A Varied Mix

“He went by ‘Roaring Kitty’ on YouTube – where cats and kittens are a favorite subject matter,” reads one passage from a highly amusing class action lawsuit filed in federal court in Massachusetts against Keith Gill, the most prominent figure from the Reddit side of the GameStop saga.

While any outside observer would have a difficult time making it through even the first couple of pages without chuckling, the situation is the furthest thing from funny for the would-be plaintiff, Christian Iovin, a Washington state resident who, by his own account, “incur[red] substantial loses” attempting to sell calls into the teeth of the mania.

The suit paints Gill as a fake Robin Hood, ironic given that Robinhood (the company) was also a central character in this absurdist tale. “In order to disguise that the aim of his social-media campaign was simply to increase the worth of his GameStop shares by creating a demand for the stock, Gill took on the fake persona of an amateur, everyday fellow, who simply was looking out for the little guy,” the suit alleges. “Gill, however, is no amateur. For many years, he actively worked as a professional in the investment and financial industries [and] holds extensive securities licenses and qualifications, including a securities principal and supervisory management license and a Charted Financial Analyst license.”

You can read the entire suit for yourself here, but suffice to say I wasn’t kidding when, several weeks back, I gently suggested that anyone caught up in the mania should take some profits and hire both a good attorney and an accountant. Gill may not need the latter, based on his qualifications, but he’ll need the former. That’s not to say he necessary did anything “wrong,” but Christian Iovin sure thinks he did. And my guess would be that there are other folks out there who feel the same way.

The “Roaring Kitty” lawsuit was one of Wednesday’s headlines. It was a varied mix, that’s for sure.

Topping the market news was January’s blockbuster retail sales figures, which were accompanied by better-than-expected factory data and hot a PPI print. Together, they delivered the second-largest single-day increase on Bloomberg’s US economic surprise index in a decade.

While you’d think that would drive a further rise in yields following Tuesday’s big bond rout, it didn’t. The lack of reflationary follow-through was confusing for some market participants, based on chatter. Toss in a lackluster 20-year sale along with a high volume session, and bonds’ resilience seemed even more inexplicable.

“The timing of today’s rally suggests the technicals are overshadowing the fundamentals once again,” BMO’s Ian Lyngen remarked, adding that “the indisputably strong retail sales print and a 2.1bp tail for the 20-year auction ostensibly added fuel to any bearish bias one might have brought into this week and advocated for a continuation of the recent selloff.”

And yet, it wasn’t to be. Yields were lower out the curve, which bull flattened. I suppose we should be thankful. After all, this week’s narrative was quickly morphing into a story about a burgeoning tantrum.

Nevertheless, the Nasdaq underperformed, perhaps suggesting that the recent backup in yields is starting to filter through and weigh on areas of the market investors see as stretched. Remember: Secular growth favorites will likely be the first to fall in a scenario where yields rise in unruly fashion and/or the curve steepener gets vicious.

The Fed minutes were a non-event. The account of the January meeting showed the Committee thinks it’ll take time for any “substantial progress” to be realized. The excerpt (below) underscores how forward guidance can become impossible to manage “correctly”:

The Committee’s guidance for asset purchases indicated that asset purchases would continue at least at the current pace until substantial further progress toward its employment and inflation goals had been achieved. With the economy still far from those goals, participants judged that it was likely to take some time for substantial further progress to be achieved. Various participants noted the importance of the Committee clearly communicating its assessment of progress toward its longer-run goals well in advance of the time when it could be judged substantial enough to warrant a change in the pace of purchases.

If you need to communicate that you think enough progress has been made to warrant a reduction of asset purchases sometime in the future, that communication could itself serve as an impetus for repricing. That means you have to somehow provide forward guidance for the forward guidance. Something like: “Recent progress in the labor market suggests that at some point over the next several months it might be appropriate to consider how much additional progress might be needed before we can consider if that progress is sufficient to warrant a potential reduction of asset purchases at some point in the future.”

Every attempt at preemptive language risks the market pricing in a taper, no matter how many meetings you implicitly try to insert between what you’re saying today and the time of the eventual taper. This is part and parcel of why central banks end up in suspended animation — unable to move or even to speak.

As for the IOER tweak and the TGA rundown, the minutes offered the following (for those inclined to concern themselves with technicalities which, on occasion, become germane for a wider audience):

Going forward, reserves were projected to rise rapidly through the summer, reflecting ongoing Federal Reserve asset purchases as well as expected declines in balances held in the Treasury General Account. Market pricing suggested that the effective federal funds rate was expected to decline modestly through the second quarter. Even if more notable downward pressure on money market rates emerged, the manager anticipated that the Federal Reserve’s tools, including the IOER rate and overnight reverse repurchase agreement facility, would continue to provide effective control over the federal funds rate and other overnight money market rates.

Meanwhile, Texas is still struggling with the vicious deep-freeze that knocked power out for millions and crippled a third of US oil output. Blackouts were poised to extend at least into Thursday.

WTI rose above $61. Between that, and a helping hand from the disclosure of Warren Buffett’s stake in Chevron, energy shares had a good day Wednesday.

Oh, and Cathie Wood, master of the universe, spoke to CNBC about Tesla, which she’s still buying, apparently.

“Our confidence in Tesla has grown as we’ve done research on what ride sharing potentially could add. It could limit the risks significantly, it’s a much more profitable business than electric vehicles,” she said. “Even though there is some debate at Tesla whether or not they should launch a human driven ride-hailing network, it would be a very good bridge we think to their autonomous strategy and we think they will decide to do that.”

All hail.