105253853 - 1_i486g5vf - PID 1851201 >> Hi, I'm Jason Buck from the Mutiny Fund, and it's my distinct pleasure to sit down with legendary trader Marc Cohodes. I thought they were originally going to get us together, so Marc and I could talk about heirloom chicken breeds, molting season, and rotational grazing with your chicken farm, but unfortunately, a lot's going on in the last week and we have a lot to talk about and break down. We're going to talk from topically what's going on and we want a deep dive into the nuance of what's been going on in the markets with this WallStreetBet, GameStop, Robinhood, and everything that has been going on in the markets. I want to start maybe with, Marc, a little bit about your career as a short seller, and maybe part of that is you can delineate what's the difference between an actual short seller and a long-short hedge fund. >> First of all, thanks for having me. I don't want to get to concentrate people think that I'm a promoter of this or any other, but this is a complex issue and I think it's very important. Everyone's entitled to their opinion, but I think it's important to get the facts right. To your point, I've been at this since 1982. I go after bad people, bad companies, frauds, criminals, things like that, and there are very few people left on the planet who do this. Not only does it serve a purpose, let's use my friend Jim Carruthers as an example. He single-handedly exposed Insys, which is that fentanyl-selling drug company where the main guys are going to go to prison, which killed tens of thousands of people. If not for his work, others would not have never picked it up and the company could still be doing what they're doing. I don't know how much Carruthers and his fund made or lost on Insys, but he served society a greater good. The same thing with the people who exposed the money laundering fraud of Wirecard. My friend Fraser Perring ended up in someone's trunk. He's lucky they didn't kill him. Whether it's me exposing AEI Farm over the years or others exposing Valeant or Concordia or my battles with MiMedx, Media Vision, people have ended up in prison because of real diligent work by members of the short community who do their work, and those people right now are in danger of going out of business, will be out of business, are out of business or very close to being out of business. Probably the dedicated short funds across the world probably now are down to less than a billion dollars. I think Chanos is functionally done, I think Carruthers is functionally done, this is very sad for me, but you can't, under the current circumstances, run a business where names can go up between five and a hundred times on you in a week, there's no way to hedge yourself against that kind of existential risk and to me it's very sad, which is why I think it's very important to speak out. I don't have a fund, I haven't had a fund for years, I'll never have a fund, I don't want to have a fund, it's a miserable existence. Of the die-hard people who do this work at a very high level, you have Grego, you have Fraser, you have a few others who as some people would say activist shorts who does a really good job. But as we segue from the legacy people who do this at a high level, most of these activist shorts, as I call them, are smash and grab guys. They can be allowed to do whatever the **** they want to do, but they take a short position in the morning, they write a report in the afternoon, and they cover at night. That's no way to run a railroad, it deceives people, it's bad, it ****** the Robinhood and the Reddit and regular investors off nets why you get the legacy hate for those type of people, the activists. >> Part of that is that they also have a long part of their book and the prime brokers are allowing them to have extreme leverage, so they've got these long and shorts and they're playing this leverage game during the risk on cycle, and so I just want to clearly delineate the difference between a short seller and a long-short fund. >> You're jumping one second ahead of me. I've talked about the second group which is the activists, and then the third group which I have absolutely no stomach for are these long-short managers which use excessive leverage. That would be derivatives of the SAC crowd and Melvin who got in trouble and derivatives of the Tiger Cub crowd who got in trouble. You either have a long book or a long book mixed with a short book, but you don't need excessive leverage in these markets and in these days, you put the system at risk. What happened with Melvin and/or SAC and/or who led to it, unclear exactly who led to it, these guys should not be on leverage. They should not be on excessive leverage. If you can't make normal returns in this market, you probably shouldn't be in the business. Because when you use excessive leverage and you have prime broker issues, brokerage firm issues, contagion risk, factor risk, it leads to huge problems like the ones we've seen, and the facts are all very elusive. Everyone has their own truth, but there really is only one truth. I can't stand what's going on, I can't stand how the media has characterized this, they've dummied this down to the upstarts, the revolutionaries against the suits, that's not the message, the message is everyone who can trade should be able to trade, everyone who has an investment account should be able to invest however you want. But what you don't want to do is you don't want to put Little League batters up against Bob Gibson pitching because that will not work out well. Can work out okay for a batter or two, but it's not going to work out well over time and I want to stick a big stake in the ground to say, this is very wrong. Instead of working on the political narrative, people need to work how to fix the system so it's fair for all concerned. It's not fair for the big guy, it's not fair for the little guy, and it's extraordinarily dangerous with what's going on, extraordinarily so. I think it's important to speak out and if I have to speak out every day, so be it. Those are the three parts, we have the real, serious people like myself, Chanos, Carruthers, a handful of others; we have the pretenders which are these activists who run the smash and grab things; and, we have the over-leveraged in it to make a buck however they can as they long-short over leverage hedge funds. That's the landscape as I see it and those are really the three categories. >> Exactly. I'm glad you delineate it for us and we'll come back to this idea of systemic leverage in the system. I just want to clearly highlight that. I don't want to put words in your mouth, but you're on the side of the little guy, you're on the side of these WallStreetBet guys, it's just you can't understand why they're upset or attacking actual guard dogs of frauds, those kinds of