Part 1: Saturday Night Live Used to be Funny
As Emily Litella (SNL circa 1976 when it was really good), would say, “What’s all this fuss I hear about short selling? Why would anyone want to sell shorts?”
Short Selling. I never understood what it meant and every time I’d ask my intelligent friends who were in finance, they couldn’t really explain it either. So, I did as I always do, I googled it.
Whenever I see a bunch of graphs and colored illustrations that make no sense I know that something’s wrong and that somebody’s trying to make me believe the emperor is wearing new clothes when he isn’t.
The scenario goes a little like this.
Here’s Wile E. Coyote going about his business of trying to catch the Road Runner with a series of inventions that he thinks are rather ingenious. So he obtains the patents, creates a company called ACME, and decides to go public. He undertakes his IPO (initial public offering) and sells shares of stock to the public to raise additional capital to create more inventions so he can really get that Road Runner.
Cut to the Monday morning meeting of the Masters of the Universe Hedge Fund.
“Let’s take a look at this Wile E. Coyote’s ACME company. Whoever heard of somebody’s life dream being to kill a Road Runner? He never wins. He’s always falling off cliffs, blowing himself up, or getting struck by lightening. This doesn’t look so good. I mean how many lives does he have left anyway? Let’s bet this company is going to fail, ” says SSA, aka Short Selling Asshole hedge fund manager, as they review the “Who are we going to fuck over today?” list.
So they call up their buddies at J. P. Morgan Chase and say, “Hey, J. P. Morgan Chase, I’m interested in some ACME stock. I don’t own it so can you loan it to me for say 30 days, Capish?”
J. P. Morgan says, “Why should I lend you stock that you don’t even own? This sounds like some slim shady business to me.”
SSA says, “Hey I’ll give you 50 bucks plus a shit ton of interest if I don’t pay it back on time. Also here’s some collateral.”
J. P. Morgan says, “Ok, that sounds reasonable. How much do you need?”
SSA says, ”How about 100 shares.”
J. P. Morgan says, “Here ya go.”
I’m reminded of yet another great SNL sketch by Eddie Murphy called “White Like Me.” Eddie Murphy goes undercover as a “white” guy. He goes to a bank and asks for a loan. The loan officer, a “black” guy, starts to fill out the application. He asks Eddie the normal questions, what’s your job, what’s your income, etc. Eddie says he doesn’t have a job nor income. The Loan officer looks at him and begins to say he couldn’t help him. His boss, a “white” guy who has overheard the conversation, taps him on the shoulder. “I’ll handle this,” he says and sends the loan officer away. The boss sits down at the desk with Eddie and says, “Silly Negro. Now how much do you need?” Eddie smiles and proceeds to ask or whatever he wanted.
Saturday night live used to be brilliant.
Back to our story, SSA hedge fund manager borrows stock on behalf of the Master’s of the Universe, a hedge fund. Now he is in “possession” of the stock, whatever that means. I guess, J. P. Morgan now has fewer shares of the stock to trade because they’ve loaned it out? I don’t know, this completely doesn’t make sense. I suppose SSA sells the stock at $10 per share right then. How the hell you gonna sell stock you have borrowed? That’s like, I don’t even know what that’s like. It’s just crazy. Perhaps it’s like paying a credit card off with another credit card. Which I would try to do but can’t because it’s against the rules and regulations. Why are there regulations for some of us not for others? I wonder.
Anyway, ACME stock does as expected by SSA, the price falls from $10 per share to $6 per share. SSA and his Masters of the Universe group purchases 100 shares of stock at the cheaper price, repays the 100 share loan with the stock that they purchased for a cheaper price, and pockets the $4 per share difference. So, that’s a $4 per share or $400 profit off stock they didn’t even own.
Now multiply that concept by $1 billion. Get it? Who thought of this?
“Could it be…Satan?” says the Church Lady (another great SNL skit circa 1988).
These types of “advanced” strategies are right up there with subprime mortgages, derivatives and all that other nonsense that caused the financial collapse of 2008. And who do you find at the source of all this evil? Satan’s spawn, the hedge fund managers. I’m sure there are some good ones out there but Satan’s spawn is out there too.
They, like the characters in Alfred Hitchcock’s “Rope,” think they are above the law. These are the mental descendants of people who justified the enslavement of human beings for hundreds of years for profit. Like the Robber Barons, they thought they totally got away with it and they did for some generations. But I know that Karma is a relentless bitch and if you mess with her justice is coming.
I wrote the aforementioned scenario a year ago.
Is Robinhood the answer to my prayers? Let’s see.
So here comes Robinhood and they say, “Fuck SSA and his mother fucking Masters of the Universe hedge-fund. We love Wile E. Coyote. We used to watch him every Saturday morning on the Road Runner Show. We want him to keep going so he can catch that Road Runner, or not. In any case, it’s entertaining and we are sentimental of our childhood. We’re smart millennials, we know how this shit works, and we can play that game too. Let’s put the squeeze on them by telling all our friends via Reddit to buy Wile E. Coyote’s ACME stock so he can stay in business to make more shit to kill the Road Runner with. At the same time we can fuck over the Masters of the Universe while making some money boot. Screw those guys.”
So Robinhood comes in like a ninja and starts to buy up a shit ton of ACME stocks unbeknownst to the Masters of the Universe. ACME’s shares shoot up 14,300% in a week and are settling out at $500 per share instead of $10 per share, and the clock for payment of the loan is ticking. Now SSA and the Masters are fucked because even if the price per share is at $100, they have to buy some stock to pay back the stock that they borrowed from the pawnbroker, J. P. Morgan Chase, else somebody’s going to get some broken legs. SSA also has is own people, the Master’s of the Universe hedge fund mafia, after him so he’s going to be sleeping with the fishes real soon if he doesn’t fix this.
So they decide that it’s time to call in some favors from their powerful “friends” in the police force, aka the Security and Exchange Commission, and like the Godfather they say to the Chief Commissioner of the SEC, who is on the payroll, “I’m going to make you an offer you can not refuse.”
The Chief commissioner of SEC says, “I got you, bossman.”
I like this little play that I’m writing. The characters are actually fun, but the details are sound, I’m afraid.
The thing is, they do this stuff all the time. Ok, ACME (read Gamestock) was a bit extreme. However, there’s a fuckin’ “short squeeze list” culled from the Russell 3000 index. They were always short selling Tesla back in the day which is on the list. That’s why Elon Musk hates short sellers. I wouldn’t be surprised if Elon put the squeeze on them. I would.
Bed Bath and Beyond, IRobot, Macy’s, DoorDash, Wayfair, ViacomCBS, Beyond Meat, SunPower Corp, National Beverage Corp, amongst others, are all on that list.
Ask yourself, why is SEC so hot on regulating this now that it is being done by 1,000’s of young people, the preverbal Joe Public, and they did virtually nothing when the Masters of the Universe were doing it? They knew it was wrong regardless of who perpetuated it. Isn’t stock manipulation illegal in the United States? What is this the old testament? An eye for an eye a tooth for a tooth? What the hell man, are we living in the ancient Mesopotamian Empire during Hammurabi’s rule in the 18th century BC.?
I mean, they knew this shit was going on, but when everyday people figure it out, now it’s a problem.
Dio Meo, man!
In Part 2, I’ll go into detail of the actual characters of this little play. Let’s see if my analogies are right. Stay tuned.