Meme stocks are back to driving Wall Street crazy.  Hedge funds lost again

Three years after driving Wall Street crazy and causing hedge funds billions of dollars in losses – meme stocks are back in a big way.

A Twitter tweet with an illustration of a man during a video game leaning forward, as if gearing up for action, drew a particularly sharp response in a number of stocks. Although the tweet did not mention the name of any stock, the tweeter may have wanted to hint to his followers about a specific company – a stock of a chain of stores that sell computer games – Gamestop. This tweet was enough to boost the stock by tens of percent within minutes, and in the last two days a share Gamestop jumped by about 255%. Is the Gamestop saga coming back? What stocks does it follow? And who are the big losers? Globes is in order.

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History repeats itself

Meme shares are shares that jump sharply due to popularity on social networks, without anything to do with the business conduct of the company or its financial situation. The buzz around these stocks is spread with the help of pictures, illustrations, videos or gifs that are passed between traders.

In January 2021, Gamestop shares became synonymous with meme shares in an affair known as the “Gamestop saga”. Following a consistent decline in the business of the computer game store chain, large investors such as hedge funds made significant short sales (short) on the company’s stock and in fact bet that its value would continue to decline. Users of the wallstreetbets forum on the Reddit social network protested the attack of the shortists on the stock and decided that they were creating a plot twist. They bought GameStop shares, sharply increased the share price, forced the shorts to sell their position and buy GameStop shares, and so, within a few days, the stock jumped more than 1,700% and dragged other shares like the movie theater chain AMC and the technology company Blackberry .

Within a week this bubble burst and Gamestop plunged by almost 90%, but the greater significance was on the shorts – who lost billions of dollars during the saga. This story was so unusual that it even spawned a Netflix series called “Eating the Rich: The Gamestop Saga” and a movie called “Stupid Money.”

The man behind everything

This week it seemed like history was repeating itself. The tweet in question boosted the aforementioned GameStop stock by 255% in two days, AMC also jumped by 190%, and the Faraday Future electric vehicle stock jumped by more than 1000%. On Wednesday, this trend seems to have calmed down and at the opening of trading Gamestop shares fell by about 11% and AMC by 14%. More than the tweet itself, it seems that the identity of the tweeter started the phenomenon – Keith Gill, the living spirit behind the Gamestop saga.

Gil’s last tweet, known on X (formerly Twitter) as The Roaring Kitty, was after the saga broke out, on June 19, 2021, in which he posted a video of a sobbing kitten that heralded his disappearance. This week he returned and by and large the tweet has so far achieved more than 26 million views and more than 130 thousand likes and 32 thousand retweets. In the two days that have passed since then, Gil managed to upload more than 20 videos, which also receive tens of thousands of likes, comments and retweets, and added about 500,000 new followers who call him by the provocative name he gave himself on Reddit: “Deep Fucking Value”, or DFV for short.

Gil, now 37 years old, was heavily criticized in the previous round. He himself is a qualified financial advisor, and it is claimed that he tricked Reddit investors into thinking that he is an ordinary person without prior knowledge, while he hides behind his nicknames on social networks and causes damage to the investors who flock to him. At one point, in the previous hype, Gill made more than $30 million on paper, but it is unclear how much of that money remained after the stock crashed.

Keith Gill, started the saga, twice / photo: ap

Those who enjoy the renewed surge Interested in his company is Ryan Cohen, the CEO of Gamestop, who, according to an estimate by the data company Quiver Quantitative, the value of his shares on paper has jumped to $1.1 billion. However, in the meantime he cannot exercise the shares and it is likely that when he wants to do so, they will be worth much less .

The unusual behavior in the shares can also be learned from the fact that on Monday, with the publication of Gil’s first tweet, trading in Gamestop shares was suspended 9 times and on Tuesday 16 times due to sharp trading fluctuations. Even in the options market, history seemed to be repeating itself, when the volume of trading around the meme shares (see table) reached the levels of 2021. On these shares, it jumped sharply to levels last seen only in the previous round, in 2021.

