GameStop Is Rage Against the Financial Machine: John Authers

four hundred percent. As for the Bloomberg terminal on a trailing twelve month basis, let's trying to put some of that into context. We can do that with John Authors. He's a senior editor for Bloomberg Markets. He's seen a thing or two. John, thanks so much for joining us here. What do you make of the game stops? So the world and there's a lot more besides game stop and you take a look at some of the other names

like tuts, your role in AMC entertainment and others. Well, I guess my best take on this, which has provoked a lot of reaction, but that this is h This is obviously bubblished behavior, not necessarily a bubble for the entire market, but extremely frosty behavior at the margins and the very least, which is concerning. And what's really concerning is that it's not a classic bubble driven by greed.

It seems to me to be driven by anger. People feel that the current situation is unfair and with all of those have got plenty of reasons to think that, and things like the attack on the shorts, the short squeezing GameStop are seen as a way. I've had feedback saying this is a way of earning back the money we paid for the top bailout twelve years ago. That this this is seen as writing a historical wrong, which

is something that angle fueled by righteous anger rather than greed. Yeah, I mean, I find this a phenomenally interesting take, because you know, there are a lot of takes out there from the people who were shut themselves, to people like Anthony Scaramucci saying that this is positive for bitcoin if there's a lot of people just making hay from this phenomenon.

But John, I think you've hit on something very interesting, which is, you know, are there now different strata of capitalists and are they partaking of the whole populism phenomenon only is sort of in a different world. Yes, that's the the kind of similarity to um what we saw at the Capital is quite concerning. Again, you're talking about social media coordinating angry people into making an attack on what they see as the establishments, and plainly the Capitol

is the establishment with with a tradition and lead. The short sellers who have been attacking Game Stop are unpopular on Wall Street. They're seen as the good guys or the little guys trying to to keep all streets honest. But at this point they wear suits, and that means they're they're among the enemies. Now that there's obviously great differences in methods, but the motivations behind this are very similar to the motivations behind the various populist movements we

know around the world. The the reasons for anger are very genuine. Again, as you might also say about, for example, Brexit. The question is whether this is a sensible way to channel that anger, whether this is a sensible response to the real unfairness that is out there. John, Is there a political element to this? I mean, is this occupy the stock market or is it something more akin to

what we saw last week. As he said, I do think there's a political element to this, yes, um, whether it is um uh, I mean, it's not solely a political element. But in terms of when you're worried about a bubble, whether you're worried, when you're worried about the possibility of excess um, what matters then is sentiments, how what the psychology is that's driving people. Now. The problem with greed is that people will do a lot for greed naturally, and it needs to be balanced against fear.

In this case, it is righteous anger. And if there is any emotion that will make us throw caution to the winds even more than greed will, I would say,

it's anger. Um. And it's very hard. Since I wrote my column last night, I've had some people suggesting that the Mississippi bubble, the French current of the South Sea bubble might have had some elements of this, that that people were angry with with life in France and sort of investing in in rather illusory prospects in the New World as as a way of getting back at them. But that's the best that's the only example anybody has

come up with. Something like this, where there is this kind of speculative action and it's driven by anger, not greed. So so it's whenever we have a lack of precedent that's concerning you don't know what's coming. John. If this is indeed a bubble, does this bubble? Is there any reason to believe that this bubble doesn't end like other bubbles do and people get hurt and it just kind of pops. No, there's no reason to believe that. There's certainly a reason to believe that that this bubble could

be far far bigger than it currently is. And there's um we can we can go back over the there are two sides to the argument of Both of them are completely valid as far as they go. Stop stocks are very expensive judged against their own history, but they're not expensive compared to two bond yields. And then it becomes an argument about where the bond yields stayed this

low um. But in terms of is there any reason to believe this kind of a bubble wouldn't burst compared to other bubbles, there's there's no reason to believe that. I assume that it would, and I assume that the last people in who will be the little guys just as they are now, will, as in previous bubbles, be the ones who get hurt the most. I mean, is this one area we're seeing actual unity? John? Are these people on the right and on the left with the

same argument. There's a great argument out there about how we don't fully recognize that cultural expressions of politics, like protest songs, for example, are just as popular on the right as they are on the left, and that just haven't given enough, you know, attention to both sides of that coin. It just seems to be something associated with the left. But is that what you know? We're seeing that here? Yes, I think that's a very good point.

