How The Hedge Funds Manipulate The Market (Jim Cramer) (2024)

Oh gosh! The Hedge Fund managers just got screwed, that’s really bad for them losing billions of dollars in a matter of few days! But, the reality is way different, retail investors are falling short for decades in front of these morons!

You might already know what’s happening with the Gamestop and AMC Stocks. Not only these two there are plenty of others including Nokia, Blackberry and tons of other stocks on the short squeeze radar.

The reason behind the huge price surge is the short squeeze of the Hedge fund managers.

That’s what the suits vs. WSB (WallStreetBets is all about)

Or the Hedge Fund Managers vs. Retail Investors.

It can also be Robinhood vs. WeBull too.

You loan your car to your friend and he promises to bring it back next week and oh btw he will pay you $10 a day while he has it.

Your friend promptly sells your car to someone else for $5k but thinks he can buy it back for $4k and return it to you… pocketing the profit.

Except the next guy sold the car with the same plan.

And it happened again. And again.

Now you want your car back but no one knows who had it last or what just happened. It’s a shit show and now the cops are involved.

Short Squeeze vs. Brokerages vs. Retail Investors

GameStop’s short float is currently around 250%.

For a second, let’s just imagine there are only 100 shares total of GameStop.

This means that person A owns 100 shares. Person B is a short seller and borrows them, sells them to person C who buys them. At this point, the stock is 100% short.

Person C then lends those shares to Person D who is a short seller who then sells them to person E who buys them. The stock is now 200% short.

Person E lends 50 of them to person F who is a short seller who sells them to person G who buys 50. The stock is now 250% short

So now person A, C, and E all own the same 100. The brokerage sights are limiting buying because they are attempting to unwind that!

If everybody right now demanded their shares. The brokerage sites should be on the hook for $34.5 Bil worth of stock that doesn’t exist.

That’s fucked up but here’s where it gets crazy.

There were never any controls on monitoring if somebody’s shares had been sold short twice.

When a short seller sells shares. They are immediately paid. So cash is in their accounts.

When a person buys shares they pay money out and theoretically own shares. But because the short selling wasn’t tracked brokers do not possess the shares they were putting into the market.

If everyone were to request their shares they would default on their obligations and fold. Meaning they only have 100 shares and person A, C, and E all have a claim to those shares. Meaning the buyers are left fighting over who has the shares. And the short sellers are left holding the cash they collected.

It gets super messy.

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Hedge Fund & Robinhood Issue

If Robinhood were to default. Short sellers win. Then most likely the fed has to come in and save the buyers spending tax dollars. That’s why the fed is getting involved.

By limiting shares and removing the ability to continue to short, they are trying to unwind this mess without it causing a panic.

That is why the broader market is down.

Not because of shorts covering… but because of the potential for brokerages to collapse.

I’m guessing Robinhood, TD, IB, and E-Trade are on the hook for a vast majority of the shares that don’t actually exist but multiple people own.

Imagine if person A says he doesn’t want to lend his shares. The broker and clearinghouse has to figure out how to balance person B-G sourcing shares from somewhere else.

If the brokerages don’t go under. Short sellers, the hedge funds, are on the hook.

If they do go under… economic recession.

Retail investors once again left holding the bag.

Institutions don’t use these little guys. They use IB to trade and then they have the physical shares transferred into accounts at 5/3rd. If IB were to go under their fund would be fine. But most brokerage accounts are only insured up to up to $250k.

This is a failure of the system as a whole. This is a problem created by the top .001% and they are trying to call it a Reddit rebellion. Fuck that.

This is totally a short-selling fault. I think the outcome of this is that short selling gets banned.

Hedge Fund Short Squeeze Example

For example, Hedge A sells shares of XYZ stock to Hedge B for $390.

Hedge B sells shares of XYZ stock back to Hedge A for $380.

They ping pong back and forth at an extremely rapid pace, making it appear that the new price per share is far lower than the market value previously was. This spooks the hell out of people who are worried about losing their entire investment and they sell (probably at a loss).

Then hedges scoop up shares they’ve shaken out and the price rises back to its regular level when they’re done.

Short Squeeze

Jim Cramer’s Days As A Hegde Fund Manager (Mad Money Show Host)

“What’s Important when you’re in that hedge fund mode, is to not do anything remotely truthful. Because the truth is so against your view, that it’s important to create a new view, to create a fiction.”

“Then you call the (Wall Street) Journal and get the bozo reporter in Research in Motion and you would feed that (rival) Palm’s got a killer it’s going to give away. These are all the things you must do on a day like today, and if you’re not doing it, maybe you shouldn’t be in the game.”

“It might cost me $15 million or $20 million to knock RIM down but it would be fabulous because it would beleaguer all the moron longs who are also keying on Research in Motion.”

“A lot of times when I was short at my hedge fund … meaning I needed (a stock) down, I would create a level of activity beforehand that could drive the futures. It’s a fun game and it’s a lucrative game.”

“Who cares about the fundamentals? The great thing about the market is that it has nothing to do with the actual stocks.”

– Jim Cramer, Hedge Fund manager from 1987-2001, Dec 2006

References:

https://www.reuters.com/article/cramer-interview-idUKN2036292620070320

Direct link to Interview Video since the old in-article links aren’t working

Dealbook NY Times Article on Cramer’s Interview

Investopedia Article: Short and Distort Bear Market Stock Manipulation

Anatomy of a Short Attack

Thanks for reading. Let me know if any questions/comments below.

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