that then impacted the users to
the tune of tens of billions of dollars that has to get adjudicated and so yeah
i think the right thing to do is to stop
00:46:43
the business hit the pause button allow people
to elegantly transfer their money out do we have
00:46:48
to remember on the back end of this whenever
that you have one of these market failures
00:46:54
the clearing houses are allowed to instantaneously
close your account and transfer to another broker
00:47:03
instantaneously you have that right and so the
market does understand the systemic risk at some
00:47:08
level they just didn't push it all the way through
to the end of retail and so we're going to have to unwind this and unscramble this egg because
it's a really it's a really big problem yeah
00:47:20
you imagine growing growing willy-nilly because
everybody's infatuated with valuations and blah
00:47:26
blah and you move into a regulated market where
you needed to understand capital constraints you
00:47:31
needed to understand modeling you needed
to understand three and four sigma events it just means you're under prepared which means
at a minimum you can't be doing business until
00:47:39
you get that [ __ ] under control yeah i i
actually think we're almost in sync on this um
00:47:46
you have a little bit of an axe to grind because
of your other portfolio company i think that you still won't recognize that you have a way let's
talk about worse in the race wait because so far
00:47:54
i just did they did they finish resolving all of
their harassment lawsuits is that all resolved now
00:48:01
or is that still open yeah we've and then you
took them public so did did you work all that out before you took them public yeah jason we
we transitioned the ceo we've completely hired
00:48:10
a new team um i mean it's incredible right
so you so your company that you took public
00:48:15
can resolve issues and you can give them time and
then you can in fact become their mentor and you
00:48:21
can become their savior to get them public and
save that company jason you should robin hood can't jump robin who can't can't talk about
his company that's going public right now so
00:48:31
just as his lawyer i'm gonna step in and okay
no no make sure you don't go to him into saying something companies all of our companies and i
don't mean to create a lot of collateral damage
00:48:40
here but sacks had a company that had challenges
chamata companies are challenged we've all had companies have challenges and i think focusing on
what is the role of an investor when your company
00:48:51
faces challenges i think the role of the investor
should be and i take umbrage to you chama trying
00:48:56
to dunk on me because i'm supporting an investment
i think it's a low blow and i take it personally
00:49:01
i'll be totally honest i am trying to work with
the company to help them resolve the issues and i need to be loyal to my founders and i need to
say hey how do we resolve this how do we get here
00:49:12
and work with them and you say that i'm right or
die but that's how i approach this is i should be trying to be helpful as a shareholder could you
i think you try to be too but could you make the
00:49:21
argument that someone dunking on your company is
the equivalent of a hedge fund shorting a company
00:49:26
i'm talking about my personal relationship with
chamoth which you know it's different than you know the the public markets right i know but what
i'm saying is like i think in the private markets
00:49:35
we hear a lot about venture investors um you know
often speaking good about their own companies
00:49:40
where people really get irritated is
when venture investors speak bad about other companies it's the equivalent of
the hedge fund short and uh you know
00:49:50
jacob i mean chamoth may be dunking on robin hood
i don't hear him dunking on you i mean i just said
00:49:56
i stumbled into the investment at the opening well
you stumbled into vlad in a bar i mean you told me
00:50:02
jason you told the story jason you told the story
recognized me in a bar and came up in pictures
00:50:08
but you told the story flippantly on television
that you ran into man antonio's nut house what do you want us to think you didn't tell us hey listen
i had i had systematic scouts reach out based on
00:50:18
traffic growth i sat down my that's not how i get
deal flow fine by doing a podcast decal if you
00:50:24
want me to apologize for your flower it's through
this jason but jason if you want me to apologize for saying that you stumbled into it based on your
public description on television then i'm sorry
00:50:35
yeah but it doesn't but it doesn't take
away from what we have i i think the investors responsibility this is what i think
is fundamentally wrong with silicon valley
00:50:44
we are people that basically do this like hero
worship around founders and it's stupid i think
00:50:50
we have a job as fiduciaries to the users and to
the employees and to everybody else that doesn't
00:50:55
have a voice and most investors are incapable
of actually pushing people to do the right thing okay i'm pushing to do the right thing and i
always i've learned the hard way and in this
00:51:03
example what i'm saying is this problem should
have been solved three and four quarters ago
00:51:08
and that's a government yeah i mean look yeah
you said your mother you're right about that but i mean just to give jkl a little support here
