GameStop Investor on 'Good Guy vs Bad Guy' Trading Face-Off

portfolio manager at Permit Capital and his name is John Broderick. So, John, thanks for joining. I have to ask you if you can give us any details that you can about you know, how you own game Stop and what you own right now. I'm sure I can't really go into the details of what we own right now. We reduce our position somewhat given the meteoric rise of stock. UM but we UM

and I'll just I'll just leave it there. UM. But you know, we got involved with the stocks ten years ago because it was just just this amazing UM it had this amazing business where they were engaging with UM this very dedicated group of customers. The power of rewards customers and it was a very efficient business model that that fell on hard times with digital disintermediation, a lot of turnover in C suite. UM. But we believe, we

believe in the company, and we stuck with it. UM. In fact, we we I partnered with Kurt Wolf that has to be a capital uh this time last year, and we ran a proxy campaign successfully and got ten new board members, including Kurt Um onto the board. And I think that that, UM my sense is that that caught the attention of other people and special to retail, particularly Ryan Cohen, who UM you know it understands a lot about specialty retail, at least on in the online domain.

And UM, it's just we we've never looked back from there. So game Stop is a trading halted. Uh. Once again here, John, Look, can you tell us I'm not sure if you've if you've been in touch with anybody at the company over the last level days. What are they thinking, uh in terms of what's going on in the marketplace. I have no idea. I have no idea. My my sense is that they're talking. I would have to imagine that there's

been a lot of internal discussion about this. UM. Uh. You know about the situation, UM, but I have no I have no idea. I I what the what the company UM's planning to do, what they might do? I just have no idea. I think they're about to were about to close the quarters. So they are in a blackout period and they will be UM for another couple

of weeks. UM. But you know, certainly with the move in the stock, I'm sure there are a lot of people inside game stop talking about what they you know, what they can you know, what they can do UM strategically, John, I have to ask you what you make of this movement? So, I mean literally more than three million members of this Wall Street Beth subreddit now, and the kind of language on here is so I mean, it's it's deserves studying

in itself. It's that rhetoric that we've been getting used to about, you know, the think going to the moon and the rocket emojis and so on, and you know, take all the cash you can afford to lose and bye bye bye. Is this something that should ever be associated with a stock? UM? I don't know. UM, I

guess I guess I would say why not? Uh, you know, it's a it's a it's a free market, and it's a free wold and um, you know, as long as the people in those chat rooms are are not you know, telling lies or you know, or disclosing material not public information. I just don't see how that's an issue. People are free to talk about investing ideas, you know, I think that there is something there's always you know, you want speech to be free, but you also want to speech

to be responsible. And I'm not I'm not that familiar with small street sets, but what I have seen is it's really just a lat of um um recycling of the same you know, of the same emojis, you know, the rocket to the moon and and uh diamond pans and and so on. And I think that the I think, what what what these amateur investors have have sniffed out is how vulnerable um the short the short sellers are here.

There's a short interest based on the most recent AS three data that I thought, maybe it's a little bit higher. I don't know how that resolved. Yeah, I just want to follow up if I can, Paul, I hope you don't mind. Um, how are they sticking it to the man? If there's pushing the stock higher, they're only sticking to the short sellers, John, I, I don't understand how they think they're getting the better of the institutional money that are in some of these stocks. And we're talking about

the major institutions like black Rock and Vanguard. They're happy out with this movement. That's a fair point, you know, it's a fair point that you know, if they're if they're sticking it to um, you know, a large hedge fund that has a big short position, or is Wong Poots or something, certainly, you know they might be hurting them, but creating an enormous opportunity and and windfall for other

long oriented institutional holders. UM I would I would say to that that, uh, you know they I think the narrative here is just it's sort of the us against them narrative. It's the dark side and the light side. It's a it's a and it's it's you know where Ryan Cohen is. They're kind of hero. Um. There's a guy named d F D. I'll just leave it at that, UM who's also kind of a folk hero. And it's them versus the sort of big guys on Wall Street, whether those big guys right, the big guys on Wall

Street quote unquote or not a monolithic group. It's a very diverse group of people. But UM, they just that's kind of a simple narrative. And whether or not it's whether or not what in fact they're doing is really sticking it to the man, as you say, I uh, you know, I don't think they see it that way. They just say, okay, if we can, um, you know, take a you know, a hedge fund to its knees.

