Surging GameStop stock creating chaos for hedge funds

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Surging GameStop stock creating chaos for hedge funds

FOX Business correspondent Kristina Partsinevelos joins 'Your World' with the latest

This is a rush transcript from "Your World with Neil Cavuto" January 27, 2021. This copy may not be in its final form and may be updated.

(BEGIN VIDEO CLIP)

JEN PSAKI, WHITE HOUSE PRESS SECRETARY:  Our team is, of course, our
economic team, including Secretary Yellen and others, are monitoring the
situation.

It's a good reminder, though, that the stock market isn't the only measure
of the health of our economic -- of our economy. It doesn't reflect how
working and middle-class families are doing.

(END VIDEO CLIP)

NEIL CAVUTO, FOX NEWS ANCHOR:  All right, no fun and games at the corner of
Wall and Broad, as a lot of people look at a big falloff today that puts us
back in negative territory that have some wondering whether, ironically,
some gaming stocks and some other lesser known names can all of a sudden
gain tens of billions of dollars in market value.

I will tell you what's behind this. There are those big institutions and
hedge funds that love to short stocks, in other words, to bet on their
price collapsing. Now, normally, they have their run of the world.

This go-round, though, there's been a change. There are numbers social
media investment sites that have popped up to challenge the guys who are
shorting the stocks. And it's a battle royal, because some of the biggest
hedge funds in the world are taking it on the chin.

There was talk, suspicion that maybe some of them needed rescuing because
it was getting that bad. But if you're an owner of the game stock, or if
you're an owner of an AMC, or BlackBerry, or Express, or all these other
names that have benefited from this battle against those betting on their
prices going down, it was heaven for you, the frenzied buying the likes of
which we have never seen in these size issues that all of a sudden were
dwarfing trading volume normally awarded to the Amazons or the Apples.

Some of these guys at some points trading at 10 times the volume, in other
words, people buying, selling, getting in and out, 10 times what they do in
a name like Amazon. It's remarkable. And so far, it's already got the
attention of Elizabeth Warren, who says, we need to look into this.

First, what are we looking at?

Kristina Partsinevelos on the surge in some names that used to get no
respect -- Kristina, what's happening?

KRISTINA PARTSINEVELOS, FOX NEWS BUSINESS CORRESPONDENT:  Neil, it is a
rebellion of sorts.

You have got the little retail investors vs. those hedge funds that you
mentioned who bet on stocks falling. And you have GameStop that is caught
right in the middle.

GameStop share price has been declining since 2015. Kind of makes sense,
because a lot of people are buying their video games online, instead of
going into the stores. Hedge funds saw this trend and said, hey, let's bet
that the stock will fall even further. So, they short-sold GameStop.

Then you had a bunch of retail investors that joined forces on an online
forum on Reddit and noticed what the hedge fund guys are doing and said,
hey, let's buy GameStop shares, pushing the price up. And that means all of
those hedge fund guys that bet it would fall, lost billions of dollars.

And that's exactly what happened. Just this month alone, you saw GameStop,
the share price climbed well over 1200 percent. The market cap right now is
well above $23 billion. And two major hedge funds that did bet it would
fall -- that would be Citron, as well as Melvin Capital -- both announced
that they're closing their positions on GameStop.

And now you have these retail investors that have gained so much confidence
right now in the online forums too that they're now going after some other
companies that have been hard-hit by short sellers, like AMC Entertainment
and like retailer Express.

AMC today, we saw that stock price climb 280 percent, and Express almost
200 percent, definitely a strong ride, a lot of momentum for these stocks.
But a lot of Wall Street veterans do argue these retail investors are new,
inexperienced, and lack diversification.

So, when those stock prices fall, they will lose big time. But, so far, if
you look at those bank accounts of the smaller retail investors, they seem
to be doing well -- Neil.

CAVUTO:  Yes, very well. That's a good overview of that, Kristina.

Thank you so much, Kristina Partsinevelos of FOX Business Network fame,
which, if you don't get, you really got to demand, especially on a day like
this. Man, it was crazy.

Now, to put this in perspective, you might be asking, after Kristina's
report, all right, those stocks are going off to the races and just doing
fine. So, why would the general market tumble in response?

Well, the fear is that some of the big boys and the hedge funds and the
large institutions that make a living buying and selling stock in the hope
of really tanking some of these issues or shorting them, getting their
money back on the profit difference, well, that they're going to need some
help.

We're already told that Citron and some of these others are on the hook for
billions of dollars in losses. And, already, we're getting signs that some
investors are coming to their rescue. The fear is, though, that it could
feed on itself and the big guys get stung, while little folks are buying
into GameStop and AMC, BlackBerry, and all these others.

