A Reality Check for This 'Melt Up' Poster Child

No questions asked... GameStop loses its luster... A reality check for this 'Melt Up' poster child... Powell and Yellen have a Zoom party... The future of money... Eric Wade goes 'beyond bitcoin' next Wednesday...

When they don't take any questions, that's a bad sign...

That was the case on GameStop's (GME) earnings call last night.

You'll recall that the formerly beaten-down video-game retailer came back into our lives thanks to a horde of day traders on the WallStreetBets message board earlier this year.

GameStop CEO George Sherman took about 20 minutes after the markets closed yesterday to report the company's numbers for the fourth quarter of 2020. It was the first quarterly report since all the hoopla began in late January. And then...

Sherman hung up before Wall Street analysts could ask anything.

To be fair, there wasn't much good to say...

The numbers disappointed in a big way. As Stansberry NewsWire analyst Daniel Smoot reported earlier today...

The company's earnings before interest, taxes, depreciation, and amortization ("EBITDA") were $50.3 million compared to the anticipated $143.3 million.

In response, GameStop shares closed down about 34% today. The stock's current price of around $120 per share is roughly 65% below its January high of more than $347 per share.

That's a big earnings miss, but it's not surprising...

We're talking about a retail chain that reported a net loss of $470 million in 2019.

On the positive side (and something Sherman could have talked more about if he took questions), GameStop cut those losses roughly in half in 2020. It reported a loss of $215 million for the year... And its e-commerce sales increased 175% last quarter.

That's all well and good... Maybe GameStop will make incremental improvements in its business... Maybe activist investor Ryan Cohen, co-founder of pet-products online retailer Chewy (CHWY), will help make the company profitable as the head of a new strategy committee... And maybe it will find a space in the e-commerce landscape.

But we doubt the company will justify its current $8 billion market cap (even after today's multibillion-dollar drop) and please its cult of day-trading followers as soon as they want...

More likely, the company will go down in market history as what we said it represented in January... a tell-tale sign of a "Melt Up"... a government-fueled stock-buying frenzy in just one stock that won't end up well for most buyers who were lured into the euphoria.

We may have gotten a kick out of watching the whole GameStop saga and writing about it. But there is a reason why Wall Street hedge funds were so heavily and carelessly short the stock in 2020...

This was a company on the brink of filing for bankruptcy... It was (and is) a critical piece of the "retail apocalypse." It closed roughly 500 stores last year. Its glory days are well behind it.

But more striking than GameStop's obvious worrisome future, our "skeptical meter" is activated when we hear anyone giving the ol' "no comment" to questions, fearful of letting some sliver of truth slip.

Do you think they can't find anything to say?

Sherman also said the company would not be providing forward guidance. In other words, it won't give any glimpse into its expectations for the next quarter or the year ahead.

Same story, different day...

As we've written all along here, if you want to go speculate on a stock like GameStop, please know that's precisely what it is... pure speculation. As our colleague John Engel said in the February issue of his Stansberry Innovations Report...

If you have money to play with and want to make some "just for fun," gambler-style investments, that's your prerogative. But please remember... that's not what we do here.

And as we wrote on in the February 25 Digest...

The price of GameStop shares could be wildly unpredictable in the months ahead. It will probably continue until the company either shows real promise to back up the pure speculation that it can turn around its fortunes... or is once again largely left for dead like it was just months ago.

Today, if anything, we're willing to bet we're closer to the "left for dead" result.

This isn't a 'stick it to Wall Street' play anymore...

Only 20% of GameStop shares are sold short today. The hedge funds don't want to get burned twice, and others might instead. This is the back end of a bubble...

Judging from the latest chatter on the WallStreetBets message board, folks are losing faith... And the stage is set for more GameStop sell-offs after its next quarterly report and beyond.

As our colleague Vic Lederman wrote last Thursday in the Digest, 28% of all Americans bought GameStop and other viral stocks in January... And 43% of these folks said they had just signed up for a brokerage account in the previous month, too. The median investment of these buyers was just $150.

If someone bought $150 worth of GameStop on the front end of the "Melt Up" retail euphoria in the stock in January... held on through a huge decline in February... and kept holding on its second rise into March... they saw that position turn into a loss today.

We can see more new holders, who were hoping for a quick cash win, wanting to cut losses before they lose their entire gamble.

So, that's the skinny on one story we wanted to talk about today. The next one is about people who always seem to be answering questions...

We may not entirely believe what they say, but at least they're talking.

Federal Reserve Chair Jerome Powell and new U.S. Treasury Secretary Janet Yellen had a Zoom party...

By that, we mean they appeared virtually before the House Committee on Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs for about two hours each yesterday afternoon and this morning.

The pair of decision-makers needed to be reminded more than once to unmute themselves before answering a question. Powell seemed frustrated at a change in the House's videoconferencing software... "I'm used to double-clicking out of habit," he said at one point.

But other than that, things seemed to go pretty smoothly...

That's largely because many members of Congress lobbed softballs instead of questions. And most other points of contention were agreed to be talked about more "offline."

We're often skeptical of these public charades, but we were still compelled to watch... We wanted to see if we could hear any hints of what may come from the string-pullers at the Fed and Treasury as the economy continues to "reopen."

Yellen, a former Fed chair, was making her first appearance on Capitol Hill in her new role. It was the first chance to hear her public thoughts since her confirmation hearings back in January.

And we wanted to see what the members of Congress thought of Powell's comments last week to "hold the line," so to speak, on the Fed's easy-money policy... and what he might say about inflation (especially given our nightmare the other night about the crocodile).

Here are the notable things we heard...

For Powell, it was much more of the same that we've heard over the past year or so...

The economy has recovered quicker than expected... He is not worried about runaway or hyperinflation... And he doesn't plan to sign off on hiking interest rates again until the U.S. reaches "full employment" or if inflation does become apparent in the Fed's preferred measures.

Powell was then asked if he actually thinks the country will ever reach "full employment." And he basically sidestepped the question, showing us that the low-rate, easy-money environment is a long way off from changing.

We heard some worthy nuggets from Yellen, too...

For example, she thinks the economy will start to "get back on its feet" by the fall. And it sounded like she's in support of letting extra unemployment benefits expire then.

Yellen was asked about the U.S. debt-to-GDP ratio, which is estimated by the Congressional Budget Office to be 102% by the end of this year. Her answer was that, for now, historically low interest rates make that less of a concern. (Of course, those are dictated by the Fed!)

Again, we share these comments only because it colors what might happen in the markets, not because it's what we want to happen...

But perhaps the most interesting moment occurred when Powell shared his thoughts on digital currency...

Powell talked for a few minutes about the Fed's work and research on a central bank digital currency ("CBDC"), which brings with it an entire discussion over privacy and the future of money.

Our colleague Brian Tycangco, an analyst on Steve's True Wealth research team, will have much more about CBDCs in tomorrow's Digest... so we won't get into too much detail today.

But we did want to share Powell's description of what a Fed CBDC – some are calling it a potential FedCoin – could look like.

Congressman Bill Foster of Illinois asked Powell about a U.S. digital dollar, saying it could help get more people into the banking system. But Foster also raised the concern of the idea in the context of China's development of a CBDC with no regard for privacy.

Powell said the Fed is "investing quite a bit" into the research of an American CBDC...

We are engaged in a process of looking at all the technical and design issues, which interact with each other...

I don't think that a system that relies on entirely private governance, completely secret information, about who is owning the digital dollar, would be viable...

And the lack of privacy in the Chinese system is just not something we could do here. There's got to be a balance.

Powell then floated the idea of a "two-tiered system." He said...

A wallet outside of the central bank and transfers can take place there... We're only beginning to think carefully about these things.

To be clear, Powell is not talking about simply converting the world's most popular cryptocurrency – bitcoin – into a CBDC. This is about creating something different that could be used for money transfers... and that the government can regulate, as it does cash.

This story has big implications for the economy in general, beyond what we can get into today... We will follow it closely and report on what it means for you and your money as it develops.

In the meantime, the talk of CBDCs got us thinking 'beyond bitcoin'...

At this point, it feels like bitcoin has gone mainstream, at least among the people I talk to who are interested in the markets... As another example, one of you sent us a picture last month of a grocery-store ATM offering bitcoin.

We see evidence almost every day... Today, it was electric-car maker Tesla (TSLA) announcing that it will accept bitcoin payments from U.S. customers for its cars. It doesn't seem to get more headline-grabbing than that...

We've covered bitcoin – and to a lesser extent, Ethereum – a lot in the Digest over the past year or so. And we will continue to do so...

Many of the smartest, most successful people in America are abandoning the dollar and putting their money into cryptocurrencies. And the politicians in D.C. are desperate to stop it.

But investors around the world are finally realizing our currency is no longer the "safe haven" it once was. Last summer, we urged you to get into bitcoin before a huge rally from $9,000 to more than $60,000. (It has "cooled off" slightly to about $53,700 today.)

So if you feel like you've missed out on the biggest upside in cryptocurrencies, we understand. But the thing is, that isn't necessarily true...

As Crypto Capital editor Eric Wade has written in this space several times, there is an entire world of cryptos beyond bitcoin. And with the right guide, early investors can make a lot of money in it...

Since the start of 2020, Eric has shown thousands of Stansberry Research subscribers 1,000%-plus gains on four separate occasions... And a week from today, he is going live with a brand-new presentation – including three more predictions that could return 10 times your money.

The event will begin at 9:30 a.m. Eastern time on Wednesday, March 31. It is totally free to watch... We only ask that you sign up in advance so you don't miss a minute of the presentation. Click here to sign up right now.

Why You Must Get Out of the System

Lynette Zang, chief market analyst at ITM Trading, contends that central banks around the world are getting ready to "reset" the financial system, with a "full surveillance economy" featuring negative interest rates that encourages consumers to spend more...

"We have to go to negative rates because now they need to attack principle," she says of central banks. "They've already [attacked] all the purchasing power," with inflationary policies.

With that in mind, Zang tells our colleague Daniela Cambone why you must get out of the "system" to protect your assets...

Click here to watch this video right now. For more free video content, subscribe to our Stansberry Research YouTube channel... and don't forget to follow us on Facebook, Instagram, LinkedIn, and Twitter.

New 52-week highs (as of 3/23/21): American Homes 4 Rent (AMH), Hershey (HSY), and Waste Management (WM).

In today's mailbag, feedback on Dan's Digest from yesterday... and True Wealth editor Steve Sjuggerud answers a few reader questions about real estate and the "Melt Down." Do you have a comment or question? E-mail us at feedback@stansberryresearch.com. As a reminder, we cannot provide individual investment advice, but we do read each note.

"For Dan Ferris: thanks for writing [Tuesday's Digest]. After years of learning lessons, even with your guidance, one still gets to learn lessons. LOL the list is long and distinguished. But the last couple of years, thanks to lots of reading by all of you at Stansberry, I have become seasoned and tend to be wiser about where I put my money. Ah yes, I still have some. You remain one of my favorites." – Stansberry Alliance member Jeff S.

"Dan, your essays are the greatest! Thanks for all of them." – Paid-up subscriber Tim L.

"I have recently been contemplating selling (1-2 rental) single family homes that have risen pretty well in the last six months, thinking that the Melt Down or crash may be coming later this year. I have owned these homes for 16-17 years. After reading the current article that you think that the real estate trend is going to continue going up I am confused.

"If we see a 30-50% Melt Down in the stock market later this year I am just not understanding how real estate will continue to go up? We are already at all-time highs and prices are inflated due to the pandemic/low rates. How is this bubble not going to pop? Just because rates are going to be low for the next couple of years?" – Paid-up subscriber Justin W.

"Hello Steve, I have just finished your article about using real estate as the investment to make when the Melt Down begins. And I find myself in a strange position...

"For two years I have been building a down-sized home... When we started to build it, my wife and I decided to partially finance the new construction from the proceeds of sale of our BIG home. We haven't needed to take out a mortgage on the down-sized home and we paid off the mortgage on the BIG house years ago. Thus we haven't increased our overhead at all.

"I am still riding the Melt-Up and will be resetting the stops on those stocks. My reaction to your real estate advice has prompted me to remain in real estate by NOT selling the BIG house, maybe dividing the BIG house into two rentals and keeping ownership of the BIG house.

"Have I missed something in your presentation that I need to take into consideration? Your article really started my brain spinning. Thanks for that." – Subscriber Bruce M.

Steve Sjuggerud comment: First, I'll say that real estate is always driven by the specific market. I can't give advice on specific markets, but I can share what I expect to see overall and why I expect to see it.

Like I shared last week, real estate overall did very well coming out of the dot-com "Melt Down." That bust affected the whole market, but the worst of it happened in just a few areas. And unless you worked in one of those areas (mostly tech), the recession that followed wasn't dramatic. I expect we'll see the same thing this time around.

The craziness in the markets today is specific to certain areas once again. Those areas will take a true beating. But I don't expect that to cause a 2008-style recession with tens of millions of lost jobs.

That's why real estate as a whole can continue to thrive in that environment. Certain areas could see an impact. But overall, we saw a similar setup in the early 2000s. Real estate performed darn well back then. And I expect it'll take a similar path this time around, too.

All the best,

Corey McLaughlin
Baltimore, Maryland
March 24, 2021