In Tuesday’s Morning Brief, Myles Udland explains Monday’s wild trading session and why short sales are being pressured by names like GameStop and BlackBerry.
Video transcription
MYLES UDLAND: All right. Welcome back to Yahoo! Finance Live. Myles Udland here in New York this Tuesday morning. Let’s take a quick look at the futures as we prepare for the second trading day this week. Again, louder across the board, there’s not much going on. But all the action happened this morning and yesterday and in the past few days under the surface.
Let’s start by taking a look at GameStop shares. They are taller again this morning. And we cover it here on this program and on Yahoo! Finance. You’ve seen it, I’m sure in all financial media. Like the dynamic that is going on between people on Wall Street Bets, which is Reddit’s way where individual investors like to get together and talk about their trades using colorful language, to say the least.
And what is happening on the Wall Street side, where we have a lot of people selling these shares. It was a $ 4 share, folks, six months ago. So this thing has come a long way. Last week, the whole story grew with Andrew Leaving Citron Research saying he wanted to have shares sold on GameStop, the rally had gone too far.
But let’s be clear, Brian Sozzi, Left was asking GameStop to go for $ 20 a share. And, as I said, it was a $ 4 stock six months ago. So he’s still granting a 5x gain on a name that I think everyone kind of sees. And so it really is – this story has certainly moved away from anything, oh, it’s great that Ryan Cohen, founder of Chewy is now involved. Clearly, we are talking about something else if you look at that graph.
BRIAN SOZZI: Yes, I think Andrew Left may be betting on the fact that GameStop will report earnings in a few weeks. And the real company that is GameStop will appear and shine and justify that it does not deserve to be trading at these levels, it probably deserves to be trading at $ 10 per share, or at least the $ 20 that CItron has placed.
But I think much of what you are seeing in that gain, and we have been talking about it, the low killers, as I have called them. They expect GameStop to come here and say optimistic things about the next product cycle, the hardware cycle, Sony, Playstations, and then, in the end, a Cohen come here and make GameStop somehow again. Chewy.
I don’t know what it looks like. I suspect that many of these merchants out there buying GameStop, they definitely have no idea what it is like and this is a big problem in the future.
JULIE HYMAN: There is a really interesting TikTok in all of this that Bloomberg did and that you can find on YahooFinance.com under the GameStop ticker. And reading this morning really crystallized that for me. It has nothing to do with Cohen, it has nothing to do with prospects.
This is a mini-revolution, right, these are these day traders and these people on Reddit coming out and saying – and it’s kind of a reflection of the general political environment too, right. This is a fraudulent game and we’re going to take it out and bring it to our side, right. That’s more or less what– I mean, yes, they made money in the process. That is part of it.
But it’s kind of like seeing a system manipulated and doing your own manipulations seems to be what’s going on here. That kind of concentrated effort to push the shorts. And they have advanced, right, in the form of Melvin Capital Management, which was on the sold side of it, and is now having to be bailed out by Citadel and Point72 Asset Management, Steve Cohen’s company. $ 2.75 billion is how much they are having to invest in that hedge fund, which had sold a number of names, including GameStop. So there is a really interesting story behind this pricing option that we keep watching day after day.
MYLES UDLAND: So I think – I think – I think there are some things there. The second point of this is now, basically, the Redditors discovering that Wall Street wins for me, but not for the– in finding that out. I mean, look at a name like Blackberry. See what’s going on with Nokia. See what’s going on with Bed, Bath and Beyond. Strongly shortened names or, in the case of the Blackberry, not even those strongly shortened.
I mean, damn, what’s going on with Beyond Meat this morning is probably part of that. This represents 25% of the shares sold short, and investors are flooding it. Do we say what’s going on with Beyond Meat? Well, we really don’t need to go much further than this conversation.
But I think it’s worth exploring the history of the GameStop position, in particular, in the sense that this was a fundamental view that someone named Roaring Kitty, who broadcasts on YouTube and buys shares, had in August – this guy has a lot of followers. Many people watch this. In August, at $ 4 a share, it’s like I like GameStop from a value standpoint. Again, the stock went from $ 4 – from $ 4 to $ 20. It’s an incredible race.
You can see there, basically, on the first day of the year, what happened so far in 2021 is a version of that kind of crazy bull rate, I think we could call it, although, again, it’s not so different from everything that happened in all kinds of chat rooms on Wall Street for years and years. But I think the challenge here is that there are two types of stories.
How we’re looking here. The squeeze out of the shorts no matter what– I mean, iRobot, right, like, all of a sudden, Roombas, I think everyone thinks they’re going to have a great vacation quarter. No, I don’t think so. I think it is because iRobot is a strongly sold name that the stock is very high. So, there is this story.
But there are also people who are sincerely out there trying to value the investment seriously and can be as good at it as anyone else we are going to bring to the show.
BRIAN SOZZI: I’ll just add that too. I don’t, in terms of GameStop, I don’t think it was manipulated. Let’s keep in mind. This has been a terrible, terrible fundamental story for five, ten years. I mean, that has been– all of this inventory, the entire company is almost dead. And I would still say, 10 years from now, if the company will still exist.
It’s almost as if these short sellers here, say, someone walks into a mall. They saw a GameStop. They remember going there and buying video games when they were kids. And they started these rumors in a Reddit chat room. And they took a name out of nowhere, just like the rest of all these companies.
MYLES UDLAND: And I would say … I would also say, I think the thing with short selling to the public, in particular, is playing heroin. As if I know it seems very smart to have a short thesis on a name. But in all, as you mentioned, Sozzi bet against a company that is clearly in secular decline. It is a kind of flex. Like, I’m going to be the guy who calls GameStop going to zero, it’s like well, maybe, you’re the guy who plays GameStop at five before going to 80. I don’t know. This is the flip side. This is another possibility.
BRIAN SOZZI: Do we have positions in any of the shares mentioned?
MYLES UDLAND: No of course not. I’m saying the stock has dropped 95% in 10 years or whatever. And then you want to come in and now I’m going to be the hero. Well, that’s more or less what happens when you end up on the wrong side of it. Your former boss comes in with a few billion dollars to save you.