The Breakdown - Roaring Kitty Roars Back, But Can the New Gamestop Madness Recapture the Magic?

Episode Date: June 5, 2024

Roaring Kitty is back, and this time he's playing with nine figures. But are the apes content to just watch from the sidelines this time? Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. What's going on, guys? It is Tuesday, June 4th, and today we are talking about the return of Roaring Kitty. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.L.Y. slash breakdown pod. Well, friends, the GameStop saga has entered its next phase with Keith Gill, aka Roaring Kitty, aka Deep Fing Value, entering the trading week, by disclosing a position worth

several hundred million dollars. Three weeks ago, Roaring Kitty returned to social media after a three-year hiatus. On a Sunday night, he posted a meme of a gamer sitting bolt upright to lock in, followed by a series of video clips from popular movies. There wasn't a clear interpretation for any of the posting, but Roaring Kitty had captured the internet's attention. Once markets open, GameStop's soared, tripling in value over two days. The price surge was accompanied by the familiar outages at Robin Hood and other exchanges. Price action quickly reverted, though, and by the end of the week, it seemed like the hype was over as quickly as it began. Postmortems focused on the idea of Gil having returned with a villain arc rather than a champion of the retail trader. Media chastised him for leading his followers

into a pump that was doomed to fail. There was even speculation that Gil had sold his social media account to the highest bidder. Attention quickly faded with the sequel failing to capture the drama of the original. But the game was far from over. On Sunday, Gil posted his GameStop position on the Super Stank subreddit. He held around $100 million worth of the stock and a further $65 million in call option set to expire on June 21st. According to stock market trader unusual whales, Gil has been accumulating his options position over the past week. The $20 strike price was already slightly in the money by this weekend, and on Sunday night, Gil posted a green Uno reverse card to his Twitter account. Everything was set for another

short squeeze and the overnight markets ripped. The stock was up 20% in overnight markets even triggering Robin Hood's nighttime circuit breakers. Markets opened on Monday morning to chaos, but completely unrelated to GameStop. A glitch in pricing software caused over 40 stocks to display prices down more than 99%. The most notable was Berkshire Hathaway Class A stock, which showed a price of $185.10. Keep in mind, this stock had closed at $627,000 on Friday. Some traders reported getting an order filled at the steeply discounted price, but settlement was another matter. The New York Stock Exchange said that trades that completed during the glitch would be unwound. The problem was resolved after 45 minutes, with the pricing service reverting to a backup

server running an older version of the software. Apparently, a software update had caused the issue. The best we know is that the limit up and limit down circuit breakers malfunction, but details are still a little unclear. The NYSE did rule out any possibility of a cyber attack. As an aside, this is the third issue that has hit the U.S. stock market infrastructure over the past week. On Thursday, the S&P 500 index failed to update pricing for more than an hour. Last Tuesday, an exchange had difficulty interfacing with the data feed, and these three problems have occurred shortly after back-end modifications were implemented according to an SEC rule change.

Last Monday, settlement times were shortened from two days to one day, typically known as T-plus-1. To be clear, there's no real indication that shortened settlement times impacted the functioning of market infrastructure, but for some, the coincidence is difficult to ignore. Steve Sosnick, the chief strategist at interactive brokers, said Monday's glitch was, quote, a little weird but almost undoubtedly coincidental. We've gotten used to huge amounts of uptime with exchange incidents, so when a couple of glitches in a row occur, it is notable. Jonathan Corpina, senior managing partner at Meridian Equity Partners said, I'm more curious how did this happen. I understand what happened, but I want to understand how.

Now, issues with stock market infrastructure raise the usual takes that crypto fixes this, dystopia breaker, for example, tweeting, financial infrastructure is critical, and critical infrastructure must be decentralized and fault-tolerant and cryptographically modeled. Others, on the other hand, simply leaned into the obvious conspiracy theory, with Cryptotrater Barkery tweeting, they literally nuked the entire stock market to stop Roaring Kitty. And indeed, GameStop went flying at the open, gaining 40% in triggering a trading halt before crashing back down. The stock closed the day up 21% from Friday's close, but down slightly from its opening price. Overall, the price action was much more subdued compared to what happened

three weeks ago. GameStop faltered at a high of $40 compared to a $65 peak the last time around. During the day notorious shortseller Citron research presented their take, tweeting, what made Keith Gill, aka Kitty, interesting initially was his authenticity. He shared a detailed investment thesis and put his money where his mouth was, which combined with a high short interest and a restless country in boom, investing history. This time it feels different. Now with GameStop, he posts with a large account and a significant near-term option position, appearing more like manipulation without a solid thesis.

