Well, actually: Our ‘Dumb Money’ movie review

0:05Pushkin. Remember GameStop? Back in 2021, that game store stock turned into a huge retail investor phenomenon. Everyone on Reddit, on Twitter is talking about diamond hands and holding on for dear life and going to the moon. Well, that entire saga has just been made into a movie. It's called Dumb Money. It's just out in the US, coming out in the UK very soon. And on the show today, we want to talk about this movie, what it gets right, what it gets wrong, and whether the meme stock moment was a revolution. This is Unhedged, the markets and finance show from the Financial Times and Pushkin. I'm reporter Ethan Wu here in the New York studio, joined by my boss, Robert Armstrong, and remotely, Alexandra Skaggs of Alphabill.

0:53Hi, how's it going? Hey, not bad. So, Alex, you and I have watched the movie, and Rob is not, but that has never stopped Rob from... Ignorance is no impediment to comment. It's the first law of journalism. That's the first thing I learned working at the EFCE. But let's just give a brief plot summary, right? Just broad strokes. It follows Keith Gill, also known as Roaring Kitty, also known as Deep F-ing Value on Reddit. It's this dude who works as a financial analyst somewhere in Massachusetts, and he developed a thesis that GameStop was undervalued. People were overestimating how much damage the digital transition in gaming would do to GameStop.

1:32And he started posting his balance sheets and his long thesis on GameStop publicly on Reddit. He would do YouTube videos. He would do live streams. And it caught on. People started buying the stock. It goes up. So the movie is largely centered on Keith Gill and a couple other retail investors, but it also follows these hedge fund masters of the universe, notably Gabe Plotkin, CEO of Melvin Capital, which was the main casualty of this entire saga, got squeezed by these retail investors in GameStop. And Ken Griffin, CEO of Citadel and Citadel Securities, who is a noted villain in this entire story and is widely hated by the Reddit crowd.

2:08Let me just step in here on behalf of our listeners who might not be totally clear what a short squeeze is. So when you trade a stock short, what you do is borrow a stock. It's a little complicated, but the point is this. If the stock goes the wrong direction and goes up, I'm losing money because I have an obligation to buy the stock again and return it. That's called a short squeeze. And the reason it's called a squeeze is if people get wind of the fact that I owe Ethan this stock, they might decide to just torture me a little bit by bidding up the stock, knowing that I'm not going to be able to make good on my commitment.

2:50And that's something, Rob, I think the movie actually portrays really well is, you know, Gabe Pluckin, Melvin Capital guy sweating as his hedge fund gets squeezed. Alex, were there any things that stood out to you in the movie that you liked before we get into things that we did not like. I thought it was really entertaining. Yeah. And also, I thought that the hedge fund managers were weirdly charming because they have these big name actors playing them and really chewing up the scenery. So that was fun too. Yes. Seth Rogen plays Gabe Plotkin. I thought did a great job. I really liked their integration of social media.

3:18As a finance movie, it's a little questionable, but as a movie about social media, I think it's excellent. It shows virality and coordinated groupthink, intermediate through the internet very well. It's usually when 30, 40-year-old screenwriters are writing about TikTok, it's truly agonizing to watch. But this was funny. Oh, to be 30 or 40. I won't take that as a personal. Okay, but that's enough praise. That's enough praise. Too much praise. We had three main gripes with dumb money. The first was about payment for order flow. Are ordinary retail investors getting screwed by the big market makers and hedge funds?

3:53The second, Robinhood froze trading at the height of the GameStop mania. Was this collusion? And third, was this a revolution or a class war? We'll take all those in turn, but let's start with payment for order flow. Who would like to volunteer to explain this? I'd like to volunteer, Alex. Oh, gosh. I agree. It's financial spaghetti, Alphaville's specialty. You know, I do feel like this is hazing a little bit. So payment for order flow, let's take it in order. The payment is going from market makers to brokerages. The market makers are like Citadel Securities, Virtue Financial, a lot of these big names that people love to come up with conspiracy theories about.

