As a new week dawned, investors and traders from around the globe were greeted with a mishmash of conspiracy theories and generalized confusion emanating from US markets, which are now just a microcosm of the country. That is: An irritated, shrill cacophony of conspiratorial, profane blame-casting.
Not surprisingly, Citadel is the subject of all manner of speculation, running the gamut from eminently plausible to totally ridiculous.
While hardly a secret, the firm’s relationship with Robinhood provides endless fodder for fringe portals and message boards. That alone would keep the rumor mill churning for months, which is good for business if your business is conspiracy theories.
When you throw in Citadel’s stake in Melvin Capital, then spike this already potent brew with nefarious-sounding references to speaking fees paid to Janet Yellen, you’re left with a veritable cauldron of simmering narratives just waiting to be served up piping hot to a nation whose thirst for intrigue and treachery is never sated.
To be clear, there are plenty of legitimate questions, most of which were touched on in these pages at one point or another over the past five or so days (see here and here for example). Indeed, I’m not sure anyone would describe the most obvious questions as “conspiracy theories” at all.
One of the tricks of the conspiracy theory trade is preemptively and deliberately couching obvious questions that any rational person would ask in conspiratorial terms. That way, when rational people invariably do get around to asking the same questions, you can say something like: “And another conspiracy ‘theory’ becomes conspiracy fact.” That then helps to legitimize the myriad implausible conspiracy theories posited by the same portals.
Again, I’d note that in this particular case, there’s plenty of scope to suggest that not everything was (or is) above board. But crucially, all the facts you need to make that suggestion are right out in the open.
Citadel is a meaningful source of revenue for Robinhood and Ken Griffin (along with Steve Cohen) injected a combined $2.75 billion into Melvin Capital in January, a month during which Gabe Plotkin managed to lose an eye-popping 53%, in large part due to soured bets on GameStop and several other wagers gone horribly awry. And, yes, Citadel paid Yellen what, for everyday people, is a lot of money in speaking fees.
But none of that is “news” — at all. Robinhood has long been lampooned for the almost satirical juxtaposition between one of its major revenue sources and its marketing pitch (as embodied in the company’s name). And everyone (everyone) knows Yellen made quite a bit of money speaking to Wall Street.
None of that is to say the situation shouldn’t be investigated, assuming there’s something to “investigate” beyond that list of glaringly obvious potential conflicts of interest.
Of course, Citadel claims there’s nothing to see here and, as naive as it might be to believe them, they may well be telling the truth. “Citadel Securities has not instructed or otherwise caused any brokerage firm to stop, suspend, or limit trading or otherwise refuse to do business,” a statement from the firm said.
“To think that Robinhood restricted buying in these securities because they were ‘saving Wall Street,’ or even more absurdly, ‘because they were paid by Citadel to help them cover their short’ is highly improbable,” professional trader Kevin Muir said Sunday evening, adding that:
There is little doubt that Robinhood saw the writing on the wall as their clients rushed into GameStop, but kept hoping the mania would subside. When it didn’t, and hit the point where Robinhood didn’t have the capital to maintain the positions anymore, the brokerage firm limited the buying. Now, you might not believe me. You might think this is all a big conspiracy to keep the small younger traders from running over the Wall Street establishment. And although I am sympathetic to how often there are different rules for hedge fund managers and other well-connected individuals, I don’t think Robinhood is toeing the line for them in this instance.
In any event, there’s no putting the genie back in the bottle. Netizens have already strode boldly past the sign that reads “Caution: Plausibility not required beyond this point. Lifeguards not on duty.”
“Amateur sleuths… didn’t hesitate in casting Jeff Psaki, a money manager at Citadel, as proof of dark arts at the firm,” Bloomberg wrote Sunday, the editorial cadence betraying a hint of disdain. “It started with claims that Psaki, an ex-Goldman trader, was married to White House Press Secretary Jen Psaki. He’s not: he’s her second cousin and has never spoken to her.”
That’s a taste of where things are probably going.
“The short-squeeze in the US has had limited macro implications — so far,” Bloomberg’s Ye Xie wrote Sunday, noting that junk spreads and FX vol are well-behaved. “That suggests the equity rout is not about re-pricing of growth and has not yet triggered de-leveraging from multi-asset investors,” the same short recap went on to note, before cautioning that “if the stock market mayhem swallows some major players, that’s another story.”
That latter bit is potentially important. The conspiracy carousel will spin faster in the event some high-profile casualty of January’s squeeze ends up triggering wider volatility, tightening financial conditions, and forcing the Fed to intervene — verbally or otherwise.
At that point, your neighbor, the survivalist libertarian, will insist that, based on something he read online, Yellen compelled Jerome Powell to bail out Wall Street again.
For once in his life, your neighbor will be at least half-right.