That that's that's good enough for them. All right, John, you've been a shareholder in this company, UM, what can you tell us about the business? What's the investment thesis here? Yeah? I mean this is a company that UM, you know, if you if you if you turn back five years when um, maybe even longer than that. Now with Paul Rains a CEO, is a company that was performing really really well. The returns on invested capital far keep that of the other UM of the other specialty retailers out there.

And they again they just fell on hard times. They had a lot of turnover in the CEO suite. UM Digital disti amreiation really hurt, the length of the console cycle really hurt. And the UM the the there is just the company just fell on hard times. UM. But when you when you when you think about this category, how big the video game industry is, and what kind of role they can play in it. There's a big, big opportunity here. I don't know if they're going to

be able to capitalize that. I don't think anybody knows, UM, but there is a big opportunity where you already have four millions dedicated power up rewards members to UM. You know, if you can figure out a way to re engage that customer, you can figure out a way to uh to to just excite I think that's Ryan Cohen's wards more in his UH in his letter to the shareholders. If you can figure out a way to excite these these members, you know, there's a lot of uh you know,

there's there's a lot of revenue potential there. What would you say to the leadership now of game Stop? What should they do with all of this extra cash? Presumably they should be very very afraid that it will all go away very quickly and that the stock might drop. Don't don't know that that would happen, but it's a sure possibility. What should they do today and tomorrow? You

know they're look pretty deposition is actually pretty good. So I don't think that they need could necessarily issue stock um and uh, I think that they should just sort of keep doing what they're is distracting as this is. You know, I think I've got a hundred million dollar at the money UM shelf registration done. You know, maybe they raised some equity here. I don't know, they don't really need the money. They they they're liquidity again, it's

pretty good. Um, if there is an opportunity, maybe they see an opportunity here to raise some more capital to to uh just finance some of those uh those growth initiatives. But I just described you know, I don't know how capital intensive they're uh they're initiatives might be, but you know, it might make sense at these levels to do that. And and frankly, you know, the stock is so elevated. You know, let's say that they issued I'm gonna throwing

this number out there. If they issued half a million shares, okay, and they're raised, I don't know where the stock is now A hundred three hundred thirty dollars. If a hundred million dollars of capital, who can't fifty five minutes down in the chair, and you know that's not really not even a surrounding her. As a former banker, that would be my advice. John Broderick, Portfolio managed for Permit Capital.

Thanks so much for joining us. We appreciate that. We want to continue this conversation now with two more people who know a lot about what's going on. We have Jim Anderson, the CEO of Social Flow on the phone with us. Sara Phonts like in studio, she's Bloomberg a cross us a reporter. Sarah, let me quickly get to you because give us an update. We've had a clamp down from the brokerages and a lot of these stocks. Right now, where do we stand right? We have so

from robin Hood. We've heard from another app called Trading to one two also Interactive Brokers. So where we stand now is that it seems as though robin Hood has actually made it as though no new shares of a

couple of stocks can can be purchased. So game stop AMC no kia Over at Interactive Brokers, they made some changes to their margin requirements and they also made it so that no new options positions can actually be opened in some of these stocks as well, and that also includes BlackBerry, the likes of Trading Too one two for example, they seem to be saying that they're no longer taking new users because they're just inundated with volume at the time.

And it's just been back and forth really for the past twenty four hours. But yesterday evening after markets closed after four pm, for a short period of time, we saw a reddit go private, then we saw Shar's fall. They came back public. But now this is weighing on the stairs too. Jim, I want to bring you in, Jamanderson, CEO of so Social Flow, Jim, give us a sense. I mean, what's different about this from my perspective. I've been in this stocks game for thirty years and people

always trying to squeeze shorts. But what's different this time is social media and how that's leveraging the voices here. What are you seeing? Yeah, exactly, I think you know this. This has some of the hallmarks of a pump and dump scheme. I know you've been talking about that, and that's obviously a concern, but it sort of meets the emotion of a mega rally, right. That's what difference is time is the social media is the mechanism by which

is being amplified. But it's it's not clear if the greater joy is coming from actually making money, but from sticking it to the hedge fund in the long street types. And that's pretty remarkable. Yeah, But as I keep saying, Sarah, you know, they're only sticking it to the short hedge funds. They're not sticking to the long hedge ones of anything. They're helping them out, you would think so. But something that has been interesting lately is if there's an E t F that's g v I P GO and it

actually tracts hedge fund long positions too. And while today it's having a bounce back up about three percent or so, so outpacing the market, the SMP, for example, is up a lesser. I'm trying to pull it up right now, one and a half percentum. But if you look for the past couple of days, there's been talk of some of these hedge funds having to de gross and what that's done is weighed unpopular long hedge fund positions as well. Before today we had seen this g v I P

