American Consequences - March 2021

Game(Stop), Set, Match

KEITH RICHBURG Hong Kong Is Vanishing

Students Lost in Cyber Space

CHRISTINE ROSEN

JAY CAAUWE

I D E A S T H A T M A T T E R E D I T E D B Y P . J . O ’ R O U R K E AMERICAN CONSEQUENCES

WILL INVESTORS TAKE A BUBBLE BATH IN 2021?

MARCH 2 0 2 1

INSIDE THIS ISSUE

T his time last year, the world was spring-time light at the end of the tunnel is here... But how has the world that’s opening back up changed? On the anniversary of the global pandemic lockdowns, editor-in-chief P.J. O’Rourke takes a cultural retrospective, wondering if America learned the wrong lessons from the pandemic (if any at all) and what COVID has really cost us. gripped with fear. Now, we’d like to think that’s been replaced by hope. The And after these 12 months of being locked up, P.J. has freedom on his mind... He delves into a quantitative analysis of freedom (hint, wealth plays a big role). Writer Christine Rosen uncovers who is to blame for this nation’s pause on school this past year... our children’s education and livelihoods suffering during the pandemic. Switching gears, publisher Trish Regan takes an inside look at the politicized minimum- wage debate and all its messy implications. And while America busies itself with culture wars and canceling old children’s books, executive editor Buck Sexton wonders whether the Biden administration is up to the task of its greatest geopolitical challenge: keeping pace with China.

Speaking of the Sleeping Giant, veteran Washington Post writer Keith B. Richburg details how the Chinese Communist Party has claimed its latest casualty: the once- prosperous Hong Kong. New to the American Consequences team, writer Andrew Amundson interviews a wildcatter from Texas who has the inside scoop on what went wrong in the Lone Star state last month. Executive Editor Kim Iskyan details how right now it’s a bubble market in everything , as evident by celebrity SPACs and Dogecoin, and offers some tips to keep your portfolio from going pop when the you-know-what hits the fan. Which could be sooner than you’d think... Dr. Steve Sjuggerud details how this historic stock Melt Up will inevitably come crashing down in 2021 – and shares everything you should do as an investor to prepare for it. Commodities wizard Jay Cauuwe delves into the recent GameStop short squeeze... But he argues there’s a bit more to the story than first meets the eye. And in a new feature we’re unveiling this issue, Dunce of the Month , we take a stab at uncovering the latest face-palm-inducing jerk in finance and politics. Click here to find out this month’s winner. Regards, Laura Greaver Managing Editor, American Consequences

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March 2021

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“THANK YOU FOR THE GREAT ADDITION OF TRISH REGAN TO YOUR ROSTER.” – GARY S. “SO HAPPY TO FIND TRISH REGAN HERE... I SUBSCRIBED IMMEDIATELY.” – SCOTT J.

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CONTENTS MARCH 2021 : ISSUE 46

60

34

82

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AMERICAN CONSEQUENCES

From Our Inbox

44 Lost in Cyber Space:

6

The Miseducation of 2020 BY CHRISTINE ROSEN

12 From the Editor: Corona's Cultural Contagion BY P.J. O'ROURKE 16 Game(Stop), Set, Match: AWall Street Love Story BY JAY CAAUWE

52 The Vanishing Hong Kong: China's Latest Casualty BY KEITH RICHBURG

Editor in Chief: P.J. O’Rourke Publisher: Trish Regan Managing Director: Jamison Miller Executive Editors: Kim Iskyan, Buck Sexton Managing Editor: Laura Greaver Creative Director: Erica Wood Contributing Editors: Andrew Amundson, Jay Caauwe, Kim Iskyan, Keith Richburg, Christine Rosen, Dr. Steve Sjuggerud Advertising: Paige Henson, Jill Peterson Editorial Feedback: feedback@americanconsequences.com Published by:

60 When the Lone Star Went Dark: Illuminating the Texas Blackouts BY ANDREWAMUNDSON

22 Dunce of the Month: Ted Cruz BY ANDREWAMUNDSON

70 The Rising Minimum Wage Debate BY TRISH REGAN

26 The Great Stock

Market Crash of 2021 BY DR. STEVE SJUGGERUD

78 The Price of Freedom:

34 Running of the Bulls:

What COVID Has Cost Us BY P.J. O'ROURKE

Save Yourself From Market Hype BY KIM ISKYAN

82 Chinese Checkmate: Can Biden Slay the Red Dragon? BY BUCK SEXTON

HOW DOES THIS DIGITAL EDITION WORK? CLICK HERE FOR A SIMPLE HOW-TO

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American Consequences

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FROM OUR INBOX

to be your eyes and ears (and nose – when things stink). We try to keep it real. But we confess, the way things are going these days, we sometimes wish we could make it “just pretend.” Trish Regan Response: So glad you’re following us. We will make sure you hear all the news that matters. Your news stories are a great alternative to the biased stories we are fed daily from mainstream media sources. I have found information that is very useful for investment decision-making. – Steve S. P.J. O’Rourke Response: Steve, it makes use proud to be of use! But, as to bias in the media, it’s important to remember that all reporting contains bias of some kind. The besetting sin of traditional media is their refusal to admit (even to themselves) the bias they have. We’re biased too. But we come clean about it. We’re biased toward individual liberty, individual dignity, individual responsibility – and the free market that these liberties entail. Trish Regan Response: The bias is pretty over the top. I agree with that, Steve. This is a place where we try to always make sure we are absolutely fair.

Re: Love us? Hate us? Let us know howwe’re doing! Love your publication! I enjoy and learn from you! – Charles C. P.J. O’Rourke Response: Enjoy and learn! Those two words just don’t go together often enough. (I’m recalling my high school algebra class. Although, come to think of it, I not only didn’t enjoy myself, I didn’t learn much algebra either.) Anyway, Charles, we take that as the highest praise. Love reading the articles every morning, keep them coming!! – Craig M. P.J. O’Rourke Response: Thank you, Craig. We shall. But let me suggest that some of our articles (mine) might better be read in the evening, after a couple of drinks. Trish Regan Response: We will, Craig. Keep reading and we will keep writing. Thank you! And don’t forget our podcast! It has some of the best interviews you will hear in the investing, political, and economic world. I would just like to thank you personally for the feeds I have been following and now the subscription. Pretty sheltered here and I don’t even watch the news on TV anymore so you have helped me understand some of the issues and make me aware of others. Doing a great job and you keep it real. –Michael S. P.J. O’Rourke Response: Michael, we’re flattered

You need a bigger megaphone! – Hilton D.

P.J. O’Rourke Response: We couldn’t agree more, Hilton. And we’re doing our best to improve our means of communication. We

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March 2021

Trish Regan Response: Ha! Thank you, Jonathan! You’ve inspired me. We’ll see. Maybe a Christmas album... .? Re: Biden’s Window of OpportunityWith Iran Is Closing I loved your column about nuclear weapons and the Iran deal. You did a great job of summarizing the existential nuclear weapons threat. Somehow, we must get rid of these terrible weapons. I have been working on this problem with George Shultz and Bill Perry at the Hoover Institution. Shultz was writing about the problem almost to the last minute until he died at 100 years old. – Walter L. Kim Iskyan Response: Walter, thank you for your e-mail. It seems that nuclear weapons are the toothpaste that’s out of the tube... There’s

have a daily newsletter and the monthly magazine, and we’ve got Trish Regan doing a wonderful podcast. But to a certain extent, we’re still, so to speak “using bagpipes to call from hill to hill” the way my Irish ancestors did during times of trouble. Please climb your hill, Hilton, and pipe the message onward. Trish Regan Response: Yes, please keep telling your friends! Spread the word... We appreciate your support!

Love your perspective and honest journalism!! – Mike

P.J. O’Rourke Response: Thank you, Mike. We do our honest best to stay honest. The perspective thing is tougher. One of the few things I sort of know how to do is mechanical drawing (taught by my dad, a draftsman in the Navy “Seabees” during WWII). Rendering things in perspective is

no putting it back. For the sake of humanity (and my kids, and their kids, and everyone else’s kids’ kids), I certainly wish there was. Dear Kim, thank you for your article discussing the current status of the Iran nuclear agreement. I have typically shied away from these subjects. As the mom of a special forces soldier, I try to limit my exposure. Your article was interesting andwell written. Additionally, I have been responding to PewSurveys for years andwas pleased to see

difficult. You have to figure out where the “vanishing points” should be. We try not to let anything important vanish from American Consequences’ perspective. Trish needs to add some singing to her wonderful podcast from time to time! Not necessarily every one, but sometimes and the more the better. Her glorious voice must be heard and shared – both on the issues of the day, opera, or even the occasional pop tune! – Jonathan W.

CHECK OUT OUR ONLINE ARCHIVE OF PAST ISSUES.

American Consequences

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FROM OUR INBOX

Uber driver has looked at me quizzically as I climbed into his car. However, in Asia, most people figure – before they meet me – that I’m Korean since there, it’s a last name as common as Smith or Jones. So when I’m in Asia, I also get a double-take – for a different reason than in the U.S. – when someone puts my face to my name. Re: Why America Loves Conspiracy Theories Dear PJ, I love your humor, (are we distantly related?) but I will go to my grave believing the 2020 election was stolen. No matter what the lame-scream media and even Fox say. Sad when we have to have businessmen like Mike Lindell analyze the data of where the voting machines were connected to. Epoch times did the best analysis– anyone who stands up to the CCP is an ally of mine. Conspiracy? Ask the folks in Antrim County, MI. Nuff said. –Mike O’Rourke P.J. O’Rourke Response: Cousin Mike, were your people from County Roscommon? Mine came from there to (coincidence?) Roscommon County, Michigan. They emigrated during the Famine to work as timber-cutters. Do you have any latent lumberjacks among your relations? We may be kin. But even if we’re family, I beg to differ about the 2020 election being stolen. Yes, there was some cheating. There always is. And the Democrats did a swell job of turning out their “swag vote” – people who never go to the polls unless they’re promised goodies. Plus I agree that voting machines are problematic (or George

theywere mentioned and my efforts aren’t futile! Thank you for your passion and talents. Your efforts and skills are appreciated. – Lisa R. Kim Iskyan Response: Lisa, thank you for your thoughts. I can only imagine that in your shoes – with a special forces soldier possibly in a faraway place – I’d feel similarly about this kind of issue (thank you for reading my thoughts on it!). Also, I use Pew Research frequently – it’s one thing to rely on what you see and hear and experience, but another (and, analytically, far more valuable, of course) to see what the data say... and Pew is a fantastic resource. (I find it to be something of black magic that it’s free.) So... thank you also for being part of the edifice that is Pew Research – much appreciated on that front as well! Kim is truly the only balanced commentator in your stable. In fact, she is the star among a bunch of right wing sycophants. – Richard L. Kim Iskyan Response: Richard, many thanks for your thoughts. I aim to be balanced (my editor helps me a lot on that front)... and I appreciate it. (A side thought... in fact, I’m a he, not a she – not that you’d have any reason to know it from my writing.) My parents liked the main character in the eponymous Rudyard Kipling novel, who is a boy in India... But yes, in the West, Kim is usually a woman’s name (I’ve met half a dozen male Kims in the U.S., ever). When I’m in the U.S., people often assume from my name that I’m a woman; many an

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March 2021

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W. Bush might not have gotten into the White House). And yet the election wasn’t “stolen.” I speak from some experience here. As a reporter, I’ve covered every U.S. presidential election since 1972. I’ve also covered elections in Paraguay, the Philippines, South Korea, Panama, and the U.K. during the Brexit vote. Furthermore, thanks to my involvement with the non- partisan pro-democracy Freedom House organization (see my “Price of Freedom” article in this month’s issue) and with the approval of the U.S. State Department, I was an “International Independent Poll Watcher” during the 1990 Nicaraguan election where Violeta Chamorro defeated Danny Ortega and the 1996 Russian election where Boris Yeltsin was reelected. I’ve seen elections that were definitely stolen (the Philippines) and elections that were definitely not stolen despite their surprise outcomes (Brexit and Trump in 2016) and elections where everything possible was done to steal them and they came out honest anyway (Nicaragua). Neither the Democratic nor the Republican party has the kind of organizational strength and coherence, let alone the kind of police powers, that would enable them to achieve a true election theft. Oh, come on, PJ! It’s all about the captains and the kings. The 2020 election cycle really showed our top billionaires in action. Now we’re supposed to pretendwe didn’t see anything so our house of cards doesn’t fall down. We get it. OK, conspiracy theories aren’t real. Wink wink. Everybody gets 10 lashes with Occum’s razor strap. Peace out. –Thea M. P.J. O’Rourke Response: Thea, I give you points

for your reference to “Recessional,” Rudyard Kipling’s magnificent poem about the end of empire...

The tumult and the shouting dies; The Captains and the Kings depart: Still stands Thine ancient sacrifice, An humble and a contrite heart.

But I think that what our 2020 election cycle most clearly showed was our nation’s deep left/right division about what the empire that is America should be and do. Whatever America is or does, I hope, in my humble and contrite heart, it’s no house of cards. And as for Occam’s razor, I lash conspiracy theories – as well as myself – with the philosophical principle that “entities should not be multiplied unnecessarily.” That is to say, “The simplest explanation is most likely to be correct.” So, to bring this back to politics, I don’t think the American left is complexly wrong in a highly structured manner, I think it’s simply wrong. We should look at our situation with open eyes – no winking. Or blinking. Or nodding. (P.S., I wouldn’t like Trump for a King. And I wouldn’t care to go into a battle with Biden as my Captain.) PJ, Have loved your work for decades. As to conspiracy theories, I have only a couple of words: JFK Assassination. Once you start to recognize even just a little of what happened before, during & after that obvious coup, some other “conspiracy theories” start to make sense. Also, do a little reading about the history of the CIA. – Rick F.

American Consequences

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FROM OUR INBOX

Trumpists – not to mention the Dim-ocrats – seem to be “ideology uber alles”. You seem to be still able to think, which makes you a minority. Plus your books were very funny. God bless –Joe S. P.J. O’Rourke Response: Joe, I respond with gratitude. Ideology and all other forms of idealism add unnecessary layers of complication to simple human nature. They’re the “Occum’s hammer” way of responding to reality. My old friend Christopher Buckley (who writes really funny books) recently alerted me to a quote from H. L. Mencken: “An idealist is a person who, having noticed that a rose smells better than a cabbage, decides the rose will make a better soup.” Re: The Future of the GOP Hi Buck, Really liked your piece today about former President Trump and the future of the GOP. And totally agree with you that Florida is a great state and applaud Gov. DeSantis for his vision to keep the state open vs lockdown. I believe Trumpwill be too old to run again in 2024, but he could help the GOP regain majorities in the House and Senate. And given that he is being cancelled on various media outlets, he may be able to launch a newmedia service that helps conservatives. Always enjoy reading American Consequences on a daily basis. – Lois L. Buck Sexton Response: Thanks so much for your kind feedback, Lois. Gov. DeSantis has come through the pandemic as a national- level political figure and a hero to many conservatives across the nation. His state has become a beacon of freedom during a time

P.J. O’Rourke Response: Rick, I refer you to Thea above and her threats of a spanking with Occum’s razor strap. When it comes to the CIA, you’ll have to ask Buck Sexton. I was never considered worthy of recruitment. That said, half a century of reporting has brought me into contact with a lot of people in the intelligence business (or who I’m pretty darn sure were in the intelligence business). Mostly I’ve found them good company – even those who were on the “other side.” And mostly their work involves research drudgery, of the kind that would make for a very dull James Bond movie. As a good friend of mine, who has Top Secret clearance at an intelligence agency that will go nameless, says, “I could tell you what I do, but I’d have to bore you to death first.” Re: America’s Populism Problem I very, very rarely comment on articles but I have to say your article on populism is spot on and very thought provoking. All too few people can write with this kind of razor- sharp analysis. – Cosman T. P.J. O’Rourke Response: Cosman, I greatly appreciate the compliment. But what is it with razors in this month’s Inbox? We can’t seem to get away from the subject. Thank you for calling me sharp. I try to keep an edge in my writing, but, frankly, there are some kinds of analysis that probably should be done with a hammer instead of a Gillette Blue Blade. PJ, You have long been my favorite conservative. Both the McConnels and the

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March 2021

salary. The American people have trusted the CDC to be the people on watch guarding the country from outside (pathogen) invaders. They were sleeping on their watch. Time to clean up the ranks. –Gene A. Buck Sexton Response: Gene, thanks so much for writing in. I couldn’t be more fed up with that totalitarian Smurf. Fauci is the worst public sector employee in my lifetime. I’d even say he’s more awful than James Comey, the man who single-handedly ruined the FBI’s reputation and betrayed the trust of a sitting president. Fauci has been wrong over and over again, pretends that he doesn’t know the difference between “the science” and policy judgment, and has created untold anxiety and misery. He’s a power-mad lab coat totalitarian who should have been fired a year ago. Outstanding commentary by Buck Sexton on the Gremlin Fauci. It takes a lot of nerve for Dr. Strangelove to claim the USA did the worst when the government was listening to him. Trump had it right last year. Reopen the economy Easter 2020 (never should have closed it) and put the gremlin in the microwave or the blender. – Scott E. Buck Sexton Response: Scott, I simply couldn’t agree with you more. Thank you for seeing lockdown reality and appreciating my ability to do the same. I advocated publicly for reopening at Easter last year and received more hate mail and threats of violence than perhaps any other time in my life. But I was right, lockdowners were wrong, and what they’ve done to this country is utter madness. Fauci is not America’s cuddly grandpa... He’s our smarmy bureaucrat overlord who thinks he should get the Nobel Prize for telling us every five minutes to wash our hands.

of mass hysteria and lockdown insanity. As much as I know a lot of people on the Right don’t want to hear this, Donald Trump may not be able to run in 2024. He’s already 74, and four years can be a big difference in terms of health and energy at that stage. I hope Trump continues to be vigorous and healthy for many years to come, but the GOP would be foolish to count on that. Re: Who Is Responsible for America’s COVID disaster? I agree with Buck Sexton’s take on Fauci. In fact, after this COVID mess has settled down, there should be an independent investigation into the performance of the CDC. After all, they are the group charged with “seeing” into the future to prepare ordinary citizens from harm. Much like the Pentagon war games future scenarios of combat, I would have expected the CDC to “war game” future possible pandemics and prepare the infrastructure for them. Why was there a shortage of masks and PPE equipment? Did they recognize the needs for such equipment in the past and sound the alarm? (Rather than spending time and money on gun violence studies, which is not their charge.) As I recall, we had the same problem (lack of PPE) when Ebola came to Dallas. Why the slow recognition of the severity of the disease that might have led to an earlier sounding of the alarm? These people are the experts after all. And why is Fauci being paid $400k a year (better than a lot of CEOs) for the misinformation and confusion he caused. If they can’t show him the door, then he should be demoted to an army base hospital with a quarter of his

American Consequences

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From Editor in Chief P.J. O’Rourke

CENTRAL PLANNING

ANOTHER DISEASE WE COULD CATCH FROM THE CORONAVIRUS

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March 2021

LETTER FROM THE EDITOR

My worry is that we’re going to emerge from this pandemic having learned the wrong lesson. gold standard. Maybe we each should have received a $1 million stimulus check on the condition that we seal ourselves into a six-foot personal Ziploc bag for the duration. I expect we’ll be arguing about this forever.) The wrong lesson I worry we’ll learn is... The Need for Central Planning. America’s response to the COVID-19 pandemic was a chaotic mess. Former- President Trump couldn’t think of what to do or say, which didn’t keep him from doing and saying everything he could think of to make the situation more confusing. Fifty states, Washington, D.C., plus various U.S. territories had more than 50 different sets of pandemic rules and regulations,

Covid has me worried... I suppose what I should be worried about – given that I’m a 73-year-old who smokes and drinks and whose idea of exercise is getting up at 3 a.m. to take a leak – is getting the disease. But personal worries are a bore. (Do you really want to know exactly where I’ve been squirting my hand sanitizer?) General worries are more interesting. (Now that the weather’s getting warmer, should we insist that all children fill their Super Soakers with Purell?) My worry is that we’re going to emerge from this pandemic having learned the wrong lesson. Not necessarily the wrong medical or epidemiological lesson, or even the wrong monetary or fiscal lesson... (Although, post-plague, it will be fascinating to sort out who was right and who was wrong about measures to contain the contagion and ease its economic effects. Maybe we all ought to have gone mask-less into the mosh pit while central banks returned to the

G

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Unfortunately, the coronavirus didn’t read it. The problem isn’t a lack of central planning. The problem is that central planning doesn’t work. Central planning shifts responsibilities and resources away from individuals. It gives those responsibilities and resources to a political entity. A political entity – once it has lured individuals into electing it or has used individuals to force its way into power – cares nothing about individuals. And this is all the more true of a political entity that claims it will “take care of you.” The rancher takes care of his beef cattle. The swineherd cares for his pigs. Lambs led to the slaughter have received tender, loving care from the shepherd. ... central planning doesn’t work because it assumes that concentrating responsibility and resources in one place is somehow better than spreading responsibility and resources to every place. Besides the natural callousness of the political entity... (Shut up, Andrew Cuomo!) ... central planning doesn’t work because it assumes that concentrating responsibility and resources in one place is somehow better than spreading responsibility and resources

making what was permitted and what was forbidden an “open and shut case” – as in open, then shut, then reopen, then shut again... And, by the way, one thing that should shut up and stay that way is you, Gov. Andrew Cuomo. Now, vaccine distribution is another chaotic mess. It’s hard to emerge from an experience like this and not think, “There should have been a plan.” Well, here’s some bad news. There was a plan. I quote from the Centers for Disease Control and Prevention’s website... In 2005 and 2006, the White House Homeland Security Council outlined the National Strategy for Pandemic Influenza [17 pages] and National Strategy for Pandemic Influenza Implementation Plan [233 pages] to guide the United States’ preparedness and response activities in an influenza pandemic. These plans aimed to stop, slow or otherwise limit the spread of a pandemic to the United States; limiting domestic spread, mitigating disease, suffering and death; and sustaining infrastructure and lessening the effects on the economy and society as a whole. At the same time, HHS [the Department of Health and Human Services] framed its Pandemic Influenza Plan [52 pages] around a doctrine that laid out guiding principles for pandemic influenza preparedness and response. In fact, there were, as you will have noted, 302 pages of a plan. And this plan had been in place and ready for 14 years.

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LETTER FROM THE EDITOR

to every place. This is like having a high school Spanish teacher who says, “I’m the only person in this classroom who knows Spanish, and I intend to keep it that way! I’m not about to give you kids any of my ability to speak Spanish. You can just sit there and watch videos on your phones until the bell rings. But no Telemundo!” An example of non -central planning is the remarkable speed with which individually owned and controlled pharmaceutical companies were able to develop a variety of different but effective coronavirus vaccines. Perhaps centrally planned scientific research and centrally controlled vaccine manufacture could have achieved the same goal in the same time span. But to suppose so requires a thought experiment where a layer of government bureaucracy is put on top of inoculation R&D. Do you think your car would go faster and handle better with an elephant (or a herd of donkeys) on its roof? And would you really prefer to get the Chinese vaccine? Or the Russian shot in the arm? One more reason that central planning doesn’t work is that a single, central plan assumes that we know which single, central thing it is that we need to plan for. We don’t. “Climate change” used to be called “global warming.” We planned for Texas to get roasted. This winter, Texas froze. No doubt Texans are very grateful that we renamed our

attempt to centrally plan the weather in time for their pipes to burst. We planned for decades to deal with the “population explosion.” Now, it turns out the problem is the “aging of the population.” And the only thing exploding is grandpa when he sees Nancy Pelosi on CNN.

One more reason that central planning doesn't work is that a single, central plan assumes that we know

which single, central thing it is that we need to plan for.

When I was a kid, we were planning for a nuclear war with the U.S.S.R. We had to get under our school desks for Civil Defense drills. While I was under there, I started wondering how much protection a school desk would provide if the school were hit by an atomic bomb. That caused me to sit up and think – and crack my noggin against the bottom of the desktop. That’s just the smack on the head that central planning needs.

American Consequences

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It has become a bit too easy to describe the recent price dislocations and the short squeeze tumult in GameStop, AMC, Koss, and others as David taking on financial Goliaths. But it’s interesting to note, quite similar to the biblical version, this showdown was not a skirmish of chance, but one of design. It was an unmeek and not-at-all-helpless David disrupting the status quo. A DAVID AND GOLIATH STORY: EXCEPT... WHICH ONE'S THE GIANT PHILISTINE? GAME ( STOP ), SET, MATCH

By Jay Caauwe

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March 2021

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can result in substantial financial losses in a very short period of time. So as you’d expect, the companies that have the most connectivity points to exchanges and electronic communication networks (ECNs), with cutting-edge speed and technology, rule the day. They stream orders or quotes to the various exchanges with the hope of capitalizing on small price dislocations, which, if done a great number of times, produces the desired outcome. Securities are not held for long lengths of time, and transactions are based on a pattern of change, velocity, and magnitude. Sometimes this is the “nickels in front of a steamroller” analogy... But when done specifically and timely enough, it becomes your model or strategy. The hubbub around Robinhood comes down to how much the Reddit marauders really matter with their own unique style of day trading. Apparently, they matter enough... The hubbub around Robinhood comes down to how much the Reddit marauders really matter with their own unique style of day trading. Apparently, they matter enough... The House Committee on Financial Services met on February 18 for a hearing regarding recent market volatility, GameStop’s and AMC’s rally and subsequent sell-off, and the various brokerages’ roles in the chain of events. Robinhood CEO Vladimir Tenev, Reddit CEO Steve Huffman, and popular

But first, some backstory... Day trading and individual investing have imploded over recent market sessions, with much of the chatter being discussed on social media platforms like Reddit. And a plethora of this short squeezing and volatility is taking place over at Robinhood, the mobile app offering commission-free access to stocks, options, and exchange-traded funds. Much of the activity has focused on stocks no longer in grace, those that were beaten down due to corporate fundamentals or as part of an out-of-favor industry segment. Going back to 1971, it was the over-the-counter platform known as the National Association of Securities Dealers, or NASD, that first saw the introduction and uptake of day trading. A dozen years later, NASD created the small order execution system (SOES), making it easy for individuals to execute stock trades automatically so long as the orders were for 1,000 shares or less. Trades placed through SOES bypassed the phone lines used to make most trades and placed orders in a matter of seconds instead of minutes. Some initial restrictions were implemented in terms of the frequency one may enter the market, but in essence, day trading was born. The Securities and Exchange Commission (“SEC”) defines day trading as... Day traders rapidly buy and sell stocks throughout the day in the hope that their stocks will continue climbing or falling in value for the seconds to minutes they own the stock, allowing them to lock in quick profits. Day trading is extremely risky and

American Consequences

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GAME(STOP), SET, MATCH

WallStreetBets member Keith Gill were ready and eager to testify. Among the sentiments bandied about by various committee members and panel experts, they heard concerns akin to what an EU market regulator brought forth in a market analysis... “Discussing the opportunity to buy or sell shares of an issuer does not constitute market abuse,” the EU’s top market regulator said in a statement. “However, organizing or executing coordinated strategies to trade or place orders at certain conditions and times to move a share’s price could constitute market manipulation.” How is what "the Street" does and promotes any different than what occurred with what the Reddit crowd did in GME and AMC? That was leveled at the Reddit community for its bulletin board obedience to ply into certain depressed stocks. But it sure seems like it should apply to professional market- making groups of the world. And at the retail level (you, me, and others that do not understand or care to understand some of the complexities of financial products), don’t we get pumped with newsletters and broker dealer house research reports that offer buy and sell signals? Knowing that the average hedge fund is not long (see: short sellers) and that it runs a multiple of strategies within a given asset

class, I would posit that hedge funds and market makers have more muscle than the “you only live once” (YOLO) crowd. A key differentiator would be what Citadel, Wolverine, Virtu – the professional market makers and proprietary trading groups – are doing is viewed as risk-mitigating investing or trading and liquidity provision, whereas the YOLOs are gambling. And we should give credence to that. Again, day trading differs radically from investing in that it’s based on very brief movements in the price of stocks. For these very reasons, day trading is more akin to gambling than investing. But wait, aren’t these market- making groups also day trading? Yes, they are... But one needs to consider the day trades as part of a bigger strategy or portfolio picture playing out at the market making or hedge fund. So, if these market-making groups are in the business of printing money – and if they can do it, oftentimes in concert, with other market-making shops to beat down an already depressed company – how is that any different than an online community of upstarts throwing their own caution to the wind (not hedge-fund investors’ dough) and trying to benefit from a contrary position? How is what “the Street” does and promotes any different than what occurred with what the Reddit crowd did in GME and AMC? It’s not, in my opinion. And while many market professionals may not equate it with price transparency and liquidity discovery, what takes place across Redditt and Robinhood is fairly transparent. And then on January 28, Robinhood

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So, if Robinhood is basic compared with the traditional houses and does not charge commission, how does it make money? The usual business models for this type of enterprise are in place, from interest made by lending out investors’ idle cash much the same as your local bank does, or with premium accounts that grant a certain level of margin trading. And then there is payment for order flow (“PFOF”). According to a 2018 Bloomberg report, Robinhood makes more than 40% of its revenue from PFOF. And from its website we learn: Robinhood sends “your orders to market makers that allow you to receive better execution quality and better prices. Additionally, the revenue we receive from these rebates helps us cover the costs of operating our business and allows us to offer you commission-free trading.” Ad: This Tech Kills Hackers A new crypto tech could show you bitcoin-like gains by putting identity thieves out of business… and the biggest US employer could make the first move soon. Details here. Instead of orders being processed on a designated contract market exchange, companies like Robinhood make money by directing trades through behind-the-scenes partners that provide the other side to the trade and warehouse that position internally. Consider this... Disney is at or about $195 per share, and you want to buy 10 shares.

restricted the trading on certain Reddit stocks... on the very platform that was party to the recent price swings. This had a rather agog Twittersphere affect with levies of hedge- fund elitism and manipulation purported to help the funds being thrown about. We do need to understand the financial onus that this entire market scenario, especially the short squeeze, could have created... which exposes a problem at the clearing house level. That comes down to the fact that the shares of the targeted short sellers exceeded the total shares outstanding of that particular firm. So as the prices moved higher, the shorts defaulted at their brokerages who needed to cover, causing further upward price movement and put the brokerages in the untenable position of defaulting at the clearing house. Conceivably, the U.S. regulators never could have predicted this scenario, with a short squeeze applying upward pricing pressure on the very groups standing to benefit from a group of non-market fundamental upstarts. –––––––––––– So what makes Robinhood popular? Well, free commissions for starters... but the large broker dealers can also claim the same economics for their clients. Its cachet comes in how it was designed for a generation of mobile platform friendlies... users that could quickly, and from the same device, load up a Spotify tune and order over Grubhub, all while trading on an uncomplicated, no-minimum-balance trading platform, specifically marketed to this demographic.

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American Consequences

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GAME(STOP), SET, MATCH

What became clearly apparent was that the Reddit marauders were not interested in what’s “in their best interests,” as they were far too busy not just bidding up GME... but leveraging up... That’s because many were using options to achieve their pay dirt. And in many cases, it was short-dated options with two weeks or less to expiration. And these options were (originally) far out-of-the- money options, which are inexpensive to buy but can skyrocket in value if the underlying stock makes a move. To buy a share of GME stock and hope it rallies is not the same payoff as if I buy one GME out-of-the-money option, giving me the right but not the obligation to exercise it into 100 shares of GME. That folks, is when the leverage kicks in. Remember that one option purchase, put or call, gives you access to 100 shares. That’s where many of these hedge-fund slayers were profiting. As the stock went up, their low premium options, including ones bought dirt-cheap and out of the money, are now rather nicely in the money. And now you either sell it at a higher premium... or when properly margined in your account, exercise your right to acquire 100 shares of GME. Buy a cheap one-lot option, watch it rally, exercise into the stock, and sell your 100 lot of stock that was catapulted higher during the short squeeze. “Let it all ride” was the mantra... YOLO was the reverberating theme. Pretty easy, right? Just like house flipping... except there does exist an industry adage or maxim if you prefer. And that is, the bulls make money, the bears make money, and the pigs get slaughtered. Rooting for

"Let it all ride" was the mantra... YOLO was the reverberating theme. Pretty easy, right? Just like house flipping... Now, PFOF is not without its critics. At that very House Committee of Financial Services hearing, Rep. Alexandria Ocasio- Cortez (D-N.Y.) pointed out that in a 2016 report, the SEC found that the PFOF process created “a potential conflict of interest” with a brokerage’s duty to execute trades to the best possible standard and to maximize the payment for order flow. There has been criticism that this situation gives brokerages an incentive to increase the amount that their customers trade, even if it’s not in their best interest. In these PFOF cases, the brokerage does not necessarily route your buy order to an exchange. When you tap your app to trade, a brokerage like Robinhood or any of the other online brokerages that utilize PFOF will take your order and reroute it to a market maker, which will pay the brokerage (and generally does so on a per-share basis) for the opportunity to take the other side of the order. By design, the system allows the online brokerages to manage thousands of orders more effectively by routing them off to be executed by a market maker. Costs are kept low for the brokerage because of trade aggregation, and the market maker stands to gain due to the higher trading volume and ability to squeeze out volume-weighted edge.

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the underdogs of the world to take on the Goliaths makes for good lessons learned and even better press. And certainly, it’s interesting sport when you look at how the marauders thump their public chests in the chat rooms. Good, bad, or “meh” may describe the long-lasting impact and effect of this quasi discipline of trading. I only wish they were around and targeted the American Motors and National Lampoon stock that were 1987 deadweight in my account. Rooting for the underdogs of the world to take on the Goliaths makes for good lessons learned and even better press. Jay Caauwe is a well-traveled Chicagoan that still resides within three blocks of where he was born. Before cofounding Supercritical LLC, a cannabis and hemp advisory and management solutions firm, Jay was drawn by the allure of open outcry, beginning at the Chicago Board of Trade in 1983. Working through the ranks, he became a floor trader at CME Group in 1987, trading stock index futures and options. He left the trading floor in 2004 to join the Chicago Board Options Exchange, where he oversaw the exchange’s global business development effort for the CBOE’s futures products based on the VIX Index.

American Consequences

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By AndrewAmundson

We don’t have any proctologists on staff at American Consequences , but we still know an a**hole when we see one. The only problem is that there are so many in America. There’s such a toxic ocean of idiotic, petulant, sociopathic, hypocritical candidates, it’s a chore to find the crowning one each month... Which sphincter will hold the scepter? But at American Consequences , we’ve dug through the trough, like truffle pigs in reverse, finding you the worst of the worst... And remember, if you’re having an awful day (or year), rejoice in the fact that at least you’re not this person .

Former Speaker of the House John Boehner once gave him the adorable nickname of “Lucifer in the flesh.” And Lindsey Graham has gushed, “If you killed Ted Cruz on the floor of the Senate, and the trial was in the Senate, nobody would convict you.” Five stars, Ted.

THEWINNER (LOSER) FOR THIS MONTH? TED CRUZ For as long as anyone can remember, Ted Cruz has been an a**hole. But not just the standard kind you can order up on Amazon prime. The Texas Senator has honed and owned this identity for years, a veritable master of the game, spinelessly hacking and flailing his way through American politics for years now. Whether he’s hyping up the Capitol Siege MAGA crowd on January 6 or hamming it up on the CPAC stage in February, Cruz is an absolute star of the GOP. And as such, he has always garnered rave reviews from fellow Republicans.

THEWORST IN SHOW: AN AWFUL HISTORY

The blustering Cruz loves a good filibuster. In 2013, he spent nearly a whole day on the Senate floor blathering against the Affordable Care Act and, yes, reciting Green Eggs and Ham , thereby ruining Dr. Seuss forever (more on America’s favorite children’s author later).

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“If you killed Ted Cruz on the floor of the Senate, and the trial was in the Senate, nobody would convict you.” This marathon showcase of horror contributed to that year’s government shutdown while also answering the eternal question: What are kids even more scared of than the Babadook at bedtime? In 2018, Senators voted 97-1 to advance the debate over whether illegal immigrants should have a path to U.S. citizenship. The lone vote against it? You know it, people. Uh, Cruz, you’re Canadian-born with a Cuban father... Pot, meet kettle ... Very few displays of constantly reversing, toxic public affection reveal politics’ vapidity more than Cruz’s on-again, off-again media courtship with Donald Trump. Before 2016, Cruz dubbed Trump a pathological liar, utterly amoral, and a next-level narcissist. He even joked on Jimmy Kimmel about running Trump over with his car. But when Trump landed in the White House, few in the GOP were as avidly, consistently Trumpian as Cruz – with Cruz even leading the charge in the U.S. Senate against certifying President-elect Joe Biden’s election win – that is, until a few weeks ago. In a recent interview with a Houston TV news outlet, Ted claimed that “ [Trump’s] language and rhetoric often go too far ... I disagree with it, and I have disagreed with [his] language for the last for years. ” The best (worst) part about Cruz is how everything he says means nothing, even more so than the average politician.

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CANCUN CRUZ Months ago, Cruz had a hardline regarding politicians and travel during the pandemic: don’t you dare . He hassled Austin Mayor Steve Adler and Democrats for traveling as the pandemic surged, calling them all hypocrites. But Ted’s real issue is that they weren’t hypocritical enough . In February, when his Texas constituents were abandoned without power, water, or heat for days on end as their state power grid buckled under the weight of a winter storm, Ted thought, what would Honest Abe do? That’s right, fly to Mexico. So he hopped on the first flight to Cancun with his family, because from poolside at the Ritz-Carlton, he could better assess the severity of the Texas Blackouts, ingeniously figuring out how to winterize his state’s power plants while cozying up with an umbrellaed, frosted mojito and hate-scrolling AOC’s Twitter feed. Once photos of him at the airport leaked, though, he immediately boomeranged back to the states and backpedaled the narrative, scapegoating both his wife and tween daughters as the masterminds of the getaway. They don’t teach you that move in A**hole School – you have to learn that one on the streets . Because when you have a state facing twin crises, with citizens in dire need of humanitarian aid, you can always rest assured that Ted Cruz won’t be there for you.

American Consequences

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DUNCE OF THE MONTH

assisted living facilities. And on the heels of that controversy, there’s now multiple women accusing him of sexual harassment. Completing the implosion, former aides have come forward to paint the man as a toxic, berating bully. Cuomo’s one of the only people (along with Dr. Fauci and Big Tech oligarchs) who could claim 2020 was their best year ever.

U.S. Teacher Unions The National Education Association (“NEA”) is a beast whose shadow looms large as our

country’s largest labor union. Yes, teachers are often under-appreciated and should make more money. But our children also need to be in school. Throughout the pandemic, the NEA has been inflexible in its position of not going back to work while swaths of other “essential” workers in health care or service industries have. We all know remote learning is hot garbage – all my seven-year-old daughter has learned this year is how to share her screen and put herself on mute. Parents, it’s time to make your voices heard. NewYork Governor Andrew Cuomo Et tu, Andrew? Cuomo’s Icarus-like fall from grace is staggering... Once hailed as a pandemic hero for his surreal daily press conferences a year ago that gave some comfort to the American people, he now finds himself embroiled in two scandals. There’s Nursing Home-Gate, which brought to light that he and his team knowingly underreported and subsequently tried to cover up COVID deaths in New York

ThoseWho Tried to Cancel Dr. Seuss Horton hears a what? Whether you pinpoint this to organizations like Kid Conscious or Virginia’s Loudoun County Public

Schools, it’s the same extremist, woke, social justice warriors smiling over their newest victim, blade in hand. So now, since some early Seussian illustrations may or may not have been racially insensitive, six Dr. Seuss books you’ve never heard of, such as The Cat’s Quizzer and McElligot’s Pool , have been banned. From there to here, from there to here, cancel culture is everywhere .

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