We Predicted It: The GameStop Time Bomb
Tick ... Tick ... Tick: Roaring Kitty = Wile E. Coyote
Tick … tick … tick.
Meme Stock 2.0, the return of “meme-stock-influencer” Keith Gill (aka “Roaring Kitty”) and lots of “where-it-goes-next” excitement about for GameStop Corp. GME 0.00%↑ was one of the top stories of this past week.
Gill’s surprise return back in mid-May — after a three-year hiatus — conjured fond memories of the r/wallstreetbets crowd, a real retail investor “movement” — and a rare moment when those everyday investors got the drop on big hedge funds.
GameStop, one of the marquee meme stocks back in 2021, jumped from $17.46 on May 10 to $30.45 on May 13 to $48.75 on May 14— a 179% surge over those couple of trading days.
But with an aura that was more mercenary than movement this time around, there were questions — even a mystery — about Gill’s motives. What started with some mysterious X posts morphed into portfolio shares under Gill’s DeepFxxxingValue “handle” on Reddit Inc. RDDT 0.00%↑ (with disclaimers, which weren’t used the last time around).
For a swath of investors looking for action, it didn’t matter: They waded into GameStop’s shares in the weeks that followed — betting the stock would zoom higher.
As I see it, GameStop is the quintessential Wealth Killer stock.
So in Wednesday’s issue of Stock Picker’s Corner (SPC) — following the Yahoo Finance report “GameStop And the Meme Stock Saga: Opening Bid Investor Guide” — I gave you some GME “investment advice” of my own.
GameStop is nothing but a ticking time bomb, I warned — a Wealth Killer that will blow your money to smithereens.
And guess what: My Wealth Killer prediction hit the bullseye.
On Friday, GameStop plunged 39.38% to close at $28.22.
And a look at “The Why” behind the plunge leaves me worried about what comes next.
Tick … tick … tick.
“DIVORCED FROM ITS BUSINESS”
GameStop surged over the past month — despite some truly concerning headwinds, including:
A warning that its first-quarter results would be lackluster.
A corporate decision to sell 45 million shares to raise cash — a move that obviously will dilute existing shareholders.
And the odd — very different — nature of Gill’s actions this time around.
On Friday, the narrative got even worse. GameStop released its earnings report. And it announced plans to sell as many as 75 million more shares (it already raised a billion dollars from the 45-million-share sale).
And Friday’s return of the headband-wearing Gill to YouTube was a foray into the Theater of the Weird.
When Gill came on, he was seated in a gaming chair, had colorful bandages on his face and was wearing sunglasses. He was also wearing a sling that he clearly didn’t need. Gill drank beer. And when he wasn’t pounding the table on GameStop’s potential, he ad libbed over viewer comments.
Those comments rolled down the right side of the screen — so fast that it had the same nauseating effect as the shaky Blair Witch Project camera shots. At one point, more than 600,000 viewers tuned in.
The mercenary theme of Meme-Mania 2.0 was bolstered during the livestream by an accompanying “disclaimer” saying the video would be opinion-based — and the legalese that “past performance is not indicative of future results.” None of this legalistic mumbo-jumbo was part of the 2021 mania.
The stream started late and lasted roughly 50 minutes; more than 40 million shares traded between the scheduled start time and the conclusion (a montage of sleeping kittens). All told, more than 274 million shares changed hands Friday — GameStop’s most-frenetic day since March 2021. Trading was halted nine times according to one report — and 17 times, according to another.
Options were hot, too. The hottest (most popular): A call option that would only be “in the money” if the stock tripled before Friday’s close.
“It’s a bizarre spectacle,” Interactive Brokers Chief Strategist Steve Sosnick told Bloomberg. “At least he’s seemed to answer that the positions are really his and that he is indeed still Roaring Kitty.”
Bokeh Capital Partners Chief Investment Officer Kim Forrest agreed with the “bizarre spectacle” assessment of the event.
Like us, she knows it’s “reality” — not the event — that matters.
Said Forrest: GameStop’s stock price “is completely divorced from its business.”
That’s right.
And that disconnect between GameStop’s business — and its still-elevated share price (especially with the now-diluted shareholder base) — is a Wealth Killer recipe.
And the SPC community knew to stay out of this mess …
Tick … tick … tick.
See you next time.
Avoiding the Ticking Time Bomb - GameStop
Back in the late ‘60s or early ‘70s, when I was a kid growing up in the Pittsburgh suburb called Murrysville, Milton Bradley came out with this great toy called “Time Bomb” – think of it as a mechanized version of that kids game “Hot Potato.” I had one myself – my folks gave it to me for my birthday or Christmas one year. It was black, about …
Great stuff! And I agree, it’s bizarre. I’ve received more questions and texts over Roaring Kitty’s return than almost about NVDA! He certainly has celebrity status… he has that cult appeal… but you can’t repeat the perfect storm of 2021. And this will all end in tears.