i mean the reality is you know we've all been
00:51:17
on the inside of these hyper growth companies and
you know like mistakes happen all the time because
00:51:23
you're moving so fast and yes it should have
it should have been fixed you know but but you
00:51:28
know stuff happens now the question is when bad
stuff happens is it an integrity issue or is it
00:51:34
negligence or is it just people running too
fast and i don't think we know that this was an
00:51:39
integrity problem i mean it could have just been
people running too fast but david that's what i mean you knew what the rules were meaning i don't
think i think it is an integrity issue the rules
00:51:49
were not like all of a sudden in a crystal ball
and all there's a magic 8-ball that spits out a
00:51:54
rule when you do a deal with dtcc when you did
a deal with your holding company for clearing
00:52:00
you sign contracts those contracts should have
been modelable this is an excel problem this
00:52:06
is not i i i i hear what you're saying and i'm
saying i don't completely know i want to get to the bottom of the relationship between citadel and
robin hood and i want to understand if there was
00:52:15
any undue influence there okay or whether this was
just a case of hyper growth catching a company by
00:52:22
surprise i'm not defending them i'm just saying i
don't know and therefore i think it's a little bit premature to be talking about giving this company
and i also don't think is there even a possibility
00:52:32
that this has ever happened in the history of the
stock market or the modern stock market that's 10 million new and well done i even say what it is
10 million new retail investors came into a stock
00:52:42
you know where millions of them a day and that
the stock traded i don't think that we've ever had social media collide with finance like this
and it's very reminiscent of our discussions with
00:52:51
democracy and journalism censorship and politics
we we're having weird behaviors because of
00:52:59
virality and i think that seems to me this is
the most important learning from this experience
00:53:04
forget about the fiduciary and the governance
responsibility of these companies whether they were good or bad will be resolved over the
next couple of weeks and months i'm sure
00:53:12
as more information comes to light but what's
super interesting about what happened this week and i think is the most impactful societally
over time um is that we're seeing this phenomena
00:53:23
where um individuals in aggregate can believe
something to be true and make it true and um
00:53:30
we saw this with tesla and i i don't think tesla
got this level of notoriety because it was such a
00:53:36
a longer play out cycle but elon you know was not
hitting numbers that people thought he was gonna
00:53:42
hit margins production volume etc people were
shorting the stock but enough people believed in
00:53:48
the story that elon told about what he wanted the
future to look like that they bought the stock and
00:53:53
that gave him the ability to do shelf offerings
raise additional capital and ultimately build the business and make it manifest in reality that he
said would happen and the same is true of bitcoin
00:54:03
and the same is true of trump and the same is
true of storming the capital in all of these cases
00:54:10
there was a belief in something and there was an
aggregation of individuals using social media as
00:54:16
a mechanism for sharing and talking and engaging
and creating a collective outcome that wouldn't
00:54:22
have happened through a centralized system or a
centralized process and wouldn't have happened in the traditional way where history defines the
future and i think that is what's so powerful
00:54:32
about what's happening right now and we're seeing
it in financial markets but we're also seeing it play out in politics and we're seeing it play
out in the real world um in a remarkable way
00:54:42
and it goes back to this notion that like a stock
is worth the underlying value of the company and
00:54:48
that that's not true people can dream a stock to
be anything as they did with tesla at the time
00:54:53
that people were buying tesla stock the historical
performance of that business was not what hedge
00:54:59
funds considered to be a you know a profitable
good business it shouldn't be worth anything
00:55:04
but the belief in what it could be is what drove
the value of that stock and ultimately that value enabled that business to become true um and it's
just it's it's amazing to see it happening and i
00:55:13
think the the counter which is really what makes
this so striking is the centralized institutions
00:55:19
that are trying to block this from happening and
um the shutting down of parlor and the shutting
00:55:24
down of robin hood trading are are equivalent
from my point of view um or at least equivalent
00:55:31
i think will be perceived to be equivalent broadly
which is if a group of people get together and try and use an online service to make a change in the
world by sharing and talking with one another and
00:55:41
communicating a belief a collective belief and
that gets yanked away from them the institution
00:55:46
that has the ability to yank it away from them
is evil and it will force people to decentralize and it will enable new ways of trading new
ways of communicating um new ways of building
00:55:55
um and and that's the profound change that i