So, good for them. But now here's the other fear, and I'm going to get into
my panelists, that, eventually, there comes a time when people want to take
their profits and leave.

Now, the experience of the late 1990s, the Internet bull market boom, was
that they all were going to the door at the same time, and the door was
only so big. So, that many people were pushing through, and not everyone
got through. That was then. Could it be happening right now?

Let's get the read from Charlie Gasparino, Danielle DiMartino Booth  here
as well, Michele Schneider as well.

Michele, following these type of markets, as you have, I'm just curious
whether we do have something to worry about. Normally, when you hear big
hedge funds and the rest could be in some trouble because of this, I
automatically think, uh-oh, is this like a big bank in trouble deal?

What do you think?

MICHELE SCHNEIDER, MARKETGAUGE GROUP:  Well, I think the only time that I
can say that really reckons to this one is not just dot-com bubble that you
mentioned, but also what happened in the commodities exchange back in its
heyday.

From 1971 -- excuse me -- from 1979 to 1982, you had silver, which seems
like a joke now, go from $5 to $50. But at the time, that was a huge move,
relative to just the percentage of performance.

And, eventually, the Hunt brothers tried to corner the market there too.
And it took years for the COMEX governance boards, and for the CFTC to try
to figure out how to control it. And they eventually did.

So, we could be looking at a situation like that now. Of course,
everything, in terms of time frame, is so much faster than it used to be
then. But at this point, I think they're...

CAVUTO:  Yes, by far.

SCHNEIDER:  Yes, right.

And so they're scrambling to try to figure out. The SEC can look at short-
selling. But there's really no rules being broken at this point, other than
the fact that the kids are enraged because they feel like, for years, the
market was manipulated, and now it's their turn.

CAVUTO:  Yes, and then they're trying it.

Charlie Gasparino, the issue here is that it's a sign of frothiness. And a
lot of people have been talking to me today:  Well, that's certainly a sign
of the cap.

Now, you could look at that from a variety of ways. If those betting on
stocks collapsing are wrong, and they're paying for it, that's one thing.
There's generally this feeling that it has that late '90s feel to it,
because these are just rapid moves, multibillion-dollar exchanges of shares
that change the entire equation.

What do you think?

CHARLIE GASPARINO, FOX NEWS SENIOR CORRESPONDENT:  Right.

And the stocks that are trading, I mean, GameStop is not worth $300 a
share. I mean, I think that's a reasonable thing. BlackBerry -- when was
the last time you used your BlackBerry? Is that worth the run-up it had?

And, by the way, this is -- all these -- as we have been reporting, first
on FOX Business -- we were way ahead of the curve -- all these stocks have
been -- this -- this is known as a bull raid. It's been going on for weeks
now. People are just now freaking out. But we have been talking about this
for a while.

A couple points to make. There's a more contemporary example of issues
involving stuff like this, other than the Hunt brothers. And that's Long-
Term Capital Management, when that hedge fund blew up.

CAVUTO:  Right.

GASPARINO:  Now, what was problematic about that, what made it systemic,
was that all of Wall Street and other hedge funds copied LTCM's trades,
right, their bad -- their trades that were going down.

So there was a systemic risk that the financial system could collapse. I'm
not saying it's going to happen here. But there is this issue. And that's
why the markets are off of a systemic risk that other hedge funds could
collapse, and they need bailouts or whatever.

That's why the markets are up there, is that fear.

(CROSSTALK)

CAVUTO:  Yes. We don't want to get ahead of ourselves. That is a risk.

But it was raised by Elizabeth Warren, who wants to look into this. She's
concerned about it.

GASPARINO:  Oh, they're going to look into it.

CAVUTO:  And, Danielle, when I hear that sort of thing, I mean, I begin to
wonder then, where does this go?

Because the fear is that the little guy, the little investor is going to
get stuck holding these gains, hang onto them, try to sell normally, and
not be able to, and then it's kablooey. And then you have that concern,
coupled with these big institutions that are apparently losing a lot of
Dough, and a lot of them tied to these very hedge funds that are taking it
on the chin.

Are you worried?

DANIELLE DIMARTINO BOOTH, FORMER FEDERAL RESERVE ADVISER:  Neil, if you're
asking me the question, I will say that there is definitely cause for
concern.

The very first question that Federal Reserve chairman, Jay Powell, was
asked at the press conference at 2:30 Eastern was, what was his view on
GameStop and what was happening? A subsequent reporter asked him the
question, are you considering raising margin requirements?