I think that it's it's one of the points we've seen in politics for some years now and again, if you want to go back to Brexit and and Trump or order of protectionism, that the in Britain it was very much the traditional right, but a lot of people on the traditional left wanted to Brexit, and it was a a an elite from the center left to the center right that wanted to stay with Europe. That there was this unholy alliance in many ways. If we go

back to the financial crisis, of twelve years ago. There there was a very strange alliance in the in the the the people who really shared an analysis of what has gone wrong and who really disliked moral hazard way the FED behaved were either libertarians on the rights you think of libtic on meses, or outright socialists on the left like Hyman Minsky, and they had very different ideas for how to solve the problem, but they actually had

almost exactly the same prescription, the same definition of what has gone wrong. And similarly, if you're a libertarian or an equal egalitarian socialist, you have equally strong good reasons to be angry at the moment, and you get this strange alliance. John author is fabulous conversation and the latest Bloomer opinion article from John on this particular subject is game stop is rage against the machine? Anger is an energy.

Do have a read of it. It's a take that we haven't heard enough about, to be honest, out there and just really fascinating. Do stay tuned. We're going to get a COVID nine teen White House Task Force briefing at eleven am. We're going to dip into that and see what exactly is going on. This is New York City is to get seventeen thousand more doses next week. Another treat for us. Now we get to talk FED with Alan Blinder, Princeton University professor and of course, former

Federal Reserve Vice chair. He served with Janet Yellen on the Fed's board in you know, recent decades, and is also a co author of a book with Janet Yellen called The Fabulous Decade Macroeconomic Lessons from the nineteen Nineties that was published in two thousand one. Alan, thank you so much for joining First your reaction to Joannet Yellen as now Treasury Secretary, the first woman Treasury Secretary of the United States of America, Well, I'm pleased as punch

as you can, well regarded, well understand. It is a landmark to have the first woman sitting in the Secretary of the Treasuries off us. She comes very well prepared. Not all Secretaries of the Treasury do, you may recall without naming names. Uh, some do, some don't. She comes very well prepared, both understanding markets and understanding Washington, and understanding the Treasuries business, and especially obviously understanding the Federal Reserve.

When you're in a crisis, situation such as we've been in for a while. The Treasury and the Fed, regardless of who's sitting in those two chairs, have got to be in close collaboration early and often. And this is just going to be so easy with a Janet Yellen and J Powell. So, professor, how do you expect or what would you like to see in terms of fiscal policy and monetary policy? Here? Just where we are right now?

It seems like we're gonna we can look to the other side of this pandemic, but there's still a long road ahead. What would you like to see? Yeah, I think monetary policy should be sitting right where it is, and that's of course what the Federal Reserve thinks. This is no news. And then but I just might say that's in a hyper expansionary stance. So it's not like they're sitting in neutral or something like that. Fig got

the interest rate to the floor. They're buying securities may uh to increase the side of the balance sheet and so on. They should stay that way for a while. Uh. It's regretful and I'm not sure the legal status of some of these. Uh that Secretary minution saw fit in its closing days to cut cut them out the Fed's emergency UH lending facilities. I'd like to see Janet Yellen put them back to the extent that she can. Some

that may need Congressional action, which is harder. Whatever can be done by Treasury action, I think should be done just because you want them. There is a backstop. The argument that minution made the row and not using let's throw them away is exactly the same as saying I haven't made a claim of my fire insurance policy from my home, so let me just cancel it. Yeah, for sure, if and when it does come up again, I imagine there'll be a different type of approach from the Treasury.

So curious, Allen. You know, Jerome Powell has been a FED board member since two thousand twelve. He became the chair of the FMC in two eighteen. What happens next with the FED chair position? Presumably Chair Powell stays as long as he's welcome to stay, which presumably is the rest of his term. And then does President Biden appoint somebody else who might it be? Well, I think it's very early to speculate on that, But look, I don't

think you should eliminate Jerome Powell. Prior to Donald Trump, there were many instances of a new president coming in with a FED chair appointed by president of the other party and then um giving that person another term because they were all he's then one of them was Janet Yellen. She was the exception. Trump did not do that, but many previous presidents looked at the FED chair said well, he did a very good job. Let's keep him in position. So you'd be fine with Ron Paul having a second