think this decade is going to realize and we're just seeing it start now i agree that parlor
or wall street bets is parlor 2.0 right and
00:56:06
and what happened as soon as wall street
bets started which is the the reddit kids
00:56:11
they started threatening and they wounded these
powerful insiders these rich you know hedge fund
00:56:17
magnates what happened they started getting
banned off of discord they got discord as
00:56:23
a tech company to kick them off how did that
happen they've been talking on there for months
00:56:28
and all of a sudden just magically right at
the critical moment where they're also not allowed to trade their free speech gets cut off
that's a that that was deliberate now i'll tell
00:56:37
you how it happens is i guarantee you what
these hedge funds did is they went through the discord room and they screenshotted you know
any post that they could plausibly characterize
00:56:48
as you know hate speech or what have you and you
know and and by the way i mean those there's a lot
00:56:54
of raunchiness in these rooms but it's not
hate speech and it's not organized for the purpose of hate it's organized for the purpose
of trades but what they do is they weaponize
00:57:03
these censorship rules and they go in and they
screenshot and then they give it to discord and they get these guys kicked off and this is exactly
what i've been talking about with censorship it
00:57:12
starts with something you like and then becomes
something you don't how many of the people who support these you know reddit kids were in
favor of de-platforming trump and parlor and now
00:57:23
they can see where it goes this is slippery
slope and we've only had to wait three weeks to see where it goes it goes to the same place
which is when the people in power get threatened
00:57:33
they use these rules they weaponize these rules
to shut down the outsiders and the upstarts that is the problem with censorship that is why
you cannot let the beast get started i completely
00:57:42
agree and i think this is exactly why how i
think where we came out was you know the deep
00:57:47
platforming of trump made no sense i think the the
economic censorship of robin hood makes no sense
00:57:55
yeah and you can argue it's the right thing to
do with a narrow context but when you take the broader point of view of the implications that's
where this becomes really shaky and really scary
00:58:04
and i think really enables a decentralized
movement that is going to be a lot broader
00:58:09
um than than folks are really realizing at this
point you know folks don't want to be trading um
00:58:15
on a system that tells them how to trade and folks
don't want to be communicating on a system that tells them how to communicate if i gave if i was
running robin hood and i said uh we're going to
00:58:27
have two options there's going to be a robin hood
diamond membership and you pay by the trade and
00:58:32
you know you get these special features and then
the robin hood free you know you you get uh your
00:58:37
data is sold or however it works would that
be a possible solution i think to the optics
00:58:43
issue here where consumers could basically pick
just like if facebook or instagram woke up one day and said for 9.95 a month you can have none
of your data no advertising ad free like hulu
00:58:54
hula premium i would so here's the thing j cal um
i i hope your robin hood investment is successful
00:59:00
i just think that there are now three moments in
robin hood's life there is pre this week and it
00:59:07
is what it is it's an 11 billion unicorn
god bless them then there was this week
00:59:12
where we have to frankly hold people accountable
for the economic damage that they created this week because it is measurable okay it's not
that it's not like missing it you know um
00:59:23
uh it's it's not like you know surge pricing
in uber it's not you know uh facebook growing
00:59:28
too fast and allowing you know pictures of breasts
getting posted and i'll have to catch up it's not that okay it's not a bunch of like disinformation
that we can't really judge this is very discreetly
00:59:39
judgeable and so in this week robin hood existed
as a different company and i think that there's an implication for that then to your point honestly
i agree with you it's what happens from here and
00:59:48
i and they should survive but they have to learn
and i think what they have to learn is you have
00:59:53
to stop the account growth you have to massively
shore up the balance sheet take the dilution get
00:59:58
the capital you need because let's be honest i'm
sorry but nobody's gonna show up with five or ten billion dollars at 11 billion pre they'll show up
at five or ten billion dollars at three billion
01:00:07
pre and they should take the money and then they
should allow the platform to work as intended or at least as perceived to be intended to their
users and then they should reopen to everybody
01:00:18
what would you do david if you were in charge and
then let's move on to our next topic well i i mean i i i i feel like we probably talked about robin
hood enough and i kind of want to go back to the
01:00:26
point that that freeberg was making just kind of
up leveling this a minute which is i i definitely think this is part of this ongoing populism versus
the elite war and social media is now the tool
01:00:39
that the people use to organize themselves against
these powerful elites it's why we cannot allow
