Jamie Catherwood, O’Shaughnessy Asset Management Client Portfolio Associate, joins Yahoo Finance Live to compare the outline of other activist campaigns with stocks like GameStop.
Video transcription
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– We are starting to see some cracks in the short print trade that we have been watching so closely over the past week. GameStop, yes, is still higher, but we have received reports that Robinhood does not allow users to open new positions in GameStop or buy the shares, but only to close positions. We see that interactive brokers also place some barriers in trading in some of the other platforms. So this is more of a mixed picture than it has been in recent days.
And, you know, since we’ve been watching the whole situation and talking about how it’s fueled by a Reddit board that trades on day trading, you may be tempted to say: it’s a very modern– unique modern phenomenon. But perhaps history does not prove that this is so. Jamie Catherwood is joining us now. He is a contributor to O’Shaughnessy Asset Management Client Portfolio and he also writes a blog about market history.
So Jamie, that’s why I wanted to talk to you, because such things have indeed happened throughout history. So if you look at this situation – I know you’ve gone back in history to other activist campaigns, short press, and so on. So take us back to some of the early cases and parallels and not parallels with the current situation.
JAMIE CATHERWOOD: Yes, I think it’s just a microcosm of a market driven more by narratives than fundamental factors. And I think we’ve seen it play out in different ways, whether it’s the rise of ESG and the Capitol riots. It was interesting how suddenly you had to bring out every CEO and make a statement and that companies were already looking at their political donations and that the ESG kind of activists were chasing these companies. And you investigated the Blackstone chairman and asked pension funds to take money out of Blackstone funds.
And I think it’s a different narrative and that it’s playing a little more aggressively, where it’s the little guy versus the big guy. And through the history, which is interesting – I had an article last Sunday in which I looked at the history of kind of market corners and short pressures of 1863 and 1980 – and what was interesting is that the whole newspaper is talking about short sellers who are nervous get involved in a situation where many kinds of speculative activities have increased a share price. Because they were careful that a large institution had some kind of insider information and could manipulate the share price. So a short seller would say: I’m not going to shorten it because I can push and burn.
But what is interesting about this now is that it is the opposite. Where Citron Research is now making the statement, we will not comment on GameStop anymore. Because instead of being able to manipulate the big, big institutions, just in terms of price, it’s the little people in the community of Robinhood and Wall Street. And so it is this kind of interesting narrative of David versus Goliath and David who is now experiencing his day in the sun.
– Jamie, I’m curious, I think it’s a difference in kind. It doesn’t really matter what we call it. But is it like a turn or a short push? Because I went back and forth a bit about how I can actually describe it, like, because it feels like, like you put it with the Lemon thing – I mean, of course, the raft says there are people on the other side of the GameStop trade, but I do not think anyone wants to show their face if they are indeed that person.
JAMIE CATHERWOOD: [LAUGHS]
Yes, I would say a short press, but I’m not an expert. And it’s definitely hard for, I mean, like that Melvin Capital naturally suffers. They closed their position. But what my favorite, probably, financial history, such as a brief press moment, is actually from the founder of Nomura Securities in Japan in 1905. He committed a murder in a Japanese bull market of that year. But then he looked around a bit at other markets around the world and realized that the Japanese stock market was really overvalued.
And so he sells on a double all his long positions and plows all the returns in a big short bet against the market. And he just bled money for months. And that was at the point where he was writing about how he hid under his desk when his creditors were looking for him and asking for calls. And he hired a rickshaw to go through the Japanese side streets that were enclosed so that no one could see him or where he was.
Eventually he went to his friend who runs a bank and said: I need another million dollars to reach my sideline calls. And the friend was, like you, is clearly wrong. Everyone earns money in the market. You are clearly wrong. You lost so much money. And he bets literally everything he owns. He said: I promise my life, I’m right. And a few days later, the market rose 88%. But this is just a good reminder that you need to have some nerves of steel to try to short companies, because something like this can happen with GameStop and you do not really know when.
– Yes Jamie, let’s stick to it. What have you personally learned in the last two weeks from this, actually, this GameStop mania?
JAMIE CATHERWOOD: I think again that this is just the narrative that is going to play a much bigger role in all aspects of finance moving forward, I think, because you have this democratization of finance where more people can get involved. And when more people get involved, that means more people have an opinion. And those people are going to find like-minded people – like-minded people who share the opinion and you will have moving markets like ESG. You apparently have this Wall Street Bets community moving markets. And as more people get involved and more people try to move a market and developing communities, I just think it’s going to have a much bigger impact.
And I think again the Capitol riots were for me kind of this fusion of all these kind of spheres of influence where you had ESG activists, pension funds, regulators – like every kind of big sphere that affects markets in some way has a head came together and just really showed that it’s going to be some kind of norm to move forward. It is clear that fundamental principles and everything will matter, but I think so, especially with [AUDIO OUT] they are very aware of the fact that they have to pay attention to what ESG activists are asking for and change the policy accordingly.
– Yes, there is definitely a kind of populist thread going through a number of different parts of not only the financial financial markets but also the political life, the American life, and so on. Jamie Catherwood, thank you so much for being here. O’Shaughnessy Asset Management Client Portfolio contributor. I appreciate your perspective – historical perspective. The rickshaw anecdotes, awesome.