What Do Elon Musk, Hedge Funds, and Organized Crime Have In Common?
The following video is not financial advice and we'll explain why we aren't allowed to give you financial advice by the end of this video.
You may have heard of meme stocks, or are curious about cryptocurrency, or maybe you've read about the wonders of dogecoin or bitcoin. While everyone will either try to get you to join in or scare you off, there are a few things you should be aware of.
Traditionally the stock market is seen as the playground of the elite, where those who have more than enough wealth to squander succeed above the rest. These powerful investors determine whether a company lives or dies along with all the livelihoods that may be attached to it.
"So are powerful investors the good guys or bad guys? I heard Hedge Funds were bad, why is that?"
Wealthy investors thrive in an environment of their creation and often pool their resources together in investment partnerships called Hedge Funds. The primary investors in Hedge funds are institutional investors. These investors manage large amounts of cash. They work for pension funds for corporations, government workers, and labor unions. Hedge funds use analysts to find out more about individual companies than an average investor could and they exploit and take advantage of any unfairly priced stocks. Many Hedge funds buy enough shares to get a vote on company boards and they can force companies to buy back stock and improve share prices. They can also make the companies sell off low-producing assets or businesses, becoming more efficient and profitable.
"I heard hedge funds were bad, why is that?"
The use of Hedge funds caused the 2008 financial crisis by adding too much risk to the banking system. The 2008 collapse led to millions of people losing their livelihoods, homes, and for many even their lives. Meanwhile, wealthy investors made billions. Mainstream media and institutions made them heroes of Wall Street. The most successful of them all, John Paulson, made $20 billion on the 2008 Crisis and was honored with his name on a building on Harvard's campus. The U.S. government bailed out major banks who in turn bailed out the Hedge Funds that caused the crisis. No such bailout was given to the average person who instead faced unemployment, hunger, and hardship. While Hedge funds and banks are to blame for the 2008 crisis, the primary cause was deregulation in the financial industry, organized crime, and impunity for those with wealth and power.
"So what has changed since 2008?"
Thanks to the creation of mobile and online apps that now allow investors of all sizes to track, buy, and sell their preferred stocks or equities, the traditional exclusivity of Wallstreet has been wiped out. Allowing the so-called, little guy to also theoretically play on the same field as the elite. However, when push comes to shove, those with power simply change the rules or apply them whereas they wouldn't to themselves.
"What is all the noise around meme stock, should I invest?"
A meme stock is any stock that's seen excessive trading volume from investors who've promoted it on social media. This stock has “gone viral” in the same manner as a meme on social media and in addition to sharing it, investors push money into it to increasing its value.
Smaller investors gather online in groups ranging from a few dozen to thousands where they discuss stocks, analyst companies, and share financial predictions based on collaborative data. These investors organized on online forums and chatrooms, ranging from discord, WhatsApp, Facebook groups, Twitter DM's, and Reddit.
Together they pool resources and invest as a bloc similar to a Hedge fund, but working in the commons instead of behind the kind of exclusivity the powerful investors enjoy. Small investors typically don’t buy stocks directly but instead use options, this allows them to take big positions for a small amount of money, giving them the leverage to amplify potential gains as well as risks. Unlike a hedge fund, small investors are not actively working towards looting or pillaging businesses nor do they have insider knowledge about financial moves by companies as a traditional hedge fund may possess due to its upper-class connections.
In 2021, a Reddit group of small investors called Wallstreet Bets launched an open rebellion against the powerful investors and their hedge funds in Wallstreet. The action is known as the meme stock rebellion.
Small investors were angry that hedge funds were shorting stocks on popular but struggling businesses. The move would have left thousands unemployed and erased several pop culture icons, such as Game Stop and AMC a popular movie theatre chain.
This action confronted the hedge funds head-on by pushing up the prices of highly shorted stocks, the small investors were able to “squeeze” shorts into protecting themselves by buying the stock themselves, triggering a (temporary) upward spiral. They took to social media and created a swarm effect by hyping up the action which became viral on websites like Twitter and Reddit.
The small investors were able to save AMC and GME, and cost hedge funds billions of dollars in failed shorts...
"How did Wallstreet and the institutions react?"
Badly, to say the least. Amid the turmoil of the meme stock uprising, powerful investors and hedge funds proved that while small investors could now play in the same field as them, it wasn't going to be a leveled playing field. They published dozens of articles on financial magazines, websites, and had sponsored pundits to give countless interviews on TV shows to spread fear propaganda against meme stocks in an attempt to scare off potential investors who were considering joining the uprising.
While regular people are not allowed to give financial advice, Hedge fund-linked pundits were given free rein to speak against meme stocks and discourage audiences from participating.
The powerful investors and hedge funds also used their power and influence to pressure mobile stock trading apps to put a freeze on buying and selling while the push on G-M-E and A-M-C took place. Soon after U.S. congresspeople, like AOC, called for an investigation into the trading apps and their actions against small investors. Such halts are allowed under SEC rules and can be weaponized against smaller investors. The SEC agency later announced it had temporarily halted trading on 15 fintech companies, and earlier in February, it suspended six others.
According to Feb. 18 testimony by Robinhood Co-Founder and Co-CEO Vladimir Tenev to the HCFS, the platform halted trading in GameStop on Jan. 28 because it did not have enough collateral to cover the value of all the trades being made on the stock by its customers.
SEC later stated that Robinhood “may determine not to accept orders where a transaction presents certain associated compliance or legal risks.”
The SEC also proposed another way powerful investors can limit trading on certain stocks. The national securities exchange and(FINRA) have Limit Up-Limit Down rules in place “designed to prevent trades in these stocks from occurring outside a specified price band."
"This price band is set at a percentage level above and below the average price of the stock over the immediately preceding five-minute trading period. If a stock’s price moves outside these price bands for more than 15 seconds, trading in the stock will be paused for five minutes"
The SEC also warned against investing in companies promoted on social media. Giving priority to regulating small investors instead of multi-billion dollar hedge funds that have institutional avenues to promote and pump stocks favourable to themselves.
"What does dogecoin have to do with meme stocks?"
As the meme stock uprising gained popularity several pump-and-dump schemes attempted to hijack the momentum of the event. Most noticeably was the introduction of dogecoin amid the attempt to push AMC. Dogecoin is a parody of a cryptocurrency that was meant to be worthless. Its mascot is a meme-worthy Shiba-Inu that has bad grammar.
While dogecoin itself is a meme, it has less value than a regular meme stock because the coin itself is nearly worthless as a cryptocurrency and has no cap, unlike Bitcoin that's capped at 21 million coins. Cryptocurrencies with low market capitalizations and trading volumes are vulnerable to being hijacked by crypto pump-and dump-schemes.
"Isn't that the cryptocurrency Elon Musk keeps tweeting about?"
As the meme stock uprising took place amid a serious push on AMC, the infamous billionaire Elon Musk took to Twitter to promote Dogecoin, a cryptocurrency he himself had invested in to pump up the value. This helped alleviate some of the pressure hedge funds had been experiencing since Musks popularity and tweets encouraged thousands of small investors to divide their assets from G-M-E and A-M-C to also include dogecoin. It is unknown if Elon Musk was covering a favor for one of his powerful investor friends or deliberately sabotaging the meme stock uprising for his entertainment and ultimately profit.
"Why is Elon Musk pumping Bitcoin or Dogecoin bad?"
Elon Musk has been using Twitter to pump Dogecoin to his 57 million followers, many of which are barely making ends meet and trust his judgment for whatever reason. Musk has helped push the dogecoin price to an all times high, stretching the market cap to $10 billion. Musk has also dubbed the coin the "people’s crypto" in an attempt to capitalize on the meme stock uprising's initial anti-institution sentiments. Musk has been joined by celebrities like Kiss singer Gene Simmons and Snoop Dogg in optimizing trader’s sentiments and posting tweets pumping dogecoin.
Many small investors have accused Elon Musk of pumping and dumping with Bitcoin and Dogecoin. An accusation that has merit based on Elon's previous fine of $40 million by the SEC, for artificially pumping Tesla’s stock price through Twitter. That hasn't stopped him and he has continued to do so with Tesla, Bitcoin, and now Dogecoin.
So what is a pump and dump scheme?
Pump-and-dump schemes are a form of securities fraud where powerful investors boost a stock's or security's price based on false, misleading, or greatly exaggerated statements. They then target and lure smaller investors into buying junk stocks that will never gain value. Once enough smaller investors buy the junk stock, the powerful investor sells off the stock at a high price than it is worth. The smaller investors are then left with an overvalued stock they can only sell at a loss.
Pump-and-dump originally focused on the equity markets but now they are becoming increasingly commonplace in the cryptocurrency markets. These schemes abuse the decentralized and unregulated nature of cryptocurrency and they target low capitalization cryptocurrencies and digital tokens that can easily be manipulated with low trading volumes. The price pumps are conducted by spreading hype and fake information about a coin on social media. Something a user with a high follower account could easily do to manipulate stock prices for his self-profit. Elon Musk with 57 million followers, some of which have created botnets designed to buy stocks whenever he tweets, regularly manipulate the stock market by tweeting endorsements and memes.
According to Tesla as of December 31st, 2020, Elon Musk had pledged over 92 million Tesla shares to secure personal debts. Those shares are worth $64 billion. Tesla also declared it bought $1.5 billion in Bitcoin, prompting smaller investors to put more money into bitcoin, expecting prices to keep rising. Soon after Tesla sold 10% of its holdings in Bitcoin for a $101 Million profit plummeting the price of the coin and costing smaller investors millions. After Bitcoin dropped significantly Elon Musk signaled dogecoin again boosting its price even higher. After the price of Bitcoin plummeted Elon Musk released an announcement that Tesla could resume accepting Bitcoin, causing the price to shoot back up.
How is any of this legal, why are Elon Musk or the powerful Wallstreet investors that manipulated the market not in prison yet?
That's a question many people have been asking themselves for a long time. The simple answer is that the law does not apply equally to all individuals depending on their social status and wealth. What's worse is that the pump-and-dump culture of impunity is not exclusive to wall street. While the 2008 crisis was blamed on powerful hedge funds and banks, it also came to fruition in collaboration with real estate moguls and enterprises.
How does organized crime use pump-and dump on real estate and are we facing another crisis like 2008?
Right now, the real estate market is one of the largest pump-and-dump operations in existence. It involves powerful real estate enterprises, major banks, and transnational organized crime. In Canada, the UK, and the United States real estate prices have been bubbling higher and higher for the last decade. This is primarily being driven by criminal groups such as the Triads, Bratva, Ndrangheta, the Sinaloa Cartel, and a litany of others. These groups take illicit funds and launder them through casinos, small businesses, banks, and real estate.
The way these pump-and-dump works is that a criminal group takes their illicit funds to a casino or small businesses they own. They use the illicit funds to purchase large amounts of gambling chips or merchandise; they then either lose all the chips to the casino they control or re-sell the merchandise they've purchased to themselves, this turns the dirty money into clean money by registering it through a legal transaction. Once they have enough funds in laundered money, they open bank accounts where they store and withdraw their money. With enough funds in their bank accounts, the criminals then apply for bank loans, they take these loans and hire a real-estate agency, which is usually controlled by the criminal group, and purchase multiple houses far above market value. Then they repeat the process a few more times, flipping the same properties until the house prices have been artificially inflated by millions. This in turn raises the price value of other homes in a neighborhood and so on, until homes across a city have their value balloon. For example, in Vancouver, Canada, a small home bought in 1980 for $60,000 is now worth $3,000,000. The criminal groups then take the inflated homes and resell them to legitimate buyers for millions above the real value of the home.
This leaves buyers with a home that is far overpriced and reliant on an artificial housing bubble that could burst at any moment, in particular during a gang war or significant bust of the criminal organizations in their region.
The real estate bubble is also increasing the numbers of homeless people across the world, since the home prices are significantly overvalued the cost of living also increases, this includes food, utilities, and rent. In turn, the same criminal organizations that have helped create the housing bubble, target and victimize this population by providing them with narcotics, trafficking their women and children, and terrorizing them through increasing violence.
For those who don't find themselves on the street yet, this translates into long hours of work just to make ends meet and it reduces the quality of life significantly. While the lower classes spend a significant portion of their lives in wage labour for corporations and companies that may or may not be publicly traded, hedge funds compete for stocks that dictate the value of the worker's labour with one drug-fueled mood swing away from leaving millions unemployed and destitute. For those who still grasp for gods, the cult of Musk is sold the idea of the future while the present paints the grim reality of an egotistical man whose value is derived from nothing and whose whim can dictate the reality of those who follow him.
The lives of billions of people are at the whim of a few elites, that through no merit of their own have taken control and maintain power through a series of Ponzi schemes and regulations that only apply to those without power or influence. And for those who choose to participate in the free market and attempt to take back control of their stocks, lives, and futures, they quickly learn their true potential and meet an enemy that changes the rules of the game to stay in control, protected by governments that serve a lobby instead of a constitution or will of their people.
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