01:00:46
censorship because it always comes down uh it to
benefit the powerful the elites against the people
01:00:53
trying to organize against them that was for to
me one of the biggest takeaways from this week and and look the reason why people are organizing
is they're asking the question what is the
01:01:02
societal benefit of these big hedge funds in
relation to the enormous sums of money they make
01:01:09
every year you go to like the forbes rich list or
whatever and every year these guys are taking down
01:01:14
the most money they're not creating companies you
know and chamath is right we can't have founder worship because they make mistakes too but at
least founders are creating things right they're
01:01:22
taking big risks that they're not providing risk
capital like what we do okay we're investors but
01:01:29
we're funding people's you know we're we're taking
the risk of writing checks to to start the guy
01:01:35
who's got nothing right or gal yep you know they
them it's all all good all of them all of them
01:01:44
so so but try to keep you from getting canceled
here but but but but what it what exactly is the
01:01:49
societal value of these hedge funds now i know
that they provide some price discovery and they provide greater liquidity to markets but is that
really worth them really being the richest players
01:01:59
in the game it doesn't make any sense and then
when they lose like in 2008 they get bailed out
01:02:06
it makes sense it makes no sense something
is wrong here now is this a right-wing view a left-wing view it feels to me like there's a
political realignment happening here where the
01:02:15
left and the right we're all getting on board with
this idea and it's got to get fixed yeah this this
01:02:20
might be the legacy of trumpet way sacks that he
created so much disruption over those four years
01:02:27
that now we're actually finding out where the
actual breaking points are in society and this is one of them and the healthcare system is one
of them and freedom of speech is one of them and
01:02:35
we need to address each of these and they're
complex but there is common ground i mean when aoc and ted cruz are both agreeing uh on the
same issue with something's going on here like
01:02:45
i think we have to fight the real enemy chamath
and i should not be fighting over this because i can tell you if chamoth did the series a and
this he would be backing up robin hood like this
01:02:54
to the end of the end of earth and that's
totally fine and i agree with jason i just i just want you to know number one i love you
with all my heart and i and i hope you make it
01:03:02
i hope you i hope you make dinner hundreds
and hundreds of millions of dollars but there's a it's just like you know you were you
just got upset with me because you thought i was
01:03:11
kind of saying that you stumbled into it i didn't
mean it that way i was just repeating the way that i heard the story but something that touches
me equally ferociously is this idea of like the
01:03:20
little guy getting run over by some like you know
objective thing over here that makes a decision
01:03:26
that's arbitrary i'm 100 agreement with you and so
like the idea that like you know somebody who's on
01:03:32
an app all of a sudden gets censored somebody that
you know makes a post gets cancelled somebody that
01:03:39
all tries to make a trade can't it feels unfair
it feels that each individual is suffering some
01:03:45
pretty deep inequity yes and i can't i just can't
stand that it really just touches me in a way
01:03:52
that tilts me and i get very and you know what
it's interesting i think the reason i made the
01:03:57
robin hood investment is because my belief in the
underdog in my belief in people's ability to come
01:04:03
up from being poor middle class to middle class
or affluent freedberg you haven't chimed in yet
01:04:08
as we wrap here and then move on to our
second topic i think we're at an hour so it's um so i just want to say um you know we
talked about decentralization and you know we
01:04:20
all feel the emotional response to the little guy
getting screwed by the big guy that controls the system and we want to fight the system that's
the basis of every great movie um it's worth
01:04:32
highlighting though that decentralization and what
i would kind of characterize as swarming behavior
01:04:38
uncontrolled swarming behavior can actually have
negative consequences and there's a reason systems
01:04:44
exist you know um when you put a bunch of people
in a room let's say you put 100 people in a room and every time and someone says the word door and
every time you hear the word door you're supposed
01:04:52
to repeat it within 30 seconds the entire
room will be like deafening with everyone's screaming door door and suddenly everyone will be
screaming it that's a feedback loop that occurs
01:05:02
in an uncontrolled social system and that's what's
occurred with gamestop and it's what occurred with
01:05:07
with bitcoin so there are as we've seen remarkable
outcomes when you allow systems to operate without
01:05:13
centralized control and without centralized brake
pads that that kind of slow them down or put in
01:05:18
place some rules and some obligations to how that
system operates the problem with decentralization
01:05:24
and this swarming approach uh to to resolution
where lots of people basically work together
01:05:30