short-sellers, they're on the same team, it's the other guys that are on a different team and people may get upset about the short-sellers and Tesla, so then maybe Elon and Chamath come after the short sellers or they pile along to this bandwagon when they have an ax to grind against people that are just trying to take the other side of their long book. >> That's 100 percent correct. I'd probably get a dozen DMs a day from people who lost their absolute *** in names I was involved in, Concordia in Canada, Home Cap in Canada, MiMedx, you name them, I get it from them. One story is sadder than the next. They're so bad I feel like sending them the money. That's how bad it is because people have lost it all and they say, if I would have only listened, if I would have only known about you, if I would have only paid attention. I don't go on the Cartoon Network which is called CNBC on purpose because it's ******** finance dummy down to fool and betray the little guy. I'm friends with the little guy, I like the upstarts, I like the individual being able to do well because that's what the society is about. I can't stand when they get screwed. But the problem is when I speak out against frauds, I get an FBI visit from a bribe senator, I get sued, I get threatened, I have a disabled son, his life's been threatened dozens of times, and it's no fun. Eventually, I'm 60 years old, eventually, you say what the **** am I doing this for? I keep coming back to, I'm doing it to try to make a difference, to try to move the needle, to try to help fellow men out because the brothers here are going to get laid away. I'm not involved in any of these names, GME, iRobot, EXPR, whatever it is, the silver short. People should never ever buy a name because of a short squeeze. That's the absolute worst reason to do anything. If you like something and there is a short, the game's on and we'll see what happens. But this whole concept to think that you're squeezing or harming the man or the suit or whatever, is very misplaced. The guys who won baseball teams are these leverage long only funds, not the short seller. You have the tempers of the world and this [inaudible] and will blow himself up and the guys who own the Milwaukee Bucks, these guys are a dime a dozen, and the only way they have money and have made their fortunes is through use of excessive leverage. Same thing with Steven Cohen. He's not so smart, he's not that good at all. He paid a $1 billion fine to the government for playing around with funky information. He's back at it, he should never have been let back at it, and he uses an inordinate amount of leverage to get his returns, and that's not right. Elizabeth Warren, who I like, and my lawyers this weekend, we wrote a letter to some senators. Her idea of a wealth tax is populist and it could make some sense. But what I'm going to say is very important and I hope people listen to it. There should be something called a too big to fail tax. Everyone who's viewed as financially significant should pay a huge tax upfront so that you and I and fellow taxpayers don't have to pay extra taxes or we want a bigger deficit to bail these guys out. They should pay money upfront. If you're too big to fail like Citadel, or SAC, or Goldman, or the banks, or the brokerage firms, or if you use excessive leverage, you should pay a significant tax every year, every quarter on every trade to cover the system in case there is an accident. There was an accident this past week, and there was an accident by some low-life who runs a fund called Melvin. It got contagious across the globe and to other funds, and it caused a disaster. It's not a Lehman moment, that stuff is overdramatized or whatever that word is, but it created a huge problem for a lot of folks. That shouldn't be that way. If you have a problem in your portfolio with your trades, you should pay a heavy price. If you go out of business, it happens, but you shouldn't be in a position to bring down brokerage firms, friends of yours, short sellers, leverage players. It shouldn't be allowed to happen. The use of leverage by these punks who have more money than brains is the problem. It's not the Robinhood guys, it's not the Reddit guys, it's the excessive leverage by hedge funds that have caused significant problems for others and for the system. >> We'll come back to how you regulate that in the future. Quite frankly, like you said, that's the game. As soon as you can get your hedge fund to tens of billions of dollars, then your primes will give you excessive leverage, and then if you blow up, you have a government backstop. They can't blow you up, and that's the game. >> Exactly. That's the game and it becomes money. Joe Six-Pack, for lack of a better term, Joe and Jane Six-Pack who are Robinhood accounts or they got an account at IB, they look at these people and they say, "What's so great about Steven Cohen? How did he get his money?" Well, find out how he made his money. Find out how he gets his. It's not that he's that smart, he knows how to bid and knows how to game the system with excessive leverage. Same thing with Ken Griffin at Citadel. Same thing with the Tiger Cubs. Same thing with all these spinoffs. The average guy gets ****** off. They get ****** off for very good reasons. Then when these guys fail, it's those guys getting bailed out. The problem is, everything needs to get restructured, rebuilt, reformulated, recircuited so the system itself is not at risk. Goldman makes a fortune by lending to these guys. They make it in stock loan. They make it on margin. They make it on giving guys more money, and that's the problem. If you can't make money just picking stocks one way or the other, excessive leverage can only kill you. That's the misnomer here. You won't be able to make as much money at a 2 and 12, or 2 and 20, or 3 and 30 fund. You won't be able to make as much money. But again, if you're a decent stock picker and your worth is ****, you don't need leverage. You just go out and you play it straight up, you play it man to man, and to the victor goes the spoils. >> Let's talk about the systemic leverage that also applied to the actual business of Robinhood. All along they were selling that order flow. That's how it was a free app for most people that don't understand that. They're selling their customers' order flow to the Citadel, [inaudible] , Jane Street of the world, and they're bringing in money for that. Not only that, they're lending out those stocks for the short interest players. They're reaping the margin gains and the income off of that and not sharing it with their customers. They're taking in money on all different sides of the trade, and then when volatility picks up and there's a large amount of players piling in to GameStop and these other low-float stocks, all of a sudden, the regulators, their clearing houses