♪ caroline: i'm caroline hyde. joe: i'm joe weisenthal. romaine: the s&p 500, erasing all of its gains for the year. taylor: the question is, "what'd you miss?" caroline: what a week. the s&p has had its worst week since october, but it was euphoria and individual names like gamestop that's been a

story we can't drag our eyes away from, inside, outside the market. everyone is talking about it. it's getting the attention of the sec. the regulator is ready to scrutinize this. cutting some purchase limits. it is just sensational one you take a step back. -- when you take a step back. it is what people in the twittersphere are fueled by, stories such as these. taylor: this is why we wake up in the morning -- joe: this is why we wake up in the morning. this is one of the most extreme every stories ever. at least in financial media. if you look at some of these reddit darlings for the week, gamestop, you have 400% gains.

and say, 277% -- amc, 277%. romaine: i was surprised the head phone maker is not up there, 18% on the week. -- up 18% of the week. i have the sec apparently going to get involved in the u.s. they are going to look into it. not exactly clear what that means. the commission, working closely with regulatory partners to ensure entities uphold obligations for tech investors and identify and pursue potential wrongdoing. whether anything comes out of this, who knows? but we know there's going to be a lot of talk in washington about how to address whatever happened here. joe: a lot of politicians in front of cameras trying to make this their own. we have bloomberg intelligence head of market structure --

bloomberg's intelligence head of market structure. i don't think they have less idea what we're talking about. so we come to you, our expert on the topic. everyone has a theory about why robinhood had to curtail trading starting yesterday morning. leaving a handful of highly volatile shares. a simple as you can explain it, why did they do what they did? to make their customers cut back? >> it has to do with clearance. basically, you get the stock into days -- in two days and you have to pay the money into days. -- in two days. the problem is, and the time you execute the trade and move the money, the brokerage needs to make sure that not necessarily your account has money to pay for those securities, but all

the people they do business with, all the mechanisms, it could be short-sellers, folks treading on a margin. given the volatility of the pricing and evaluation of these names, this makes it very risky and forces dtcc [indiscernible] they do business with brokers. that is their own capital. they need to have enough. plus and options expiration -- plus an options exploration is going to require people to have a lot of cash. caroline: there's been a lot of abuse being thrown, even on twitter.

throwing and mixes here there and everywhere. but is dtcc making these decisions right? >> they take ownership of all the trades the night before settlement. and they have to make good on all those transactions. they want to make sure the people, the brokers they do business with have enough money to ensure they can cash the checks. romaine: when we talk about -- we have heard from a couple of the exchange ceos over the last few days. excuse me, the brokerage platform ceos. one made it clear that you have some that do their own clearing like robinhood, then you have others that basically give it to a third-party. when it comes to the risk the platforms themselves bear, what is the difference between having the clearing in-house versus

farming it out to a third party? is there a difference in risk? >> it is pretty similar. generally smaller brokerages use folks like pershing or fidelity. apex for legal. larger brokers tend to fare themselves. you need capital, you need your own capital if you're going to clear yourself. if you do business with a clearing firm, they can pull together not just for yourself, but the brokers. on these names where there is a lot of volatility, anybody doing a lot of this is going to have to come out with a lot of capital. joe: there are a lot of new

people in these markets who have never traded a stock before their life. may be in the last few months, weeks, days, certainly in the last year. suddenly, the rules change overnight. they are not allowed to do this. this is not a free market. how unprecedented is this? or if you look at the history of markets, are these cans of moves to curtail risk, curb limits done all the time? >> it's not out of the question. that generally doesn't happen when things are turning around. it can happen to names like penny stocks. it can happen to different stocks, where the clearinghouse is really unsure what the right price should be. the issue there is, let's take gamestop.

if you were short at 30, now it is 300, you a lot of money -- you owe a lot of money. they want to make sure you have enough money to pay for all the stock you're are going to buy. if you buy on margin and you buy it at 300 and that goes down to 150 and you have 50% margin, you basically are wiped out. then it becomes the ownership of the brokers company to make you whole. this is not brains at all. one of the bigger clearing firms during the.com era, they ended up owning a horse racing track basically crushed them. this is not something that happens every day, but it's not

something completely out of the blue. caroline: larry tabb, we thank you for giving us your expertise. you've been doing it on the bloomberg terminal, as well. from bloomberg intelligence. coming up, we speak with an active trader in the game substrate since tony 15 -- gamestop trade since 2015. that's next. this is bloomberg. ♪

♪ romaine: it should be no surprise we are closing out the week, talking about the retail rally. costco, blackberry, amc. gamestop is the spirit horse of it all. joe: absolutely.

everyone, discovering it in the last couple of weeks. a lot of people have been in this trade for a very long time. anticipating perhaps a moment like this. before we can get to a moment like this, look at the chart. it was worse than dead money. it was going down and down. then look at that chart. let's talk to one of the original participants in the gamestop trade. joining us for more now is a co-proprietor of his website, which follows gamestop. you have been in gamestop waiting for this moment since 2017. everyone knows physical retail is going to be the blockbuster and video gives. why did you believe so much that you held through all that down when it was dead money? >> --

>> well, joe, i sure felt i was wrong for a long time. people need to think about gamestop -- a lot has changed to 17. the thesis i had has evolved over that time. that is probably the most important take away in any market. they need to keep their thesis fresh and revise it with new information coming in. a lot of new things came in with gamestop over the years. they had a strategic review in mid-2018. they had a new board refresh and ceo appointed in early 2019. they endeavored on a new strategic plan in 2019, a gamestop reboot strategy to doubled on the cord video gaming markets. -- core video gaming markets. i don't want to talk about that too much. but the ship was righted, they got the right focus in place. than a lot of new and

interesting things happened over the course of 2020 to bring us to this craziness we are in today. caroline: this craziness we are in, does the thesis make sense when it is worth $22 billion? did you wish it to get this far this fast? >> so, [laughs] joe and i talked about this earlier in the morning. i don't think you can rationally look forward at what we expect from gamestop to justify a price at this level. but that said, all market participants knew about short interests. it's not something unknown. it had been around 100% for more than a year, in terms of shares outstanding. so that kind of rocket fuel embedded, underlying the transformation, the entrance of an activist and --

activist inventor, it was a confluence of that, all of the right things fell into place, ruggedly for the funds on the other set of the trade, in my opinion, they didn't have the proper risk management in place. they didn't actually have a hedge for their short. romaine: and to want to go back to that fundamental case. obviously, you were early to this. it's paid out for you. when you look at that company, you looked at the consecutive quarters of declining revenue, that eps constraints, then you put that against the landscape of just retail under pressure back then, still is. what was it about? were talking before -- we are talking before some of these other people came along. what made you believe there was a growth story there that no one else saw? >> i think fundamentally, we need to look at what is their legacy business, very much on the whim of the console

cycle. they are a seller of videogame products. discs you put into a playstation or xbox or nintendo console. therefore, it was long and the console cycle. in addition to those macro brick-and-mortar headwinds that gamestop into the retail players were facing, gamestop was at the end of a long console cycle. that was not news to me. i don't think i should have been news to any long investor over the course of 2018 and 2019 that we saw negative sales for a long time. that was really all about, once validation of the fiscal media playing capabilities of the nexgen cons -- consoles became apparent, that is what i became more aggressive in accumulating even more. the price august the, you see it on the chart right now. back at that time, it dipped been -- dipped below four

dollars a share. it happened that several investors, roaring katie, myself, michael berry independent of one another made the same investing decision at that point and decided it would be a waiting game. joe: explain why the physical retailing of videogames, why this? it does not exist in any other form anymore. people don't really buy -- get why some people buy dvds. not really. why does it still exist as a thing, when so much is streaming online? >> we talked about it. i went into it in detail. there's a lot of economics for the end consumer people need to think about. he videogame can provide you -- a videogame can provide you with many hours of entertainment value. but tying it to a physical product that is $60, nextgen ones are going to come out,

there's a residual value inherently that is there, that videogame. if i want to sell it to a friend, sell it back to gamestop, trade it, i want to just simply have that collectibility piece, i want to be able to gift a physical good to somebody during the holidays, those are some of the things that i think draw value still for the consumer. the mix of physical to digital, people have been talking about for years that digital is growing and it is going to eventually take all of the share. i would think about it more like, yes, physical will continue to be less of the broader market, but demand is still there. it was evidence amid covid, when there were supply chain issues. we have seen hardware shortages for some time. on the software side, customers were trying to buy physical media to buy physical media during covid. you actually saw on ebay