individually is you end up with things like
cancel culture where um before a judge and jury
01:05:36
determines whether or not someone did something
wrong the community decides that person should be punished and shuts them down in the real world and
their career and their life is ended and ruined
01:05:46
and we saw the same and we saw the same with
the capital riots you know people basically died
01:05:52
because of the swarm that occurred where this
idea that the there was fraud in the election became an echoing deafening noise for these people
and they swarmed and killed people and the system
01:06:05
by which you can actually have vigorous debate and
the system by which you can actually have controls and processes and judges and juries and trials
is what needs to be improved for this to work
01:06:16
otherwise people will go to decentralization and
you will have a lord of the flies moment that
01:06:21
engulfs civil society because the tools are there
today and so centralized systems can work but they
01:06:29
have to adapt and adapt quickly to be fair and to
enable and to not um discriminate otherwise we're
01:06:35
gonna see lord of the flies and we're gonna see
decentralization being the solution to getting out of the system that's inhibiting us and we're
gonna end up having really [ __ ] ugly outcomes
01:06:43
there's a psychological term for what you're
describing it's the diffusion of responsibility when and also known as mob behavior when a
group of people collectively do something
01:06:52
their individual morality can evaporate and the
larger the group and the uh more intense the
01:06:59
behavior the less responsibility each person takes
for it so five people on the steps of the capital you know one person breaks a window maybe somebody
breaks it but once you have 500 or 5 000 and one
01:07:08
person breaks a window now you got a much higher
percentage of people start breaking windows and that's when tragedies happen of course world war
ii was the diffusion of responsibility with the
01:07:17
team yeah you're totally right yeah you're totally
here just just one quick point then we can just
01:07:22
move on yeah so i think these like viral tools
these social networks they enable two things they enable mobs but they also enable movements i think
the mobs are bad and the movements are good or
01:07:33
they can be good depending on what their manifesto
and what their mission is and so i think we want to enable the movements but we want to be really
careful about the mobs and you know one of the
01:07:42
things that's kind of disturbing about twitter is
i generally find that like the tweets that seem
01:07:47
to go the most viral are the ones that are full
of rage and anger and the ones that are trying to make more nuance points just kind of get lost
and so there is something a little bit disturbing
01:07:56
about the mob behavior but but the movement the
enabling of these new movements i think is really powerful and that's what wall street bets was
at least in the early stage and they did not
01:08:05
deserve to get shut down like that social social
networks are a collective amygdala they are not a
01:08:10
collective cerebral cortex and i think if someone
can solve that problem and get people to think
01:08:15
about the rational objective outcomes in a social
way in its engaging a fashion as it is to kind of
01:08:20
be excited by the negative shift that excites the
amygdala um you know it could be really powerful
01:08:26
but that's probably we're gonna need politicians
who we're gonna need some level of politician who
01:08:31
has some integrity and some expertise if
only well don't you think don't you think
01:08:40
don't you guys think that what this means
is that uh entrepreneurs now can really think about decentralization as the key feature
like in many of these markets or these systems
01:08:51
where we have the centralized authority we
have to move to a much more decentralized democratized way of doing things whether it's
stock trading or whether it's healthcare records
01:09:00
or whether it's you know education
systems and degrees and accreditation there has to be a way where you can't morally
yeah but with morally and ethically inclined and
01:09:10
or legally inclined systems that ensure that the
behavior of that system doesn't run amok and you
01:09:16
know that's really where things can um can go can
go awry uh as we've seen lately um but it's a hard
01:09:23
problem to solve it i i don't think we're gonna
solve it here today just uh a final update fif
01:09:28
i don't know if this is exactly correct but i just
asked on twitter how many shares of gamestop we're still short apparently they're still 55 billion
shares are so short uh of the 70 million or so
01:09:40
total shares and 47 million in the float um so
something very bad could still happen here i
01:09:46
mean these shorts have not been covered so
this is going to be an ongoing saga where
01:09:51
i think every single platform if if consumers keep
buying these shares what is the end does anybody have an idea or a prediction on the end game
here and then we'll move on what is the end game
01:10:00
if another five million people buy the shares or
10 million people buy it it goes to a thousand or two thousand what happens if gamestop is worth
a hundred billion dollars it's such a great
01:10:11
thing that's a great question well can i tell you
jason what that means there's a great article in
