2/22/2021
By Charles Payne CEO & Principal Analyst

Well, the much-anticipated congressional hearing on the GameStop – Robinhood fiasco was mostly a day of obfuscation, confusion, and deflection.

For many, it was a frustrating day, underscored by sharp declines in all stocks and other assets that have been popular among individual investors. Weed stocks, solar stocks, crypto-related stocks, and of course, heavily shorted stocks all took horrible dives as all those folks on Capitol Hill kept jabbering but saying nothing.

I do not blame individual investors for feeling the deck was stacked against them watching those hearings.

Financial Media Sucks

More sickeningly (for me), the financial media covered up the next day with guest after guest gushing how great retail investors have it. And how they are simply in the dark versus hedge funds. Hedge funds do not have access to more information. If they did, it would be illegal since publicly traded companies must make all information accessible to all investors.

It’s true. Hedge funds have large analytical teams that can buy orders, move ahead of them, and get better prices because of the size of their orders. But there must be some changes from providing more transparency to capping the number of shorts. And let’s stop payment for order flow and get trades settled sooner.

Let’s talk about the main issues:

Robinhood and others prohibit buying in GameStop (GME) and other stocks on January 28^th.  Apparently, the CEO and his entire team were caught flat-footed on the need to shore up their books and had no choice.

Say what?

How could they not see the need to raise capital when volumes were exploding. On January 4^th, 10 million shares were traded, and the stock closed at $17.00.  So, it was about 170 million worth of trading.  On January 13^th, volume soared to 144 million shares and the stock closed at $31, which means the value of trading was 2,500% higher than on January 4^th.

The volume and share price continued to march on, and there is no way any broker didn’t have to check to see if they could handle that action. 

I am not sure why Robinhood management waited. However, I think maybe it had something to do with not wanting to dilute their holdings ahead of a potentially hot initial public offering (IPO). But they had to be enjoying the action, including all the new accounts.

To read the full report, contact your account representative or email Research@wstreet.com

Charles Payne
Wall Street Strategies

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