On the other hand, it should be noted that, at least for the time being, the trading cycles in general still do not come close to what they were then. In the first two days of the week, the net flow of purchases and sales in the GameStop stock amounted to 16 million dollars, according to estimates by the research company Vanda Research. In January 2021, it was more than 87 million dollars.

The shorts lost billions in two days

The big losers, again this time, were hedge funds that short (short sell) those shares. The pounce of the small traders on the shares that the hedge funds bet against, creates a phenomenon called “short squeeze”. When a high percentage of a particular company’s shares are traded in a short position, a jump in the stock price forces the shorts to close the bet and actually buy the stock they bet against at any price – resulting in a sharp jump in the stock price.

In the case of ‘normal’ companies, it is usually a few percent short of the total number of shares, in the case of Gamestop it is 27% of all tradable shares, in the case of AMC it is 20% and in the case of Faraday’s share it is more than 85%.

According to data from the analysis company Ortex Technologies, the shorts lost an amount of 2.4 billion dollars in the last two days, of which about 1.6 billion on Tuesday alone. Last time the story ended with the collapse of several hedge funds.

As mentioned, already at the opening of trading on Wednesday it seemed that the hype had moderated and most of the stocks that jumped sharply in the first two trading days of the week, began to drop sharply in double digit rates. Except for one share – Faraday Future, which also rose by 100% on Wednesday.

If you ask the analysts, one way or another the end of the story is known in advance. For example, in Gamestop, analysts at Yahoo Finance estimate the value of the stock at $5.7, but it is now trading at a price of more than $50. In the case of AMC, the analysts estimate that its price should be 4.4 dollars, but it is now trading at a price of more than 7 dollars. At Faraday Future, even after a jump of about 1,000% in two days, it is still trading at a price of 64 cents and a market value of only 12 million dollars.

“Commercial fraud, not ideology”

Both in the series about the Gamestop saga and in social networks, the claim was that this was actually a kind of protest movement against the big players on Wall Street. The goal of reviving stocks like Gamestop and AMC was to prove that small retail investors can “defeat” entities that manage billions of dollars. Obviously, this opinion infuriates hedge fund managers. “Honestly, it’s stupid. It’s about gambling,” Cole Smad, CEO of the hedge fund that bears his name, which manages $6 billion in assets, told CNBC. According to him, “you have to remember that these are young people, forty years old like me, who go out and do things that are just stupid He added that these day traders “only take rat poison”.

Even in Israel they claim that this is not an ideological phenomenon. CPA Amir Eyal, Chairman of the Infinity Investment Group, denies the claim that this is an attempt to create a protest and defeat the rich. According to him, “There is no righteousness in the world of money. With the Americans, only money talks. What happens is that the suckers never end. People saw that last time those who entered early won and those who stayed lost, there is greed, so they say to themselves let’s come early this time and make money. That’s why I I estimate that the wave will now be much shorter than last time, although it is quite possible that until the collapse of the short squeeze will happen to a few dozen more companies, each time they find or invent a different story, but there is no doubt how it will end this time as well because no substantial change has happened in any meme company. Such jumps. These are usually speculators who operate machines. In my opinion, this is a form of commercial cheating.”

Idan Azoulai, Chief Investment Officer of Sigma, from Sigma Clarity takes the inflated air out of the balloon. According to him, “It’s more of a gimmick, there will always be a rising star, but we all know that there is no substance to it, the end is known in advance and we all know how it will end. I think the capital market is for investment, not gambling. There is no lack of places where you can bet. It’s a phenomenon that grabs the headlines, but Maybe a few thousand people are involved in this, it’s something negligible.”

“Those who are busy reading GameStop reports because the stock went up by hundreds of percent are wasting their time because the stock did not go up because of good reports or because it expects extraordinary profitability but because a tweeter tweeted something a little vague.”

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By Editor

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