E t F down five straight days. Yesterday was down four point three percent. Meanwhile, your most shorted basket was up nine percent. So you see others being pulled into it too. And yes, they might mostly be sticking it to Melvin Capital, to Andrew Left, to Citron, for example, But the way they view it, it it seems, especially when you look at these message boards and you read the way that they speak, they see it as a a

larger entity. They see it as a larger establishment, and they say that if they can be successful and they can prove that they can move markets and get a group of people together and make a lot of money on on the behalf of some of them, then then they're sticking it to the man. So yeah, it's interesting. And Jim, you know, I've seen from some Wall Streets strategists, you know, lists of stocks that have a lot of

short interest. I mean, is your expectation as you take a look at what's happening on social media, is this something that's a flash in the pan or do you think this might be with us for a while, this type of trading. You know, my expectation, this is gonna be with us for a while. Again, the emotion is law, right, I mean, look at where we are politically and what's going on in the world of politics, and I think

this is just the financial manifestation of that. So to say, oh, it's just a flash on the plant pan and it's going to go away maybe not supported by people's emotion. But the other thing I'll add is, you know, we we typically look at big tech, right, look at the facebooks and the twitters and YouTube and by Google, et cetera. But look at the names that we're talking about. Those are there, But really this is read it and Discord and the stock trading app robin Hood. You know, this

is not just a big tech story. There's lots of smaller tech involved as well. And I think that the morphing and evolving of this to not just be a big tech story is another piece that we need to follow. Sarah mc is down the moment. I'm just curious, is this because of the rules that the brokerage is put in place? And are we going to see a return to some kind of normality because runaters are not happy about this. They're not happy about not being able to

take on the free market in all its glory. They're not happy about it at all. And it does seem to be the case earlier today. So for example, game Stop is currently down. You mentioned a MC currently down. They were just halted due to a volatility halt and they just became unhlted and are moving once again. But yeah, when you looked at the news coming out this morning, the first to really cross the tape was from Robin Hood that customers were saying that they were facing restrictions

on buying some of these stocks. And you immediately, I mean, I mean immediately you looked at Game Stop and it turned negative after trading above five dollars a share just within a few minutes. So does seem to be where this is stemming from today? All right, both of you, thank you so much for your insights. We continue to follow this story all day. Obviously, the regulators and you know, agencies like the FED aren't or can't do anything much

about this yet. But the brokerages are taking matters into their own hands. Will see how the likes of the Reggit traders respond to that throughout the Dame that is Jim Anderson of Social Flow and of course our own Saraponza across as a reporter here at Bloomberg. And once again a MC is down. But don't forget it did have that more than runoff the other day, so it has plenty of room to spare. And in terms of the major industries, we're seeing a bounce back today, the

SMB up one and a half percent. But we're going to talk something slightly different now because we want to bring in our next guest, who apparently, as as as far as we know, let's put it that way, he has nothing to do with game stoff these days. Jim Keen is CEO of Steelcase, which is a leading manufacturer furniture for offices, hospitals, and class rooms. Jim, first of all, I presume, I mean, are you tempted as a as a civilian to join this this uh this town car Well,

I am a video gamer. I love playing video games, but I'm standing on the sidelines for this. Yeah, I mean I think it's it's it's it's probably wise talk to us about orders. Are people looking for furniture to go back to offices, hospital and classrooms at any greater other rate than they were over the last few months at this point, I'd say it's still pretty um muted.

