Robinhood is 'toast' after GameStop backlash: The Real Wolf of Wall Street Jordan Belfort

we want to invite into the stream jordan belfort he's the author of the wolf of wall street a lot of people know him for several reasons i remember speaking to you and i worked at fox business many many years ago but we invited you in and we don't want to glamorize you because of the past but the past is in the past but you have insight into wall street and what's going on with the gamestop phenomena that could be useful to people so what's the most important thing you want them to know given what you've witnessed over the last 20 years well listen you know it's amazing what these group of uh robin hooders and wall street bettors have been able to do i mean i used to battle with the shorts all the time the shorts are usually right in the sense that they have the fundamental value you know pretty much worked out but they have a way also sometimes of getting overly aggressive so there's different types of short players they're short sellers that you know are healthy they check the market they bet against stocks that works it's good it creates liquidity stops stocks from going up too fast then there's other types of shorts that actually conspire to drive stocks down they will create press releases investigations and they will try to short a stock out of business almost they often are so short they have the potential to create a short squeeze meaning if buyers come together on the other side they can create a rally and literally wipe the shorts out what the small investor has been able to do here is shocking it deserves an applause i think by the way i don't think it's illegal because most of them by the way if you actually go through the message boards what they say they just like they love the stock they're just having fun and they want to kind of stick it to the man more than anything so it's a shocking thing but they better be careful because when it's over it's going to be like catching a falling knife and it's going to drop precipitously so i just want people to be really careful when they're playing in this space so let me just follow up with you because there are some people are saying what we might be witnessing is some kind of either social media pump and dump and your history you would know what a pup and dump looks like or maybe a big money silent person in a different form has gotten onto that reddit channel and is manipulating people what would you say you know listen you know you you might at latter point me you would never really know it's a good question i guess you'll find out in the end i doubt that i think what you have here is a ground swell from the masses people are locked up they're bored there's a convergence right now of technology people can trade immediately now there's access to information there's ways to exchange ideas it's like the perfect storm and i think it represents a paradigm shift in how stocks trade how they'll have to be not shorter or shorter depending on not just on do you think it's a bad company can you get squeezed now as far as is there a crime going on you know listen i i wouldn't say it's a crime when i first looked at i said yeah it's a modified pump and dump right because in some respects it is you know the stock is being pumped up but here's the deal most of these people like they know they have if you actually go through the messages when i even said public like no we want to hold it we these people like they want to buy and hold so you know i guess you could argue that probably you know the stocks overvalued heavily no one would deny that right now it's massively overvalued but then again you know on any given day the stock is worth whatever the market says it's worth so when you have these short squeezes going on there are these blips where you're going to have wildly inflated prices we see it now happening with the silver market again because it doesn't take that much especially when you're buying options which magnifies the buying effect so again the issue i have is that when these things unwind they will unwind really fast on the downside and typically it's the last person on the deal team for example i had someone fixing my tv they said oh my mom who's 83 was talking about gamestop that's when it starts because you know when those people the last group starts getting in that's when it gets very dangerous that is that is when you start to get very concerned jordan i'm curious to get your thoughts just on the steps that robin hood took last week and what they're doing today they're still limiting trading on a lot of these heavily shorted means it's a move that's been criticized by many out there what do you think of it originally i understood it because they do have liability for sure but what they did by completely eliminating buying that was a bit of a red flag to me that there might be some other more nefarious things involved by getting pressure from the people who are short i'll tell you why they could have just as easily raised up the margin that's a phrase meaning to make it more expensive to borrow money to actually not allow people to borrow as much money to buy that certainly could have slowed down the buying without them to stop it cold so that knee-jerk reaction to stop it cold is a bit troubling and you know at first i understood it but now as i look more deeply it is very strange they would just not raise the margin up because that would have accomplished the same thing without shutting it down and meanwhile the bigger problem i think for robinhood is that now they're going to be getting sued by everybody and whatever you know side you're on you'll say i lost money because of the decision robin hood made it's gonna be very very hard for them to stay in business i believe well they're raising quite a bit of money from their investors but how do you view that desperation or something else they're raising money right now probably for the purposes of margin and you have to have certain amounts of money on reserve with your clearing brokers remember that when all these small investors are trading when the stock drops precipitously the likelihood is that there will be losses in the accounts that exceed the amount the people had on reserve for margin to actually be net losses in these people's accounts so now you have all these small accounts that might have losses in there that robin hood would have to make good on that's why they're being forced to pledge more money that's why i said the better move would have been to raise up the margin to eliminate that possibility versus to stop trading altogether so they raised money because they probably had to raise money because they were almost out of ratio i don't think there's anything to do with what's going to happen when so many lawsuits are pouring in that's the bigger issue i believe because you know we live in a world where people sue they form classes to sue so i think that is the biggest danger of all the lawsuits that follow this um what's right now you know a massive upswing and eventually will of course be a downswing as well jordan we're getting some breaking news there's reports that robin hood ceo is going to be testifying in front of the house financial services committee later on this month i'm curious just when we talk about potential regulation because that of course is another aspect of this conversation the sec has said that they're monitoring this extreme volatility but what do you think is going to happen on the regulation side as a result of this the sec is great at doing stuff after the horse is already out of the barn then they're going to close the barn door uh the market itself will be far swifter in closing what you could call either a loophole or inefficiency in the market right now so what you basically have right now is an inefficiency where people are able to get involved with certain stocks or commodities and if they get behind them it's on a message board and they all love a stock they start talking about it then this sort of loose group of it's not really collusion i don't know i don't know what to really call it but you have this group of people that and it spreads like wildfire because things go viral and they get together and drive up these stocks that have large short interests and are just probably on a thinner more thinly traded wall street will close that efficiency very quickly in other words that you're starting to see already insiders selling at the higher price like amc some funds blew out of all of their stock on friday you're going to start to see short sellers become much more conservative with allowing themselves to get that short so i believe that eventually the sec will do some things to try to stop this behavior but before they even get around to it i think wall street itself will have closed most of these gaps and loopholes and make it more difficult the people to find the right deals to do this with they'll always find some people are smart to on the other side so i think wall street will close the gap jordan the business model for robin hood we talk about order flow and selling that and we had a discussion two years ago with vladteniv about potential front running but i want to ask you very simply is robinhood toast are they going to be forced out of business do you think toast i think but that's just my opinion i think there's a couple of things number one obviously this this pr debacle there right now they were actually you know selling themselves democratizing investing and actually they're selling order flow to the big guys who are using that to try to gather intelligence on what the market's going to do next bad bad beyond not illegal i really believe the lawsuits are going to be very problematic we've seen this in the past with other brokerage firms when you know they get sued it gets to a certain point they might not go out of business to sell to someone else and they'll have to sort of separate out the legal entity that got sued from the assets of the company something is going to have to happen here i believe because i can only imagine think about it as all these small investors on one day they were not allowed to buy anymore which theoretically said well they were manipulating the stock downward robin hood and they have their reasons why i'm sure but maybe there's also some emails and i bet there are where the shorts are complaining to robinhood like this is not right what do you like any one of these emails will come out in discovery and be a so-called smoking gun and wow i mean just imagine the number of lawsuits and what that will do to the ability of robina to stay in business because of just that capital reserves forget public perception just simply that balance sheet will be a disaster so that's my opinion jordan belfort is the author of the wolf of wall street thank you for joining us

Channel: The Wolf of Wall Street

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Length: 10min 5sec (605 seconds)

Published: Mon Feb 01 2021