In Tuesday’s Morning Letter, Myles Udland explains Monday’s wild trading session and why the pants are pinching under names like GameStop and BlackBerry.
Video transcription
MYLES ABROAD: Good. Welcome back to Yahoo! Finance Live. Myles Udland on Tuesday morning here in New York. Let’s take a quick look at futures contracts as we get ready for the second trading day of this week. Again, higher than the whole plan, not much is going on. But all the actions took place this morning and yesterday and the last few days below the surface.
Let’s first look at shares of GameStop. They are higher again this morning. And we have here on this program and in Yahoo! Finance. You saw it, I’m sure in all financial media. Kind of the dynamic that plays out between people on Wall Street Bets, it’s the Reddit form where individual investors, to say the least, get together and talk about their operations.
And what happens on the Wall Street side, where a lot of people have this stock. That was six months ago a share of $ 4, people. So this thing has come a long way. Last week, the whole crescendoed story with Andrew Left at Citron Research said he wanted to be short shares of GameStop, the rally went too far.
But let’s be clear, Brian Sozzi, Left, asked GameStop to go to $ 20 a share. And as I just said, it was $ 4 a share six months ago, so he’s still giving a 5x profit in a name I think everyone sees. And it’s really just – this story has definitely gotten away from anything, it’s great that Ryan Cohen, founder of Chewy, is now involved. Obviously we’re talking about something else when you look at the graph.
BRIAN SOZZI: Yes, I think Andrew Left might be betting on GameStop reporting its earnings in a few weeks. And the real business that is GameStop will come to the fore and justify that it does not deserve to trade at these levels, probably deserves to trade at $ 10 per share, or at least the $ 20 that CItron has issued.
But I think a lot of what you see in this profit, and we talked about it, the short killers, as I called them. They expect GameStop to come out here and bulls say things about the next product cycle, the hardware cycle, the Sony, the Playstations, and finally a Cohen coming in here and turning GameStop into a new Chewy.
I do not know what it looks like. I suspect many of these retailers are buying GameStop, they certainly have no idea what it looks like and it’s a big problem to move forward.
JULIE HYMAN: There’s a very interesting TikTok about this whole thing that Bloomberg has done, which you can find on YahooFinance.com under the checkbox of GameStop. And by reading it this morning, it really crystallized for me. It has nothing to do with Cohen, it has nothing to do with the prospects.
It’s a mini-revolution, right, it’s traders and these people on Reddit today who come out and say – and it’s also a reflection of the general political environment, right. It’s a custom game, and we’ll take it back and bring it to our side. It’s kind of … I mean, yeah, they made money in the process. That’s part of it.
But it seems like it’s a manipulated system and that they’re making their own manipulations, here it is. This kind of actual attempt to push back against the shorts. And they came straight in the form of Melvin Capital Management, which was on the short side of this, and now needs to be rescued by Citadel and Point72 Asset Management, Steve Cohen’s firm. $ 2.75 billion is how much they have to push into the hedge fund, which has shortened a number of names, including GameStop. So it’s an interesting story behind this price option that we’re watching day after day.
MYLES ABROAD: So I think … I do .– I think there are a few things. On the second point of this, the Redditors are now basically finding out that Wall Street is making a profit for me, but not for the – to find out. I mean, look at a name like a Blackberry. See what’s happening with Nokia. See what happens to Bed, Bath and Beyond. Heavily abbreviated names, or in the case of Blackberry, not even that badly short.
I mean, shooting, what’s happening to Beyond Meat this morning, is probably part of this. It is a 25% sold short share, and investors are flocking to it. We say what’s going on with Beyond Meat? Well, we do not really need to look beyond this conversation.
But I think the history of the GameStop position in particular is worth investigating in the sense that it was a fundamental view held by someone named Roaring Kitty, who streams and buys shares on YouTube in August – this man has many followers. Many people look at this. In August, at $ 4 a share, he, like me, was considered GameStop of value. The share therefore rose again from $ 4. It went from $ 4 to $ 20. This is a great run.
It can basically be seen by the first of the year there, what has happened so far in 2021 is a version of this kind of crazy bull pace. I can name it, but it’s not that different from what happened for years and years in all sorts of chat rooms on Wall Street. But I think there are two kinds of stories that are the challenge here.
As we look here. The expression of the shorts, no matter what – I mean, iRobot, right, like all of a sudden, Roombas, I think everyone thinks they’m going to have a great holiday term. No, I do not think so. I think it’s because iRobot is a fiercely abbreviated name that the stock is up so much. So there’s that story.
But there are also people who are seriously there to seriously appreciate investments and can do it just as well as anyone else we are going to offer.
BRIAN SOZZI: I’ll just add it too. In terms of GameStop, I do not think it has been fixed. Let us keep in mind. It’s been a terrible, fundamental story for five, ten years. I mean, it was– this whole stock, the whole company was left for dead. And I would still argue in ten years if the company still exists.
It’s almost as if these short sellers here, say you know what, one walked into a mall. They saw a GameStop. They remember going there as children and buying video games. And they went out and started these rumors in a Reddit chat room. And they pull a name out of thin air, like the rest of all these companies.
MYLES ABROAD: And I would just say – I would also just say, I think the thing with public sales, in particular, is to play a hero ball. As I know it sounds really smart to have a short dissertation on a name. But on everyone, as you mentioned Sozzi, they bet against a company that is clearly in secular decline. It’s a kind of inflection. Like I’m going to be the guy who calls GameStop, it’s going to be zero, maybe it’s just you, you’re the guy who has the GameStop shorts on before he’s turned 80. I do not know. This is another side. This is another possibility there.
BRIAN SOZZI: We have no positions in any of the listed stocks?
MYLES ABROAD: No, of course not. I say the stock has dropped by 95% in ten years or whatever. And then you want to come in and now I’m going to be the hero. This is kind of what happens when you end up on the wrong side of it. Your old boss comes along with a few billion dollars to save you.