term as FED chair. I would be. Now, of course, it's up to Joe Biden, not to me. All I'm saying is that I wouldn't write him out. There's definitely a live possibility that he could become get a second term. Now if if that's not the case, an obvious kennidate is Lele Brainerd, who's the Democrat sitting on the board right now. And there may be other uh Biden appointments before Powell's term ends to the board and those will

be live. Candidate said, then there are plenty of people I don't want to thought speculating on names in the financial world, UH, who are Democrats who could be attractive to Biden as a replacement for power But the logic here is going to be question A is for Biden is do I keep power or replace him? That's question one. Then if you answer that in the negative, then a whole host of names UH start should start coming to

your desk, Professor. Given what we know about fiscal policy, given what we know about UH fiscal stimulus and monetary policy, what is your economic outlook here? I mean, I think there's concern here that the improvement in the economy, the opening up of the economy, if you will, maybe take a little bit longer than people had initially thought. Yeah, Well, it depends on many things, in which two are completely obvious.

One is the speed or or lack of speed with which we get this wave of the virus under control. That depends a lot on the vaccination rollout, which, as you know, has been disappointingly slow, in which President Biden has promised to accelerate, its taping steps to accelerate. And the other is the passage or non passage of another COVID relief package. So we did one in December. That was good. It's now to January. It is soon going to be February. In March, for example, things start running

out such as the extra unemployment benefits. I be pleased but surprised if the economy is looking really healthy in March, that is to say, not no longer needing extra emergency support. So I hope the kind this is going to pass a bill. We don't need it this week, but we do need it, and the health of the economy in March, April, May, June, etcetera depends, among other things on that. Alan, what do you make of the data that actually shows improvement these days?

I mean, yesterday we got the confidence data would showed that perhaps know in the future, but right now people are a little more confident. What's giving them that confidence if many of them have been out of work for nearly that's great. I'm glad you asked that. I was surprised at that, and I noted that the sentiment about the current economy had not improved, had deteriorated a little bit. But people are looking forward, and I think the answer is the light at the end of the tunnel. The

vaccine um. It's not like this secret. Everybody in the country knows that vaccines. To hear people are starting to get vaccinated, and there's a lot of talk now, especially now about have everybody who wants a vaccine vaccinated by summer. That's a big change from the way the world looked three six months ago. So when we think about that, to let at the end of the tunnel, professor, the number of folks that are out of work and out of work for a long period of time is increasingly troubling.

I think to a lot of folks here, how do you think the the labor economy is going to recover? You know again at the other side of this, well, I'm gonna sound like a broken record, but it depends on those two things as we get rid of the scourge of the coronavirus. Let me back up a step. A lot of those jobs you're talking about are in the service industries, restaurants, theaters, entertainment venues of all uh sorts. It's not people like me and people like you who

are working electronically. And those jobs will come back, at least most of them, I think will come back as and when the virus fades into insignificance. You know, I should emphasize we have seasonal flu every year. It kills ten thirty thou people every year. But that's a long way from four hundred, five hundred thousand. You know, the thought we should have is to get the coronavirus down to the level of the flu or something like that,

and then the country can go back to normal. So there's that, and then the second thing is the COVID relief package, which has benefits for unemployed. So if you if you don't have your job back, you can continue on on unemployment benefit. It will probably have relief checks which I hope are better targeted than they've been uh in the past, and those things will help the labor market. Alan Blinder, thank you so much for joining us. We

always appreciate get your thoughts on the economy here. Alan Blinder, he's professor of economics at Princeton University and former FED vice chairman. We appreciate his thoughts and now we want to get to our next guest, Brian Whyle and his group Managing director for ctc w's fixed income group. Brian, the obvious question, were below one percent once again on

the ten year. We waited a long time to get back above the one percent, and actually in the in the immediate moment we're back above it, but we did get below it. What took us there and what happens post f O mc sure, um Funnie, thanks for having me. Um. You know, I think the run from the ten year up about basis points on the year when it got up as close to about one was a lot about the blue wave and um, the you know, the hope that there would be, you know, a tremendous amount of

fiscal stimulus. And I think that you know, the run back towards one percent or maybe dipping right below it is is kind of maybe a recognition that you know, the the administration, while they may have these these goals and they'll put out these stimulus packages, it may not be as easy to implement uh as originally thought. Uh and it certainly might take a little bit longer than originally thought. So, Brian, where do you think just we'll focus on the tenure here? How do you what's your