Neil, right now, we have margin debt at a record high, higher than it was
when Alan Greenspan said irrational exuberance and stocks ended up bubbling
into 2000. And we also have hedge funds with net leverage that is also at a
record.

So, to Charlie's point, the potential for systemic risk, the potential for
there to be interconnectivity between one investor to another, that
spillover risk is definitely apparent in the markets today.

GASPARINO:  And isn't it ironic, Neil...

CAVUTO:  We should just explain...

(CROSSTALK)

CAVUTO:  ... those who use the leverage, leverage the money they have made
on their stocks to buy still more stock. When it's going your way, you're
in clover. When it's not, you're screwed.

GASPARINO:  Yes.

CAVUTO:  But, Charlie, are you worried about that?

GASPARINO:  Yes, well, isn't it ironic that Powell is opining on this when
he's one of the reasons why this is going on?

I mean, it's -- listen, you can blame Robinhood, low-cost trading or zero
commission trading. You can blame people being locked in their apartments
because of the lockdowns, and they have nothing to do but speculate in
markets.

But the reason why there's so much froth in the market, why it's so easy,
why finance -- why leverage is so high, why margin debt is so -- is up
there so much is because we have zero  percent interest rates.

When you have zero percent interest rates, people do risky things to make a
buck, because they have to go out on the risk spectrum. And it's...

CAVUTO:  So, are you saying, Charlie, we're going to see more of this, this
more risky stuff, more risky behavior?

GASPARINO:  If -- by the way, the only way you change this is to change the
risk dynamic.

And the only way you do that is to raise interest rates, which he said he's
not doing.

CAVUTO:  All right.

So, Michele Schneider, let me ask you this. A lot of people are hearing
this and saying, I want in, because I'm looking at what's happening to AMC,
and it's tripling and quadrupling, and BlackBerry, which I thought was dead
and gone, is doubling and tripling. I want in. I want in.

What do you tell them?

SCHNEIDER:  Well, first of all, the fact is that it is transparent, what
they're looking at. If you look at the Reddit site, it's right there.

So, the fact that people want in, I think, is part of what the free market
is all about. And so I would say, to have some set of rules, we look at
using certain types of ranges. Like, we like to see where the market opens,
give it about five minutes, let the dust settle. And if it breaks out from
there, we might get in at that point.

So, it doesn't matter exactly what rule you decide to use, but you should
have some kind of a risk adjustment, and some kind of place to take profits
along the way.

CAVUTO:  All right.

SCHNEIDER:  And then decide, are you doing it as a day trade to join the
fun, get out and go home? Or do you want to keep it overnight? Or do you
just want to keep rotating into the next thing and the next thing as these
names keep popping up?

CAVUTO:  All right, very good. Guys, thank you very, very much.

There is such a thing as taking your profits or getting greedy and waiting
to get still more. It's this delicate balancing act. And history shows
that, oftentimes, investors poorly execute that. So, we will be following
this.

We're also getting some musings from Ken Langone, who started Home Depot,
knows a thing or two about, when you start a company, those who like to
pound the company and short the company. He lived through that.

What he fears is repeating itself right now -- after this.

(COMMERCIAL BREAK)

CAVUTO:  All right, not a good day for market averages that routinely we
have seen advancing into record territory day in day out.

But for the 2.1 percent falloff in the Dow, the Nasdaq today a big hit, 355
points. That amounts to that 2.5-plus percent, S&P also down, a lot of this
on these concerns right now growing around all this frothiness with small
concerns that suddenly have the value of General Motors and Apple. And, to
a lot of people, it doesn't make sense.

Ken Langone is among them, the Home Depot co-founder, who said, this is a
bubble, and it's a bubble right now bursting. Take a look.

(BEGIN VIDEOTAPE)

KEN LANGONE, CO-FOUNDER, HOME DEPOT:  What I think is going on right now
could very well the beginning of bursting of the bubble.

I mean, with all due respect, I look at what Tesla's market cap is, the
guy's done a hell of a job, got a great -- everybody I know that owns a
Tesla loves it, great car. But let's face it. Audi and Mercedes and GM and
Ford are not going to just roll up and go away. They're going to be back.

And to make an electric car is a lot cheaper than it is to make the
combustion engine car, because the transmissions and all the other things
you have to do. What I'm saying is, Neil, this could be the beginning of
some sort of a sobering effect on the market in general.

I mean, look, now you have got...

(CROSSTALK)

CAVUTO:  Do you think this is a rich market, then, Ken? Do you think it's a
-- overall, that this is a rich market at these levels?

LANGONE:  Oh, sure, of course. Of course it's a rich -- it's a very rich
market.