-- on sites like ebay, amazon, a spec for the physical commodity. it was a function of it not being there. that type of due diligence, looking very closely at things to understand, is the demand of they are, or is it going away? i don't think it is going away. if you look at the ps5, the hardware is setting at a better rate. that is the cleanest example. because it is simply a console with a blue ray disk drive or no disk drive for a $100 difference. clearly, consumer demand is there. hobbies look, i am not privy to what sony's -- honestly, i am privy to what sony's plans are. romaine: we've got a lot more

questions for rod a lzman. we need to take a quick commercial break. we will be back in a moment. this is bloomberg. ♪

♪ romaine: we are back with rod alzmann. coproprietor of a long time rolon gives up. i would say that's one third of the story. the other story is the extra never social media phenomenon. which of course has propelled this to new heights. -- the extraordinary social media phenomenon, which of course has propelled this to new heights. it is one thing to have a short squeeze, it is another thing to have a global mania. how in your view did that come about? >> i don't think it could have happened without covid, for the

sake of the underlying business as well as the sake of the community feature. many of us, and i say us loosely, individual investors, retail investors have been in gamestop doing our own due diligence. i eventually came to know a lot of folks who were putting out some really great research on both stock twitch, across platforms. we have all come to know will bring -- roaring kitty. he was hosting a youtube channel. eventually, there's a couple dozen of us that found this to be a great community gathering place where we could talk about her own thoughts, sharing our own work, just having open discussions, getting candid feedback. being willing to hear other people's thoughts. we would be on this thing, he would kick it off monday,

wednesday, friday night from 7:00 p.m.. some days, we would run until 1:00 or 2:00 a.m. it was not always all gamestop, but the vast majority of it was gamestop. that was just a loose group of investors trying to get better at understanding what we were seeing. we all were like, what are we missing? what is this stock for dollars, seven dollars, $10, when we think it should be so much more? picking apart all the different pieces of the puzzle. it was of things that if it were not for covid putting people in front of the screens and giving us extra time to be digging into this, it might have never happened this way. caroline: i imagine the hours you have invested, thinking, talking, sharing stories about this particular business. you've become pretty emotionally attached. how have you reacted to the fact that the business has not reacted? are you looking for the business to make the most of the ramp up? do you want to see themselves -- themselves stock -- them

sell stock? >> i want to hear of a plan. we have not heard from the business since brian and the two compadres were added to the board with that settlement. that settlement to me was an absolute firecracker. it was not immediately heard by the markets, but clearly in a few days, the market begins to react through a lot of incremental lung accumulation -- long accumulation. i would like to see a go forward plan. we have seen what existing management was going to share at this icr technology conference that monday when the news dropped in premarket. we don't really know what the strategy is. we don't know what the settlement exactly entailed. are they buying into ryan 's strategy of it being

a digital first, customer tech business, where we don't maybe need as many digital video games -- physical bid you come stores, because we can hasten the rationalization of the store footprint. i would like to hear a plan. i do think it is a little unnerving management has been completely mum over the last two weeks. reporter: -- joe: we can't wait to see what happens in the story. our thanks to rod alzmann. you can hear more of our conversation on the latest episode of the outlaw podcast with tracy alloway and myself, on apple or spotify. romaine: don't forget, there's another podcast out there, not quite as popular, it is called "what'd you miss?" this week. you can also subscribe to wherever podcasts are sold. caroline: we should just be

promoting romaine bostick. 20 years. joe: the 20th anniversary today of him being at bloomberg. caroline: how are you celebrating? romaine: underground party. joe: turn off the camera. romaine: don't tell de blasio. joe: this is bloomberg. ♪

♪ emily: i am emily chang in san francisco. coming up, retail investors at it again. bidding upstairs -- up shares of gamestop. this after robinhood calls in a one million-dollar lifeline following my interview