outlook here for rates? Because you know, we had been in that trading range stream we're still in there obviously kind of rates smack in the middle of some type of training range here. But what's your outlook? Yeah, you

know it's um. First, I think we talk about out look, you gotta kind of forget, you know, what you'll what you learned back in school, and you know how the nominal rates should move relative to growth, because you know, we're in this world where you know, rates are clearly controlled by by the Fed, you know, and what they do with their balance sheet. Uh. And so I think you just gotta you gotta take them out their word, you know, which is that you know they're going to

continue with this policy. You know they're not gonna you know, lift off the zero bounds not going to happen until at least three um. You know, a reduction in the pace of the growth of the balance sheet that's not going to happen until next year. UM. So it's hard to see rates going much, you know, significantly higher from where they are now because you know, also in addition, not only the economy fragile, but I think you know, the markets would react negatively to to attend your rates

significantly higher. So you know, we hate to put you know, numbers and bands on rates because you know, you never know. But you know, it's kind of hard to see the ten year certainly not getting to a you know, a two point something yield this year. And personally, I think we'd be surprised if you know, we've got much above a one point five. So what do you do? Because we were just talking yesterday about the record amount of junk issuance, there's also huge you know, investment grade issuance.

There's there's lots to buy out there. But none of it is all that attractive, is it. It's a it's a bond party. Um. You know, I think that the Fed has uh successfully repressed everyone. Um. And you know we're I mean just you know, for for your for

your your listeners. I mean, you know, we are while we're much lower in interest rates you know, um today than we were a year ago, when you look at other things like credit spreads and where high old bonds are trading, and leverage loans and of the securitized market, the mortgage backed securities, when you talk about like the spread of how they trade relative to the treasuries, we're

right back where we were last year. So, you know, from just from a kind of the narrow world of the bond world, at least on on the credit side, everything non treasury related, you know, it looks exactly like it did before the pandemic. So we've unwound, um, you know, the entire pandemic period, even though you know, we're clearly

not out of the pandemic. So so the markets that I've heard some of, you know, Alan Blinder said, you know, the markets are definitely forward looking, um, and I think they're they're priced not necessarily for even like the middle of markets, particularly on the credit side, are priced for you know, the end of one, if not two. Alright, So Brian, let's talk about credit quality. How are you viewing it? What are you seeing in your portfolio in

terms of credit quality? Here we're, you know, almost twelve months into this pandemic and economic disruption. Yeah, I think I think that the theme we you know, we're running with here is that let's just let's try to justify today's prices and today spreads from a credit perspective, like, uh, clearly the market is looking towards, like I said, the end of the year, and let's just say and this kind of consensus that by the end of this year, the economy is the same size as it was, you know,

in let's say February, so before the pandemic. So so we've kind of we've kind of gone we've gone through the dark ravine of the the economic contraction and we've got the same size economy. The point we like to emphasize is that while the size of the economy may be the same, by the end of the year, it's going to have a different shape. And when an economy has a different shape, and that may be a good thing long term, but when an economy has a different shape,

there's gonna be winners and losers. So we're gonna kind of fall outside of of of of the economy and maybe not relevant anymore. So our thoughts, particularly when when spreads are tight and there's not a lot of value. Is Vanni indicated, You're gonna have have and have nots, And so as an investor, you want to think. You can't just think from a macro perspective. You know, the economy back where it was by the end of the year. No, no no, no, You've got to think about what the

economy gonna look like. You know, how do we eat, how do we entertain ourselves, how do how do we work? Where do we work, how do we travel? All these things and who are going to be the winners and who are going to be the losers? And then kind of reconstruct your bond or even your equity portfolio to succeed in that new world, don't you know again, not not just focusing on on on the size or the growth of that new world, but what does it look like?

Brian Willen, thank you so much for joining us. We appreciate that. Brian Whaling, he's a group managing director for TCWS Fixed Income Group. They're based out on the West Coast. They have a couple of dollars under management, so we always pay attention to what they're saying on the fixed

income side. Game stop a MC entertainment. What are these three names all have in common besides trading higher high short interest and they are getting moved higher in a significant short squeeze that we haven't seen in some time. Somebody's gotta been losing the money on the other end of that trade. And turns out some of the big hedge funds on Wall Street are in that camp. To bring us a story, Kathy Burton, hedge fund reporter for Bloomberg News, joins us here. Kathy, who is Melvin Capital?

