- [Woman] Internet trading mob is driving GameStop shares higher. - [Man] This GameStop
situation is the craziest I think I've ever seen. - What the hell is
happening with GameStop? - [Woman] Users of Reddit's
wallstreetbets forum has helped bid that stock
up massively this week. - [Mark Cuban] Some will make
money, some will lose money, but that's just the way
the market's always worked. - My children are asleep
and I am back here because I need to know
what the hell is happening with GameStop and the stock
market and short squeezes and all of this weird
stuff that is happening on the Internet and the financial markets. So I am going to figure that out right now and you are gonna learn along with me. I think the first thing I need to do is buy stock in GameStop. That's the first thing I'm gonna do, 'cause I don't fully understand this but I feel like I need to be a part of it, so I'm gonna buy some
shares and see what happens. - GameStop short sellers lost $1.6 billion in a single day as Reddit
traders rebelled against them. - So they decided, "We're gonna
fuck their whole system up". - Just to boost GameStop's stock? - [Joe Rogan] Yes, well
just to see if they could. - I'm deep in it right now. I've been on a call with my
buddy who's a finance guy. He is walking me through
every single thing. I've also spent an insane
amount of time on Investopedia. I'm getting this, I am understanding what the hell is happening
here and it is pretty cool. Okay, here's what happened. To understand this, you have
to understand Pokemon cards. You don't, I mean, let me explain. There's this concept in
finance that is painfully hard to understand for us laymen outside of the black box of trading. You've heard it a million times, there's a whole movie
about it that I love, it's one of my favorite
movies of all time. - Somebody shorted 200
mil of mortgage bonds? - [Man] That was just with Deutsche. Word is he had half the town. - How much in total? - 1.3 billion. - And yet, it's painfully
hard to get your head around, but I think I've done it
and I'm gonna break it down with an analogy. So let's say it's 2001 and
Pokemon cards are a thing but they're not that valuable yet, and you go to your little
brother and you say, "Let me borrow one of your cards. "Let me borrow it. "I'll borrow it for one year, "and I promise I will
give it back to you." And your brother's like,
"Okay, which one do you want?" And you're like, "I want Charizard." "Okay, Charizard." It's a dragon card. Okay, so you get Charizard. I'm not a Pokemon guy,
but I know Charizard. You're borrowing this card
from your brother for a year. It's not yours, but even still, you're able to go onto eBay and sell it. You sell it for $10, okay? So you just sold this
Charizard card for $10. You just made $10, even though
you didn't spend any money buying that card. But in the back of your mind,
you know that you have to give a Charizard card back to your brother, you promised you would. A year goes by and you go back onto eBay and one of two things will
have happened by then. Remember you sold it for $10, but now a yer later, the
card could be worth $2. If it's worth $2 now, because
it's not that cool anymore, you're pretty excited. You buy one off eBay, you
go back to your brother, and you're like, "Here,
here's your Charizard card." Your brother doesn't care
how much you bought it for. You are making good on the deal
by giving him back his card. You, on the other hand, are stoked because you borrowed that card for free, you went and sold it for $10, and then to replace it a
year later, it was only $2, so that $8 is yours. You got that out of nowhere. Now what would happen if
it went the other way? You go onto eBay a year later to replace your brother's Charizard card,
and the price is now $100, it's 10 times. Then you're like, "Oh crap." You had sold it for
$10, now it's worth 100. You have to cough up
$90 of your own money, out of your own pocket, to pay for that to make good on your
promise to return the card. This process happens every single day right up the road in New York City, where hedge funds, which are big giant aggregations of money that are managed by smart analysts who think about the
economy all day, take bets. But instead of Pokemon cards,
you can borrow someone's stock and go sell it, with the
promise that you will return that stock to them at
some point in the future. If you have a suspicion
that Charizard cards are gonna be worth less
money in the future, then you'll probably go
to your little brother and do this deal. It makes a lot of sense,
you could make eight bucks if you know that Charizard
cards are gonna be worth a lot less in the future. And this is what hedge funds do every single day in New York City. They look at companies that they think are gonna be worth less in the future and they go to the shareholders
of the company and they say, "Hey, let me borrow
