Mediaite Q&A: Charles Gasparino Says ‘Populist’ Coverage of GameStop is ‘The Stupidest Stuff I’ve Ever Heard in My Life’

Often, it seems that what happens on Wall Street stays on Wall Street — at least far as CNN, Fox News, and MSNBC are concerned. But the news from the market was so big last week that it received blanket coverage not just on the outlets you would expect — like Fox Business and CNBC — but also on the big three cable news networks and in many other surprising places. And one prominent financial reporter believes that many who weighed in on the chaos surrounding GameStop and several other stocks were completely out of their depth.

“It’s some of the stupidest stuff I’ve ever heard in my life.” Fox Business senior correspondent Charles Gasparino told Mediaite last Friday.

Gasparino was referring specifically to a notion which got traction in the media that the Robinhood financial app cut off trading of GameStop and other companies because their executives were trying to cozy up to their buddies on Wall Street. The Fox Business correspondent called out Rush Limbaugh for being one of those pushing what he sees as a highly false claim — explaining that Robinhood couldn’t continue simply because they didn’t have the cash on hand to settle the high volume of trades being made on the app.

Yet Gasparino figured that the David vs. Goliath narrative which has emerged would lead to flawed, oversimplified coverage.

“I think it kind of spoke to the sort of bizarre situation we’re in now, where everything’s a scandal and populism sort of becomes the headline,” Gasparino said. “Populist attacks become the headline. It really was a big story on social media for three days that [Robinhood parent company] Citadel and that Robinhood — which was created to allow small investors to trade and not have to go to the big Wall Street firms — was somehow in bed with a big hedge fund. The logic of that falls apart for anybody that understands anything about this business.”

The Fox Business correspondent spoke with Mediaite about the coverage of the hottest Wall Street story in some time, made his arguments for what should — and perhaps more importantly — what should not happen next, and explained why President Joe Biden and his team have been smart to keep quiet despite a deluge of questions.

***

This conversation has been edited for content and clarity.

Mediaite: As best you can, give somebody who’s been in a cave all week a basic primer on what’s going on here.

Charlie Gasparino: Well, it’s classic bubble stuff. I’m surprised this thing — the run-up in these stocks, the overwhelming of trading platforms and now the incredible hand-wringing about regulators didn’t come sooner. Because the stage was set this summer. Lockdowns in the economy. Technology like Robinhood — which allows you to trade really fast, and you can use leverage. And the fact that the Fed has interest rates to zero means that stocks are flying, because people are not satisfied with returns on municipal bonds. People can leverage up. You can borrow. You could buy a margin. So you leverage up your positions kind of cheaply because banks have cash. And the fact that the interest rates are at zero, people generally go out on the risk spectrum. Put all that together, and you were just bound to see shit like this. It was bound to happen.

I think the fascinating part is there’s also a political dynamic here. You see populists from the left and the right trying to make this into ‘It’s the retail guys, the average Joe, taking on Wall Street’ here. Which is just pretty much absurd, when you really break it down, it’s an absurd fantasy world. No one’s gonna cry for a bunch of short sellers who, you know, hedge funds who lose money short selling. By the way, they just don’t short sell, hedge funds go wrong because that is long, short, short, the assumption that they lose money on their short positions like they do now that they sell off. So, no one’s gonna say let’s bail them out.

But what people are missing the boat here is that if you have a whole community of traders susceptible to a mania, like, ‘Let’s get as many people as possible to buy a stock just so we can screw someone over,’ that’s probably not a good thing from a public policy standpoint. I’m not saying it’s illegal. But there will be a lot of people in that group who don’t get out soon enough, that there’ll be some smart money in that group guaranteed. I know for a fact that there are sophisticated money managers who are going along, to be part of this GameStop short squeeze.

But a lot of these clowns are kids in their mom’s basement. And they’re going to get screwed here. They probably got screwed already. They probably bought it around five (hundred), and now GameStop is at three (hundred, as of Friday afternoon). So that’s the real public policy problem.

Mediaite: So how do you address that problem? Based on a column you wrote for the New York Post, it seems like you don’t believe the answer is to introduce more regulation?

I don’t think you do. I don’t think it ever works. First off, if there’s an SEC stock manipulation case here — as I pointed out in the column — it’s incredibly difficult to prove. And I would just say, as a simple exercise, go on Google, type in the Securities Exchange Commission and market manipulation, you’re not going to find that many cases. And they’re going to be weird, esoteric cases. Not something like this.

Compounding matters is that these guys … how do you unpack the Reddit chat rooms, find out who those people are, and compare that with the trading information that I’m sure the SEC will get from Robinhood? It’s going to be really hard. These are all anonymous things. On one end, there’s trade information obviously that’s not anonymous. But it’s just a really difficult case to prove. How do you prove, how do you delineate between a tout — that you kind of believe, even though you’re tout it — and a lie?

From a regulatory standpoint, you could do things. But I don’t think any of them are good. I guess you could say, higher margin requirements on borrowing. But I don’t know if it will necessarily deal with mania part of it.

The only thing you could do is have people lose money. That they should learn that there’s a consequence to the risk. The other thing you should do is, at some point, tell the Fed to stop. The Fed has to sort of bring some reality back to monetary policy. Because zero percent interest rates will always lead to this sort of stuff.

Mediaite: The counterargument to that would be that we are still very much in the midst of a pandemic. And there is still high unemployment, and some other larger economic issues. But then, you have certain sectors of the economy, like housing, flourishing right now. Might that be the impetus for the Fed to step in and jack up interest rates?

Gasparino: I think we’re going to have a housing bubble too. Because I think the Fannie and Freddie guidelines on guaranteeing mortgages are going to come down.