whether it's DTCC or OCC, it says, "Hey, you have to post more margin." Because a lot of times these trades are t plus 2. They may not settle for two days and then it gets commensurately adjusted to each brokerage house. Like as you alluded to before, it's like a fog of war. None of us know exactly what happened. We're trying to piece it together. But they had a margin call, some say upwards of four billion and maybe they negotiated it down to 700 million to a billion, and they're trying to scrape that money together to make that margin call, and this is why they limited their customers to only sell orders and not buy orders. Once again, the regulators allowed them to take an enormous amount of size of leverage that wasn't a prudent amount in case something like this happened. Now they get put in a rock and a hard place and they're trying to scramble for funds everywhere. Quite frankly, if they were honest to their customers and said, "Well, we can't post that margin, we're going bankrupt," well, everybody bought those stocks in a margin account, not just cash little account. As you know, now it goes into all the lawyers for 18 months, and they can't get out either. Everybody was ****** all the way around, and it's because of the systemic leverage, and people think a bad day is never going to happen. >> You're 100 percent right. But here was the simple fix. All these brokerage firms, and banks for that matter will give you all the leverage you want when you're doing well. When you are doing well, they'll blow smoke up your ***, they'll give you whatever you want. But when things go rocky, they are the first to cut your throat. The problem with Robinhood, and the simple solution is, is they stopped and disallowed trading for one class of investors, which is never good. That is to me a hard stop and is not okay. What they easily could have done, me being the CEO of Robinhood, and let's say you being the head of operations, I would have said, "Hey, Jason, what's our VAR in GME, AMC, and all these funky names?" VAR is value at risk. Someone would have said, "We have 4.2 billion of exposure here." I would've said, "That's too much." Then you'd say, "What do we do?" I'd say, "Let's go to 300 percent margin on these names." In other words, if you want to hold long or short GME, 300 percent. If you own 100 grand or short 100 grand or options in the name, you've got to put up three times the amount of equity. Now, by doing that, you discourage trading in those names. You discourage it, but it's not a hard stop. If you want to play those names, that's the cost of playing poker. That way, you remain open. People if they want to trade, trade. If they don't want to trade, don't trade. You have house rules on margin, which are negotiable. Then you have Fed rules, which are non-negotiable. The Fed margin requirements, the Reg T, that is a hard stop rule. There is no wiggle room in that. There's a plenty of wiggle room in the house margin rules. Robinhood got played. They got played by Citadel. They got played by big players on that day where they shut it off for their customers. It was a huge disservice for all involved. People didn't even understand what the **** margin is or what margin calls are. They just don't understand it until it's too late, and that's a shame. The by-product of that is you **** off a lot of people. The people who get ****** off are guys like Portnoy. He has a reason to be ****** off, and he has a big following. He has a big megaphone. On one hand, you have the Portnoy crowd, then you have the [inaudible] crowd, and then you have the Elon Musk crowd. Then you have professionals, or let's call him suits, and no one gets along. No one can talk to each other. Everyone is dictating their point of view. There's no facts being kicked around. There's no hard evidence being kicked around. It's just a lot of screaming and jostling and the shorts are the enemy, and all this and all that. The average person doesn't take the time to think it through. They don't take the time to say what's really at play here. It becomes a political game. It becomes a CNBC issue, where they have wrappers on who don't know the first thing about GME, or whatever [inaudible] hold tight. These guys can barely tie their shoes, yet alone give investment advice. I always quote, hold on. I always break this out, this is the quote of the day, there it is, and it's from the New York Times. It's dated Saturday, April 15th, 2000, it's almost 21 years ago. It says the quote of the day. "The lesson is going to be the market is not a game, the market is not a casino, it's a serious thing for serious people, and if you're wrong be prepared to lose." Marc Cohodes. That's 21 years old, and I could repeat that quote today, it's 100 percent true today as it was 21 years ago. The market could go up, the market could go down everyone's entitled to opinion. People can own stocks, commodities, this or the other. But unless the government and the powers that be get this leverage situation squared away, so Joe Six-Pack doesn't get rat ****** by the man and know what's going on. You're going to get more of this class warfare if you will, or struggles behind the suits putting it to the guy. It's deeply troubling to me because you're talking about people's life savings here. We're not talking about Monopoly money, we're talking about real money, and I'm happy when people make, and I'm sad when people lose because I like to see everyone do well except my enemies, which I've looked to put in the ground. But the average person I'm happy about the movement. I'm happy people have made money in equities during the pandemic. But things need to change otherwise we're going to have more of the GME's, maybe in the opposite direction, more margin issues, more brokerage firms hiccuping and more sophisticated people trying to disadvantage the average guy. >> Everything is just like your right to trade and everything like that and it should be, but it's almost like our right to free speech is not quite what we think it is. I think it's interesting your take on where Robinhood made a mistake is they could have changed the margin requirements to reduce maybe some of the selling pressure. They could've also may be routed those orders through different brokerages that maybe were cash settled and they would've taken a hit on that, but they would end up probably looking a little bit better in the end but also at the same time, they may have just been in panic mode and we all know how that looks like. If you get a margin call and you're in panic mode and they haven't really thought it through, do you think there was any nefarious things behind the lines of somebody got tapped on the shoulder and a smoke-filled room in the middle of the night or you just think this is part of the whole systemic over leveraged risk scenario? >> Well, it's