And what all I'm saying is, if you have got great companies with great
balance sheets, with good income statements, their stock will go down.

What do they say one of the old-fashioned sayings was? When they raid --
when they raid a house of ill repute, they also take the piano player?
That's still valid.

(LAUGHTER)

LANGONE:  OK?

I mean, what I'm saying, Neil, is, if you have got great companies, my
companies, Lilly, Parker Hannifin, Home Depot, Choice -- no -- I'm sorry --
Option Care. I'm giving you the names of the style -- Yum! Brands.

These are great companies with great balance sheets, great management and
solid businesses. They're going to be fine. My net worth might be not fine.
My net worth might be a lot lower after the bubble bursts.

But that doesn't take away from the intrinsic value of these great
companies. What you have to worry about is when you're discounting the
hereafter. And that's what's going on with a lot of these tech stocks, big
time, big time.

When somebody told me the other day the market cap of Tesla is more than
all the five major manufacturers of automobiles, Ford, General Motors,
Mercedes, Volkswagen -- I forgot what the fifth one was.

Now...

CAVUTO:  Right.

LANGONE:  ... what's the magic of making a car? The magic, I guess, is the
battery technology.

But that isn't far away from -- hell, all of these people, they're all
going to have electric cars, all of them. That's going to get down to
price.

And, by the way, Elon Musk is a genius. What he's done, I think, is -- I'm
not taking anything away from the man. He's spectacular. But what I'm
saying is, there's going to be a catchup here. Going to be a catchup.

And when it happens, supply and demand will reign again.

CAVUTO:  After the protests and the -- got violent in Washington in the
last couple of weeks of the Trump administration.

(CROSSTALK)

CAVUTO:  You had said at the time that you felt betrayed by Donald Trump...

LANGONE:  I do.

CAVUTO:  ... and that you vowed to support Biden. You said as well that
there should be no mitigation at all, that: "The storming of the Capitol
which resulted in the death of five people was shockingly horrible and
wrong."

You said you would do everything you could to help make Joe Biden a
successful president.

Do you still feel that way?

LANGONE:  You bet, because you know what? If he has a successful
presidency, that means things are good?

Herbert Hoover did not have a successful presidency, did he? I don't think
he did. Roosevelt did. Truman did. Reagan certainly did. Hell, when the --
when a president has a successful term, it means the country's doing good.
That's what I'm talking about.

We all -- look, it's in my interest for this man to be the best president
we ever had, because...

(CROSSTALK)

CAVUTO:  Do you think they should impeach Donald Trump? Do you think they
should impeach Donald Trump right now? They want to prevent him from
running from office again.

(CROSSTALK)

LANGONE:  One point. I have no opinion it, because it's meaningless. It's
meaningless. Leave the guy alone. Let him go.

What I am saying is, I thought, after he went through the whole court
procedure, he was in every court. Or -- I said -- not every, but he was in
a lot of courts, and every court said the same thing. Where's the proof?
Give us the facts. Didn't have them.

I'm pleased he did that, because he held the electoral system accountable.
But the courts said -- and, by the way, many of these judges with judges he
appointed. The courts said, give us the facts. You haven't got the facts,
no case. Goodbye.

It was over. He should have gone -- after the last case that he lost, he
should have gone on television and said:  I still think that there's voting
irregularities. I hope to God that, in the future, we will work out ways.

Don't forget, one of the problems this year was, because of the pandemic, a
lot of people didn't vote in person. So, it was a unique situation.

But what I'm saying is, where I felt betrayed, look, nobody likes to lose,
but if you're going to lose, be gracious. And I felt, as president of the
United States, he should be held to a higher standard. And whatever he said
or didn't say that got these people to Washington, the fact of the matter
is, it was under his watch. He was still president of the United States.

And it was ugly. And five people lost their lives.

CAVUTO:  Seven out of 10 Republicans, Ken -- seven out of 10 Republicans,
Ken, are still open to the idea of Donald Trump running again for the
presidency.

Are you?

LANGONE:  Four years in politics is a lifetime, OK? A lifetime.

I know this, that with the redistricting that's going to go on as a result
of the 2020 census, think about this. The people are moving out of blue
states. They're moving out of California. They're moving out of Illinois.
They're moving out of New York.

Where are they going? They're going to Florida. They're going to Arizona.
They're going to Texas, or other -- they're going to North Carolina. Now,
if they are going to bring the problems that they are running away from to
the states they are going to, then I pity those people, because what the
hell are they doing? It's irrational behavior.

It seems to me, if they are going to leave where they are because of what's
going on, they're going to say, well, if I go here, I'm sure not going to
want this to happen here.

This notion that Texas is moving blue, I don't believe it. I don't believe
it at all, because I happen to think...

(CROSSTALK)

CAVUTO:  So, again -- again, I will ask you.

Donald Trump, if he wants to run for president again -- and a good many
Republicans support that notion. Do you?

LANGONE:  Do I support it?

CAVUTO:  Yes.

LANGONE:  You're asking?

Absolutely not. Absolutely not. I think Donald Trump did a -- by the way,
he did a lot of great things. That's the tragedy of what happened here. He
-- I think he did -- I think, dealing with China, he did the right thing.

Look, we gave China, a mulligan 45 years ago, when we said we have got to
help them get on their feet, a prosperous China is safer for America than
with China with its back to the wall. So, we made a lot of concessions to
help them along, as we did with the Europeans after we beat them in World
War II, the Germans, the Pole -- everybody else that was our enemy over
there, the Italians.

We helped them get on their feet. That's the genius and that's the heart of
America. We did those things. We did it with China. OK, China is now the
second largest economy in the world. They don't need handouts. And this is
what Trump -- what -- that's one thing.

I think what he did in the Middle East with all these deals with Israel is
wonderful. It's wonderful. I think saying to the NATO countries, hey, guys,
we all signed a piece of paper, and we all said we're going to spend 2
percent of our GDP. We're paying ours. Where's yours?

That's a transaction. That's fair. He did a lot of good things.

And, by the way, I don't think we should apologize for saying America
first. What do we go to war for? To protect our values and protect our
democracy. That's why we went to war in World War I and World -- especially
in World War II. We had to be lured into World War II.

And we did for one reason, because Roosevelt knew that our way of life, our
democracy, our values were -- were in peril.

Look, four years is a forever. There's something, Neil. In 2016, Donald
Trump didn't win. Hillary Clinton lost. In 2020, Joe Biden didn't win.
Donald Trump lost.

(END VIDEOTAPE)

CAVUTO:  It's a very good point, Ken Langone musing about what's happening
in the markets right now, and what's happening in Washington right now.

He's optimistic longer-term we get through both.

In the meantime, earnings are coming out from some of the companies he
mentioned, including Tesla, which didn't sell quite as many cars as maybe
the markets had thought, missed its numbers a little bit. And the stock is
selling about 4 percent in after-hours.

Facebook just the opposite situation, much-better-than-expected numbers,
but there's a bit of a pause in the buying here about concern that maybe
there could be momentum issues. We're on that and a lot more -- after this.

(COMMERCIAL BREAK)

CAVUTO:  All right, here's the good news on COVID vaccines. Up to 200
million more could be on the way. Here's the bad news. You're going to have
to wait a while.

We're on top of that -- after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

SEN. CHARLES SCHUMER (D-NY):  Climate change represents an existential
threat to our country and our planet. Every tool in the toolbox should be
brought to bear.

In my view, President Biden should consider the declaration of a national
emergency on climate change.

(END VIDEO CLIP)

CAVUTO:  All right, every tool in the toolbox.

My next guest worries about that, because he says we don't have many tools,
certainly when it comes to money, running up record deficits and debt, that
limit how much we can do with President Biden's series of executive orders
to deal with climate change and to move the world to a cleaner world, at
that.

Kevin Brady of Texas with us right now, the House Ways and Means Committee
ranking member.

Always good to see you, Congressman.

What do you make of this -- of this front? Because it comes at the same
time the president canceled the Keystone pipeline and is already sending
the signal no more new oil and related drilling on federal lands. For
Texas, a big energy state, you have got to be a tad concerned.

REP. KEVIN BRADY (R-TX):  Yes, I think the first two days of the Biden
administration, two attacks on our oil and gas workers, cancellation of the
Keystone pipeline obviously devastating for a lot of blue-collar workers.

Certainly makes us less energy-independent, less secure, makes no sense.
And, of course, the suspension on the leasing on oil, federal lands and
waters, if that's made permanent, in Texas, we lose about 120,000 jobs,
nationwide, about a million jobs just over the next couple years. Again,
doesn't make us more energy-secure, so big -- big mistakes.

I think addressing Senator Schumer, look, we have two priorities in America
right now, defeating COVID and rebuilding this economy. That means a focus
on mainstream businesses and the jobless.

And in this COVID package, I don't see much help at all for the economy.
And I think, Neil, the biggest outstanding question that I think we all
need to hear from the president and Treasury Secretary Yellen is, how many
jobs will this create?

We're spending $1.9 trillion. How many jobs will this create for our
country? And I ask that because I look just at their proposal for funding
state and local governments. They're proposing, if they rehire everyone,
same old government that lost their job over the last year, they will be
spending a million dollars per job. That seems very excessive.

And it raises the question, so how many jobs are we looking at in this
package? It's a fair question.

CAVUTO:  What they have been arguing, as you know, Congressman, is that the
jobs you gain in new energy will offset the jobs lost in traditional fossil
fuels.

Now, you have been a champion for quite some time to go all in on all types
of energy. If you like what we have, and we have plenty of it in this
country, pursue oil and all that, fracking, but if you like these other
technologies, go knee-deep into them as well.

But you were saying, I think, at one time we talked about this, don't pick
and choose, endorse them all. But now what?

BRADY:  Yes. Yes, it really is key.

So, yes, so, my first job as Ways and Means chairman for Speaker Ryan was
to negotiate an end to the ban, 40-year ban on exporting crude oil all
around the United States, in return for a future for oil -- for solar and
wind and renewables. We reached that agreement under an Obama
administration, but, right now, obviously, a lot of reneging on that
bipartisan approach.

And I still think, at the end of the day, that, for us to tackle greenhouse
gas emissions, that the answer is not higher costs on energy and killing
off oil and gas jobs in businesses. It is technology. We have the ability
to create affordable fuel. And we are developing the innovation that,
frankly, we ought to export around the world tax-free and tariff-free that
allows us both to grow the economy and reduce greenhouse gas emissions.

I think the Paris accord is almost a Flat Earth type of thinking. If you
look today at the solution, it's innovation. It is not killing these blue-
collar oil and gas jobs.

CAVUTO:  Real quickly, the $1.9 trillion stimulus plan which we're getting
hints that the president and the leaders, Democratic leadership, is pushing
for just a reconciliation vote there, where it would be just a simple
majority, what do you think of that?

BRADY:  Yes, pretty ironic, because I remember, as we were working on tax
reform and working with our Democratic colleagues, they assailed us night
and day for making this a partisan one-party effort.

Yet, a week or two after the president called for unity, they are taking
that same approach and looking to jam that through. I think it's a big
mistake. There is plenty of common ground, I think, on how we defeat COVID
and rebuilding this economy. They're starting next week on the budget in
the House without answering basic questions.

The other thing too, Neil, if we're serious about the economy, first, we
ought to take any discussions of tax increases off the table until we have
recovered to pre-COVID levels. I mean, you wouldn't raise taxes in good
economic times. It's controversial. You certainly don't do it in the
recovery.

And Leader McConnell is right. We do need COVID-related protections that
reward companies that are doing the right thing to create a safe
environment for the workers and customers. I think -- I think that needs to
be, both of those, key parts of this discussion.

CAVUTO:  All right, we will watch very, very closely.

Kevin Brady, always good catching up with you, my friend. Be well.

BRADY:  Good to see you, Neil.

CAVUTO:  Happy new year. Happy bumpy new year, I guess.

BRADY:  And to you.

CAVUTO:  Kevin Brady.

As Kevin and I were wrapping up there, just want to alert you to two
things. Tesla, that is falling in after-hours trading, the stock down 7
percent, just missing some key sales figures just a teeny bit. But that was
enough to hit this high flyer.

But the big, big news is Apple just out with earnings that handily beat
Street estimates, and I think blew them away, when it came not only to
revenues, but the quarter performance, the fact that it's making close to
$58 billion of its iPhones alone, and it had $100 billion-plus quarter, the
first American company to register sales north of $100 billion, let alone
$112 billion, in a single quarter. That has never been done -- until now.

Stay with us.

(COMMERCIAL BREAK)

CAVUTO:  All right, you just heard that Apple had its most profitable
quarter ever, revenue north of $111.4 billion. It was up from $91.82
billion in the year-earlier quarter.

Again, these numbers, whether you're talking earnings, or iPhone sales, or
any of the other things in which it breaks out, including headphones and
AirPods and all the rest, handily beating estimates, and all up double
digits from a year ago.

It was considered a safe pandemic play. Early indications are, coming out
of the pandemic, it could play the same role. Tim Cook has been discussing
this with analysts. And we understand that he's not exactly providing a
specific guidance for the year going forward, but he is optimistic
nevertheless.

Gary Kaltbaum with us right now.

Gary, it's interesting.

On a day we are focused on all these companies that out of the blue seem to
quickly attain the market value of Apple -- I exaggerate -- when I talk
about GameStop and some of these others, the real McCoy is showing how you
do it, huh?

GARY KALTBAUM, FOX BUSINESS CONTRIBUTOR:  A $2.4 trillion market cap.

And, for me, the big story is, to be able to grow sales 20 percent-plus,
when you're doing already $280 billion a year in sales, in a pandemic, with
a bunch of your stores closed because of pandemic, is just magnificent.

And I still remember when Tim Cook took over for Steve Jobs. I was
wondering if this guy was up to it. And, man, oh, man, and it's simply
about -- I just think about me. Every time they come out with a new phone,
I get it. I had good earbuds. And guess what? My kids bought me the newer
earbuds that are even better with noise cancellation. And they just got
game.

And they have created their own great ecosystem with their services, and
they are here to stay. And I wouldn't be surprised if it just keeps -- $3
trillion, $4 trillion, which I would have never believed before.

CAVUTO:  The stock is down a little bit in after-hours trading. I know this
might be a bit of selling after the fact.

But, having said that, when I look at just smartphone sales, $65.6 billion,
and we understand from Tim Cook a lot of those toward the priciest of all
the models, the I guess the 12 Pro Max. And they're not cheap. They're
$1,200, $1,300 phones. That's a lot of phones and a lot of folks plunking
down a lot of money for the privilege.

What do you think?

KALTBAUM:  Years ago, I believe, who's going to pay $500 for a phone? But
it's just not a phone anymore. It's everything to everybody. And that's
what people consider.

They use it for their health and their weight and their heart rate, and you
name it. They have created this system that has your whole life in it. You
pay with it. And you do everything with it. And I suspect there will be
more applications as it moves forward.

I think he mentioned there's a couple of million apps that they have on
there. So, that's some pretty big stuff. And the only reason the stock
isn't moving in the aftermarket is, I think the market is a little bit soft
here. I think you're seeing that right now.

And it's already had a pretty good move up the last few weeks. So I think
that's a no biggie at this juncture.

CAVUTO:  Yes, the stock has essentially doubled in the last year. And you
were on that before anyone else.

All right, so we will follow this very, very closely.

Gary, thank you, as always, Gary Kaltbaum following these developments
here.

So, this is the headwind these markets are going to face when you have the
big boys. Most of them are doing quite well, and technology, and Facebook,
I would throw with that. Tesla is making a profit and doing all of that,
just not as much as they thought it would. So they pounce on that.

But watch these guys, because they could be market leaders.

And, by the way, you might want to be watching China. It's had some ships
sort of steamrolling through the South China Sea, an early challenge for
Joe Biden.

We are on that -- after this.

(COMMERCIAL BREAK)

(BEGIN VIDEO CLIP)

TONY BLINKEN, U.S. SECRETARY OF STATE:  The relationship between the United
States and China is arguably the most important relationship that we have
in the world going forward.

It's going to shape a lot of the future that we all live. And,
increasingly, that relationship has some adversarial aspects to it. It has
competitive ones. And it also still has cooperative ones.

(END VIDEO CLIP)

CAVUTO:  The new secretary of state, Antony Blinken, making it clear right
now that China will be our biggest issue right now, and China confirming
that by doing some military exercises in the South China Sea and elsewhere.

Some have seen that as a provocative move.

Gordon Chang, "The Coming Collapse of China," and so much more, author.

What do you make, Gordon, of this China challenge? They might be relieved,
that is, that Donald Trump isn't in the White House. But they are clearly
drawing some lines with the new president. What are they -- what are they
telling him?

GORDON CHANG, AUTHOR, "THE COMING COLLAPSE OF CHINA":  I think what they're
trying to do is find out how tough Biden is.

These aerial exercises in Taiwan on Saturday and Sunday are interpreted in
the region as a challenge to Biden, and many people in the U.S. are saying
the same thing. China challenges new U.S. presidents. They did that with
George W. Bush and Barack Obama with military provocations that were
dangerous.

They didn't do it, surprisingly, with Donald Trump, because I think that
they were afraid of him. But we know from comments from members of the
Chinese elite that they're not afraid of Biden. And so I think this is a
very dangerous time, because you have got leaders in China who are
arrogant, and they think they can push us around.

CAVUTO:  Do you think they will return to the kind of provocative stuff
they used to do, where they're militarizing islands, and they're just
getting reckless, increasingly reckless, on the belief that we won't
respond?

CHANG:  Yes, I think that that's part of it. And it's not just the
exercises against Taiwan.

Within the week, China has basically a new invasion of Indian-controlled
territory, this in Sikkim. So, China's pushing out around its borders all
over the place. And this is really one of those points which could be
consequential, because Beijing is seeing who's going to push back.

CAVUTO:  Now, the -- maybe the trade deals with Donald Trump
notwithstanding, I mean, we do know that the world prefers investing in
China now more than they do our own country.

And I'm just wondering whether China flouts that or leverages that. What do
you think?

CHANG:  China leverages every point of contact it has with our society and
with others.

So, the answer to that is definitely yes. And it's right. China had more
FDI last year than we did. But China's economy was much weaker than they
reported. And I think we're going to see that 2021 is not going to be the
excellent year that Beijing had in 2020.

CAVUTO:  Gordon Chang, thank you very much, my friend, Gordon following
these latest developments in China.

The Chinese markets and economy have rebounded more than any other since
all of this. And there's so much we don't know about how all this started
and whether they were telling us the truth about how it did. Probably a
moot point at this point.

When we come back, speaking of that virus, how to deal with all these
variants. There are at least three. And there are some recommendations
doctors are giving to address them -- after this.

(COMMERCIAL BREAK)

CAVUTO:  All right, so many variants, so little time right now.

The latest sort of odd mutation of the COVID-19 virus popping up in
California.

Dr. Eric Vail with us right now, Cedars-Sinai pathologist who's been
looking into this.

Doctor, what can you tell us?

DR. ERIC VAIL, PATHOLOGIST, CEDARS-SINAI MEDICAL CENTER:  Hey, Neil. Thanks
for having me on the show.

CAVUTO:  Thank you.

VAIL:  So, we discovered this variant right around New Year's, and it has
grown from about less than 2 percent of the total tested samples in
November to a little -- almost half of the samples that we have seen so far
in January.

Yes. And so...

CAVUTO:  Can existing vaccines, Doctor, deal with it?

VAIL:  What?

So, right now, there's no evidence that the vaccine will have any reduced
efficacy on this strain. There's no evidence that it has increased
virulence. There's just some evidence that it may be more infectious.

CAVUTO:  They have talked about getting more vaccines out, as you know,
Doctor, but because of the delay, and maybe some of the problems just
getting to that final mile, I know a number of medical organizations are
talking about the possibility that building herd immunity, or whatever you
want to call it...

VAIL:  Sure.

CAVUTO:  ... could be more a 2022 phenomenon.

Do you agree with that?

VAIL:  At this time, I really can't comment on the vaccine rollout
strategy.

But I think that, as long as everyone can get a vaccine, that they should
go get one. It's really the way that we're going to get out of this
pandemic. And, until then, just keep doing what we're doing.

CAVUTO:  Doctor, you must be sick of being asked this question, but when do
you think we're out of this? When do you think we have it under control?

I mean, we're looking at spring, some say. I know there's been hints coming
out of the FDA that they think that might be the first likely...

(CROSSTALK)

VAIL:  Well...

CAVUTO:  But what are your thoughts?

VAIL:  What I have told my friends and what I think is that Thanksgiving
will be a normal Thanksgiving. That's the -- that's the best I can use.

CAVUTO:  Huh. All right.

So, if you like your relatives, that should be a goal.

VAIL:  Yes.

CAVUTO:  If you don't, maybe you should be a little worried.

VAIL:  Yes.

(LAUGHTER)

CAVUTO:  But, having said that, what do you think of how the new
administration has come in to deal with this, to beef up more vaccines, and
try to get them out there faster?

Apparently, it's a state-by-state type of issue. Some are very good at it,
others not so much. What is the bottleneck issue, do you think?

VAIL:  So, the -- sort of the way that the vaccines are being distributed
right now isn't really a -- something that I don't have -- I don't have a
big picture on that. And so I couldn't really comment on it.

But I think that it's just important that we get as many people vaccinated
as quickly as possible.

CAVUTO:  And when they do that, and they want to get the elderly first,
they want to make sure, you're in a nursing home...

VAIL:  Yes.

CAVUTO:  ... in an assisted living, you get it first. Do you agree with
that strategy, obviously, health care workers, such as yourself....

VAIL:  Yes. The...

CAVUTO:  ... but that should be a unified approach?

VAIL:  So, the reasoning behind that is that is that the -- is that elderly
people and people in nursing homes, things like that, they're the ones that
get the worst disease from this, right? They're the ones that have the
highest risk.

And so the general strategy from the beginning has been to get people that
were as high as risk as possible. And I think that that's reasonable.

CAVUTO:  All right. We will watch it very, very closely.

Doctor, thank you very much for taking the time.

And just to echo a little bit of what the doctor touched on, the Biden
administration has already advanced-ordered 200 million doses of COVID-19
vaccine, hoping to make it 1.5 million doses a day that can be distributed.

The devil's in the details. And Pfizer, BioNTech are going to make 125
million new doses for early availability global -- global-wide. That's what
they hope. That's what they hope. We shall see.

Here's "THE FIVE."

END

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