‘God Bless Them’

“If one group of speculators wants to have a battle of wills with another group of speculators over an individual stock, God bless them,” Neel Kashkari said Monday, speaking during a virtual town hall event. “That’s for them to do, and if they make money, fine. And if they lose money, that’s on them.”

Somebody will invariably quote that if, heaven forbid, the Reddit crowd somehow ends up in a “battle of wills” that spills over or otherwise poses a systemic risk, forcing Kashkari and his colleagues to step in and restore order.

Silver was on the menu to start the week. A price surge which pushed futures to the highest since 2013 immediately sparked talk of a “civil war” on WallStreetBets, where there’s apparently some disagreement about whether this is a battle worth fighting.

There’s a lot to “like” about the trade if you’re into conspiracy theories. Unfortunately, “sticking it to” a nefarious bank cabal (that’s part of the silver narrative) in this case involves being on the same side of the trade with Citadel. Or so Reddit imagines. It’s true that filings show the firm has a large ownership stake in the iShares Silver Trust (among other silver-related products and names), but that may have changed over the fourth quarter, and besides, it’s difficult to parse given Citadel’s market-making business. Citadel is, of course, at the heart of a variety of conspiratorial narratives surrounding last week’s soap opera with Robinhood.

If you’re arguing over whether Reddit does or doesn’t actually support being long silver, I’d gently suggest you’re too invested (figuratively and, perhaps, literally) in the WallStreetBets saga. The bottom line is that silver surged, and flows data for the iShares Silver Trust shows that on Friday, it raked in some $944 million.

On Monday evening, CME hiked margins on Comex silver futures by 18%, effective Tuesday. That immediately put the brakes on the rally.

Meanwhile, Robinhood is raising more capital. In addition to funds raised last week, the company hit up shareholders for another $2.4 billion. As The Wall Street Journal wrote, “the $3.4 billion raised since last Thursday is more than the company has raised in total up until this point in the eight years since its launch [and] gives Robinhood a war chest to cover a surge in collateral requirements stemming from the trading boom.”

In addition, the Journal cited people familiar with the matter in reporting that the funds will also “allow the company to support the hundreds of thousands of new accounts users opened since Thursday and to remove many of the trading restrictions that angered customers.”

Naturally, that capital comes with strings attached because, as some Robinhood customers learned last week when they were forced to come to terms with the reality of the company’s business model, “nothing’s free in this world, Jake” (to quote Training Day). Robinhood’s customers are also Robinhood’s product. Many of them just didn’t know that until recently, despite it being anything but a secret. The company’s investors now have an option to purchase more shares of the company at a discount later on down the road.

According to Charlie Gasparino, Robinhood’s IPO is now on hold so the company can “focus on surviving the current drama.”

But wait, there’s more.

According to Reuters, Robinhood is also “exploring” plans to raise $1 billion in debt. That would be separate from the $3.4 billion it’s already raised from investors and would go towards ensuring the company “can continue to fulfill orders for heavily shorted stocks.”

You might recall that last week, just before news that the company tapped investors for $1 billion, Robinhood drew down its credit facilities.

This is, to put it mildly, a mess. While Robinhood now has more capital, it’s also possible that critics will suggest the company is even more beholden as a result, spawning still more mistrust, especially if something else goes “wrong.”

Thoughts and prayers, Robinhood. Or, as Kashkari put it, “God bless.”


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One thought on “‘God Bless Them’

  1. CME just raised margin requirement on silver trades by 18%. Robinhood will survive, if only by the skin of its teeth (too many rich dudes are unwilling to see it fail); r/wallstbets is going to ened up a footnote o financial history.

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