New GameStop saga reveals true fools in markets

The apparent resurgence in the US meme-stock madness shows there are still plenty of idiots mucking around in public markets. Just not in the places you may think.

This week, the man, the meme master, the counterculture hero that is Keith Gill, aka Roaring Kitty, aka another moniker too salty for a family-friendly markets column, made a return to the internet, with a tweet from his account featuring a drawing of a man leaning forward in a chair.

No words, just a picture. It was not a particularly good picture. I could have drawn it. And to most sensible people, it would have meant nothing. 

But to internet fanboys who still remember Mr Kitty as the spiritual leader of the 2021 joke-stock craze, the man who inspired a brief 2,000 per cent rally in shares in GameStop — a tired, flaky video games retailer — it was a moment of huge import.

The online chat rooms lit up again like those bewildering days in 2021. GameStop shares doubled in value overnight. Other shares that were seemingly randomly invited to the party last time around also jumped, chiming with a market juiced higher by mercifully milder inflation data.

The idiot in all this is not Roaring Kitty, whose previous escapades took him all the way to a congressional hearing on how the surge of GameStop buying interest borked a crucial part of the markets’ plumbing. (Partly as a result of this, three years later, the trade-processing cycle on US securities is about to be slashed down to one day. Kudos to the guy — he has helped spur a change that ended up costing institutional investors all over the world millions of dollars in modernising their operations.)

Nor are the idiots his legions of fans who leapt on the prodigal son’s bandwagon, although they are playing with fire. “This is gambling. It’s rat poison,” said Cole Smead of Smead Capital Management, a value-oriented US fund manager. True to form, most, but not all of those gains in the stock, have evaporated within just a few days.  

It is not even the preening Andrew Tate — a man most famous for Romanian charges of people trafficking and for converting a generation of very online teenage boys to the joys of toxic masculinity. Tate tweeted that he had sold his $500,000 holding in bitcoin to buy GameStop shares, and that he would hold on to them until his last breath as an act of defiance against the establishment. Rarely, if ever, have I been so keen to see the price of bitcoin rise. “Buy GameStop and f*** the matrix,” his X bio now reads. “Women have no interest in the GameStop saga because women don’t want to f*** the system,” he asserts. I just don’t think that’s the reason, Andrew.

Nope, the true fools here are the professionals. One of the many facets of the previous GameStop saga that made it so entertaining was the fact that the online army of often uninformed retail investors managed to push the company’s shares so high, and so fast, that hedge funds betting against them lost their shirts. Chief among them, Melvin Capital — run by someone previously described to me as a genius — ended up shutting its funds. It was an epic fail.

In the aftermath, many institutional investors said the short-selling game in small stocks — typically dominated by hedge funds — was largely up given the risk that online warriors could decide, for whatever random reason, to pile in. And yet, nearly a third of GameStop shares were still out on loan for short selling when the rubbish-drawing-of-a-man-leaning-forward tweet appeared. People were still betting against this thing.

“Hedge funds are going to have some explaining to do,” said Andrew Beer, co-founder of Dynamic Beta Investments. “Fool me once, shame on you. Fool me twice, shame on me. Shorting GameStop again may soon rank as the worst risk-reward of any hedge fund trade over the past decade . . . It’s one thing to get burnt when lightning strikes out of the blue. It’s altogether another to stand in a puddle during a thunderstorm.” These people were doing that with a six-foot metal pole in their hands, pointed at the sky.

Making matters worse, it is not as if the demise of Melvin Capital was some sort of secret. Indeed, the whole sorry episode ended up as a Hollywood movie, called Dumb Money. It was released in cinemas. It was on Netflix. The whole point of it was “a tale about everyday people who flipped the script on Wall Street and got rich by turning GameStop into the world’s hottest company”, according to IMDb. In reality it’s a little bit more complicated than that. A lot of meme-stock enthusiasts are just posting cash into the hands of the Wall Street deep state.

For short sellers to get caught out for a second time though displays mind-blowing chutzpah on their part. These folk were fewer in number this time around — with short positions equivalent to around 30 per cent of the company’s equity compared with more than 100 per cent in 2021. But still. They should have a chat with themselves. Assuming his investment is genuine (and who knows?), they just got made to look daft by one of the dimmest minds on the internet, Andrew Tate.

katie.martin@ft.com