What if there are no villains? What if the smoke clears on GameStop (GME) and we find that there were simply people on the right and wrong side and a brokerage house that was overwhelmed but didn't compromise its principles and did its best to try to make customers happy in a bizarre, fluid, novel situation?
Most of all, what if this is simply the outpouring of a couple of really smart, non-hedged funds that figured out how to profit from a hedge fund's sloppy greed and lack of risk controls -- embarrassing, but not illegal.
As we go into the show trial of this era I find myself struggling to see what anyone did wrong. Not idiotic. I saw plenty of idiotic. Not uncommonly stupid judgments, including many questionable ones by GameStop itself. But nothing fraudulent.
Let me state up top that I do not believe Robinhood and its CEO, Vlad Tenev, committed fraud or colluded with a big-time hedge fund to hurt its clients.
The idea that somehow Robinhood threw its own clients under the bus to get capital or catch a break just does not seem to hold any water to me. You may think that Vlad is simply a writer of an app that people like and he has been a tool of others. I don't even think he's been a tool. I do believe that he is shocked to see bills come due from a clearinghouse that I do not think has properly justified the amount of money Robinhood had to make good for its clients. But anyone suggesting that Robinhood was owned by a Citadel or the Citadel clearing division simply doesn't know how it works.
Did Robinhood have to put up capital? You have to put up capital if you can't make good on trades, but remember the trades that really tore at Robinhood's capital involved AMC Entertainment (AMC) more than GameStop.
Am I absolving Robinhood? I think Robinhood didn't understand that a great app does not a firm make. You need to protect your clients, and there was tons of trust lost here by Robinhood. But barring an overzealous San Francisco court, Securities and Exchange Commission (SEC) or a Justice Department that has a smoking gun memo, I say take it off the table.
So what is Robinhood guilty of? Being too popular in the face of the other firms that make it harder to trade because Robinhood is the Amazon (AMZN) of trading. The educational component portion must be beefed up. Compliance, such as at PayPal (PYPL) , must become an asset. There needs to be more explanation of risk by simply having more examples, examples all over the place.
Did it promote gamificaton? Oh, what the heck is that. The evil of stock trading is margin and it didn't promote margin, not gamification. I have a deal with DraftKings (DKNG) . That's gamification.
Next up: Melvin Capital
Oh, that Melvin
I've been off this week, recuperating from surgery and resting up for my return. Is it a vacation? I will call it that. Is it an intellectual vacation? No, that's what Melvin Capital went on during this biggest short dive I can recall.
Let me just say from the outset I am no stranger to GameStop. I cover the industry, know the business and remember when GameStop was a pretty solid place to get hardware and games before direct to consumer.
That was about a half-dozen years ago. Now it is just one more mall retailer without a real raison d'etre, but it did have one thing going for it going into 2021: an across-the-board shortage of important gaming platforms where, because of its loyalty to Nintendo NTDOY, Sony (SNE) and Microsoft (MSFT) , had about a two-to-one edge on getting equipment versus its competitors.
How do I know this?
Because it is in a bunch conference calls, including the last one that showed a very positive cadence because of the demand side.
I have to wonder whether Melvin was making a stop at Krystal on the way south as part of its intellectual vacation because it was so glaring that GameStop could be a terrific trade into the shortage, especially when Best Buy (BBY) made it clear right on the door that they weren't the call. I can't believe any seasoned pro wouldn't see the need to duck and cover and come back when the shortage ended, which, by the way, is definitively not yet.
Making all of this more embarrassing? What sport has garnered millions of new users during Covid? Gaming? What chips have the hardware makers been using? How about these incredible Nvidia (NVDA) Ray Tracing chips? Did Melvin do any comparison between the new Ray Tracing and its predecessors? It's the gosh-darned holy grail. They are lifelike right down to the shading, something Nvidia CEO Jensen Huang, the smartest man in tech -- not just semis, but tech -- can show you.
Now, let's go one step further. When you see the kind of short exposure that one stock can have and know it is in excess of anything that you have seen -- and I am talking about 140% short -- you know that anyone who is short is out of his mind because it doesn't matter.