Considering the stock is now 2,000% higher than his initial video almost four years ago. We believe someone is back in Gill. there's no way he made this size trade alone. His reported finances don't support this trade. Investors will see through this roaring icarus. Citron had been one of the major antagonists during the 2021 GameStop incident. The firm was short gamestop and reportedly incurred more than a 100% loss on the position. After the pump a few weeks ago, Citron disclosed that they had once again shorted the stock. The question of Roaring Kitty's capacity to put on such a large trade is a fair one. During congressional hearings, Gil said that he had walked away from the 2021 short squeeze with around

$50 million. Now, who knows how that had grown over the previous couple of years, and if he profited from that pump from three weeks ago, it's possible that he had the bankroll to fund the $165 million position heading into this week. After the Monday closed, Gil posted on Superstank to show that he had carried the entire position into the evening. The paper gains were around $78 million across the stocks and options. He could have sold his calls at the open for around $200 million in profit, but chose to let it ride. The Internet's favorite hero narrative is that Gil is trying to run this position up to a billion dollars. Twitter maths, suggest that a stock price of $70 would get him there. To give a sense of scale, Michael Burry's notorious

big short in 2008 made around $700 million for his fund, with Burry taking an additional $100 million personally. To some, that begs the question, is Roaring Kitty a better trader than Michael Burry? Or have financial markets simply grown so much since 2008 that the numbers are no longer comparable? The other narrative picking up steam is that this is blatant stock manipulation that is likely illegal. I've yet to see a crisp articulation of exactly what Roaring Kitty might have done to breach securities laws, but the calls for an SEC investigation are deafening. Many who are familiar with the underbelly of Wall Street saw no difference to what Roaring Kitty did and the routine conduct of fund managers. Charles Payne of Fox business tweeted, CNBC has allowed shorts and hedge funds

that have built monster positions to come on air and press their case for 20 to 30 minutes. Target companies caught flat-footed turned down a chance at the moment to respond. It's happened countless times. But Roaring Kitty is abusing the system? Investor Bobby Goodlot wrote, yes, this does feel like market manipulation, but so does Jim Kramer shouting bye-bye-bye for a stock on CNBC, or a hedge fund manager talking their book on Twitter. The SEC should either allow all of it or none of it, signaling out Roaring Kitty would be unfair. Jim Kramer himself chimed in, stating, nothing illegal if you buy calls and show them. To sum the issue is that what Roaring Kitty did this week feels to them like market manipulation, but it's not clear how you would even

begin to enforce rules around that conduct. We're talking about a single tweet of an Uno card and a daily portfolio update on Reddit. There doesn't seem to be any suggestion that Roaring Kitty has insider information about operations at GameStop. All he seems to know is the details of his own trading plan. If there were an enforcement action to follow, it would be one of the most bizarre cases ever pursued by the SEC. Dirty Texas Hedge tweeted, Among the principles on display regarding Roaring Kitty and GameStop is that there is just no way to regulate or enforce responsibility for influence with law. It just cannot be done without setting terrible precedence and creating far worse problems of power abuse by the state.

Fouco Capital added, If you want Roaring Kitty to go to jail, you also want to make memes illegal, and, brother, I cannot stand behind that. The reality is that we are seeing the challenge of markets in an influencer-driven world. Market rules weren't constructed, imagining the power that individuals now have to aggregate attention. Now, partway through the Trading Day, the Wall Street Journal reported that E-Trade was considering banning Roaring Kitty from their platform.

