Help, My ETF Got Hijacked by an Internet Flash Mob

m C the movie Theater. Yeah, totally it was. You know, we've been watching all year how commission free trading plus a lockdown plus the FED, which has helped stocks just go up relentlessly, has created this sort of perfect storm where you've got all these retail traders and then you throw in stemmy checks and and yeah, and it's just

getting crazy. It's like a big gambling casino. And what happened this week, in my opinion, is that overall trend had like a strain that took a more angry approach, which is, hey, let's let's use this to get back at Wall Street. And I'll tell you I've never been called suits so many times, um as I was last week on Twitter and I started to get offended, but then I realized my profile picture I'm wearing a suit, so I couldn't really complain. But that's who the Reddit

people are trying to get back at, the suits. Who they you know obviously Wall Street hedge funds, and it became this fascinating national news story, and to help us walk through how e t f s fit into it, we brought in a couple other non suits Katherine Greifield and Claire Valentine of Bloomberg News Um were their reporters on e t f s and we're gonna talk to them about what they witnessed and what it all meant this time on Trillions. Help my e t f got hijacked,

Katie Claire, Welcome to Trillions. Thanks for having us, Yes, thank you. Okay, I have to ask how did e t f s figure into the the game Stop rebellion because obviously game Stop the stock was a major target, and all of this on on Robin Hood E t f s, though not, didn't seem as obvious at least at the beginning. Clear. Yeah, I thought it was interesting because I spent a lot of time on Reddit this week and just looking at the chat rooms and things like that. No one's talking about e t f s.

They they want to really pump up game Stop. It's these individual stocks, as we've seen retail investors really be interested in. But yet, you know, game Stop is part of E t F, so it undoubtedly had an impact on it. And what was most striking, at least initially, is just how game stops um price increase caused it to have an oversized waiting and a lot of these e t F s and what e t F s

were of particular interest Katie. Yeah, I was gonna say it took a while to find an e t F angle, but one emerged in the Spider SMP retail et F. That's ticker x RT, and I mean it wasn't x RT. You also saw it in Gamer the g A m R and also r w J, but it's felt particularly dramatic.

And x RT, I mean game stops wait. This is an equal weight E t F for it's supposed to be, but game stops waiting surged as high as twenty per cent, which felt super dramatic, and you actually saw the fund's biggest single day outflow ever as people tried to I mean, there's multiple theories. I spoke to Eric about it too as I was trying to figure it out. There's multiple

theories as to why that happens. Uh. It could have to do with the fact that people were just so desperate to get ahold of game Stop shares, or simply that the people who allocated to x RT for you know, core retail sector exposure were like, I didn't set up for this. I'm getting out. But it did shake up a bunch of passive index tracking e t f s eventually,

which was super interesting. A couple of notes on this was gamer the video game et F. There's like four of them, but only one held Game Stop, and that's g A MR. And at one point that e t F was up like eighteen percent just on game stock alone.

The others were down and then it Now that's reversed obviously, but at one point I think Game Stop was a thirty two or thirty three percent waiting, and I believe that at the time, for like I don't know, a couple hours there, it was the biggest weight in any e t F in the world. Um at thirty something percent. You just don't see that. Um. The one that it

beat I think was an Argentina. Argentina et F for like one stock there like runs the whole country, and so it's more it makes sense they're not in a video game et F, but then in like big ones like v t I where you have, like most of America is in these big broad market ones. I looked at the performance and game Stop is a point two percent waiting and it and it contributed point four percent of the return that week, so you barely felt it.

Although there's indirect consequences as game Stop became as the better game Stop did the worst the market did, So you could argue that there is an indirect consequence on the bigger whole of mainstream broad indexes. But inside the index games that meant nothing outside of a couple of these sort of more niche plays that we just discussed

Katie brought up. But but I think that that's a significant thing for us to spend a little bit more time on, because we we do talk a lot about thematic e t F s here on trillions um and you know, take your pick of the ones that we've talked about, so even video games. Right, So all of a sudden, a video game e t F gets hijacked by something that's that most people might not even think was in the in the e t F. How significant

is that? I mean to see something go from you know, uh An also ran in the index to something of an e t F is that really supposed to happen that way? So what I think is interesting in this is that, uh, you know, I I spoke to State Street about s RT in particular, was like, what what are you gonna do? It's a it's a passive fund. It rebalances court of A is there any scenario in

which you would rebalance early? And the answer was no. So basically until March, it's it feels like x RT and these other funds that rebalance on a schedule or kind of held hostage to game stops swings. I mean I mentioned that it was as high as twenty percent, and x ART Eric mentioned it was as high as thirty percent, and gamer and now in x RT it's down to six percent, which is still a very sizeable waiting when you consider that it should be closer to

one percent. You know, again, this is an equal weight at e t F that holds securities. But until March it's really just again held hostage to the whims of game stop And I guess read it to some extent, and let me jump in here on the fact this is I find this fascinating. If you look at the e t s that hold game stop and have the biggest allocation. One of them shows up in the top twenties the micro CAPYTF. And this is fascinating because game Stop we went from like basic small micro to large

cap and a big large cap. I think at one point it was the three biggest company or in the ballpark. I've never seen that. I mean, that's unprecedented that here you have like the two seventy biggest stock and it's in a microcap BTF. That so, I think it spoke to the quickness of the rise and the idea that the herd could lift the stock that quickly. And that's what got national news I think is just how fast

and how quick and how intense it happened. I mean game Stop one day traded more than Tesla and nothing trades more than Tesla, and all week it traded over a hundred billion. That is it's now all falling apart and it's petering out. But it was I don't know, like breath it was. I was breathless and my mind

was blown all week, I gotta be honest. Plus the narrative of the little guy in the hedge fund, I mean, it was just there was so much going on all these different people from um, you know, celebrities were coming in and weighing in on it. I mean, it was wild, but again we're not We've never seen anything like that.

And it also raises just questions about, especially with e t f s, of like these unintended consequences of a Reddit phenomenon that's suddenly hijacks something that's maybe not supposed to get hijacked. Clear, how have you been making sense of that? I mean, the main takeaway for me this week was just how weird it was. And that's everyone that I talked to, regular fund managers were just so

baffled by this. And I think Eric kind of really I loved his title of a note that he had and it said Wall Street Bets is hijacking some e t f s, but they can handle it. And I think to me that sort of the takeaway. You know, we're seeing game stops price come down. Now, these funds can handle it. You know, x RT is going to

be fine. But along the way, it's really weird and it's really throwing investors I'm sure for a loop who have invested in some of these e t f s thinking they're were getting one thing and now they're getting another the Joel. Let me push back on that a little bit, because one of the worries E t S was that they were going to actually kill any movement in stocks because it just this big blob that owned everything and nothing could ever move or there would be

no price discovery. Um. I think this shows that the e t F is in the backseat and active is in control, and I would think that would be reassuring. The problem is the driver in this case was out of their mind, and I think that's the new question is what if the driver is crazy? But that's I think would be would maybe satiate some of those concerns

that the E t F the tailwagon the dog. Clearly, if that were the case, then this wouldn't have happened because some of those E t f s would have been, you know, the passive blob would have been too much for this to happen. But it clearly wasn't. Another takeaway. Another a story that we're watching is the relationship with ARC. Ten days ago on a Saturday, I remember tweeting out that there are people selling ARC merchandise. That's how red hot ARC was and then it just boom, game stop.

Came along. Claire had a very time capsulely headline that said something like game stop so big, nobody's thinking about Cathy Wood right now, or something like that, and I thought, what a what a crazy world we're in, and it's weird. ARCS flows went away for a week, and then as game stops, volume and performance stopped, you know, start coming down. The volume petered out, the flows came back, and I'm like, it's really interesting. Perhaps there's a battle for which object

can be shinier. I don't know, Claire, what were you seeing with this? What do you make in this sort

of tango they're doing. Yeah, I was fascinated by kind of that inverse um between arc and game Stop, and it highlighted to me, I mean, we knew from anecdotal evidence, um, but it's hard to get a read on how much of these crazes are retail driven versus institutional for funds like ARC and you know, to me, I had talked with fund managers professionals who were super into arc um, but sort of this inverse and this tango highlighted to me that there is a big portion of ARCS popularity

that is due to m retail more small time investors, the ones who are you know, wearing ARC spreadshirts and when they were, um, you know, sort of blindsided by game stops rise, that distracted them or you know, caused them to put money elsewhere, and those funds um inflows you know, suffered as a result. Also, the other thing about this is that, like I said, game Stop became a bit of a vix for a minute, because if

game stock went up, the rest of the market suffered. Katie, did you look into this all the idea that hedge funds that were short game Stop had to sell growth stocks to cover and was that why there was this selling off of the market, which arguably hurt ARC because they're long growth stocks. So this is another reason I think ARC probably took a hit last week, or you know, at least the their shine with their flows were diminished

a bit. Yeah. I think that's the point where this turned from sort of a sideshow into we can't ignore this. You know, you have the SMP, the NAZAC one hundred are falling as well. And the theory that was raised was that hedge funds are basically having to degross and cut their risk exposure because they're being burned so badly on their short bets. Goldman actually has a basket of the most shorted stocks in the market. I think at January was up over which is by far the best

month ever. So you have these heavily shorted stocks, and this was exactly what Wall Street Bets was trying to do. It was trying to engineer a short squeeze. So you have those shots are stocks rallying like crazy, So it makes sense that, you know, the hedge funds that were heavily short those stocks would have to cut their positions, and that did. We did see that bleed into the major benchmarks, and obviously ARC was caught up in that

as well. I agree the market story was a shyde show for a while until growth stocks started selling off. Then it's everybody's problem and Tesla starts going down. Um. But what was fascinating and I think, you know, if I'm the hedge fund industry, I have to do some

I have to do some internal introspection here. They picked hedge funds as their opponent, hedge funds that were shorting, like these fun names that do things you love, movie theaters, video games, And it was amazing how much of society rallied around these Internet people just because they were against hedge funds. When you have AOC and Ted Cruz agreeing and uniting, that's how bad people like. That's how much

hate there is for hedge funds. I honestly they have some image work to do, in my opinion, and Wall Street in general, I think some people just feel like maybe there wasn't enough balancing out after two tho eight of some of these Wall Street firms. I think they just hedge funds. You don't really they don't see a lot of outreach from them. People don't know what they do, why they do it. They just have the image. They

get stuck. But I thought that was a fascinating one, and I don't know arguably one that I think should be somewhat of a wake up call to the financial industry well, and especially after the pandemic to just only accelerated that. I mean, you saw the stock market go up so much and yet unemployment that started Jane and regular people are suffering. So I think I think that just sort of exacerbated at all. I do think it's crazy to see politicians across the aisle hopping on trying

to get a sound bite hating on hedge funds. I think Senator Elizabeth Warren actually said that she wants to see more day traders. It's just weird to see politicians encouraging what is that. It's heart kind of reckless impulse to pile into Game Stop, you know, boosted by over sixt percent in January alone. I mean, that's going to end painfully for a portion of people. Well. At the same time, though, there is chatter about a transaction tax, which could also you know, be at least a moderate

speed bump on some of this activity. Okay, so we haven't talked about another angle in the e t F saga that was the last week, which was exclusively an et F story, which was silber Um s LV became with the horde, the reddit Wall Street Bet horde moved on too after Game Stop. Why SLV well? Silver is an interesting case because there's a lot of sort of dueling on Wall Street Bets about where the silver squeeze started.

It started trending on Twitter, and uh, you know, everyone was quick to say this is Wall Street bets, and there were a few posts on Wall Street Bets about silver. But then you saw people say, oh my gosh, Citadel is the sixth largest holder of SLV. We're helping the hedge funds. This isn't Wall Street Bets. So there is some debate as to where the short silver movement started, and that really highlights just the whole narrative of all

this happening. It's like who knows where these sorts of things start, but yet they do start, and they kind of take on a life of their own. Yeah, when I was talking about so, I camera how it came up. But first of all, I've picked up a lot of new Wall Street Bets followers. So now I'm getting like information and I'm either getting helpful in from ma sure being called a suit right and left now. But one

of them was like basically saying that. Then they had this diagram you ever see Star Wars where they meet to go and they look at the Death Star map and they're like, there's this one exhaust port that's a flaw in the Death Star, and if we can get a shot in there, the whole thing will blow up. That's kind of how they thought silver was there, Like if you can just rack up the cost of silver, all of these big banks are short silver for inflation purposes.

And whatnot, and all the dominoes will fall, the whole structure will blow up, will get revenge for two tho eight. Finally, it was ambitious and it was laid up by somebody who looked like they were knowing what they were doing with the silver market. They had a lot of information, um, but it was just a week shot. I mean still SLV traded seven billion. They definitely rose it about eight percent.

I mean they moved the needle. But to do what they wanted to do, Uh, plus what the in fighting they all had to go in because the game stop traded about the same amount as SLV, so they were split. And that's the thing with this move, and you kind of have to all be in the same spot. And that's what they were able to do with game stuff on Wednesday last Wednesday, but they were unable to do with silver because of what Katie said. There was some infighting and also this is a giganic pool of money

that exists. I don't know if I think they basically bit off more than they could chew on the silver. On the silver situation. And and you know, the other element here is that we go from a micro cap stock which they inflate into something else temporarily at least and jump over to the commodity land. And you know, the other thing, Eric, that we've talked about with commodity e t f s is that this stuff is, you know, there's actually underlying hard goods that back this stuff up.

Has anybody tried to actually redeem the silver? How much of the play was about that? I don't think you've seen that yet. I mean, so SLV uh, it's t plus zero, so we should be getting real time inflows like inflows for the data we see on Wednesday should reflect Tuesday inflows. But maybe Eric can chime in here. I think there's some weirdness about how physical silver has

traded that it doesn't quite reflect the previous day. But if you look at shares outstanding on SLV, it doesn't seem that anything has been redeemed so far at this point in time, which is interesting. But I mean, it's seen incredible inflows, just record inflows, so I would imagine that some of that would come out, especially now that the squeeze silver movement seems to have Peter doubt. Yeah, I mean SLV took in one point five. I'm doing the math he about about three billion in three days.

That is a lot. I mean, that blows away their record and that makes it the fifth most inflows of any et F this year, just like that. So again they can make a difference. But the problem is compared to the amount of silver in the world, it's just

not that much. But the creations just mean that there's going to be You could argue that the vault where they keep the silver, which by the way, JP Morgan's the custodian, some of these were like Keystone cop plans where they just didn't quite think it all the way through. Then there was a theory that JP Morgan was actually very long silver and so all you're doing is helping them. And then I'd see these people arguing with you do

with each other, like we're helping them. Stop. The whole thing was it got game stop was more like whoa silver was more like a funny like one was a drama action and the next one was a comedy. I thought. What I thought was interesting is there are questions too about how the silver's stored in London and then how to transport it during a lockdown, and just these wild things that these Reddit traders are impacting. I mean, it's

just it's just so strange. How do you do how do you transport silver during a pandemic in a lockdown? I think I think you asked for more time. Another thing, with these silver and gold ets that are physically back, there's always been a sort of conspiracy wing of people

who don't believe the goals there. The silver's there. Um that said, there's been a couple of ts that have popped up that will let a retail investor gets the precious metals sent to their house, and that's where some of them wanted to go to these alternative ets, but those don't have too much money. I mean, there's not that many people that paranoid. Most people are fine trusting black Rock and whoever else to store the silver in

a vault. But that's always been a concern, and that kind of I guess came out here a little bit with their arguing again because their goal was to try to, I don't know, not let Wall Street benefit at all.

Compared to what we saw with the USO in the spring, where you know the prospect of having oil delivered to your house, I'd rather have silver delivered personally, no doubt, but you know, for the record, Eric and I have I think pitched in the in the course of doing trillions every uh issuer in the Silver Actually, I don't know about the Silver game. Eric, we should double back on our on our first But in the Gold World, we've asked everything person to take us to their vaults

so that we can see the underlying asset. Um. I asked repeatedly for a bag to be put over my head so that, you know, we could actually really have the drama and they could maintain their secrecy. But so far everyone has declined. But that remains an open invite if if anybody wants to put a bag over my head. Yeah, anybody listening who has access to one of those vaults, we would love to do an episode from there. I think Bob Pissani from CNBC actually got into the vault

one time and he held up the bar. But then there was a message board that claimed that was all like fake. I mean, I don't know. Look the when when when you get into the Gold world and I've I've dove down there many times, there's like goldbugs and then there's truly paranoid and some of the truly paranoid, some of the stuff they come up with is h is fascinating. That's why you know. There was an E t F that came out. I think it changed strategies,

but it stored the gold in Switzerland. That was its only difference. Everything else is the same as j LD, but it stored it in Switzerland, and it had a It got a billion dollars just for that one feature. That's how much people are you know, I guess assume that the West may confiscate your gold. Just on the

gold angle. I just want to quickly add when Gold g l D particularly was like at the height of its inflows in May, I spoke to George milling Stanley, who's now the chief gold strategist at Streight State Street Global Advisors, but while he was with the World Gold Council he helped create the fun back in two thousand four, And I mean I was interviewing him about gold, but

I couldn't get off the gold vault theme. And he was telling me obviously he's been in the vault, and I was like, how do you fit all the gold in the vault? That's crazy? He was like, what are you talking about. It's a gold bar. It takes up like one corner. Like even fifty two billion dollars worth of gold bars only take up a corner of the vault. So I'm dying to see it one day. If you guys ever get into it, I think it would be

pretty underwhelming. Yeah, I mean, isn't there that isn't there that stat that like all the gold above ground would fit into a swing pool or a couple of lin pools. Yeah, this is just you're just like reading off reddit right now. So what other causes of concern did you guys witness in all of this as it relates to E T F or markets in general. I mean, Katie and I worked together on an article um that came out over the weekend, and it looked at sort of the craze Um.

You know, there's the angle that Eric was talking about how these people are mad at Wall Street, and then there's sort of another aspect possibly about this sort of gambling mindset and how people are bored at home. They're looking for a sense of community. Um, they want to feel something, and so they're sort of gaining that through this gambling mentality, and you know that could end up really badly for a lot of people. Yeah, It's weird to see this movement as being compared to in virtual

occupy Wall Street. You know, the David and Goliath theme. Uh, you know, I've seen that bandied about many times. Um, And I mean there's obviously an element of truth there, uh, you know, the big guy or the little guys trying to take on the hedge funds. But I think like in that search for a deeper meaning, it kind of obscures that this is just fun. You know, people are

using this as entertainment. We saw this in penny Stocks, people punting around penny stocks, and you know, like Claire was saying, that's what our article got at, that this is at its root, this is gambling, and that wasn't too well received online. One guy actually made a forty minute YouTube video about it, which was interesting. But I think that's an important point here that there's risks here

inherent in any gambling situation. Well, and it's not always a bad thing, you know, So what if some people want to, you know, gamble on stocks. I mean, you great, it does sound kind of fun. I mean I spent a lot of time on Reddit this week, and some of it's kind of you know, it seems like fun. Yeah, I'm in that camp too. I don't judge, And I think that this is also just the product of a late cyclable market. Again, this just goes back to the whole theme of the TikTok videos and the Robin hood

and everything going up. It's a nice time to gamble when the stock market's got this nice bullish base. Um. So my theory is most of these people will learn the hard way that they gotta you know, buy and hold and do something a little more thoughtful after a correction.

I went back and look at articles from the like, and there was a lot of these quote mobs that were all, you know, they just were using different forms, but they were making tons of money in the market, and then it blew up in their face and a lot of them were this is my generation converted to passive.

And also another thing on the passive thing is, you know, I think a lot of people who are watching this and I put myself in that boat, we think, like, you know, if you're a passive investor and you first subscribe the Vanguard way and whatnot, um, that is the way to sort of get back, not get back at Wall Street, but it keeps Wall Streets, hands off your

money for the most part, and you build wealth. So I do think, like you know, there's a phrase in the movie Wargames that the only winning move is to not play, because not only are there gonna be tons of bag holders and tears at the end of this, but they're racking up trading costs. I mean, I did the math, and if you look at the bit ast spread of some of these stocks are is pretty wide. We're looking at about, you know, five hundred million is

in trade in trading costs. Now, obviously that's as a group, but that is is counter and productive if your goal is to sort of starve Wall Street. So I do think it comes back to, as Dave nade It called it, the Vogel hack um. That's the only way I've seen to solve this puzzle and build wealth and nobody gets hurt um is to just buy and hold a cheap index fun and not trade it. But I agree, it's fun to trade, and I think if you just admit

that to yourself, I said, just in joy yourself. I think we see a lot of portfolios being very cheap beta in the core, and then they go crazy on the outside with stock trading or options or arc and that hot sauce level. If it can keep you from like messing with great, it's actually a good behavioral tactic as well. Okay, I have one more thing that we want to we want to talk about and and Katie,

we're gonna troll your your Twitter Twitter feed. Here. Eric's pulling it up so he can I like to read it. I've tweeted a lot of dumb things this week, so you're gonna have to scroll. Okay, here we go. This is good because this is this is like right in the middle of the frenzy. It's sort of like throwing like chum in the middle of like already shark infested waters. Here it is ready. What would the FED do if Wall Street bets engineered a short squeeze on long term treasuries?

Good question, Yeah, I mean fifty replies is pretty good. And then she did a quick, qualifying second treat that just said this is a joke. And even even after that tweet, I mean, I got so many serious, like thought out replies, and I just I don't know what to say, Like it's it's a joke. Someone did say that. Isn't the FED trying to do that already. Aren't they trying to engineer a short squeeze? Which I thought was

a pretty good reply. I saw like I saw one of the tweets right aft the bat just said I'm here for the ratio. That's when you know someone said something that's just you know, outrageous and uh, people just hanging the replies just to see everybody go wild. I hung in there though. Let the record show, Yeah, you didn't delete it. You hung in there. That's I give you credit. It's tough to take that much heat on Twitter,

especially in this kind of a scenario. Katie with those diamond hands, Katie Claire, thanks for joining us and jillions. Thank you, thank you, Thanks for listening to Trillions until next time. You can find us on the Bloomberg Terminal, Bloomberg dot com, Apple Podcasts, Spotify, and wherever else you like to listen. We'd love to hear from you. We're on Twitter, I'm at Joel Webber Show, He's at Eric Baltunos. You can find Katie at k Griidfeld and Claire at

CFB Underscore eighteen. This episode of Trillions was produced by Magnus Hendrickson Francesca Levie is the head of Bloomberg podcast Bye