01:10:16
the information which sam lesson wrote i don't
know if you guys read it but it basically said why did tesla win now this is not accurate but i
think his framing is relatively accurate which is
01:10:26
people were buying elon like they
would buy a trading card that's right and and tesla is a manifestation of elon that's
right um and it actually is so visually it makes
01:10:37
a ton of sense to me like then i think you know
why have like richard branson's businesses worked or why is the jordan brand work or all the you
know at a smaller level yeah at a smaller level
01:10:48
because we're brands and we have these values
and people can imbue their their collective decision making and support to the person versus
the institution it's a belief it's a belief in
01:10:58
what that person represents too you know i can uh
why did uh uh mbs buy that freaking painting that
01:11:06
wasn't even a leonardo painting for a billion
dollars you know there was some belief there you know is it really worth a billion dollars it
doesn't matter at the end of the day most assets
01:11:15
are most assets are purchased under the premise
that i believe the price will be higher tomorrow
01:11:21
than it is today and if we all believe that then
we will all buy it today and we will all find more
01:11:27
people buying it tomorrow that's what bitcoin is
do we all agree though that gamestop is not tesla
01:11:32
i don't agree with your premise i don't think
that stocks necessarily need to be reflective of
01:11:37
the underlying business and that's what so but but
no just think about it that's what's so shocking about this week because we've all been taught in
these freaking economics books and these financial
01:11:47
analysis books oh the stock is worth x dollars
this kind of cash flow what company has ever paid
01:11:52
out dividends that equal the amount that you paid
to buy the freaking stock unless you lived in 1926
01:11:58
it hasn't happened so everything we've been taught
about dcfs and future cash flows and everything
01:12:03
is nonsense at the end of the day every stock
trades based on the assumption that someone
01:12:08
will pay more for it than i am paying for it
today that is it that is entirely what a stock is and so if everyone's belief is completely
uncoupled from the underlying asset that that
01:12:18
stock is meant to represent it doesn't freaking
matter and it highlights what's really going on trading stocks is not investing in businesses and
can i say yeah can i say something else on top of
01:12:27
this jason what was the name of the remember when
we were talking about censorship what was the name of the the the left podcast that got canceled
on twitter right side uh red scare red scare
01:12:38
is gamestop red scare or at the real donald trump and my point is who the hell are we to
decide right how does it affect you all
01:12:51
what's your prediction we're sitting
here a year from now full year out what does gamestop january 2022 look like
what does the stock price look like what is
01:13:00
the business look like what how does this all
resolve itself you know i'm i'm not a public stock market trader i'm just not i i just feel
like it's i'm not a day trader i don't i don't
01:13:10
buy public stocks it's just kind of like to me
it's a distraction what do you buy this end i
01:13:16
you know just buy vanguard funds like guys if
you're listening to this program and you're wondering where to put your money just buy
vanguard funds and stop worrying about it
01:13:24
index low fees index yeah low fee index yeah
i mean if you want to bet specific companies
01:13:29
because you get enjoyment out of it do it but
yeah okay so nobody has any idea what happens if it hits 100 billion or how this ends so i think
that's that's illustrative of my point is that
01:13:39
for somewhat intelligent people who have some
degree of expertise in this area we have no idea
01:13:45
how this ends but this is the box no but this
is the point it is a it is a collective ouija
01:13:51
board moment everyone's got their hand on the
ouija board and they're gonna craft the sentence any one of us individually cannot predict what
a collective group of three million plus people
01:13:59
are going to do and we've you know we we try and
struggle and think about the underlying value of a business which is what these hedge funds have
done historically but at the end of the day this
01:14:07
thing is going to be worth what the market tells
you it's worth and what the market chooses to do we wouldn't know because we are not the collective
three million um jason yeah yeah let me respect so
01:14:17
so look jason there's two questions right there's
always this question of like what should the price be and then who gets to decide and look do i
personally think gamestop is overvalued yes
01:14:28
of course i think it's going to end very badly but
the question is who gets to decide and is the game going to be rigged by powerful insiders against
outsiders just it's just like the same question
01:14:38
with parlor okay which is who gets it's not about
which look we can say that there are certain views
01:14:43
that are bad okay but the question is who gets the
power to decide that and it's and and that's what
01:14:49
that's the thing we have to ask is that second
order question of who has the power to decide is there any outcome amazon got to decide and robin
hood got to decide and the victims were parlor and
01:15:00
gamestop 100 okay so this would be a good segue
to move on uh apparently we had a discussion on
01:15:08
the last episode about running for governor and
uh i bought the domain name governor trimath.com
01:15:15
i had governorjason.com i got governor sachs and
governor freedberg.com and i redirected them and
01:15:20
you guys owned them and they're they're redirected
to your twitter handles and lo and behold we wake up one day and uh chamath4ca is live chamboth
everybody wants to know jump the gun we were
01:15:33
going to have a vigorous debate and decide which
one to be yeah who's gonna run but somebody jumped in and i'm not saying other besties might not jump
in other besties could jump in they have domains
01:15:45
stay tuned stay tuned no jason we do not want
to split the bestie vote i think we got all the
01:15:51
best please this is this is the four musketeers
we're all behind now we do not want to split the
01:15:57
bestie vote okay it's on you tell us what's
going to happen now what's going to happen
01:16:09
we are going to do an emergency
pod and talk about exactly that so if folks want to know they're going
to have to tune in midweek but uh
01:16:24
you put out a platform what's the action
been and no these the reactions been possible three guys midway i want to be i want to be
very clear midweek midweek but i'll just tell
01:16:32
the quick stories three uh young people um these
three amazing guys just they built it and i just
01:16:39
retweeted it um i can say that tens of thousands
of people have signed up for updates i know that
01:16:45
much um all these three guys though here's the can
i just if i can tell a shout out to these guys um
01:16:51
uh rahul samir and aman all these three guys um
they don't live in california um two did but had
01:16:59
to leave one uh wants to move but can't because
he can't afford it and it's just such a microcosm
01:17:06
of like how beautiful california as a place is
and just what people think about when they think about the state is just so it's so lovely so for
another time but um anyway shout out to those guys
01:17:17
for building the website thank you so essentially
the entire market has now been driven by a group
01:17:24
of all-in of the all-in army built a website you
retweeted it and that's what this is all about
01:17:32
so there has been no paperwork filed there is
no action committee however it has traction
01:17:38
so it makes one hand and you know i mean
there may be a shadow cabinet meeting maybe
01:17:46
what is the chances well i think chamoth by
publishing that website just went down the
01:17:52
escalator escalator he's gone down the escalator
and who knows what could happen now i'll tell you
01:18:02
this i went on uh i'll i'll do a plug i went on
bloomberg amazing this week amazing hit great
01:18:07
amazing it's on youtube we can put the link to
the show notes yeah put the link in the show notes
01:18:13
nick people need to watch that i went through all
the the the ways in which california is hurting
01:18:18
newsom hasn't done a very good job and i made
my case for chamath so that's a prelude to what we'll talk about on the next pod but the the
the amazing thing is the outpouring i mean
01:18:28
the number of people who texted me
emailed me and chamath and all of us like there's a groundswell happening now 100
so you know i would say all the fans of the pod
01:18:39
who are now behind this you guys are making
it real uh free it's pretty crazy manifest
01:18:44
destiny here what's going on is this another
wisdom of the crowds or a mob or a movement
01:18:52
who am i to say are you are you in as chief
science officer will you be our dr fauci you know
01:19:00
here i i think we should have a good debate on
our next pod and hear the platform and discuss the
01:19:05
platform and um you know uh make sure that we all
feel like this is uh uh this is where we should be
01:19:13
um and i think this is gonna take a little bit of
time uh to uh to build um and i think you know the
01:19:20
more we kind of build towards it the more likely
we are to have that ground swell that we're going to need well let's give the oil in let's give
the old i will tell you it seems pretty likely
01:19:30
that this uh recall effort is going to get the
signatures it needs so we can kind of put that
01:19:36
in the sand that it's very likely we're
going to end up seeing a recall election okay so if people want to participate in recall
gavin newsom what do they do because that is
01:19:45
the first step yes towards governorship you
gotta go you gotta go to rescuecalifornia.org
01:19:52
rescuecalifornia.org go to that website sign
the petition that is the first step we are very
01:19:59
we only need a few hundred thousand more
signatures we have 1.2 million we need one point five million go there sign up and then
go to chamas website which is chamath4ca.com
01:20:11
jason i'll make one more point and i think um and
i made this the other day on that clubhouse that sacks and i did i think we i made it before
you joined if you think about the difference
01:20:20
between a leader and a manager um a manager is
someone who typically delegates uh responsibility
01:20:27
and authority a leader is effective at
synthesizing uh multiple people's points of view
01:20:34
and creates an opportunity defines a vision
defines an objective that is the synthesis of all the people that that report to him and um