What is Melvin Capital and what's their role and what's happening in some of these names? Uh So, Melvin Capital is a firm run by Gabe Plotkin, He was a very very successful trader who came out of I worked with Steve Cohen for almost a decade, and he has been sort of the center of, uh, the whole battle between what we call the reddit bros and the professionals. For some reason, about a few months ago, they started

targeting gabe portfolio and they were short. They were going along a lot of the stocks he was shorting, including uh, game Chop. Yeah, I mean, Cathy, Why Gabe in particular, You know, he's he's a he's a young guy. He's very successful. There are many people out there that have had a lot more attention in the media and other places that might have drawn the ire of Redder Bros sort of more obviously, and yet didn't. They might have drawne the ire of other market participants, but not the

redder Bros. What gives with Gabe? I mean, he was very successful and he had the backing of as you say, as I see capital. He even got people to help shore up the hedge fund most recently when it was

under attack. Yes, so no one really knows for sure, but it seems that, unlike a lot of hedge funds, Gabe didn't use over the counter puts when he was shorting some stocks, and so if you looked in his regulatory filings, you could see that he had put on certain companies and so it was in the republic what he was doing. And so that's the only explanation that anyone can really come up with for why he became target. And also because he's pretty known to be a pretty

aggressive short seller. So um, he had some pretty chunky positions. What's the status of Melvin Capital right now, Kathy, Um. I think that the infusion of capital from UM Steve Cohen's point co two and from Ken Griffin's citadel has helped the firm. Uh has really shorted up. It seems that they've covered we know they've covered M Game Shop,

and they've rejigged the portfolio a bunch. So uh, it seems like they're they're in an okay position, although we did here that through yesterday they had their losses had increased that we reported. Yeah, I mean three Friday, difficult couple of quarters for Melvin Capital. Any idea what his other positions are, what as lungs might be. Um, No, we don't really have a lot of insight fo the last filing Hunt Um, it's from the third quarter, so that's quite a little while ago, and these guys tend

to change around. Their portfolio is pretty spificantly. Canty, any other hedge funds that have been kind of targeted or do we know that maybe have had some you know, poor performance as a result of kind of what we're seeing in some of these names. Uh No, We're were hunting around from that right now. UM, we haven't heard um a lot of names, although we suspect that they will definitely be people that at the end of the

month got got hurt. Any I mean, I'm just throwing out this, and you know, I don't want to be wild in my theorizing, but is there any um, anyone out there is saying that perhaps there's an army of redditors that are actually sort of market participants, that are regular market participants, but that are sort of stoking the fires and the flames in Reddit itself. Um, No one knows for sure, although it does sort of make sense that there could people out there who are who are

doing that. UM. I think it's something that the regulators will definitely be looking into. So, Kathy, when you talk to the hedge funds, did they feel like this is just a short term phenomena in the market, or is this perhaps something larger and it might be a part

of markets going forward. UM. I think that that people are they don't really know for sure, but they're certainly afraid that it could be and we're we are definitely trying to figure out if people are changing the way that they're short or do different things to to mitigate this if it really does become more of a phenomenon

going forward. Cathy, have one more question to ask you, because I noticed this a couple of months ago in December, that Plankin was revealed, as they say, to be the buyer of a forty four million dollar property own in Florida, and it sort of reminded me of the Billions plotline about how you know, the guy is advised not to be very ostentatious and he goes ahead with it anyway. UM. Is this something that maybe you know, brought gay plot into the attention of people who wouldn't have liked that.

I mean, it could, but I really don't think so. It really seems that, UM, because the first message that was on this reddit um for him was maybe three months and I think that UM, even the moderator of the message board says that people don't really know anything. They just kind of follow a momentum. So someone picked up and then someone else. We're all pretty much obsessed with game shop. Um, it just had a life of

its own. So I don't really think that they were targeting him because he was gay, but I think it was just because they found someone he does actually short they went out, Kathy, thank you. It's a it's a phenomenal story. Kathie always does phenomenal stories on hedge funders and hedge funds. She has our hedge fund reporter and her one today is redit Trator's Bloodgeon. Melvin Capital in warning to Wall Street and I don't know when the last time I walked into a game stop was, but

I know it's a long time ago. They're still out there though. Thanks for listening to Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever a podcast platform you prefer. I'm Bonnie Quinn, I'm on Twitter at Bonnie Quinn. And Paul Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio