CorpGov, IPO Edge and the Palm Beach Hedge Fund Association hosted a fireside chat with hedge fund veteran Charles Gradante live from Palm Beach, FL on Jan. 31. Mr. Gradante, who recently attracted 100s of thousands of views of his controversial comments at the 2021 Palm Beach CorpGov Forum, discussed the recent market volatility, the role of naked shorting, its regulatory implications, the role of market makers, balance sheet strains at broker-dealers and the GameStop Corporation/AMC Entertainment Holdings, Inc short squeeze one year on. The live event featured CorpGov Editor-in-Chief John Jannarone in a moderated video session lasting approximately one hour including a Q&A with the audience.
Click HERE to watch the FULL REPLAY or view the highlights below without leaving this article:
Part 1 – Mr. Gradante discusses views on monetary tightening and inflation, followed by an explanation of naked short sales and the problems they can present. He also explains the role of The Depository Trust Company (DTC) which manages clearing and settlement.
Part 2 – Continuing from Part 1, Mr. Gradante explains how broker-dealers can receive capital calls from the DTC when trades are not settled properly. He said Robinhood appeared to be undercapitalized in early 2021 due to the amount of call option buying it allowed. The GameStop trade was “the most crowded short I’ve seen in 20 years” perhaps second only to Enron, he added. Naked shorts amount to “freebies” because of the absence of a fair borrowing cost, which he sees as unfair – particularly to retail investors. While he believes such shorts should be permitted, they should be prohibitively expensive.
Part 3 – Mr. Gradante discussed whether bombed-out shares of Robinhood could represent an acquisition opportunity for the right strategic buyer. Turning to audience questions, he explained how short interest can exceed 100% and whether shorter settlement timeframes could ameliorate some of the problems caused by naked shorts. He also explained payment for order-flow between broker-dealers and market makers and his views on technology stocks.
Part 4 – Reflecting on his view from the Drexel Burnham trading floor, Mr. Gradante explained how he witnessed “grown men cry” in the crash of 1987. Asked to compare the current market with 1987, he believes there are several key differences to consider.
About the Speaker:
After a successful career at Citigroup, Mr. Charles Gradante joined Drexel Burnham Lambert in 1986 and directed the firm’s efforts in Europe which led to his position as CEO of the failing Chelsea National Bank for which he engineered a turnaround and sale. He subsequently became a partner of the Hennessee Hedge Fund Advisory Group, then a spinoff of E.F. Hutton and later co-founded a wholly-owned private company (Hennessee Group LLC), and the Hennessee Hedge Fund Index (the first of its kind) providing hedge fund research to clients. The Hennessee Group LLC managed $1.6 billion. Not long afterwards, in the wake of the collapse of Long-Term Capital Management, Mr. Gradante repudiated public perception of the hedge fund industry as “ruthless risk takers threatening the stability of capital markets” when he testified before the House and the Senate in 1998 and again in 2004. In 2007, Charles predicted the subprime mortgage meltdown, which triggered a global financial crisis. He continues to manage money today in a private fund.
Alan Hatfield, Director of Research