and for which for whom he is responsible or she
01:20:46
and i think what we've seen in california in
particular and really across leadership positions
01:20:51
or governing positions across the country
during this pandemic is a failure of leadership
01:20:56
because when times are predictable if a then
b it is easy to manage and it is easy to look
01:21:03
successful i delegate down to the person who
knows best and they are responsible for the outcome and they do it well great all i'm doing
is pointing to the right person to run something
01:21:13
the pandemic is difficult and it is unpredictable
it requires a synthesis of economic information
01:21:20
social information and health information and
more often than not a person who typically acts
01:21:25
like a manager points to the person they think
should be in charge under the circumstance to make a decision and that person is not equipped to
synthesize the economic and social ramifications
01:21:34
of the decision so what we have seen during the
pandemic is most often people in a governing
01:21:40
position have pointed to the health officer or
the medical person and said you make the decision and that person does not necessarily account
for the social and economic ramifications of the
01:21:49
decision they're making a health person knows how
to save lives the best way to save lives is shut everything down and so the the test of leadership
during this pandemic has been a test of synthesis
01:22:01
and recommending an action that's associated
with the understanding of the social economic and
01:22:07
health implications of what's going on and that's
really where so many governing um bodies and
01:22:13
individuals have fallen apart during this pandemic
is an inability to do that effectively and i think
01:22:19
that is what is needed going forward it is a
it is a moment of test it is a it is a moment of truth about the difference between a manager
and a leader and we're seeing across the nation
01:22:30
who is what and i think it is highlighting why
some folks may not be best suited to do this the
01:22:35
second thing i'll say and i know i'm on a little
bit of a diatribe but the second thing i'll say is career we've been waiting for your diatribe
by the way we took 19 episodes go career career
01:22:44
politicians i think simply should not exist
if you go back to the origins of this country right having your place in government and we
talked about this over email having your place in
01:22:53
government was meant to be something that everyone
was supposed to take their turn doing and the people that were sitting in political seats it was
supposed to be the merchant and the local farmer
01:23:03
and the banker and we were all supposed to take
our turn representing our communities representing our people in government and what we've seen
is people who have made a career out of being
01:23:12
a politician and the result of that is that their
job depends on them getting re-elected in order to
01:23:18
remain in their career they have to get re-elected
and they ultimately end up making trade-offs that don't necessarily represent the best long-term
interest of their community and this is broadly
01:23:26
true across nations across centuries but it's
particularly acute in the united states where we've seen such wealth creation over the last
250 years and what's happened is when you have
01:23:36
career politicians sitting in these seats for so
long in an environment of severe wealth creation
01:23:41
you end up having governments that are ineffective
and creating systems that fail us and here we are and what we need is to have someone go in that's
not dependent on the traditional folks that get
01:23:51
people elected and fund elections and result in
re-elections we need someone that can go in as an
01:23:56
outsider and make a change and so my advocacy
for what's needed in california and i think
01:24:01
nationally and that's a longer conversation is to
find those types of folks to come in and lead and
01:24:07
be politicians that can take a leadership role
synthesize information and not be worried about the re-election cycle and not have anything to
lose related to a career in politics so i'm done
01:24:18
on that note i want to say i love all of you
and um let's do our emergency pod on tuesday
01:24:26
um do you guys want to play poker tonight i
i'm still in tahoe i was playing that original
01:24:32
graduation you guys come down in town my
mom's in town my parents got vaccinated
01:24:40
yeah i can play i can probably
oh here we go maybe a little one note if you do fill out if you take if you go
to rescue california.org is that the name yes yes
01:24:53
if you go there you print out the petition and you
hold it up and take a selfie with your signature
01:24:58
on it and you add the besties we will like it
possibly retweet it and possibly follow you
01:25:03
so go ahead and take a picture of your printout
with your name on it and that proves that you're part of the all-in army and we will like it we
might follow you and we might even retweet you
01:25:13
you could give your besties love you and we'll
see you all next time on the all in pocket
01:25:20
bye-bye see you at couples therapy
tomorrow hey everyone hey everyone welcome you're talking about real money
01:25:45
these are really big numbers is spread the
opportunity that that technology represents
01:25:56
we're probably gonna have
four kardashians on there you