A Deep Dive Into The GameStop Hearing: MIT's Aral, Ritholtz

in Business on Bloomberg Radio, which I highly recommend. He's also the founder and chairman, of course in chief investment officer of Riddholtz Wealth Management. All right, Barry, we've got some folks going to Congress, going to Washington, d C. Today to talk about that all the game stop stuff. Would it be naive of me to expect any meaningful discussion? Dare say, maybe even some action items. What are you expecting? Um, a lot of noise and fury and nothing, A whole

lot more heat than light, to say the least. Look, this is really a very very specific incidents that this is not a systemic problem. You have a whole bunch of board people at home, you don't have access to casinos.

Take a take a message board that, by the way, has talked about hundreds and hundreds of stocks over the past decade, and they happen to find one that had what not only was it under ten dollars, which means it's pretty cheap, but it had an enormous short interest and and uh cheap stock options and and that combination along with free trading and the gamification of trading on the robin. They know, yeah, that's that's right. It's you know, not everything is going to be spent on on chicken tenders.

You've gotta leave a little money for the for that coal option, gamma squeeze play. But you know, this is this is really one of those things that Congress should be focusing on big systemic problems, not whether this one stock was pumped or dumped by this one group of of message board officionados. The SEC is more than capable of enforcing if if a crime was committed and pursuing it. And yet and yet, Barry, this is the one issue, Uh, this is the one issue that um Ted Cruz and

AOC get on the same page for. You know, what does that tell you about? It tells you that the most dangerous place in Washington, d C. Is between a television camera and and some of the higher profile congress people. That that's what it tells you that, look, you know, there is a legitimate issue that lots of people are hurting, and that some people are doing silly things with their rent money because they don't see any other way to to earn a living. Uh. That's an issue that certainly

is worthy of debate. But the specifics, the contours of the GameStop trade are so specific to this one company. You know, it's an outlawyer, and I don't think you can demonstrate anything worthwhile about markets and regulation and what's going on by holding up you know, one out of stocks and saying, look, the system has broken. I think hang on, I think you're ignoring one part of it.

Which I'm not saying that I buy into this theory, but if you're, if you're into conspiracy theories, it's pretty easy to imagine that super billionaires that were trying to short this company to death, we're able to control robin Hood which they pay right for traffic and then cover it up. Well. The the other cool thing if you're a conspiracy theorist is that those super billionaires also control Congress,

so you're never going to find out about it. But what do you think about the possibility of any ties. So it's wrong to call that a conspiracy theory because various trading firms, from Citadel to some of the other high frequency shops, they are robin Hood's customers. They're the ones who pay robin Hood. You know, there's this illusion that the users who are buying and selling stocks on robin Hood are the customers. That that's wrong, that they're

the product. Their order flow is what gets sold. It's like radio and when you ask people what what are what is radio's product? And most people say, well, radio sells advertising and the answer is no, radio sells an audience to advertisers. Well, robin Hood sells an audience of traders flow to market makers and high frequency traders who pay them. So it really reflects a people calling this a conspiracy theory. This is really a textbook example of

Dunning Krueger effect. These people just simply don't know how markets operate and how trading operates. Now, I'm not saying this is the optimal circumstance, and I'm not saying this is better or worse than other ways of doing it. But the simple facts are that in order to improve both price discovery and reduce the spreads between the bid and the order. But but bear, you're not saying that Ken Griffin ordered Lad to stop the Reddit attack. No,

the Lad was out of capital. There are specific rules from the SEC and you cannot allow thousands and thousands of clients to buy billions and billions of dollars of stock and risk having that get cut in half and not be able to settle because you lack sufficient capital. And to Lad's credit, he went out to Goldman Saxon Chase and got a couple of billion dollars in one week, and the next week picked up another three billion dollars, but they had to put a bosch on buying more stock.

I'm not I'm not buying that, Barry. He went on clubhouse and told Elon Musk they wanted three billion dollars, but it took him then twelve hours to get him down to like one five. Give me a break if you can. If you can bargain them down like that and going round up billions in twenty four hours, why do you need to stop trading? Why not just we'll continue this conversation at at a later day, will swap

conspiracy stories. Barry Ridholts, thanks so much for joining us here at Bloomberg Opinion Collins and host a Masters in Business on Bloomberg Radios. Also the founder, chairman and chief investment officer of Rit Holt Well Management. Well, Matt, we just concluded a spirited debate with our Bloomberg Opinions Barry Ridholts, on the value of these hearings today, these game stop hearings, Barry suggesting maybe a little bit more show uh than

any substance. But our next guest, Matt, says, game stop hearings today, they are necessary. Se Non are all director of the m I T Initiative on the Digital Economy at m I T s, Professor of Management I T Marketing and Data Science and founding partner of Manifest Capital. Uh, sign on, thank you so much for joining us here. You know we're really having a debate today, saying should we even be having hearings on this issue of investor trading? Give us your thoughts, Well, I mean I think that

we have to know more about what happened. Uh. You know, this is in a sense an unprecedented UH, sort of new form of crowdpower. UH. And there are multiple different types of speech going on in the UH in the reddit sub reddits that are driving for instance, the game stopped stock price, and we need to know more. We need a full SEC investigation and hearings can help as well, because we don't know, for instance, where there people involved

in this conversation that had ties to institutional investors. While some had funds lost money, others made a lot of money, like black Rock I think made something like three billion dollars. And the former CEO of Chewy was a big holder of game Stop stock prior to the ride ton. So we need we need to we need to know more. You know, I've noticed, um after this, during and after this, all of my friends from high school, who never cared about what I did for a living started calling me

and asking me about this stock and that stock. UM. My wife, who doesn't know anything about the market, she thinks the word rally is funny. She said, should I get a robin Hood account? I mean, everybody, the shoeshine boy is getting in on this now. The question is is that dangerous? Muhammadi Arian also asking is this causing a danger. What are you thinking on Well, I mean, I think that the democratization of the markets is a good thing. I don't think that in any way we

should limit anyone's access to the markets. But I think what we're seeing is that we don't have a full asp on how the information ecosystem that we've created in the last ten years or so through social media is related to the financial ecosystem that we see. So obviously, if there was misinformation flowing in these conversations, that would run a foul of the sec that's pure market manipulation.

But if people are just raw rying their stock purchases in a public way as they're buying stocks, it's not clear that any of that is illegal in any way. There's also a third form of communication, which is about coordinating um stock purchasing, which is kind of akin to collusion on the producers side, but it's not really the same. So we have to know more, and we have to think about the implications of the ties between the information ecosystem that we have and the financial markets. All right,

we're rejoined by Barry rid Holtz, Bloomberg opinion columnist. Barry, you know we're seem to sign on a row of m I t you know, making some really valid points about bringing and trying to get some more information here through uh congressional hearings here, bart do you think this is just something that the SEC can deal with and

it's just a regular old short squeeze that we've seen before. Well, it's a combination of a regular short squeeze with a bit of a because the stock was so cheap, and because there was such a large run of out of the money care options, there was also the gamma squeeze aspect of this. I'm not sure what Congress is gonna find. I don't know if they're the institution best equipped to investigate this. The one caveat I would really emphasize is

the you know, Wall Street bets Unreddit. I don't really see how this is very different than what we used to see with the Yahoo message boards or the Raging Bull message boards in the es that we lived through this. Here's a question, Barry, how is it Is it the same as you know, Facebook and Twitter being manipulated by the Russians as has been alleged during the two thousand

sixteen election. I mean, if they could do that, if you buy into that, Um, why couldn't they also mess with us markets by you know, fabricating Wall Street bets on Reddit. News flash, don't get trading ideas off of Twitter. Let me let me write that down. I mean a lot of this stuff is really just basic common sense.

My assumption is if I read something on Facebook or Twitter, especially about a stock where another person might have obsested financial interest, my immediate assumption is most of this is probably nonsense. Now, maybe that's because I'm an old skeptic who's been in the markets for too long, but I think the youth kind of have to learn um information theory and who they can trust and what's signaling? What's noise? Hey? Sign it? You actually wrote a book on this incitled

The Hype Machine. How social media disrupts our elections, our economy, and our health, and how we must adapt. Give you this game stop Reddit? Uh, you know trading event as perhaps something bigger in the economy, in our trading. How are you kind of piecing that together? Well? I mean, I think that a big difference between the message boards of old and uh, the information ecosystem of today is

algorithmic amplification. You know, this information moves so fast and scales so rapidly today and is driven by algorithms routing information uh in different ways across the network that we have to understand the scale, speed, and potential impact of

this information diffusion in our society today. And I think we have to see it as a little bit different because we're seeing almost weekly, uh, you know, ripped from the headlines, uh, the impact of these social networks and social media companies on our society, whether it's uh the spread of political misinformation or coronavirus vaccine misinformation, or signing

