‘I’m terrified politicians will use this as an opportunity:’ Heritage Capital President on GameStop frenzy
Yahoo Finance’s Alexis Christoforous and Paul Schatz, Heritage Capital President, discuss the latest out of the GameStop frenzy.
ALEXIS CHRISTOFOROUS: I want to stick with the markets now, the broader markets, and bring in Paul Schatz, president of Heritage Capital. Good to see you as always, Paul. Before we get to the action today and the outlook, I want to do talk about the phenomenon we saw last week with GameStop and Robinhood. And I know that you wrote a lot about it. Do you think that it is fair the anger that we're seeing coming from small investors? Or is this the market doing what it's supposed to do with its checks and balances to make sure things go smoothly?
PAUL SCHATZ: The answer to both is yes. So first of all, clearly, the populist movement by small investors against Goliath is certainly well founded and warranted, but it always has been. There's nothing new to this. I would say, I was skeptical that it was only mom and pop investors on Reddit that was causing this monumental, epic move. Clearly, we don't know who's who on Reddit. And I would be a little skeptical and say there's probably some big money with a unique handle and acting as some 100-shared small mom and pop investor. But it's certainly well founded.
And on the flipside that this is the market functioning normally. Well, I'm so terrified that politicians are going to use this as an opportunity. I hear people talking about taxes-- I mean, taxing transactions, short sales only. What needs to happen is the playing field has to get leveled. We know who owns stock, but we don't know who owns-- who's shorting shares.
So why shouldn't the playing field be level? We don't need politicians to put taxes in and to put up gates. We need the markets to function fairly and orderly. That's the key. It's got to be a fair and ordered flow in the markets. So-- and they were. People may not like what happened, especially if you were Melvin Capital. But it's certainly fair.
ALEXIS CHRISTOFOROUS: So tell me how you start to level the playing field. I had a bunch of guests on last week. Some of them said, you know, it's about restricting the small investor more. But shouldn't it be about restricting the Wall Street pros so everybody has the same rights? Or maybe you give more rights to the small investor. I mean, how do both co-exist happily?
PAUL SCHATZ: So the easiest thing to do is, the playing field and the rules should be the same for everybody. We all know this. Shame on Robinhood, and shame on Interactive Brokers for, quote unquote, "protecting people from themselves." Who protected Lehman from itself, and who protected Bear Stearns from itself or long-term capital from itself? They almost took down the market.
So, give me a break on Robinhood and Interactive Brokers. If I had money there, which I don't, I couldn't wait to leave. That's-- frankly, that's shameful and wrong. And it certainly leaves me with some curiosity as to what was going on behind the scenes. And if you follow the trail of the money, perhaps you'd find out what really went on.
But we each need a level-- the rules have to be the same for all parties. Let's find out if I buy 10% of a company stock, I disclose it publicly. Therefore, if I short a company stock, I should disclose that publicly as well. But shame on the platforms for treating individuals like morons. Because frankly, the individuals have done better than the pros certainly in the last year and possibly longer. And frankly, I don't hear about individuals taking down markets.
ALEXIS CHRISTOFOROUS: All good stuff there. I want to talk a little bit about what we're seeing today, though. Because we're seeing this bounce back. The market had its worst week since October. Do you believe this is the beginning of the market on this upward trajectory, or is this just sort of like a dead cat bounce?
PAUL SCHATZ: I would probably say neither. I'd say this. We came into the year with epic and historic greed and euphoria. That-- and I wasn't making a prescient call. I just said at some point in the first quarter, you'll get a minimum of 4% to 8% down. So, over a 12-week period, it is not hard to say because that happens normally. But when you've got all that green euphoria, it pretty much almost always happens. So I think this is that 4% to 8% pullback.
Was Friday the low? The odds don't favor that Friday's the low. But I'm not going to be arrogant enough or as dumb enough to outguess the market. I think you're in that period for at least-- so Friday, we had an ugly day. We closed the week-- the day, the week, and the month poorly. That usually leads to a bounce the next day, which we're seeing today.
I would not expect this bounce to go right to new highs. I would expect one more run if you're looking at the Dow, one more run below 29.8. And maybe the S&P gives back today's gain plus, you know, another 40 handles. I don't think this is the beginning of a double digit decline. Young bull markets typically do not pull back more than 10% in their first year. This bull market began March 23rd, so a 4% to 8% pullback in the first year is pretty much normal. It's a gift. And it's one you should buy.
I'd be much more concerned, frankly, Alexis, on the next run to new highs if we don't have broad participation, if the credit markets don't continue higher with the market, and if we don't have this amazingly strong leadership. That's going be more of a concern, but I think if you're an individual investor, at least for me, I wouldn't run to AMC and GameStop. It's certainly way too scary for me, and I admit I'm a chicken when it comes to that. But certainly there's just a cornucopia of companies for another run higher in cyclicals and in small caps.
ALEXIS CHRISTOFOROUS: As you put it, this-- you know, the days that we have, the down markets, they're a gift. They're a gift to buy. All right, Paul Schatz of Heritage Capital, thanks for being with us.
PAUL SCHATZ: Good seeing you.