I mean, people are mostly working from home, as you know, especially large corporations, certainly health care classrooms, education are doing things as they prepare for what's next, and uh, of we're seeing corporate office is beginning to take those actions as well. So well, it hasn't necessarily turned into orders, yet we're seeing an increasing activity because with the vaccine coming, there's an end in sight. And what what we're hearing

from our clients. In fact, I just had a conversation yesterday with one of our clients, the head of real estate of you know me, your kind of top fifty company, had just got off the phone with his CEO who wanted to know how are they were going to come back to the office. How are they're changing the office to prepare for what's next. So, uh, it's on everyone's mind and I think it's all coming So Jim, I guess we'll all figure out at the same time. Uh, you know how and to what the great people will

go back to the office. What do you think employees want and need when they come back to the office. Great questions. So we we spent this last year's studying actually connecting with people around the world as they were working from home to learn about their work from home experience and to try to understand what they might expect when they come back to the office. So and we learned a ton. I mean, we learned a lot about

the work from home experience. What we learned about their expectations is, Uh, first of all, safety, You know, safety is not going to be less of the concern. Vaccines are gonna solve a lot of problems, but they're not going to completely eliminate COVID. Safety will still be on the minds of people, particularly as they come back to offices that had over time become you know, really dense,

really open. There's going to be some common sense adjustments I think needed to reassure people that when they come back to the office that they'll be safe and it'll be safe to take off their masks again. A second thing we heard from everyone is belonging. Uh, the the relationships we all built when we can work face to face, we're still leveraging. But over time those relationships begin to atrophy, and it doesn't help us with that new employee who joined.

It doesn't help us as we change teams or organizations shift. So people want a sense of belonging, They want to be connected with each other, and they're looking forward to coming back to the office for that reason as well, and I think UM thirdly as productivity, we heard this

a lot well. In some ways people were able to sustain pretty high levels of productivity at home, and in some cases people felt they were even more productive because they could work in an uninterrupted way for longer periods of time. People also realize they're missing something, they're they're

not learning as much from their colleagues. They are not able to have maybe some of the more informal task pascit learning opportunities that you have when you when you kind of just brush up against people, or you get to see how someone handles the situation kind of from the side. So those are some of the things people are looking forward to as they think about coming back to the office. So, Jim, you know, where are you seeing the orders coming in from these days? Is more hospitals?

Is it more headquarters with you know, desks and lamps and you know, standing desks and things like that, or or have you had to pivot your supply chain and your your work environment differently. Well, I'd say, first of all, it's different by regions. So it's a global company. UM Asia was the first to see the COVID crisis, but also Asia was the first to come out of it, and they haven't really seen the second and third waves

the way we have in Europe and the US. So in Asia we're seeing business return to more normal levels across across a wide range of companies, and that's good sign for the rest of our business because you know, eventually we hope to be in that same spot. In markets like the US, customers like healthcare organizations, education have remained pretty strong throughout. I'd say where orders have been the weak as it's among the largest companies who are

often in headquarters buildings in the largest cities. That's where the commutes are the toughest that you have to deal with elevators and things like that. So the very largest customers have cut back the most, and our business has been the strongest among mid market, smaller companies that aren't facing a lot of the same challenges. They're more distributed

around the country. So, Jim, when when you talk to UH senior managers of the of the companies that you do business with, what do they ultimately believe will be the kind of the new normal workforce? Will everybody come back? Will everybody come back on a kind of a split type of schedule will what's what's the thinking. So the thinking is that most people will work from home a day or two a week if that's what they choose to do, and that the last part of it is

really important. It's about choice. I'd say this is not that different really from what progressive companies were doing before all this. Most of our clients, who are kind of at the leading edge of thinking about how to use the workplace, gave people the choice if you wanted to work from home before a day or two a week, you could do so. And that's that's probably going to just be more common across the broader range of companies.

Now some people are are saying, well, you know, there's a handful of companies that are saying, well, maybe we're gonna have everybody work from home, or we're gonna have nobody work from home. That idea that a company is going to try to control that, I think is a bad idea and I don't think it's going to be

successful in the long run. So I think the biggest changes that employees will have more choice, and the other change I think is that now that the office will have to compete against working from home, the office will

have to step it up. So it's no longer going to be acceptable that when I come into the office, I can't find a place to concentrate, or I can't connect to a video call that I have to be on, or or all the things that maybe you were able to do at home, depending on how your home situation was, you should be able to do that and more when

you're in the office. And I think a lot of companies that are looking at that and saying, Okay, we have to we have to make sure our offices are safe, they have to be productive, they have to be inspiring.

So this is another I think important piece. You know, if these days everyone's thinking about competitive advantage, it wasn't that long ago when the main conversation would be about digital transformation, or we'll be talking about destructive forces in your industry, thinking about how you can innovate more quickly, and ceo s were recognizing that to have a competitive advantage in those areas, you needed to have a culture that's supported higher levels of trust, that attracted the right

kinds of people to your organization. These are all very subtle, but this is what competitive advantage has come to. I mean, it's it's very small things that the fine winner and losers in business these days. If you have everyone working at home, your your people's homes are no different in your competitors homes, you've basically given up an accepted parity. And I think a lot of companies are saying, we

can't accept that. We have to have a work environment that competes, where we can advance our culture, where we can help people connect to the purpose of our organization, we can inspire people. Where are people learn faster than our competitors people? And that's that's the new aspiration for a better a better way of working. Jim, What are

input costs like these days? Highly volaso right, So in some for some commodities we see lower costs and then for other things in the short run thing, but like steel and transportation, we've seen higher costs. But it's it's a very unstable situation, you know, steal in particular. So how do you deal with that? I mean, do you change the pricing that you charge your customer is constant day or do you just eat the higher prices when they come. Must be so difficult to deal with that.

We have long term contracts with our wires, but we also have long term contracts with our customers. We don't try to change the prices constantly us. We can't, so there's a certain amount of observing the ups and downs. But if you're managing your business properly, you capture the ups and you capture the downs, and so it kind of takes it comes out in the wash in the end. Yeah, that's kind of where I want to go, Jim. I mean,

talk to us about supply chain. We don't. We haven't talked about that in a while here with some of the issues with China that were you know so much in the news. Pre covid talked us about your supply chain and kind of what you're seeing. Our supply chain is distributed around the world and it's primarily set up to support local customers. So in the America's most of

our product comes from factories in the Americas. In Asia to serve Asian customers, it comes from factories in Asia and the same in Amia, so we have kind of a regional structure. We do have some components that are made in one region that support the entire world, So they may be made in Asia and they shipped to

the US. And they ship to Amia. But for the most part, we try to keep our supply change relatively short and close to the markets so we can keep our lead times down and that helps us during times of destruction. But it doesn't mean we're immune, you know, We're still dealing with you know, making sure that we can get our products on two containers which are in short supply, and and so we still face our own set of challenges. Has been difficult not to be able

to travel, you know. It has, of course because you missed that face to face interaction. But like anybody else, we're also using video a lot so and I would imagine in the future and when we're hearing this from our clients as well, everyone is learning what are the things that you can do without traveling, and what are the things that you should spend more time doing when

you when you go through the effort of traveling. So, for example, UM, in the past, I might travel and dedicate a lot of time to going through business reviews in different regions. I can do a lot of that over video. But what I can't do is have breakfast, lunch, and dinner with all the people that I meet, you know, and that's actually the most valuable part of the traveling is the things you learn around the edges of what you're doing. Hey, Jim, thanks so much for joining us.

We appreciate it as always. Jim Keane, President CEO of Steelcase. They are based in Grand Rapids, Michigan, on the future of the new work environment post pandemic. Busy night for tech investors last evening we had a bunch of big tech NATUS report earnings, including Apple and Down. We do it with our good friend Dan Ives, Managing director Equity Research at web Bush Securities, and a Penn State alum. All right, Dan, let's start with Apple. Some blowout numbers,

over a hundred billion in revenue and a quarter. You have the stocks off a couple of percent. I know it's put up about over to traillion twelve months. What did you make of the numbers last night? I mean, I think in all my years cover and Apple, this is one to frame for the history of books in Cupertina, our five billion dollar blowout on iPhones. I think what we saw last night is that the super cycle there was a lot of hype, but the reality meant to

high and actually exceeded. And I think this is really going to be the path to a three trillion dollar mark Apple over the next six to nine months. For Apple, despite you know a little bit of a knee jerk negative reaction today, what keeps it going? So you know, we're in a pandemic, people are on their phones a lot. You can potentially see why Apple might do well in this quarter, but what keeps it going from here on out at least for the next few quarters. Down Sure,