the rise and fall of stock prices. What do you think about the populace concern that these billionaire masters of Wall Street were able to whip robin Hood into shape and break the backs of you know, Joe Trader. Well, I mean, I think that the David and Goliath story

doesn't really apply very well to game Stop. I think that, uh, you know, anybody who understands the business model of robin Hood knows that it makes money from institutional clients that are providing the back ends of the trades, that they

are essentially giving commission free to the retail investors. So I think that robin Hood has a precarious future, both because of backlash from the retail investors when they were not allowed to sell the game stop stock price, you know stock they were buying, but also from the realization that hey, maybe we are the product here and maybe

the institutional investors the client. So Barry earlier, we were having a heated discussion about, you know, kind of whether, uh that David Portnoy's of the world were right in saying that, you know, the robin Hood and the other platforms they screwed us by not allowing us to trade and Elizabeth Warren and exactly but again that the narrative coming from those platforms, it's like, hey, we were just you know, doing what we have to do to meet

our margin calls. How do you come down on that? Yeah, no, that's exactly right. So you guys touched on three really important things. First, you know, this is a company that has grown so rapidly robin Hood, that their their capital base just failed to keep up with the massive run

up in the assets on their balance sheets. I clearly think and you could see in the multiple times they tapped various lines of credit to add capital to their balance sheets that that was clearly a risk management process. And and it's very imaginable that had the stock collapsed before they had settlements done, they would have been short tens, you know, hundreds and hundreds of millions of dollars that

they couldn't afford. So that's number one. Number two, I totally agree with the professor about the impact of of all the algorithmic stimulus UM. And it's not just it's not just Twitter and Facebook. You have to look at UH ticktock also is something that's using UH that approach plus the gamification of stock trading, that's a very, very

dangerous combination. I love having we have Barry ritt Holtz whose podcast as Masters of Finance, and then we have the professor who are probably teaches Masters students at m i T professor. One quick final question we've been talking about T plus two, which is like you have to use a cotton gin and a printing press UM to verify that you bought stock these days, When are we

gonna start using blockchain and make it faster? Oh? I think that's a great question, and I think that, uh, it's interesting to juxtapose that with the rise of the price of bitcoin recently, because I really think that the major innovation. There is the blockchain. I think that you're going to see blockchain uh sort of um become a decentral decentralized verification technique across many different industries, and I

think it's going to spur a ton of innovation. Uh. It's a way to keep things decentralized but also verified. It's a way uh to to give people assurances um that that I think could be very helpful in a number of industries. Santana Role, thank you so much for joining us. We really appreciate gating your perspective. Snana Role, director of the m I T Initiative on the Digital Economy. And Barry Ridholts, thanks for coming back again for another segment.

Barry Ridhults Bloomberg Opinion Commus, Masters in Business Podcasts and Ridholt's Wealth Management Matt A great discussion there. We'll see what happens on these hearings this afternoon. It should be very interesting, folks. When I tell you that rich green Field of Lightshed Partners is one of the leading voices in the media, telecom and technology space, uh, take it

from me. I've been covering a space for a long time and he really got me to rethink a lot of my assumptions over the last several years, particularly as it relates to media and technology converging. Rich, in my mind, was the absolute first analyst on Wall Street to predict the secular decline of some of these traditional media companies due to their inability to pivot to technology such as streaming and the Netflix of the world. And Rich joins us. Now, Rich,

thanks so much for joining us here. You've done such a wonderful job for your clients talking about the convergence of technology and traditional media, and now you're bringing a fund to market to capitalize on some further trends in that space. Tell us about it. Well, look, I think the key for us has been you can't understand what's happening in the public markets without understanding what's happening in the early stage startups that are affecting the media ecosystem.

So give you an example. You know, look at look at Facebook, right. You know, we were writing about Facebook back in two thousand seven talking about why every media company should be buying it literally obviously none of them did. That was five years before Facebook went public. But look at Facebook today versus you know, even Disney is dwarfed by Facebook, right, and despite all of that, Disney has done, and Disney had to go out and buy Fox to

get this, you know, to try to scale up. You know, I think that, you know, sort of there has been sort of a lack of understanding of the legacy media companies of technology and it's why we're really from a research standpoint, why we've devoted so much of our focus to looking into the future and trying to figure out where the media, tech and telecom sectors are going. The natural evolution of that is, well, you see all these companies,

you're meeting, all of these companies. We want to invest in some of these companies at the earliest stages, at the seed level in the Series A, we're seeing the man away as part of what we're doing on the research,

and now we can actually put capital behind them. And so we've gone out and raised Lightshed Ventures Fund one, which is a seventy five million dollar venture fund that's going to invest on the private side of the TMT ecosystem and really put our core theses that we have for the public companies to work on the private side. And I think both of them will be very, very symbiotic in terms of how we leverage our learnings across

the two places. So Facebook has to be a unique case because there are very few products used by you know, well over a billion people. I guess water and air. You can't really own this. Is there something that you think is um nearly as exciting though? Is there anything new that we don't know about that you think maybe could be the next almost kind of close to possibly Facebook? A guy that that's a tough one. I mean, what what could be used by two and a half billion

people for thirty forty five mi it's today? I don't know. I mean, look, I met Daniel e eleven years ago. Um, you know, before they had even launched service in the US. This is the founder of Spotify, and you know we've been friends with Daniel ever since. And you know, following from the earliest days the Spotify story and obviously you know that's now grown to be a gigantic company and a public company. Uh. And so we're always trying to figure out where kind of where the puck is going.

I mean, right now, I'll tell you big categories that are of interest to us. You know, you look at what's happening in audio, I mean, I was an early investor in one dry that just got acquired by Amazon. Obviously, Spotify has made a lot of acquisitions in the podcast space, So audio broadly defined, I mean, look at clubhouse and Twitter spaces right this specifically, Yeah, Well, I'm just saying like audio is exploding, right, Like we're all realizing that.

You know that there's this incredible opportunity in audio to make money. You know, it's it's because you don't have to be staring at the screen. You can do two things at once. You can be walking, you can be at the gym. You know, you don't have to be staring at a screen, and so there's a lot of incremental time spending your day that audio can fill in

a lot of value add from audio. And I think whether it's podcasting, whether it's um, you know, kind of live audio, the way we're seeing in clubhouse and Twitter spaces, and I'm sure it sounds like Facebook's already moving into that to try to copy it. I think there's a lot of opportunities in audio that are really interesting. Again, will any of them live up to be Facebook sized businesses. It's way too early to know, but I think there's

tremendous value creation in the audio sphere. And then on top of it, I'd say, this whole creator economy is fascinating, right, I mean, we you know, it's funny in your intro you are talking about sort of this collision of media and tech. You know, obviously we we came up with the hashtag probably seven years ago of good luck Bundle, which was sort of the break part of the legacy cable bundle, which you know, seven years ago, if we were on Bloomberg, I think a lot of people listening

would have called us a heretic. Now it's consensus thinking that the bundles collapsing in linear TV is going away. But I think the logical next step to the shift from the traditional TV to streaming TV is actually the creator economy and watching individual creators. And I don't just mean, you know, watching them on YouTube in the sense of like you're watching somebody you know, uh, you know, you

do comedic stuff. It's watching somebody play a game on Twitch. Right, It's like there's you know, it's not even just playing the game. Obviously gaming is exploded, but watching people play games has become massive, and you look at roadblocks in Minecraft I mean, look roadblocks like we have to leave it there. Rich, well, we'll bring it back just because of the time, but will certainly bring you back and get some more thoughts on this. We appreciate a Rich

Greenfield Partner media annalyst that light Shed partners. While the power crisis in Texas continues, continued brutally cold weather through the middle part of the country, extending all the way down into the southern parts of Texas. Unprecedented cold there really impacting the entire grid. Joe Carol Houston, bureau chief for Bloomberg News. He joins us on the phone from Houston. Joe, thanks so much for taking the time. I know it's

tough down there. I'd love for you to share with our listeners what it's like on the ground in Houston, for you and your fellow citizens down there. Well, we're above twenty degrees fahrenheit this morning, which is uh, it's probably the best it's been in four or five days. It does feel like we're we're sort of on on the back side of of what was you know, quite a disaster. Power is coming back to in much of the state. Um, the real challenge now is actually believe

it or not it's clean water. The water systems are down everywhere because the power was out, and so you've got boil orders, um, pretty much everywhere. So energy isn't uh, I mean clearly it's not your first concern. You want to stay warm, you want to stay healthy. Is it possible for everyone to do that? Or is are those two you know, may issues causing big problems. Still there's still big problems in a in a lot of places. But instead of five million people being without power, it's

down to about about five thousand. UM. And like I said, water, water is becoming the big challenge because you can't you can't go to home deepo or lows excuse me, and buy some five gallon jugs anymore. It's all gone and you can't find gasoline to get you to tenny stores anyways. Grocery stores are closed or empty, fast food restaurants are not open. Drudge stores are closed. Um. So even though like I said, we're on the back side of it,

it's we're not all in the dark um and cold. Um, there's still there's still quite a ways to go to claw out of this, all right, Joe. We're several days, four or five days into this with a little bit of perspective here, what the heck happened? What went wrong? We see a lot of finger pointing, but I'm not really sure I'm getting a full picture of what happened. Yeah, it's really, it's really and you're at the blame game

is already starting at the state and the city levels. Um. You know, the weather was just so extreme so quickly that the generators failed. They froze over um and so there just wasn't enough power being produced it. So it's it's unlike any other sort of power out. You know, we get hurricanes here every single summer and the power goes out because all your lines and your poles get knocked down. This time it wasn't e meant, the poles and the wires are fine, They didn't freeze and snap.

What happened was it just wasn't any electricity to push through them. And so, uh, you know, the governor has already talked about, you know, doing an investigation. We do think there'll be some sort of a restructuring of the of the grid. What um, medium to long term problems do you expect from from this, Joe? I mean, you've

already talked about the immediate problems people are facing. Is there going to be damaged that you're still trying to sort through come summer, I think there will be a lot of it has to do with people haven't experienced burst pipes here before from from the cold, and so nobody really knows what they have because it's still too you know, too early to check. And uh, I mean, the plumbers are going to make a fortune for sure. Um. We already have folks coming in from other states, um

to help with the with the pipework. And you know, it's gonna be like any sort of a post storm rush where we're suddenly you have a lot of roopers coming in from out of state because there's a lot of money to make. Joe, what I learned through all of this is how unique Texas is in terms of its electricity. You guys have your folks in Texas has its own separate grids, separate from the Eastern grid and

the Western grid. Is there a sense of to what extent that independence may have contributed to the problem here. It's still it's still early in the process, you know, as far as anybody investigating, but definitely it's it's an island it's a huge island. Uh, and normally it creates more than enough power. UM. But certainly if if we could have pulled power from Oklahoma or Louisiana, arkans Aw, how that might have mitigated some of this. It's a big,

beautiful island of freedom and barbecued beef. I love Texas so much. Um. On the other hand, I'm hearing reports that a lot of people are price gouging for things as small as bottles of water, um, to things as big as actual electricity. Are you Are you hearing any report to that as well? Yeah, we're hearing in an adultal reports of of folks taking advantage of it. At the same time, you have county officials saying, you know that won't be tolerated. I'm not sure on the ground

how much can be done about necessities. If it's something you need right away, you're gonna have to pay for it. Joe, what's the latest on a sense of timing to getting back to some form of normal water, normal, electricity normal, um, just a little bit of normalcy in this pandemic world for the good folks of Texas. We we have, at least in here in South Texas, we have two more nights of of below freezing. I think that's where we're going to see whether the improvements we've seen in the

in the generation system can take can hold. And then if it holds through those two freezes, and I think then I think folks will get a little more confidence about UM, you know, climbing out of the nineteenth century. What kind of help, emergency help have you gotten in their FEMA National Guard? You know, I see some terrifying headlines on your bio page. Texas medical facilities running short on oxygen supplies. It seems like something the army needs

to bring in. Yeah, the National the governor sent out the National Guard two days two or three days ago, mostly too to help evacuate uh folks, uh you know who had no heat, to get them to warming centers. There was something like a hunter and eighty five shelter set up, big shelter set up around the state. UM and and you know, last time we checked, those shelters were all full. National Guard was still trying to find

place to put people. UM. FEMA came in with some some some generations, you know, some some generators to help state agencies do their thing. But that's the extent of it right now. Hey, Joe, thanks so much for taking some time to join us. I know you must spend our tremendous amount of stress here as you deal with all of this, So the best to you and your family and all the Texans. Here's as you guys deal with just another issue on the top of the pandemic.

As if that weren't enough. Joe Carol, he's a Houston bureau chief for Bloomberg News, joining us on the phone from Houston and Matt It's just brutally you think, you know how much more can can folks take? And then all through the Midwest from North Dakota all the way down through Texas, just brutal, brutal weather. Uh and some of the ramifications from a power perspective and a water perspective. Wow.

Especially you especially have to worry about those people that um have a disability or the elderly whose kids you know, maybe working out of state. I mean, there are a lot of people, um who must be in dire, dire straits. So hopefully things can turn around for those good folks soon. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple p Podcasts, or whatever podcast platform you prefer. I'm Matt Miller. I'm on

Twitter at Matt Miller. Yet I'm fall Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio