Marc Cuniberti The MEME stocks are on fire again. You remember these. My last article on the MEMES was called “The Game that is Gamestop”.
The MEME stocks refer to a group of stocks thought to be driven by mostly novice day traders, spurred on by the common thread of social internet bloggings.
Specifically but not limited to Reddit and WallStreetBets, visitors to these and other social media sites communicate with others on the site, and like a stampeding herd of buffalo, once they get started, the “herd” starts buying the stock flavor of the day.
A new phenomenon in the world of stock trading, the MEME group is not a concerted group at all. It’s just a whole bunch of people, unrelated by blood or otherwise, all moving without a single directive, but moving in masse nonetheless.
Their unstated but rumored purpose was to burn Wall Street traders who bet against certain stocks, hand them their proverbial monetary heads, and make lots of money in the process.
Called “short sellers”, the understanding of the mechanics of how Wall Street traders bet against a stock can be elusive to some. To keep things simple, just know that Wall Street firms often bet against a stock, hoping it will go down, and making money in the process.
Until a few months ago, there was no one group that might compete with Wall Street. In other words, although other traders could take the opposite bet and take positions on the long side instead (betting the stock goes UP instead of down), there was no one group large enough that could legally pressure stock in one direction or the other. Although it is illegal to be a concerted group and purposely manipulate a stock up or down, by buying or selling massive amounts, a stock could be moved by larger firms.
Enter the MEME traders. Not really an organized group, the sheer numbers of readers and bloggers who had some money and attended the same social media pages would start to buy a stock that a Wall Street group or groups had bet against.
With millions of bloggers, all pointed in the same direction, they started initially buying GameStop and AMC Entertainment. There have been other MEME targets as well. Driving these stocks up many times over, the losses to some professionals were massive. As their losses mount, because of the logistics of how the bet is unwound, these firms were forced to BUY the very stock they had bet would go down. This buyback is called a ”short squeeze” and just drives the stock even higher.
The novelty was that the MEME group was widespread, had massive buying power due to their sheer numbers, and since they were only related through the web, the laws concerning illegal stock manipulation did not apply to them.
The MEMES were semi-quiet for a few weeks, as news media and Washington regulators dabbled in discussions about the strange new concern. That was until last week when the MEME tsunami hit again and GameStop began another ascent. Not to be undone, AMC Entertainment got top honors this time around as it rocketed upwards, climbing upwards of 30% or more in a 24 hour period, and tripling in just a few days. A handful of other stocks were also rumored to be on the hit list of the MEME’s.
The Wall Street crowd, at least some of them, are starting to cry foul, while others claim the MEMES are doing nothing wrong as they are not really a group at all.
Washington loudmouths are also split on their take on the whole thing. The “for the people” claimants are cheering the MEMES on saying “stick it to Wall Street”, while the money from the traders and hedge funds are bending the ears of those politicians susceptible to such things. After all, money and politics do go together on occasion.
To this analyst, it all speaks to just another sign of excessive froth and speculation in the overall markets but I must admit it’s fun to watch. One reason for my amusement is there is so much money being made and lost on this circus, Wall Street pros who normally wouldn’t follow a Facebook type of platform, let alone trade on it, are analyzing the momentum of these massive moves and trading on the coattails of the MEMES, adding that much more volatility to the action. When the Wall Street trading crowd dip their toes in the proverbial waters, you know there is a lot of money going around.
No one knows whether this thing will end up in court, become a new paradigm in the markets or just fade into oblivion. One thing is for sure, however, for now, the MEMES have everyone’s attention.
Opinions expressed here are those of Mr. Cuniberti and not those of any bank or investment advisory firm. Nothing stated is meant to ensure a guarantee, or to be construed as investment advice. Neither Money Management Radio (“Money Matters”) receive, control, access or monitor client funds, accounts, or portfolios. For a list of the services offered by Mr. Cuniberti, call (530)559-1214. California Insurance License #0L34249 and Medicare Agent approved.