4:37And just interrupting on behalf of listeners here, what a big market maker does is he stands in the middle, she, it, stands in the middle of a bunch of other people who want to trade, making a little money on, you know, buying for a tiny bit less than they sell. They kind of provide the liquidity in the market. They're the middle person and they scrape some money along the way. Yes. And these guys exist in every market. They've been around as long as markets have been around, even like in ancient times, like ship brokers, you know, like the market makers are like, oh, well known things. But they are paying brokerages, which is like where you or I was log on to trade like Robinhood or E-Trade or Charles Schwab.

5:23And they're paying for the individual trades. So Wall Street actually loves individual traders. I've heard people say that sort of ironically, but it's the truth. Because if you're trading against really sophisticated investors in a really big, lit, wide open market, there's a lot of competition. And there's a chance that like, you know, you're a market maker trading against a hedge fund, there's a chance the hedge fund is going to run you over and you're going to lose money, which is not great, you know? So running over, what's that? That's like, I do a little trade at a low price and kind of draw the market maker in.

6:02And then I thump them over the head with a gigantic trade at a higher price or something along these lines. Exactly. Or, you know, they know something you don't or they have like a correct call on something and they know that there's like corporate news coming up or I don't know. A lot of that stuff gets really like conspiracy like also. But the mom and pop trader is just somebody trying to buy a stock. Exactly. You just want the stock. You want it at a particular price that you think is a good price. You're not constantly playing chess against every other sophisticated trader in this giant lit market.

6:36And so the market makers like Citadel or Virtue think it's worthwhile to actually pay the broker to just get your trades. In the movie, the way payment for order flow is portrayed is with this kind of shadowy connotation. I don't know if there's any specific criticism laid out, but it's portrayed as shadowy. I think that does accurately reflect the attitudes of the Reddit crowd during this whole media. If you were reading r slash WallStreetBets in 2021 like I was, there was a lot of stuff about payment for order flow, perhaps poorly understood and very conspiratorial. But to me, it's like one can fairly criticize payment for order flow or defend it as a good system.

7:18That's about arguments over correct stock market structure and reg NMS. And you can read Flash Boys by Michael Lewis if you want to. But that's an argument about efficiency. And you have to place it, I think, in the proper historical context, which is this. It has never been better to be a retail stock trader than it is right now. What I mean by this is the spread between the bid price and the ask price, historically tight. The fee you're paying to trade the stock, either historically low or nothing at all. So maybe the people who are doing payment for order flow are slightly unfairly skimming a little bit off the top of the market.

8:03But those people are part of a market structure that has delivered highly efficient, low cost trading. So from the point of view of any individual investor, there may be a complaint to make. But it's a teensy little complaint. Yeah. A technical complaint, as you put it. Yeah. On the margin. So this brings us to kind of the second turn in the movie that we had a little bit of an issue with. Or actually, no, a big issue. A very big issue, actually. This is the Robin Hood trading freeze. At the height of the GameStop media, for like, what, 24, 48 hours, investors could not buy GameStop on the Robin Hood app.

8:40And the movie very heavily implies that this was some kind of implicit or explicit coordination between Robin Hood and Citadel. It's actually not exactly clear what the interests are, why this would happen, but it's heavily implied that this was done in a shady way. And the problem with that is we know exactly why they froze treating. And it's for boring market structure reasons. Yeah, it doesn't make any sense. So the funny thing is that like, yes, like Citadel, the hedge fund did take a position in Gabe Plotkin's Melvin Capital that happened. But like hedge funds are insanely competitive. Just being like, oh, I actually have to save my buddies who all have short positions in this stock by shutting down retail's ability to buy it.

9:31Like that doesn't make any sense. I would say that out of all of the elite groups of people, hedge funds have probably the least amount of class loyalty. It's not like they're like, oh, wow, we can't let these little guys do it. They love the little guys. These kinds of things in normal times create pricing and efficiencies that make the hedge fund's performance better. And there's also a perfectly good mechanical reason why Robinhood would have had to stop buying in the stock. And this involves clearinghouses. So in proper exchanges, there's something called a clearinghouse, which is the organization that makes sure that both sides of a trade make good on that trade.

10:17So there's this rather dangerous period between the moment when two counterparties say done on a trade and the trade is actually cleared and closed and the money changes hands. And there's always this little nagging worry that when it comes time to actually exchange the money, one of the parties won't show up. So what the clearinghouse does is it gets a little bit of money from both parties as a commitment to make sure that any failure to show up at the crucial moment is covered. And when a stock price goes crazy in that period between when the trade is agreed and when it is closed, the clearinghouse comes in and says, actually, we're going to need to post a little bit more safety money.

11:02And in the case of GameStop, which went absolutely bazonkers, they asked for a lot more money from Robin Hood to ensure that their trades would be made good. And Robin Hood was forced by the extreme level of these demands to stop taking buy orders. To put up$3 billion, which they didn't have. And one thing that's interesting about the movie that I found ambiguous, Alex, is they do mention this. There is a scene where the CEO of Robin Hood gets a phone call late at night. And it's, at least to me, as someone that knew what was going on, I could tell, oh, that's the clearinghouse calling them, or that's the lawyer calling them on behalf of the clearinghouse.

11:44But there's also this part of the movie that very heavily insinuates something untoward was happening, or at least it was perceived by retail investors to be untoward. I didn't know exactly what to make of that, honestly, at the end of the day. Yeah, it didn't really make a lot of sense to me, though I do know that there were some letters, as the Chicago Sun-Times reported, exchanged back and forth between Citadel and the movie's writers and producers. Right. And apparently they made some changes towards the end. So I'm wondering if that might have reflected some of that. I am prepared to speculate that Ken Griffin's libel lawyer is an absolutely terrifying person.

12:20That seems like safe speculation. You're getting a letter from him for saying that. It's just an opinion. This brings us to the third and perhaps most important question, which the movie, for all its ambiguities and kind of, you know, talking out of two sides of its mouth, the movie is absolutely unambiguous about calling this revolution. It's in text. It's at the top of the movie. This was the GameStop revolution. The little guy versus the big guy and the little guy won. Is that right? Is this right? Is this the right way to understand it? It makes no sense. It's like saying that you're going to take down a casino by gambling.

12:55It makes no sense. Yeah. These market makers make money every time you trade. And the internal incoherence of the revolution narrative doesn't even stop there, right? So fundamentally what happened here is that a bunch of retail traders got together and drove up the prices of some stocks of some not very good companies. and they drove them up to extremely high levels. And indeed, you could argue that some of them are still at higher than appropriate levels today. The problem is that for everyone who rode these stocks up to a high level, there is another little guy, another retail trader who is buying the stocks at these totally unrealistic and just incorrect prices.

13:43So for every pitchfork holding peasant who finally got to stab some aristocrat. There is another peasant who got marched up to the guillotine along with the hedge fund. Yeah, yeah, yeah. Yeah, and this is somewhere else where the movie, you know, they primarily focus on people that either got out of debt by trading GameStop stock or like made a lot of money trading GameStop stock. But it does, and you write about this in your piece, Alex, make some allusions to the fact that not everyone won in the retail community in this trade. Yeah, I feel like the only people who really won were the executives of the companies of the stocks they were trading.

14:23The company executives took advantage of this to sell more stuff. You know, you have like a business that's sort of on its last legs. And next thing you know, you can tweet a picture of an ape and your stock price will go up 10 percent. And then you can sell more 10 million shares. And that dilutes the people who are supporting you as you tweeted out the silly ape picture. Yeah. It's just such a scam. This is a genuinely interesting story as like a corporate governance story in the sense that these, you know, the CEO of AMC, which is not in the movie, but another one of these major GameStops, he's like a Harvard MBA.

15:01And he had to reinvent the entire business school playbook for the meme stock era because if people want to buy your stock for way too much. Sell it to them. Yeah. Yeah. Yeah. And that's really interesting. The story of how do you as a CEO run a company when the stock price is trading like mad is a genuinely interesting question, but it's not a revolution. Another thing that drives me nuts about this is who's really been dumb here at the end of the day? Melvin Capital. Melvin Capital. That is the answer to the question. So I once worked at a long, short hedge fund. And when you work at a long short hedge fund, the first thing they tell you about shorting stocks is to follow a couple of rules.

15:45Rule number one, do not have a very concentrated short position because short positions, unlike long positions, can go infinitely wrong. Not to mention the investors in this hedge fund who broke one of the most important rules of finance, which is don't give your money to something called Melvin. Oh, you're going to come for a guy's grandpa like that. Just a humble grocer. He did name it after his grandpa. Yeah. I want to end on a slightly more positive note though, which is to say that the one part the movie gets, in my mind, absolutely right, is the role of Keith Kill, the role of Roaring Kitty, the role of deep effing value.

16:27This guy was the smart money at the end of the day, and he's just an average guy. Some financial analyst working in Boston, and he was right about GameStop stock. It was a bit too cheap, not 100 ,000 % too cheap, but he was trading out three or four bucks. It probably could have been 10 or 15. He was right about that. And the stock is still trading well above where it was before this entire trading mania. Keith Gill has disappeared from public life, which is kind of a shame because I'd love to hear from him. I mean, he must have a really interesting perspective on how things are going. Though, of course, who could blame him after all this?

17:01But I think the movie portrays him in an appropriately sympathetic light. And he, at the end of the day, is the real smart money. That makes a lot of sense. I also would like to point attention to Bed Bath & Beyond, another meme stock who everyone loved. Ryan Colon got involved. And, you know, next thing you know, it's to the moon. And it is in bankruptcy right now. Yeah. To the moon or bankruptcy court. Yeah. Those are your options. All right. Listeners, if you haven't seen the movie, I really do recommend it. It is a lot of fun. Bring your non-finance friends, bring your kids. You'll have a good time.

17:33and keith gill if you are out there like do email me ethan.wuwuft.com all right alex and rob we'll be back in a moment with long short welcome back this is long short that part of the show where we go along a thing we love shorter thing we hate alex do you have a short i feel like it's not good to be too public about your shorts now yes you have really learned this from this from this delightful movie. I do have a long, I am long the United Auto Workers. I think that they are, they're pursuing a really interesting strategy with their strike. Most of the projections that I saw were like, okay, everyone's going to walk out at once.

18:14But instead of that, they only walked out of three factories and none of them make the Ford F series. Which is the truck that makes everybody the money. Exactly. All of our American listeners will know exactly what I mean when I say that, but it is the most profitable car in the United States, you know, times a million forever. So I feel like they're giving themselves a lot of wiggle room. They're being very smart. And I think that it's going to be really interesting to see how this plays out. Yeah, it's bringing back the old striking playbook. It's really interesting to watch. Rob, do you have a long or a short?

18:48I have a contrarian long on J. Paul. Do we say Powell? Powell. Powell is the English I'll say that again. I have a contrarian long on Jay Powell. I thought in the Fed's statement and the Fed's press conference yesterday, he hit the right notes. I think the great lesson of the last three years is epistemic nihilism about inflation. We don't know how it works or what's going on. Everybody was either wrong about the rise in inflation or its subsequent rapid decline. And I think Pohl in his cautious hire for longer policy is doing the kind of thing one should do when one has no idea what is going on with inflation.

19:41Yep. So I support Jay. He's never going to be a popular guy, but I'm behind you, buddy. We are double long once again, but I think given the tenor of this episode of Unhedged, that is the appropriate stance. No one on the show is getting squeezed. All right, Alex and Rob, thanks for being here. We'll have you both back very soon. And listeners, we'll be back in your feed with another episode of Unhedged on Tuesday. Catch you then. Unhedged is produced by Jake Harper and edited by Brian Erstat. Our executive producer is Jacob Goldstein. We had additional help from Topher Forres. Cheryl Brumley is the FT's global head of audio.

20:18Special thanks to Laura Clark, Alistair Mackey, and Jess Trulia. FT Premium subscribers can get the Unhedged newsletter for free. A 90-day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Ethan Wu. Thanks for listening.

20:53so they're willing to pay the brokers yeah for that and they call them they actually call it uninformed flow rather than they don't call it dumb money my debut rap release uninformed flow will be coming to the webcast before very long oh man i can't wait i can