your stock for a second. "I'm gonna go sell it, "and I promise I'll give it
back to you in the future." But let's talk about
GameStop for a second. GameStop is a video game store. I actually went to one last week, because we just got a Nintendo Switch. For the first time, we
have Nintendo in our home, I'm playing Zelda with my children. You ready to play Zelda? And I needed a controller,
so I went to GameStop. This is the first time I've ever been inside of one of these places. GameStop is a retailer
that is usually in a mall, a place you probably haven't
been in a very long time, and especially during COVID-19. A lot of people up in New York City, who spend their day thinking
about the future of companies and our economy, sort of saw GameStop as, "Oh, they're doomed. "These people are gonna be
out of business in no time." Or in other words, "Oh,
the Charizard card? "That's gonna be worth nothing in a year. "I'm gonna go to my little brother "and see if I can borrow it from him "so I can do a deal and make
eight bucks off of this." And if you look at the value
of a share of GameStop stock during 2020, you would see the
omen, this place is doomed. It was down at $4 a share, sometimes it would bump up a little bit. This was a cheap stock, but again, go back to
our little scenario here. It's a year after you borrowed and sold your brother's Charizard
Pokemon card for $10. You pull up eBay, you search for the card and now it's worth $100 or $200 or $1000, and you start to panic. You have to buy that card
and give it to your brother, you have to. Where the money comes
from, that's up to you. This is exactly what happened
a couple of weeks ago. - [Woman] Look at the stock, it's up more than 680% so far this year. - Instead of this graph going
down, this graph went up. So now we understand this
concept of shorting a stock, that's what it's called. When you think a stock is gonna go down, you can take a short
position on that stock and you can get a payout if it goes down. - Do you smell that? What is that? - [Man] What? - What's that smell? - Cologne? - [Man] No. - Opportunity. - No, money. - Oh. - But here's where it gets
into unprecedented territory that gets at the heart
of our financial system and what it even means. The reason the stock went up
is because of a sub-Reddit. This sub-Reddit, wallstreetbets,
is full of people who are sort of stock
bros that didn't make it to Wall Street and decided to
become trolls on the Internet. It's a bunch of dudes,
misogynistic as hell, who are crude, irreverent
and foul-mouthed, but also incredibly good at trolling the hell out of hedge funds. These guys caught wind of the fact that all of these hedge
funds were shorting GameStop, that were basically betting
that it was gonna go down. They had borrowed and sold
a lot of Charizard cards, hoping that it would be worth a dollar. So they decided to rally around GameStop and they started buying stock,
tons of it, all together. And when you buy a lot of stock
and there's a lot of demand, the price goes up. - [Man] They realized that all of the institutional investors were hedging on GameStop, so they just bought a
bunch of call options, bought a bunch of stock. - I'm not saying they're
working in concert, I'm not saying they're
doing anything illegal. I am saying that they are in force. - Soon this started to catch attention and people started to see
this rally around GameStop, this random, totally mediocre retailer, and yet it was rallying
in the stock market. And so more and more people
started buying the stock and the price kept going up, and the hedge funds started to panic. - Tuesday, the data's a little lagged, was the worst day for
this community on record. - 'Cause here's the thing
about the Charizard card, you borrowed it from your
brother and you sold it for $10. If you come back a year
later and it's worth $100 and you have to front
that $90 somehow to buy it and return it to your
brother, you're panicking. If it's worth $500, you're
panicking a lot more. If it's worth $1000, you're
panicking a lot more, and you can start to see where this goes. There's no ceiling. It can be worth $1000,
$2000, $5000, $100,000. From 10 to 100,000, then what? There is no ceiling, there is
no end to the amount of losses that you can take when you
short a position like this. - They are being very
specific to break the shorts. - So these hedge funds are looking at this graph just tick up. This stock that was worth $4 a share for the majority of this
year suddenly was worth 40, and then 60, and then 100, and then 200, and then 300 and 400, and then it hit an all time
high of $469 per share, more than 100 times what
it was during most of 2020. These hedge funds are dying, and meanwhile the stock bros
on Reddit are loving it. It's just this crazy moment of
Reddit versus the hedge funds that I never thought
I'd see in my lifetime, and here we are. - Good evening, newly
minted Reddit millionaires. I'm sure all of you are watching this from the marble bathtubs
on your hover craft. - So there's this one hedge
fund in New York in particular called Melvin Capital. They are the most screwed out of everyone. They had borrowed a ton of Charizard cards and now had to pay them back. So just recently, like last week, Melvin Capital is in deep crisis. They're selling off all of
their long-term positions, the things that they want
to succeed in the long run, to cover this, and then they're going out and begging for money. And luckily, all these hedge fund people are really connected and
they all know each other and they're all buds, and
$3 billion worth of capital just comes down from
the heavens like manna and keeps them afloat, barely. So Melvin Capital's freaking out, they get their $3 billion
savior fund that comes in and then today, the day I'm
filming this, it's Friday. You're probably watching
this on Monday, I don't know. Today, Robinhood, which
is the app that allows you to trade really easily
and is what probably a lot of these Reddit bros are using
to make all of these trades, Robinhood freezes trading on GameStop and several other stocks that
were following in this trend of companies that were failing, that a lot of hedge funds had shorted on, and were now being rallied behind because of freaking Reddit. These are called meme stocks. They aren't being rallied
because the company's doing well, they're being rallied as a
sort of FU to hedge funds who have shorted their
position on these stocks. This is unprecedented
for a trading platform to just halt trading in the name of what? A lot of people are wondering,
why did Robinhood stop this? Isn't this the free market? Well, remember Melvin Capital, the hedge fund that was most
screwed over by this situation? Melvin was rescued in the
end, they didn't go under, in part with a lot of money from another fund called Citadel. Citadel is also a major
customer of Robinhood, providing up to 35% of
their revenue in some years, according to tax forms. - I want you to address the obvious. This looks like a move by
an outfit called Robinhood, which is supposed to
be taking from the rich and giving to the poor, and
doing exactly the opposite, that when the big guys, including one of your main
investors in your company started to lose, you shut down the game to starve the little guy. - Soon you have members of Congress calling for an investigation. - This is why we need an
SCC that has clear rules about market manipulation. - And take a guess on what you think the guys on Reddit are gonna do. You think they're gonna
back down and be like, "Oh yeah, Robinhood
stopped us from trading. "We're probably gonna stop doing this"? No no no no, ooh you just
poured fuel on the fire. We don't have all the facts here, this is fresh and unfolding
and soon we may know. But the fact is that there
is a very tight-knit web among all of these financial
people in New York City that look out for one another, and when a mob of angry
Reddit people show up to completely screw up
their system and their bets, it's not actually that surprising to think that they would band together and stop it. There'll probably be an
investigation into this and if you're watching
this any time in the future beyond the next couple of weeks
from when it was published, there will probably be
a lot more information and I can't wait to get my hands on it. Overall, this is a crazy
thing that is happening, not only because it's
an amazing spectacle, but because it helps reveal the craziness of our financial system. I'm not saying it's bad,
I'm saying it's crazy, meaning it's literally mental. It is literally mass psychology. How we value something and
the price we put on it, whether it is a Pokemon
card or a share in GameStop, is 100% a result of how a group of people decide to act towards
it, to think about it. That is how our entire
financial system is modeled. Value is based on what a bunch
of people think value is. Just like a dollar bill. A piece of paper is only valuable because we all sort of
believe it's valuable. We all take this for granted,
it's like the air we breathe. It's become totally status
quo to think of value and economics and
financials in these terms. And yet a moment like this,
when it gets disrupted, when those forces disrupt the status quo, it starts to become a little bit crazy to think of it in these terms. It almost takes the
curtain away a little bit and shows us what our financial system really is built off of,
which is mass psychology. So I bought some shares of GameStop and whether it wins or
loses in the next few days, I'm just excited to be
a part of this ride. This is crazy. All right, that's it. There's no sponsor for today's video because I just made it really quickly. I guess I'll just make
a plug for my Patreon. Go follow me on Patreon,
help support my videos, okay bye. (light music)