But at some point in the next few months, we’re going to come out of [the pandemic]. The case loads are going down, deaths are going down, and people get stuck with the vaccine — which appears to work. When this is over, I’m planning on two vacations. And I don’t think I’m alone. And so I think we’re going to have some of that spending. At some point, the Fed is going to have to figure out how to normalize things. Because in this economy, if you have zero percent interest rates for this long, you’re going to have this sort of stuff going. People are going to do stupid things.

And then, you throw in the combination of social media, everybody dropped out, there’s nothing else to do so you go on chatrooms and trade. You could see how delusions of crowds happen. Popular delusions, you can see how that happens very fast. Faster now than it ever has in the history of mankind.

Mediaite: You referenced the Fed’s lack of action here. How about the Biden administration? They’ve obviously had a lot on their plate these first couple of days. That said, all you’ve gotten from them so far is two very nebulous statements from the SEC and no comment whatsoever from the president or the press secretary. Is that concerning to you? I know you’re not advocating for government intervention necessarily, but should there at least be a message of some sort from the White House at this point?

Gasparino: You know, I don’t fault him for staying out of this for a little bit. He’s got his hands full with Covid, and a recession, and all this other stuff. Obviously the president should be concerned about functioning markets. But the SEC has a permanent bureaucracy there. So they’re clearly looking at this sort of stuff. I don’t really fault them for taking a wait and see attitude on this. I don’t think we need our president to weigh in on every issue in the world, particularly now that Covid is all-consuming. I think that is a much bigger issue.

Mediaite: How about the media coverage? Has there been too much, not enough, or just the right amount?

Gasparino: I think the volume of coverage has been fine. But one of the problems of not having some adults in the room is that you do have crazies like Ted Cruz and AOC sucking up a lot of the oxygen on this. And so then you have commentators like Rush Limbaugh, and all these people who think that this is some sort of attack on the little guy who is engaged in a populist anti-Wall Street uprising. For instance, the idea that Robinhood was cozying up to its Wall Street buddies by stopping trading on certain stocks is some of the stupidest stuff I’ve ever heard in my life.

The reason why Robinhood stopped trading those stocks, and we were first to report this yesterday, was because it needed money in terms of its settlement. It couldn’t really settle the trades. It takes capital, real capital to settle. The volume was so high it didn’t have the money. That’s why it went out and it raised a billion dollars. This was a plumbing issue.

But I think it kind of speaks of the bizarre situation we’re in now where everything’s a scandal. And populism sort of becomes the headline. Populist attacks become the headline. It really was a big story on social media for three days that Citadel and that Robinhood — which was created to allow small investors to trade and not have to go to the big Wall Street firms — was somehow in bed with a big hedge fund. And the logic of that falls apart for anybody that understand anything about this business.

Mediaite: As you touched on, the political dynamics are fascinating here. There are very few issues on which Ted Cruz and AOC agree. So you have the far-left and far-right united, and the centrists in both parties united. But AOC and Ted Cruz are having success driving the message right now. That’s what I was getting at with my question about about Biden. Absent a voice of moderation from the White House, the messaging for the counterargument has fallen on people like billionaire hedge fund titan Leon Cooperman and other similar advocates who are not being well received on social media. So who can be an effective messenger for that argument?

Gasparino: Some of that falls to journalists that actually know the business, who understand that short selling is not evil. It’s actually necessary because there’s so many more highly touted stocks out there than there are misplaced short sales. But what you have here is a bunch of these guys on Reddit trying to say ‘these short sellers are evil, let’s go after them.’ And then we have people cheer them on, as though people should be attacking short sellers. It’s actually pretty stupid.

Mediaite: Lastly, for the person reading this who may be on the brink of retirement who’s got five or 10 thousand dollars that they were thinking of investing who might scared off by all of this. Should these people stay on the sidelines for a while? Obviously you would endorse staying miles away from GameStop or any of these other stocks in the news. But as far as just getting in the market in general, are there broader implications for all this? Is it safe to go out and invest in blue chips and other more cautious investments like that right now?

Gasparino: Every time I say the market is overvalued, it keeps going up so I’m not going to say that. I would just say this: We all have to be in the market because that’s where our retirement is and there’s a way of being prudent in your investing.

I remember right before Covid happened — and I caught some shit for this, even a few of my colleagues who were on the other side and said, you’re just trying to scare the market. Right before Covid really hit, late February, I did an appearance with Bill Hemmer on his afternoon show where I said now might be the time, particularly if you rode the market up, to take some off the table. Let’s see what happens. That’s prudent investing. Take your loss, pick your winnings when you can, and then wait to see what’s going on.

I don’t know if we’re at that point right now because I think the economy, quite frankly, is going to get better. And usually when the economy gets better, that’s good for stocks, at least in the short term. Could there be massive inflation when everybody comes out of this and starts spending? I don’t know. Does the Fed have to raise interest rates when everybody starts spending? That’s something you have to worry about. But three months from now, the economic outlook has got to be better than it is today.

After our interview on Friday, Sen. Elizabeth Warren (D-MA) made news with her response to the GameStop frenzy. We asked Gasparino for his take:

Gasparino: They really don’t need her to tell them to investigate the potential for manipulation. The real question is whether they can really do something here and the answer is very little. If she understood markets she would be asking the following;

— Why didn’t the NYSE de list GameStop when it was a penny stock? Robinhood cannot trade unlisted stocks.

— Why did the DTC increase Robinhood’s charges for clearing stocks like GameStop etc. in mid-week? That led to the lockout because Robinhood didn’t have the money on hand.

Those questions are kind of boring, but they will provide more insight than her calls for something that’s already in progress.

Have a tip we should know? tips@mediaite.com