I have written chapter and verse about what it is like to have fought and be ganged up upon. I surrendered myself so others would not have to fall on their short sword. Melvin Capital boss Gabe Plotkin -- you who have been proudly short GameStop since 2014 when the model first went wonky, you who lost 50% of your capital in this one -- you could have gotten "Confessions of a Street Addict" for $13.54 on Amazon and saved yourself a couple of bill.
What the hell were you thinking, with a triple play of new hardware, a pandemic and a company that just got a couple of smarter board members (more on those in a moment).
Now, as for GameStop...
How about GameStop itself? This is an uncommon company, as in uncommonly stupid. It knew it had debt it wanted repaid so it filed a shelf to sell stock but then said it would be wrong. But did it say that it would be wrong for two insiders to sell stock as they left the board? Do you know there is no safe harbor for doing that? It's outrageous that the board did nothing to sell stock to help the balance sheet and it is so ill-advised that these insiders sold stock knowing that there was perhaps material information that they did not share on the go-out. I am disgusted by them and am tempted to put them on the Wall of Shame if they weren't such nobodies.
But this shameless, "We can't sell stock to help make this a better company because it isn't fair," but the general counsel checks off on these? Hello, San Francisco PD, I mean SEC.
Now let's bring it all together with the wallstreetbets and Reddit characters. In many ways these are my heroes because I am sick of the fat cats who come on our air and infiltrate Wall Street with what I regard as some of the most patronizing, self-serving genuine gibberish, all designed to get your money but keep you from getting rich. As I say at the beginning of "Mad Money," I want to make you rich, really rich.
I think Reddit does, too. I think wallstreetbets does it, too.
Do I like how they do it? Wrong question. As long as it is legal, I am not going to rain on that parade. Let the nattering nabobs of negativity do that. I am in favor of taking on anyone standing in the way of making you money or keeping you in your paycheck chains, and that's not anything new for me. Reddit and wallstreetbets are fascinating sheets, and although I find them repetitive and scatological, they seem harmless enough and at times, like with GameStop, ingenious, because they were as smart as Plotkin was -- well, how about this word my mother never liked me to say -- stupid.
What makes me think that there is a purity of heart here to this gang?
Ryan Cohen, that's who.
Chew on this, Ryan
Now I have been joking a bit about how Cohen is up against some pretty difficult circumstances, the most difficult perhaps being that that the stock has already vastly exceeded what I believe he thought possible here.
He founded Chewy (CHWY) , and I have been Chewy's biggest backer on Wall Street. He has the right idea with GameStop, which is to make it a digital company, not a video company. He has a vision that could work provided the company has the money to pull it off; maybe if it issues a statement telling people everything about the quarter so far it can still sell a big slug at $40? Not as good as $400, but it beats $4.
What should he do?
Ryan, here's the plan. You need to close every single poorly performing GameStop within the next 24 months, when the leases are up.
You need to go to every class B mall and take the places of the anchor stores. You need to manufacture or partner with Logitech (LOGI) and you need to have leagues, as in world championship gaming leagues. With no latency you can play all at once all over the world.
Why did I want GameStop to raise money so badly? Mostly because if it endowed, say, 1,000 NCAA schools with scholarships it could have blown up the world. It could have levered its 55 million loyalty program. It could have partnered with Call of Duty and Grand Theft Auto. It could have gone to China and set up tournaments.
You needed a couple of billion for those scholarship programs and darn it all, Ryan, why didn't you push for it?
Did anyone else do anything wrong? Some don't like the social media gang-up on Melvin. Brokers and analysts have been doing that for years. Some didn't like that they got long and loud. What do you think people do who come on CNBC? Others don't like the tone, the rough around the edges, the anger, the brute force.
I am from Philly; I liked every minute of it. The rabble loved their stocks as much as the rich people who own Wall Street and went long and loud to do. The ones who listened to me when I ripped out the catheter and called in from my hospital bed when GameStop was at $380. Nobody kept you from the run of a lifetime except yourselves; I only give myself credit because of the grief I suffered from the hands of everyone on the 17th floor of NYU Langone who were appalled at what they thought was my lack of regard for the surgery I had just gotten though.
So enjoy the show trials. Have some laughs. But other than some moronic board-member sellers of stock with insider information who didn't even get the best prices, I am absolving everyone and urging wallstreetbets with this admonition: Would you get some more names so I can do some work?