been well documented what happened to me with Goldman Sachs, and I'm a total believer in stuff happening and smoke-filled rooms. I have a sneaking suspicion the New York Fed got involved and tapped Robinhood and others on the shoulder and basically said, "You clowns better get this ******* straight and slow it down, otherwise you're going to blow the whole thing up." That's why I think they stopped trading that day because this margin solution was available and would have been simple and would've been elegant. I think Citadel has issues, and Citadel needs to be investigated up, down, and bottom because they're on all sides of every trade and they know what's going on and it's not okay, and he's too big to fail. He should've failed in 2007/2008/2009 he was over leveraged, but they bail him out. This all gets back too big to fail, play the game, make as much as you can off the system at the expense of the system and the little guy and it needs to be changed, and people need to get into it while this is fresh in people's minds and try to fix it, and try to say there need to be checks and balances in the system. If the market's up every year for the past 900 or whatever the **** it is. Let's slow it the **** down so there aren't traffic accidents. It's literally like giving a 16-year-old, a brand new Ferrari and say, here we go. Mash the gas, let the computers do whatever. God bless the guy who made a bunch of money in his GME calls, he's going to pay a fair amount of taxes on that and which is good, which will help society. But when you put that example in front of people, they say, I can do that too. Yeah, I know you can do it too, but the chance of that happening again is slim and none and slim left town. Let's understand the process or understand your process before going hog while in to these things, because it's a dangerous game if you lose, and I don't want to see people lose, they will. There's winners and losers all the time but I don't generate excitement seeing Joe Six-Pack lose, I sure don't. >> It's interesting actually that even the trade was even more new ones that especially, the one posting the most about it was Roaring Kitty for his usual handle name in [inaudible] is that it started out as a classic value trade going back into 2019, he was buying, he was long GameStop and value trade starting at $4. Actually most of his returns actually we're just on straight long stock. It's just towards the end when the Wall Street bet when it got upvoted where a lot of people piled into long call positions because that's how they can leverage that trade. But then on the backside of that as you alluded to, there's going to be a lot of people that are the last ones trying to grab a chair when the music stops, and still a lot of people are going to get burned out of money they don't have to spend on these trades. It's like how do you address that in your head. It's like you don't want to tell anybody how to live their life, and a lot of us learned doing stupid things in our teenage and early 20s. I know I was long tech names in late '90s. Because I was a teenager. I didn't know any better and getting burned on that allowed me to dive into the markets and learn better. How do you not be paternalistic about what people should do with their time and money? >> That's a good question, there's no set answer to that but back when in the '90s and turn of the century the internet and social media was nowhere where it is today. People can get whipped up into frenzies about all concepts. I don't have a lot of answers other than, my advice if I was king for the day was. You should know what you own, you should be able to tell a seventh grader what you own or write you're short in a paragraph or less. I can't explain Bitcoin or crypto on a paragraph or less, I've never touched it. People say, "How come you're not in it?" Because I can't explain it. I don't know what I own, and if I don't know what I own, why would I ever want to be in it? I want to be able to explain it. I'm not the sharpest knife in the drawer but I'm savvy as **** and I'll outwork, outgrind anybody, and you need to know the reasons that you're in the trade. If the reasons you're in the trade is to short squeeze or infinite squeezed or whatever in my opinion that's a pretty bad reason. CNBC runs a show what's it called Fast Money. There is no such thing as fast money. That's like sheer stupidity. I could say fast money sponsored by sheer stupidity, because you can be an investor, and there are some good ones or you can be a trader and there are some great ones, but you really have a hard time being both. There's very few people I know who are good investors and good traders. I know great traders, I know great investors. I know very few who are both. I think that if you're a regular person, I think you'd say I'm an investor and I'm in for the run or I'm a trader and I think I can get in and out and I think you need to learn the disciplines because it's not a game. Everyone can do whatever they want to do. My short-term solution which I think it's a big solution of the problem is you have excessive leverage or HFT tax on it, so the government has a kiddy, and has a pool in case things go bad. If you remember and you get in trouble, you tap into it, you've paid into the fun like the FDIC and you don't break the system every time. If Robinhood is a bad actor tighten it up, everyone thought Robinhood was going to go out of business. They could fold Robinhood into Schwab, E-Trade, TD, Morgan Stanley, CB bank, 24/7 365, and they'd be happy to take them. Robinhood was never at risk. They could've folded them in, and that would have been that. Everyone is saying Robinhood is going out of business, that's just spreading fear. That's not right. >> For once they could have actually stepped in and provided the liquidity to the little guy instead of the investment banks and the hedge funds. >> I think before we got on this thing, I was reading that Robinhood took in 3.4 billion of capital. [inaudible] , they could take in 13.4 of capital. There's plenty of money out there looking to do things but Robinhood needs to do things the right way. They need to do things the right way where they don't want to screw their customers and B, screw the system. If it's not run by adults, well, god ******, find adults who can run the thing and be responsible. They have that guy who never washes his hair on CNBC and he has no answers. He doesn't know what the [inaudible] business he's even in or how they do things. He doesn't have good answers to hard questions. Musk asked him some questions on something called Clubhouse, the guy didn't seem to have really good answers to me. If I think he knew his business in and out, he would have never have gotten his *** in this trouble and he'd warn his customers so if people lose their money they don't blow their **** brains out. >> Your original pitch [inaudible] your company was to start a free trading app that sold the order flow to Citadel, Jane Street [inaudible] , it's not exactly starting off on a Robinhood look out for the retail guy basis. >> What if someone say Citadel has gone from 3.6 billion in revenues to 6.4 billion revenues in a year, forget even profits. How does that happen? They're the winning bidder of a free look into everyone's account and everyone's trades. I don't know how that's Robinhood like. It benefits the company, Robinhood, but it sure doesn't benefit you or me or anyone who has a Robinhood account and they make themselves easy marks at the detriment of their customers. It all just slides back to everyone is looking to make a fast buck at the expense of others. When the thing goes bad, then everyone tries to cover their *** and play the blame game. My deal would be, why don't we get this right the first time or why don't we get this right up front so there isn't a disaster on the back side. There's not a disaster. Now if that means, Ken Griffin, you don't make 15 billion this year, you only make 13 and you can only buy a billion dollars worth of houses and not 10, so be it. Or SAC doesn't buy The Mets, so be it. But at least you don't put the system at risk. If you want to put the system at risk, pay your fair share upfront so if something breaks, it can be fixed without panicking everybody. That to me is a simple solution to some very complex problems and the problems are complex. >> Like you said, there's a prudence to what you're saying but what you alluded to before though is that you have a very Hyman Minsky problem. As long as the good times are rolling and everybody's making money, they think the system is becoming more stable and they have nothing to worry about, and that's right when you hit the air pocket, where the stability brings instability and then everything crashes because there's too much leverage and lack of liquidity in the system. But it's unfortunately not the way humans think. What you're saying has a very long-term pragmatic prudent philosophy about it. It's not how people operate a lot of times in the real world, and that's how we get into these situations. >> Admittedly, I know I'm [inaudible] in the head and I know I'm not right. But every trade and every investment I make, I expect to win. When I do well, people say, "Are you happy? What are you going to do tonight to celebrate?" I said, "I'm not happy." I said, "All I do is spend time going over the mistakes I make and not to make them again." I am hardest on myself. I never allow myself chance a ****. I really was something here. I mean, sometimes I do to rub some guys who I can't stand but I'm always looking at what can go wrong or what I do wrong. If people and the regulators and the guys who dole out the leverage, instead of trying to capitalize on the greed and the straight up, focus on how do we make this better, how do we make this more bullet proof, how do we get everyone involved in this while limiting or trying to at least cover existential risk stuff outside the box that can happen. If we had more of that, everyone would slow their role and people and the system would be in a whole lot less risk. I mean, it used to be you enter an order, you call your broker, and the broker would then phone a floor broker and it will go to a specialist. Now, it's all computerized, run in front of a computer, high-frequency trading, free trading, trading for a penny. It's so fast. No one can figure out when it's time to manually do it or throw on the break and that's a whole another problem. When stocks used to be an eighth or a quarter, or there was a spread of five cents, there was money in it. The Citadels didn't have to pay for flow to run in front of trades, to find out what someone was doing and knowing what was going on in gaming the system that way. There's a whole lot of problems that have been built in and some of it may or may not be of subject, but everyone just needs to slow down, quantify risk, system needs to [inaudible] , pay more frontend taxes by the guys who are systematically significant, who can break things down and everyone needs to respect everyone a little more on all sides of the ball to at least have the facts straight. Everyone is entitled to an opinion. Do you think Tesla can go to 9,000, God bless you, buy it, or goes to 200, God bless you, short it. But there needs to be a much better free flow of information and people being willing to know the facts, but have opinions based on facts. That would be a long way to get things quasi-fixed but then may be pollyannaish on my part. >> No, I agree, it's interesting as guys that run protecting strategies for people, there's never a good day because the days we're actually making money, other people are losing their life savings. It's just never a good day. It's just you're always, I guess, you take pride in the craftsmanship, but there's never really a good day to celebrate. But if I want to go back for a second just for maybe the people that don't understand real short selling or even a short squeeze which happened last week, can you explain the mechanics a little bit of putting on a short position and how if it goes against you, you can just get your face ripped off? >> There's two kinds of short squeeze. In order to short a stock, you have to borrow the shares. You're always on margin because when you borrow the shares, that requires the use of leverage. If you own stock in GME and order for me to short it, I have to borrow it from somebody. I'm borrowing the stock, which has a margin situation. Now, depending on who your broker is, you can borrow three times the value, two times, one time, whatever. We've had a brief discussion on margin. One, you can get squeezed if you lose your borrow. If all of the sudden the borrow goes away and someone pulls my borrow, it's illegal to be sure to stock without a borrow, so the prime broker will ''buy me in''. So that's one form of squeeze. The other form of squeeze is when a stock goes up, you lose money on the denominator, your account let's say in million dollars. Let's say you're short GameStop at 20 and it goes to 40, you lose half your money. The numerator goes up because instead of being short a million shares at 20 or short a million shares at 40, so you're down $20 million. Your numerator rises to 40 and your denominator goes down by 20. So you have much more exposure, if you will. Your broker or prime broker then calls you and asks you to put up more collateral. You have a choice of putting up more collateral to cover your losses or you cover. If you cover, you create a situation where your short gets squeezed because instead of putting up more collateral, you decide to close the position. What happened last week wasn't people losing borrow, you could borrow all the GameStop you wanted. What happened was people didn't have the collateral to put up. So everyone closed their position, I'm not going to say at once, but in close proximity to each other, and they closed AMC, they closed iRobot, they closed cost, and they closed everything else, so you had an absolute bloodbath as anyone who's short these type of names. Now, the people who do the real work, the first crowd, myself and other crowd, no one is short these names. No one's stupid enough to be short GME at a very low level with a huge short interest, or AMC. The bloggers, who knows? I don't know what those clowns are involved in, but the over-leveraged hedge funds are the people who created the problems. To keep them from creating problems going forward, they shouldn't be bailed out, they should just be put out of business, and they should learn their lesson, and when they learn their lesson maybe they're allowed to come back and play. The worst thing in my mind that happened to the market was SAC and Citadel bailed out Melvin. They should have let them go out of business, and they should let all those guys go out of business. That way, everyone will learn the lesson that you're not too big to fail. But I'm not king and I'm not God, I just have strong opinions. >> Like you said on both sides, if you lose on the trade, you're a big boy, take your losses and move on instead of getting bailed out whether you're retail or you're institutional, it shouldn't matter. We all play this game and you got to take your lumps with your wins, and that's just part of the game. But part of what happened last week Tuesday was also what they call a Gamma squeeze. People are buying out of the money calls, the dealer has to hedge that position, so they'll buy some of the stock to hedge their risk because they're short that call. If it's at a 10 Delta, it means they have to buy 10 percent of that stock to hedge that risk, which also could then drive up that stock especially if it's getting short squeezed. Now it's up to 20 Delta, they have to buy twice as much stock. If it goes up to 40 Delta, they have to buy more, and that buying pressure also lifts the stock and that's what creates a Gamma squeeze. You had all of these mechanics involved with this GameStop trade that all came to roost at one time, but like you've pointed out, it's a very one-off trade. These things rarely happen. There's small caps, small flow, just the mechanics of this worked out, but is it fair to say from your perspective in just looking at an overarching term that shorts like you are looking to short frauds while other people are looking to short fundamentals or just trying to play a quick game? It's more like a long versus short term game. Is that a way to look at it? >> That's one way to look at it. Genesis of the GameStop bill is I think their stock went from 50 to three or four. The short should have just covered it. I use this line that someone once told me when a stock went from 2-3, I said why is it up? Why is it up to three and this guy told me people would pay three dollars just to see two rats ****? These guys made so much money on the GME trade, the arrogance of Plotkin, Melvin and SAC. They should have just covered the thing and moved on. Instead, they let the thing stay, they let the thing hang around and start going up. I don't know if they shorted more of this than the other. They should have just covered it when it was three, four, five, six, whatever, and been done with it. The thing was bombed into the ground in the market's high and the market's speculative, so they dug their own grave with that. But the thing on the Gamma squeeze that you brought up, I had a very smart pal of mine who used to be in the business. His name is Doug Wrote. He used to manage money for Bain. He thinks, "When I think a case can be made that when you do this Gamma squeeze or try to do something like that and you do it with others, it's collusion." Collusion in terms of manipulating a stock is highly illegal. So I think the government needs to look into all aspects of the GameStop thing and see if someone colluded with others to create this Gamma squeeze because that's a problem in itself, and those guys could be in real trouble. It's no problem if you go do it yourself, but if you collude with a bunch of big money guys to do it, I think that's legally a real problem. No different than when I talked to a couple of pals of mine. We said if we would have done to GameStop on the other side, put out a bunch of stuff on Reddit, shorted a bunch of the stock, bought a bunch of puts into oblivion, and the stock would have collapsed, we wouldn't have been investigated, we would've been arrested within seven minutes, and they would have had it on the national news about Cohodes and his gang of three colluded to drive the price of the stock down. Everyone's accused of that on a daily basis. Bear raid, shortened the whole thing. But when things go up, people view it as therapeutic and it's okay because no one's going to have any parade or no one's going to do anything to help the shorts. But however, it is. You shouldn't collude the trade stocks, you shouldn't manipulate stocks, you shouldn't buy stocks just because of a short squeeze, you should buy it or short it because you have fundamental basis. Again, this all ties into fast money, quick buck, Cartoon Network, isn't these fun guys making a lot of money? All's great. Party like it's 1999. No problem with that, I have as much fun as the next guy, but know what you're playing with here. The government should know that these clowns put the system at risk, and take steps and learn from it so this doesn't happen again, or if it does happen again, adults know what to do, who to stop, how to put things in places so it doesn't put the system on risk. This is what adults regulators should do, this is their job. I don't do their job, but they should be part of their job and job description. >> I wanted you to touch on what it's like to actually put on a short position have it go against you, or a short squeeze, especially when you're trying to find frauds and you're trying to be that watchdog. I learned a lot from your experience in the GFC in 2008, 2009 as far as we're always looking for managers that can handle long volatility and tail risk and case markets go down. I stay away from short sellers unfortunately because the dynamics of shorting when you have a left skew to that trade if it goes against you, but more importantly, your prime can absolutely screw you on your borrow at the most inopportune time. I hate to make you go over this again, but for people that are new to Marc Cohodes, to know what side you're on of all of this nonsense, I think it behooves them to hear a little bit about your story of like your short frauds going into 2008, the markets collapsing, and you just get absolutely ****** by your prime broker. >> It's like this PTSD moment when you bring that up. So if people haven't heard the story, I did a Real Vision with Grant. I think I went over it for about 10 minutes. I'll try to do the Reader's Digest version of it. In 2008, we were very bearish going into the year and we were up probably 35 percent in September. We were not leveraged at all in terms of maybe we were 100 percent invested, and that would be 20 long, 80 short. Twenty percent of our broke was long 80 percent short. Maybe we were 30, 70. When we also had a fellow or conforming name Rick [inaudible] who is a former enforcement attorney at the SEC. In front of the subprime mass, he wanted to meet with Cox along with others. Chris Cox, who was the head of the SEC said they would never ever change rules without a 90 day consultation period with market participants, so we didn't think the rules were going to change. Market gets a little funky and the SEC puts a ban on short sales on what they would call about 500 too big to fail names, which was a hodgepodge of real companies and ****** companies. I think that day, those names probably went up 30-35 percent, and we lost our ***, we must have lost 15 percent that day. That was bad, so now we're up 20. The next day or the day after, the government put a restriction and mandatory buying on what they call [inaudible] names which were names that were having a problem failing, and we were short some of those. We were fully borrowed or at least we were told we were fully borrowed and those names went up another 20 percent. So Goldman calls me and says, "You're extraordinarily volatile." I said, "Yeah, we've had two bad days." I was only a customer of Goldman for 25 years then. They said, we're changing your hair cut from 30 percent to 70 percent, is that okay? What exactly does that mean right now? They said, well you need to come up with 560 million of cash. I said, well, we don't have 560 million. We had some money over at Lehman and that was frozen because Lehman went bankrupt. We had positions over at Lehman, and it should have been segregated but it wasn't which is a whole Lehman issue, that's stored onto itself. So basically, Goldman put us in a margin call position because we didn't meet their house requirements. I tried to offload names to Farallon and they agreed to take on but Goldman called up Farallon and said, you can't take them because they'll be out of business in two days. So they ****** us on that deal. At the time, my buddy Duham over at Farallon says, Citadel's leveraged at 18-1, you're not even leveraged. Now, can you imagine if they'd put them out of business which is why I've always had a hard on for Citadel. All of a sudden, Goldman starts covering our shorts in a market that's falling apart. They basically took us, I think at that time we were up 10, they took us to down about 50. They lied all the way around because they said we were fine when we were down 20, but then they just decided to liquidate us altogether, and it's turned out, I have subsequent emails from the overstock naked short case with Goldman, that Goldman didn't have our names borrow. But by then, it's a miracle and blow my brains out. Everyone was so fried, couldn't deal with it so I think we ended the year down 50. But we had one managed account which had nothing to do with Goldman, and Goldman couldn't **** with that account and I think that account for the year was up 126. So it was a disaster all the way around. It taught me to never be in this business again because your prime broker can **** you every way to Sunday, and I think the guys of Goldman are a criminal operation. They've subsequently paid billions and billions of fines doing all illegal **** as is JP Morgan. But they pay their billion dollars of fines from rigging silver to failure, just everything. The Malaysia fiasco, and people just keep looking the other way. They pay billions and billions of fines like it's an excise tax and they're too big to fail, and they own part of the government, and everyone in the government at least on the financial sides had a tenure at Goldman Sachs, and it's beyond disgusting. But I'm just a guy, I'm just living my life, doing my thing. I'm a victim of a whole lot of things, but I sure don't feel sorry for myself nor would I ever want anyone to feel sorry for me or anything I do. But it's a tough gig, speaking out and trying to expose **** that is very wrong. It's a thankless endeavor. You sure don't do it for the money, you do it because you want to move the needle and leave the world a better place than when you arrived which I think I've made a difference in a whole lot of people's lives and in things but it's jungle out there, jungle rules apply. If you don't realize you're in a jungle, you should probably get out of the game because it is as cutthroat, ruthless as you can find. This is just a tough business but I'm a tough guy. I'm a badass when it comes to this stuff, and I'm not afraid of anybody and I'm not afraid of much and I just try to let the chips fall where they may. But these prime brokers and the system guys were dastardly bunched, they are a dastardly bunch who has no problem cutting your throat, your firm's throat, individual's throat at any point in time. So just a word to the wise of what can be out there but it was a miserable time, miserable and bad memory. >> Thank you for walking us through that, and believe me, it pains me to have you go through that again, seeing the pain that it brings up for you, that PTSD, as you alluded to. But I think it was really important or imperative for people to hear your story. To know how much, how long you've had skin and soul in this game. To know where you're coming from, whose side you're on. To see what can happen to even somebody like you that's running a sizable fund and what they can do to you, it pales in comparison to what they can do the little guy, and to see who you've been fighting for throughout your career, I think it's really important for people to see, to know your perspective and when you talk about the other nuances to the story we're seeing, to know exactly where you're coming from. Part of that makes me think about, as you said, you have this, the guard rails of short sellers like you to fight these frauds in the market and to short these frauds. If they've now become so scared to short the market because they don't want to get their face ripped off on a short squeeze and they go away, what are your concerns about those guard rails on the short side going away if now everybody is just on the long side, and we're on this over leveraged long side here. >> Well, are we ready to wind this down at some point because I'd figure how close this with something exclusive, even though my lawyer has