U.S. markets close in 20 minutes
  • S&P 500

    3,844.98
    +3.04 (+0.08%)
     
  • Dow 30

    31,979.33
    +483.03 (+1.53%)
     
  • Nasdaq

    12,690.40
    -229.75 (-1.78%)
     
  • Russell 2000

    2,201.09
    +8.88 (+0.40%)
     
  • Crude Oil

    64.70
    -1.39 (-2.10%)
     
  • Gold

    1,679.20
    -19.30 (-1.14%)
     
  • Silver

    25.22
    -0.07 (-0.26%)
     
  • EUR/USD

    1.1854
    -0.0071 (-0.59%)
     
  • 10-Yr Bond

    1.5960
    +0.0420 (+2.70%)
     
  • GBP/USD

    1.3826
    -0.0002 (-0.02%)
     
  • USD/JPY

    108.8900
    +0.5080 (+0.47%)
     
  • BTC-USD

    51,493.57
    +986.32 (+1.95%)
     
  • CMC Crypto 200

    1,042.18
    +17.98 (+1.76%)
     
  • FTSE 100

    6,719.13
    +88.61 (+1.34%)
     
  • Nikkei 225

    28,743.25
    -121.07 (-0.42%)
     
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

GameStop 'is just the symptom, not the disease': Expert

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

Barry James, James Investment Research Portfolio Manager, joins Yahoo Finance's Kristin Myers and Jared Blikre to break down the latest market action amid the short squeeze chaos.

Video Transcript

KRISTIN MYERS: All right, want to keep the discussion going here-- we're also joined by Barry James, James Investment Research Portfolio Manager. Barry, hell of a time for you to join us with everything that we've had going on this week. You know, everyone had largely expected that some of these stocks would tank. And, of course, we are seeing that here today-- although when it comes to GameStop, at least, as Jared was mentioning, huge swings just even happening today in the price chart that you can see there.

I'm curious what you make of what we saw today, of some of the moves of these brokerages shutting down some of these trades, not allowing traders to get in on GameStop, on AMC, express, and others. They say it was, essentially, done for the good of the retail investor. I'm curious to know your thoughts.

BARRY JAMES: Sure. Well, GameStop is just the symptom. It's not the disease. If you look at the top 50 names that are shorted, they have the same pattern of stock price run-up that we really saw with GameStop. So it's just one of a number. And again, using these social media sites to help push things forward, I view it as kind of the old boiler rooms-- you know, "Wolf of Wall Street," as it were, and it's pump and dump.

Folks trying to get it, they already own it, and they're trying to push the price up. So I don't know that there's anything that unusual about it. These companies taking their stands on their own to reduce clients' ability to trade I think is a wrong move. You want freedom and liquidity for all clients. And if I were in that position, I'd be very upset as well.

JARED BLIKRE: Yeah, I definitely hear that. And I want to ask you about potential regulatory response, because I expect there is going to be congressional hearings. We already know that the Secretary-- the SEC is looking into it, Yellen is monitoring the situation-- lots of eyeballs on this. But the way I see it, one of the bigger problems here is that it's become really easy for traders to trade on margin.

And if you open up a gold account with Robinhood, you're automatically given a margin account-- may not be the wisest thing for new investors. I'm wondering how this plays out and how you see it playing out on the regulatory front.

BARRY JAMES: Well, the two parts to that-- one is we see that margin debt is very, very high right now-- makes the market very vulnerable to volatility. In terms of the regulatory side of things, far be it from me to tell the SEC what to do. But again, looking at what's best for the typical investor, it's not to shut things down. It's to keep them open and let them trade even if they are making mistakes. Certainly, the government doesn't know which stocks are going to go up and down, and neither do we. But for that matter, it's on us, if you will. So I think in terms of regulation, keep things open would be a good regulation.

KRISTIN MYERS: So, Barry, following on that, I'm wondering what you think is going to happen perhaps next week, or the week after, or the week after that to the broader market now that you have so many folks-- I mean, honestly, my mom is texting me about Robinhood being down and how she can't get involved in these trades.

My mother has never texted me about investing before. This is-- and I know that she's not alone. I know that I'm not the only child who has been getting text messages from grandparents, friends about this. It seems as if this frenzy has gotten a lot of folks interested in investing and interested in the markets.

I'm curious to know what you think the implications are going to be on a broader basis to the markets in general, and if you think, as Jared is mentioning, some of those margin calls-- I'm hearing investors talking about options trading that never spoke about this sort of thing before. And I'm curious to know if these folks are going to start making these moves to other stocks once this whole craze is over.

BARRY JAMES: It's-- the volatility that we're seeing is in part because of overspeculation. You look at put to call ratio, which is a measure of speculation, it's at record lows. Nobody wants to own a put, everybody wants to own a call. You look at the sentiment levels, they had reached excessive levels, and now they're pulling back.

And you look at the NASDAQ, the number of stocks that are advancing over declining, you know, you've got, above their actually 200-day moving average, about 80%. That's near a market turnaround, if you will. So as we look into the future, people will try to do this.

But once it's exposed to light, kind of like the coronavirus, it tends to kill it. And it won't have the same impact as dramatically as what we've seen with some of these. But we still have the volatility to work through over the next couple of weeks. And that's the thing that I would really caution people about is you probably don't want to be overexposed-- maybe just normally exposed.

We've certainly seen a big run-up, especially in small cap stocks. And you know, we have all of those in our golden rainbow-- small, mid, and large. And we've been adding in the small area, but I think we're going to pause for the minute just because we think that there's likely to have some type of a pullback.

JARED BLIKRE: Well, let me just ask you then-- what other areas of the market are you looking at? Lots of talk about cyclical plays this year like energy, financials, industrials-- you've got the reflation trade going on. If you put aside the GameStop story for a second, where else would you be putting your money right now?

BARRY JAMES: Well, maybe a little more logical than GameStop, a company that's losing $2.50 a share in earnings. We like Caterpillar as a for instance. The infrastructure situation is likely to push through. The fleet that people have in the mining industry is very old-- the oldest it's ever been.

And it's a very well-run company controlling costs, and earnings are doing quite well. So we like that in the industrial side. In the banking side, there are a lot of good names, but one that we like on the small side-- on the small side that hasn't gone crazy yet-- is Enova. And it is a company that provides lending to consumers and small businesses.

And the one thing that really is kind of a secret right now is the business formations-- you know, small business formations is running at record increases-- I think over 80% increase in the last few months. So people are kicking off their businesses, they'll need money, and I think that as we go through the year-- this company's trading at four times earnings, so it's dirt cheap as well.

And then if we move into the energy area, not loved by anybody, and then more reason not to love it by some of the action in Washington. But we like Pioneer Natural Resources. It's primarily West Texas Permian Basin. They bought a company called Parsley-- it gives them even greater impact in that area. Very low cost, very low leverage, lots of liquidity-- I think they can stand up.

And they tend to focus mainly on the oil side more than the gas side. And that's a lot more lucrative in the end. So three companies that fit the bill of kind of the cyclical area, which we think has got good possibilities in 2021.

KRISTIN MYERS: Thanks for reminding us that there is stuff still happening in the markets besides what's going on with GameStop, AMC, and some of those other short squeezes. Barry James, James Investment Research Portfolio Manager-- Yahoo Finance's Jared Blikre, thank you both for joining us for this conversation.