“I’m not a cat”. If there are aliens on Mars, I think this would be a suitable gambit to commence our inter-planetary communication.
Yesterday we reached a moment of meme perfection when Keith Gill, aka Roaring Kitty, aka DPV (look it up), told the House Financial Services Committee that he is no feline. He also stressed he is not an institutional investor, nor a hedge fund. The politicians were instantly on side. GameStop shares popped higher as he started talking and set out his fundamental bull thesis on GME, but by the close it ended the day down another 11% to $40.
Roaring Kitty came out of it well
So, what have we learned from the hearing? Gill comes out of this rather well; intelligent, well-informed, a true deep value investor. But he still faces a class action lawsuit. The focus point for lawmakers’ ire was Robinhood and its rather uncomfortable-looking boss Vlad Tenev, who was forced to admit to making mistakes. A $3bn margin call sounds like Robinhood wasn’t prepared for this kind of event. Melvin Capital’s Gabe Plotkin admitted that in future you won’t see the kind of enormous short interest in single stocks like there was on GME before the squeeze. Real time settlement will one day happen, but not yet.
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You got a sense that the main thrust of some Representatives was: why aren’t customers entitled to a refund when they lose money on stocks? There also seems to be an inordinate amount of attention on why Robinhood blocked buy orders on some stocks like GME but not sell orders at the peak of the frenzy in January. Like, why did you stop Redditors buying at the very top and losing even more money?
Even more so, you got a sense most politicians don’t understand how markets function. It’s not a retail shop. You don’t get a 14-day money back guarantee. Lawmakers focused on the payment for order flow, when this is what allows the free trading in the first place – markets don’t make themselves. There are costs. If you’re not paying for lunch, either your dining partner, or the restaurant owner, is.
As usual this seemed more about chastising some Wall Streeters to look good in front of voters. Maxine Waters, the Democrat chair of the committee, insisted Tenev answer ‘yes or ‘no’ to a series of convoluted questions that required some explaining, and in the end she cut off answers because of the time rather than allowing anyone to explain themselves in full.
One lawmaker raised a question about a 2004 options market filing…which had nothing to do with the current situation. Patrick McHenry, the senior Republican on the Committee, pursued a bizarre line of attack asking why Robinhood traders could not purchase stock in Robinhood, a private company. Now there may be a case for individual investors to be able to participate in private markets – albeit a shaky one since the disclosures and reporting requirements are much less rigorous than they are for listed entities. But it was not in any way related to GameStop, Citadel or Reddit.
There is always the risk that this will lead to some bad regulation, but it could be good. Quicker settlement times would reduce problems. Indeed, you could argue that this episode was the market working efficiently to highlight stress points like aggressive shorting practices (more than 100% of stock on loan is clearly problematic) and settlement times.
Gill said he’d buy the stock now at $46. But we kind of know this already – it’s never been in question that a bunch of the /wallstreetbets crowd are a) very aggressive investors and b) prepared to YOLO their savings on a single stock. That’s up to them. But it is the duty of market watchers to point out that these things tend to end one way, with most losing out.