Expert on Reddit-fueled trading: Large segments of the population are losing faith in our traditional institutions – Yahoo Finance

Mark Rosenberg, CEO & Co-Founder of GeoQuant, joins Yahoo Finance’s Kristin Myers and Jared Blikre, to discuss the impact of the short-squeeze saga.

Video Transcript

KRISTIN MYERS: So Jared, you’re going to stick with us for this conversation. I want to bring in Mark Rosenberg, CEO and co-founder of GeoQuant, to chat with us about this. So Mark, you know, you were hearing Jared talking a little bit about that, what’s been going on with some of these Reddit-based trades. I’m wondering how you see investing in general changing going forward, if you think that this populist method of investing, investing via Reddit or some other social media platform, is really here to stay.

MARK ROSENBERG: Yeah, I think the general kind of chaos-driven challenges to establishment institutions that we’ve seen throughout our political economy, frankly, whether it’s in the political arena or now in the markets is here to stay. Now how that plays out specifically, I think no one can tell. But the idea that, you know, how things were and the expectations of the kind of established players in these markets will be shaken up by kind of bottom-up, internet-driven groups I think is probably here to stay.

JARED BLIKRE: Well, I want to follow up on your firm’s work, where you kind of go through and you highlight, according to your website, that you combine political science and AI to measure and predict geopolitical risk at high frequency. How does your firm assess this? And do you get into regulatory responses? Do you think the SEC is going to respond in a particular way? Are you trying to handicap things? I just want understand your business and how you’re approaching this.

MARK ROSENBERG: Sure. So what we do is is quantify country risk, really, which is largely unquantified and kind of narrative-based currently. But what we do is basically try to measure various country risks, including regulatory risks, the kinds of things you’re speaking about, for a sector, say, like the financial sector, which would be regulated by the SEC in the United States, and then try to, once we quantify that, look at those measures directly against market outcomes and get a sense of how much of a role politics is playing in various asset movements, whether that’s on the upside or the downside.

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KRISTIN MYERS: So, Mark, then speaking about that risk, how would you advise some of your clients to kind of manage some of the risk that we’re seeing in the markets based on some of these Reddit-fueled surges. As Jared was saying earlier, yesterday silver was the trqade of the day. Today, it’s biotech. Who knows what it’s going to be tomorrow? If you’re an investor in this, how do you manage some of those risks?

MARK ROSENBERG: I mean, most of our clients are larger asset managers. And I think for them, for the most part, they are observing, but not necessarily participating in these kinds of volatile trades. But broadly speaking, what we advise them– and again, this is based on our data, which is really showing a significant increase in institutional risk in the United States and social risk in the United States– is that, again, you know, the same forces that are driving kind of our wacky and seemingly unpredictable politics of late, including what we saw, you know, on 6 January and the Capitol riot, et cetera, are of a kind with this kind of activity in the market, which is effectively that large segments of the population are losing faith in our traditional institutions.

They believe certain institutions, whether it’s the political system or the market system, are rigged. And they are increasingly using internet-based tools to take power to try to fight, you know, that impression. And of course, just like in politics, there are elites in the markets and in kind of the social space that will take advantage of that fervor to try to use it to their advantage. And I think that’s what we’ve seen in politics. And that’s what we’re going to see in markets.

And so what we advise our clients is really to pay attention to those underlying social and institutional dynamics in terms of thinking about where things could go pear-shaped.

JARED BLIKRE: Well, I want to ask you about an asset class that’s seen the hot money flows recently, but not over the last weeks, certainly speaking about crypto. Cryptocurrencies, Bitcoin in the news. We have a new administration, lots of potential new regulatory influence there. Gary Gensler, the head of the SEC, very knowledgeable on blockchain. How do you see this playing out over the coming year?

MARK ROSENBERG: I think crypto, and particularly Bitcoin, is going to see increased regulatory scrutiny over the coming year from the US government, and in particular because, you know, ultimately, the cryptocurrency is a challenge, in a sense, to– kind of a key prerogative of the sovereign, right, which is managing its own currency, particularly the US dollar, which is the world’s reserve currency.

And so to the extent that Bitcoin starts becoming a credible and lasting store of value that’s an alternative to the dollar, the government is going to take more and more of an interest in kind of checking that competition. And I think with Gensler and SEC, I think that becomes higher on the agenda than it might have been otherwise.

And whether that’s because the government starts taking greater steps toward things like their own digital currency, like a digital dollar, as we’ve been seeing in China, or whether they start regulating the Bitcoin mining, which you’ve also been seeing in China, where, you know, in general, I think the government is going to take a bigger role in trying to kind of maintain its comparative advantage here, right, which is the ability to manage currency in this economy.

KRISTIN MYERS: So you’re talking about a lot of regulatory risk that could be coming down the pike. But I’m curious to know where on the other side of things do you see a risk. So I think about this populist rage. I think back to Occupy Wall Street, for example.

And then several years later, we now have this movement, right? These huge swings in the market underpinned by that class range. What’s next then, do you think? What is the next big thing that could potentially happen? Where do you think this movement inevitably goes? Does it stay here and making huge swings in the market on some of these trades? Or does it go somewhere else and do something else?

MARK ROSENBERG: I think, you know, that’s a good and also a very difficult question. I would think effectively the next place this goes is to the platforms themselves and that, you know, a lot of these technology platforms, whether it’s Twitter or Reddit or Facebook, have been the kind of mechanism by which this kind of resentment or this kind of, as you say, populist rage has kind of filtered up into core institutions, the political system, the markets, et cetera.

But those technology companies and platforms themselves, ultimately, whether it’s banning the President of the United States from tweeting or, you know, Robinhood cutting off trading in GameStop stocks, are ultimately, you know, beholden to those institutions. And so I think what you’ll see is growing pressure on the platforms, whether those are alternate platforms, whether that’s kind of growing movements like the cancel Facebook or quit Facebook movement. I think you’ll see the platforms, which are the mechanisms now for a lot of these movements then becoming the targets.

KRISTIN MYERS: All right, Mark Rosenberg, CEO and co-founder of GeoQuant, thank you for joining us. Of course, thank you as well to Yahoo Finance’s Jared Blikre for giving us all of those updates and participating in this conversation.

Originally published February 2, 2021, 10:48 AM