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Jamie Catherwood, O’Shaughnessy Asset Management Client Portfolio Associate joins Yahoo Finance Live to explain how other activist campaigns stack up against heavily sold stocks like GameStop.
Video transcript
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– We are starting to see cracks in the short squeeze trading that we have been monitoring so closely over the past week. GameStop, yes, is even higher, but we have received reports that Robinhood does not allow its users to open new positions in GameStop or buy the shares, but rather only close positions. We are also seeing interactive brokers restricting trading on some of the other platforms. The situation is therefore more mixed than it has been in recent days.
And, you know, as we’ve watched this whole situation and talked about how it’s been fueled by a Reddit chart that focuses on day trading, you might be tempted to say, well, that? is a very modern – uniquely modern phenomenon. But maybe history doesn’t prove it. Jamie Catherwood is joining us now. He is a partner at O’Shaughnessy Asset Management Client Portfolio and he also writes a blog on the history of the market.
So Jamie, that’s why I wanted to talk to you because indeed things like that have happened throughout the story. So when you look at this situation – I know you’ve gone back in history to look at other activist campaigns, short presses, et cetera. So take us back to some of the early examples of this and parallels, not parallels, with the current situation.
JAMIE CATHERWOOD: Yes, I think for me it’s kind of a microcosm of a market that’s driven more by narrative than fundamentals. And I think we’ve seen this play out in different ways, be it the rise of ESG and, I think, like the Capitol Riots. It was interesting how suddenly every corporate CEO had to come forward and make a statement and that companies were already having their political donations reviewed and ESG-type activists going after those companies. And Blackstone’s chairman has come under scrutiny and the pension funds have demanded that he take money out of Blackstone’s funds.
And I think it’s a bit of a different narrative and played out a bit more aggressively, where it’s the little guy versus the big guy. And throughout history, what’s interesting is – I had an article last Sunday on the history of the market wedges and short squeeze genre of 1863 and 1980 – and what was interesting, this It was all about the newspaper about short sellers who were concerned about getting involved in a situation where there was a lot of type of speculative activity driving a stock’s price higher. Because they were suspicious of a large institution having some sort of inside information and being able to manipulate stock prices. So a short seller would say, I’m not going to short this because I might be rushed and burnt.
But what is interesting now is that it is quite the opposite. Where now, like, Citron Research released the statement saying we’re not going to comment on GameStop anymore. Because instead of the big and big institutions being able to manipulate, just in terms of price change, it’s the little people in the Robinhood community and Wall Street Bets. And so it’s that kind of interesting story of David versus Goliath and David having his day in the sun now.
– Jamie, I’m curious, I guess that’s kind of a difference in nature. It doesn’t matter what we call it. But is it more of a turn or a short push? Because I kind of went back and forth on how to describe this because it feels like like you described with the Lemon, I mean obviously the float says it there are people on the other side of the GameStop trade, but I don’t think anyone wants to show their face if they are indeed that person today.
JAMIE CATHERWOOD: [LAUGHS]
Yeah, I would say a little squeeze, but I’m no expert. And it’s really hard for, I mean, like, Melvin Capital is obviously in pain. They closed their position. But my favorite, probably, financial story, like a short moment of pressure, actually comes from the founder of Nomura Securities in Japan in 1905. He had committed a murder going up in a Japanese bull market that year. . But then he sort of looked at other markets around the world and realized that the Japanese stock market was really overvalued.
And so, like, at a penny, he sold all of his long positions and put all of the proceeds in a massive short bet against the market. And for months he was just hemorrhaging money. And it got to the point where he wrote that he was hiding under his desk as his creditors came looking for him and demanded margin calls. And he hired a rickshaw to walk through the Japanese side streets that were closed so that no one could see him or follow his whereabouts.
And finally, he went to his friend who ran a bank and said, I need another million dollars to meet my margin calls. And the friend was, like, you’re clearly wrong. Everyone is making money in the bull market. You are clearly wrong. You have lost so much money. And he literally bet everything he owned. He said, I promise my life, I’m right. And a few days later, the market fell 88%. But it’s just a good reminder, for example, that you have to have nerves of steel to be able to try to bypass companies, because something like that with GameStop can happen and you don’t really know when.
– Yeah Jamie, let’s stick with that. What have you personally learned over the past two weeks from this GameStop mania?
JAMIE CATHERWOOD: Again I think it’s just that speech is going to play a much bigger role in all aspects of finance in the future I think because you have this democratization of finance where more people can get involved. And the more people get involved, the more people have an opinion. And those people are going to find like-minded people who share that opinion and you’re going to have, like, ESG markets on the move. You have, apparently, this community of Wall Street Bets moving the markets. And since more people can get involved and more people can try to move a market and kind of develop communities, I just think it will have a much bigger impact.
And I think, again, the Capitol Riots, to me, was kind of like this merging of all these types of spheres of influence where you had ESG activists, pension funds, regulators – like, all of them. the types of major spheres that influence the markets in a certain way came together to a head and just really showed that this was going to be kind of a standard moving forward. Obviously the fundamentals and everything will matter, but I think, especially with [AUDIO OUT] they are very aware of the fact that they have to somehow take into account what ESG activists are calling for and change policy accordingly.
– Yes, there is certainly a kind of populist thread running through a number of different parts of not only corporate financial market life, but also politics, American life, et cetera, interweaving with it. all of this. Jamie Catherwood, thank you very much for being here. O’Shaughnessy Asset Management Client Portfolio Associate. I appreciate your point of view – historical perspective. The anecdote of the rickshaw, brilliant.
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