His public position appears to be run entirely through a retail account held with the Morgan Stanley-owned brokerage. E-Trade has declined to comment, but the reporting suggests that executive are discussing whether the conduct amounts to market manipulation. In addition to E-Trade, CNBC reported that discussions are underway at the SEC. The agency doesn't confirm or deny the status of investigations, but at this stage, it sounds like there's only preliminary discussions about whether or not this conduct is illegal. And once again, the threats from E-Trade gave fodder to another round of crypto fixes this takes. Will Clemente of Reflexivity Research tweeted,

E-Trade kicking Roring Kitty off the platform is a great example of why speculating is superior on permissionless blockchains. Crypto-Trader Barovic commented, Roaring Kitty is making too much money so now the SEC has to step in and his brokerage wants to kick him out. This is all very bullish for crypto. You can't kick someone off the blockchain. Angel investor Otto Suwin tweeted, It's hilarious that E-Trade would even consider shutting down Roaring Kitty's account. This is the biggest possible advertisement for crypto ever. Others made the point that E-Trade is stuck in a no-win situation.

If they kick Roaring Kitty off the platform, they will no doubt lose a ton of business. They could also trigger a massive Streisand effect, raising the profile of this iteration of the GameStop saga. Stock market content creator Amit Kukraja tweeted, Is it just mirror as this whole e-trade potentially removing Roaring Kitty like legitimately insane? Warren Buffett literally got permission from the SEC to not have to disclose a secret stock he was accumulating for eight months. Roaring Kitty bought stock, showed his position and did not tell anyone else to buy GameStop. If anything, people like Bill Ackman have quote-unquote manipulated stock much more aggressively by coming on CNBC and just talking their book while making moves behind the scenes.

If a broker could remove an individual trader because they disagree with his trades and can't even prove manipulation, what precedent are we setting? It will only make people want to buy GameStop more. This is wild. As for the sentiment surrounding this incident, it's a little mixed. We're not seeing anything remotely close to the level of hype and Populous Fury that we saw in 2021. There's plenty of people hoping that Roaring Kitty's big play is a winner, but they're just isn't the same enthusiasm to pile in behind him. We still don't have any idea whether Gill is behind his social media accounts or if he sold them off. Essentially, most people seem happy to cheer from the sidelines, hoping to see a few hedge funds blow up and market dysfunction on full display.

Voice of the people, Vox Populi, Dave Portnoy, captured the mixed mood on his stream. In the afternoon, he pondered, am I just a big mark for Roaring Kitty? Is that what this game is? Am I running into the stock market is a big sucker? Is Roaring Kitty selling now and my buying is allowing him to sell? Dave noted that every time he gets tangled up in GameStop, he has an appendage ripped off his body, and he lost a ton of money again on Monday.

Later in the stream, he weighed in on the E-Trade controversy, stating, if E-Trade is threatening to kick Roaring Kitty off their platform, that means Roaring Kitty is doing something right. that means he is for the retail trader. Dave would know as E-Trade threw him off their platform shortly after he launched Davy Day Trader. At the end of the stream, Dave said he's holding through the night hoping that the stock rips because he'd lose seven figures if it doesn't. So, how does this story end in what is Roaring Kitty's plan? The position is slightly less than 5%, which is the threshold that triggers SEC reporting requirements on disclosure of intention to influence corporate decision-making.

There's an outside chance that Gill is shooting for a serious ownership staking GameStop. At this stage, we can only assume that this is just the most epic retail trade in history. There's a lot of speculation floating around about whether E-Trade will be able to find enough stock to allow Gil to exercise his call options. That all goes back to the conspiracy theories that sprung up around the 2021 short squeeze, where many believe that excessive short-selling meant that there wasn't enough stock available to satisfy options demand. In any case, the exercise of such a gigantic options position could stretch E-trade's capacity.

Whether this is a wild conspiracy or has an element of the truth, there's a sense that Roaring Kitty is testing the limits of retail access to the stock market. If nothing else, these GameStop incidents keep demonstrating that the rules of the game are subject to change when the system is put under pressure. 2021 demonstrated that after-hours retail trading had systemic problems, and this time around, it seems like we'll see whether the market can actually settle large options positions put on by retail traders. So what game is Roaring Kitty truly playing?

Is this just a trading strategy designed to make him a billionaire? Is it a pressure test designed to expose a broken market? Perhaps it's neither, and he just likes the stock. Analyst Peruvian Bull put it nicely when they wrote, people should ask themselves, If GameStop doesn't matter, then why does it keep breaking the financial system? Until next time, guys, be safe and take care of each other. Peace.