a lot of it. And the reasons the supercycle is fort of the installed its three hundred fifty million iPhones have not upgraded three and a half years, and you're seeing just a massive upgrade opportunity as well as five G and that's going to continue be a catalyst for the coming quarters. We think this will equipse the record from two thousand and fifty for iPhone units, which is two one million units. We could be looking two hundred forty two and fifty million units this time. But services,

that's the key. Services We've believe got the big part of the re ratings. Services alone, I believe it's worth one point two to one point three trillion, and that's why this is still a green light to own this name. And I think we saw last night just puts another feather in the cap for Cook in terms of for investors in the bull case. Dan talks us about China.

There was a you know point, let's call it a year or so ago when trade tensions were uh, you know, really ratcheting up here and we were concerned about supply chains and China and tariffs. Talk to us about that. What's the company saying on those those issues this time around. Yeah, when you think about Apple, I mean Apple is really the poster child with the US China called tech boy, and we've seen it overhang over the last year and

a half. But yet now China supply chain issues have really corrected themselves, ratching down of tensions between the US and China. Bullets for Apple and Semis. But the most important thing too is demand. About demand is going to come at China in that group fifty seven percent year of the year. So it really just shows the hard some lungs of this upgrade cycle as China and you are seeing massive demand for Apple and for iPhones coming

out of China, which is huge. That that's really something that's a signal that we're going to see over the coming quarters at this place more and more of a part not just on iPhones but services. And that's a big part of the re rating that we're seen. Talk to us about Tesla because a sixth straight profitable quarter. It really had a great quarter. Stalk down about three percent. But as you say, this could just be you know, similarly to Apple, a little bit of cell on the news.

But what happens going forward with Tesla can to keep up the record. I think right now we're in a golden age of e vs three percent penetration globally going to timber next three to four years. GM just talked about going all e V and when you look at Tesla in the e V markets, Tesla's world, everyone else's paying rent. Last night's numbers route US lit't need jerk negative reaction just we'll call conservative guidance for two thousand twenty one. But that's what you want to see them do.

You don't want to see any of these companies, given this backdrop, to come out and have aggressive guidance. And and I think when as we look out right now, the trajectory could be a million plus units of deliveries by two thousand twenty two and a more profitable Tesla. That's why we believe both case twelve fifty with our base case price target. Dan talk to us about profitability at Tesla on a unit basis. Do they make any money manufacturing cars? Is is just the the credits, you know?

I think that's always been a bit of the misnomer and the bull bearer thesis is that a year and a half ago that could have been the argument today given increased profitability, especially in China. We think the average car sold in China is about twenty percent more profitable than the US because the Giga three and what they've built in terms of the ecosystem China and go and forward. I believe they're profitable, not just on the actual car. And of course tax credits are going to continue to

be a talent even with by administration. I think dub went down on tax credits and restoring them to Tesla. But at the end of the day, the reddings in the rear view mirror, that's how they got in t SUP five D and that continues to be a focus of investors as we look forward into the next three to four years. Briefly down almost at a time, but it could a Reddit brigade do something to any of

the stocks that you covered. You imagine, are you a little bit nervous that's something that you know they might train their eyes on one of your coverage stocks. Yeah. And I think when you look at Tessa and some of the fang names, I mean they Robbins had a lot of noise, but ultimately it's a market force that needs to be focused on. It's going to be here to stay in terms of the Reddit social media robin hood.

But when you look at these names, fundamentally, I continue to think they continue to go up into the right r V text box, are up another over then next year. And what we're seeing with the rhetory doesn't make is any more cautious or risk off on our names like you. This is a contained risk situation, especially when we look at names like Tessa, Microsoft, Apple or others. Dan ives what Bush Security is always amazing to speak with you. Thank you for all of your analysis on Apple and

Tessa that reported yesterday. Of course we'll speak to you again soon. And it's interesting Paul Alexandria Ocasio Cortez jumping in on the side of the redditor saying that we must know more about robin hood Apps decision. At the same time, of course, employees of game stop for a little anois because they're not benefiting at all for many of this. Thanks for listening to Boomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or

whatever podcast platform you prefer. I'm Bonnie Quinn. I'm on Twitter at Bonny Quinn, and I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio.