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(Today’s musical accompaniment by Pink Floyd)
Here we go again. I spent a good portion of the past two days commenting about the latest burst of activity in GameStop (GME), including making it the focus of yesterday’s piece. Discussing this stock and the craziness that surrounds it has clarified my thinking about how the meme-stock phenomenon has morphed from “Us vs. Them” to “Us vs. You”.
The original meme stock phenomenon started as something organic and was very much an “us vs. them” thing. It is a theme that we highlighted in March of this year when Trump Media & Technology (DJT) had its own meme-stock-like run – one that I believe showed “proof of concept” for the current GME rally:
A key element that fueled the original meme stock rally was an “us versus them” mentality that was fermented on social media. “Them” was the short sellers who were perceived to be rooting for the demise of the chatroom denizens’ favorite stocks. But what fueled that zeal? At the time, with the help of my [then 23-year old] son, I attributed it to nostalgia:
“The short squeezed WSB [Wall Street Bets] stocks all have one thing in common besides being short squeezed. They’re all things a 20-something person would be nostalgic for. GameStop, AMC, Nokia, Build-a-Bear – things that would make you sad to hear are failing business because it means that you’re old.”
In the January 2021 article that was the source of the nested quote above, entitled “GameStop, BlackBerry and Nostalgia”, we continued:
I had been trying to figure out why a seemingly ragtag list of brands had such staunch advocates all of a sudden. There was an emotional chord behind the mania, beyond even the desire to get rich and the latest expression of the age-old desire to “stick it to the man”. There is a real sense of advocacy behind many of the posts, and this would explain it.
“Us vs. them”, or “sticking it to the man” can be powerful motivators. If a large group of disparate individuals are going to coalesce over social media, a common goal or motivation is necessary, and the original Reddit community found one in battling the institutional short sellers. There was a somewhat moralistic rationale along the lines of “how dare they do this?”, combined with the fact that short squeezes have existed for about as long as there have been short sellers. A group of individual investors, led by an oddly charismatic character, found a potent mix of newly active traders, a raging bull market fueled by zero interest rates and stimulus check, and the perpetual need for short sellers to either finance their expensive borrowings or cover them, and created both a stock mania and a common cause.
Here’s the problem now, however: in the current iteration, who is “them”? It’s easy to know who “us” is. It’s the crowd who bristle at even the slightest inference that maybe someone would want to exercise some prudent risk aversion, or the knucklehead on social mediav who completely misunderstood why “Roaring Kitty” might have wanted to monetize his gains yesterday by selling stock against his call options. The “us” is highly committed and galvanized. But I can’t figure out the “them”.
There simply isn’t a large crop of institutional short sellers to battle, so they’re not a candidate. Is it the non-believers? Maybe, but there is a huge difference between being agnostic and being an infidel. I firmly believe the stock is overvalued, but I understand why traders would be drawn to a highly volatile and liquid stock. Well capitalized traders with a sense of discipline should feel free to wade into the fray as long as they fully grasp the significant risks that accompany the potential for rewards.
I’m afraid that there is a much more cynical aspect to the current GME activity. Although a post late yesterday implied that “Roaring Kitty” had not taken any profits during yesterday’s run-up, keeping to the “HODL” ethos, it strikes me as astounding. But whether or not they did sell any stock or options, it is clear that they are using their posts to stoke enthusiasm from the faithful. It’s rarely a good idea to chase a stock – any stock – especially if someone needs your buying to keep it moving.
Thus, if you’re not sure who “them” is, perhaps “them” is “you”.