sent it to people in the media. >> Absolutely. Let's start with what is your solution, what are letters? I know your tongue and cheeks say they should put you as SEC chairman. >> That's not going to happen. >> Yeah. >> Well, I'm so ****** off this past weekend watching the media misinformation that's out there. I decided to write a letter with my lawyer and it went out today and my lawyer sent it to different people at the media, but it's basically to share it to, Brown, who's the chairman of the Senate Committee on Banking, Elizabeth Warren, senior member Committee on Banking. It's gone to Maxine Waters, it's gone AOC, it's gone to some other people. It's entitled hearings regarding GameStop, which they've announced they're going to have. I'll read it to Real Vision viewers, may be it comes out in the media, maybe it doesn't, but if it doesn't, hear we go. Honorable Senators Brown, Warren, Congresswoman Waters, and Ocasio-Cortez, I write to you on behalf of my client, Marc Cohodes, a private investor living in California. I was a federal prosecutor for 16 years, including several years as the US attorney in San Francisco. I have significant experience representing short-sellers and prosecuting and defending people in accounting and other securities cases. Neither Mr. Cohodes nor I or ever have had any direct or indirect financial investment, short or long, in GameStop or AMC, the subject of recent press accounts and planned investigations by congressional committees. Instead, we are concerned about public comments that incorrectly criticize market skeptics and short-sellers and ignore market manipulations by supposed long investors. For more than 30 years, Mr. Cohodes has regularly provided valuable and timely information to United States Securities and Exchange Commission and the Department of Justice about companies engaged in fraudulent accounting and business practices such as [inaudible] , Media Vision Technology, NovaStar Financial, Aromasoft, California Micro Devices, Network Associates, Take-Two Interactive, Krispy Kreme Doughnuts, Boston Chicken and others. Some executives were criminally prosecuted like the founders of [inaudible] and executives of Media Vision. Between 2003 and 2005, Mr. Cohodes disclosed the manipulations at AAAI far more which led to the SEC and US Department of Justice actions. The Harvard Business School published a case study in March, 2013 about his successful efforts to expose the NovaStar Financial fraud in a short-sellers battle. During the past few years, Mr. Cohodes correctly identified Concordia International and MiMedx, among others, this companies that had improperly inflated their financial results through accounting tricks and manipulations. It's been an outspoken critic of both. In the case of Concordia, the company's CEO filed a merit defamation case against Cohodes, which was later dismissed and the company collapsed as a result of its poor management and improper conduct. In the case of MiMedx, the CEO of MiMedx used his political influence with former Senator Johnny Isakson to cause the FBI to send two federal agents to Mr. Cohodes' home to threaten him into silence. It did not work. Ultimately, MiMedx with two multiple years of its own financial statements and the CEO and other executives were fired. Two MiMedx executives, including the same CEO, were convicted of financial fraud in the Southern District of New York last year. In sum, Mr. Cohodes has a proven track record of identifying companies whose financial statements and public statements provide false information to investors, and he's a successful short-seller. That means when he identifies a company engaged in accounting misconduct, false statements or fraud, he invests so he would profit if in one of the stock price goes down. Though short-sellers are sometimes vilified, there's nothing wrong or nefarious about taking a negative position about a company. To the contrary, legitimate short-sellers are among the best investigators I've ever met as a prosecutor. They actually read the financial statements and disclosures companies file with the SEC. They investigate company claims and they often report their findings to government regulators. There are no better sources of skeptical research than short biased investors because unlike the hordes of people who make investment decisions based on nothing more than someone in a magazine or online tells them, short-sellers do the work. Because of the effectiveness, short-sellers are often attacked personally. Mr. Cohodes has been threatened multiple times and as I noted, when now convicted criminal used his financial influence on a senator to intimidate him. The companies that attack short-sellers are often the ones that hide a lot. Long investors who attack short-sellers are often engaged in pump and dump, a manipulative schema which long investors convince uninformed investors to buy claiming great prospects for a company, and sell stock before the market learns the truth. It is against this background of many years of experience that we write to volunteer to have Mr. Cohodes testify before the Senate Banking Committee and the House Committee on Financial Services. If you fail to listen to individual investors like Mr. Cohodes whose commentary ultimately protects small and less sophisticated investors, you instead condemn all short-selling based analysts and investors, you will undermine the federal security laws goals of an informed market and we'll set back civil and criminal security law enforcement dramatically. We look forward to hearing from you regarding Mr. Cohodes' offer to testify. Thank you in advance, David W. Shapiro. >> Perfect. I think that sums it up perfectly. You couldn't have said it any better ourselves. I just want to thank you for coming on a Real Vision. But more importantly, thank you for always standing up, raising your hand, raising your voice, and speaking out for everybody that's getting hurt in all these scenarios. Thank you again Marc. >> I try, and thanks for having me. This was a lot of fun, and hopefully the Senate takes me up on it. If I put it out there and they fail, it's on them. But I'm doing everything I can to raise my hand and say, this is wrong. I don't have a fund. I'm not trying to sell anyone anything, and this is what I believe to be what's going on. Thanks for having me. I hope we move the needle and it's going to be an interesting couple of months, I think. >> Welcome to the end of the video. We know that on average, 85 percent of you who started video on Real Vision finish it. That's extraordinary on Facebook, it would just be four percent. That's because Real Vision creates the most engaging content in the entire media world. Let us help you grow your business by making video content that really engages your customers. E-mail us at customvideo@realvision.com.