Odd Lots - Lots More With Luke Kawa on Memestock Mania 2.0

Episode Date: May 24, 2024

Remember GameStop? The poster-child for 2021's memestock mania recently surged almost 5x in a matter of days — and it was all catalyzed by a few tweets from Keith Gill, aka "Roaring Kitty." So what's going on? How similar and how different was this move to what captivated the world's attention three years ago? On this episode of Lots More, we speak with Luke Kawa, markets editor at Sherwood Media, who was one of the first to chronicle the world of WallStreetBets and memestocks for Bloomberg News. He breaks down what we just saw and the lessons we can take away from it.See omnystudio.com/listener for privacy information.

Bloomberg Audio Studios. Podcasts Radio News. Tracy, do you think the meme stock thing is like already over already? I'm serious. Well, you know what? I'm looking at the chart of GameStop and it went up a lot and now it's coming down a lot. The thing I think is kind of funny is if you view the entire meme stock phenomenon from an efficient market's hypothesis, you get really interesting questions like, why didn't the market already price in the risk or the possibility of Roaring Kitty. coming back on Twitter and tweeting a picture of a guy sitting up in a chair.

That should have been priced in. Yeah, I totally agree. As you know, I am the world's biggest believer in the efficient market hypothesis. It's always priced in all the time. And for the first time in my life, at age 43, something has come along to shake my faith. And it is the fact that the market did not price in apparently the possibility that after like three years of, of radio silent, we would get a tweet of a guy leaning forward from the Roaring Kitty sending the stock high. And then, and then RFK Jr. tweeting that he was investing in GameStop. I have to,

I have to completely rethink my fundamental assumptions about how all markets work based on the GameStop chart of the last 10 or so days. I'm completely revisiting all my core assumptions. It's good that the apes have you thinking. I did a deadlift. One. Two, three. Hegemony. Hegemony. Okay, good.

Okay. What's two? GEMany. Barges. This is an after-school special, except... I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the U.S. Where's the best squid impostin? These are the important questions.

Is it robots taking over the world? No, I think that, like, in a couple of years, the AI will do a really good job of making the odd lots podcast. And people will say, I don't really need to listen to Joe and Tracy anymore. We do have... Cha-ching. The perfect guest. You're listening to Lots More, where we catch up with friends about what's going on right now. Because even when the Odd Lots is over, there's always lots more.

And we really do have the perfect guest. Luke, what do you think? Why wasn't it priced in already? Yes, my favorite way is to answer a question with a question. And I think the bigger one is why the heck if your management of your GME and you've seen your stock, got get memed before. How the hell do you not have like a shelf? Oh, yeah.

Ready to go that says we can sell shares into this any time. But, you know, as for why, you know, folks were expecting this, I would say, look at what you have slash haven't gotten from, you know, be the Roaring Kitty Twitter account or anything from Keith Gill since, you know, let's call it mid-2020. Didn't participate in the book or the movie effectively made about him. it just seemed like, you know, I don't know if the, you know, the roaring kiddy just kind of went into to pseudo hibernation. It seemed like, you know, nine lives over and was gone from

the scene. So not something that was on anyone's radar, certainly, of all the, you know, crazy things in markets that happened. This was not one when I was, you know, coming back into journalism that I was expecting to get hit over the head with. We are speaking with Luke Kawa. Our former colleague at Bloomberg, we worked together with him for many years. And then he left us to join UBS and do serious financial jobs. And now he's back in journalism. He's a markets editor over at Robin Hood's Sherwood Media, so a very triumphant return to financial journalism.

Well-timed, I guess. It's like, great. It's like we're gonna go to Robin Hood's Media arm and immediately the GameStop thing happens. It's like fate, right? That's right. And the other reason we wanted to talk to Luke, other than the fact that he's fun to talk to,

is he was one of the first people at Bloomberg who took what was happening on Wall Street Betts fairly seriously. And I think was one of the first writers of our big cover story on Wall Street Betts when it actually started to take off. And this was way back in, let's see, early 2020. Is that right, Luke? Yeah, yeah, that's the, I'd say, you know, late 2019, early 2020. It was when we got the, you know, the prelude or the proof of concept to a lot of things that we would see in later years. And I love the transition from, I wanted to go do serious work, and now he's back covering the memes docks. So yeah. Well, one of the things that I really liked about the way you wrote about the memes talk phenomenon and Wall Street Betts at the time

was like, okay, yes, there was this whole cultural phenomenon attached to it where we get to throw around words like autists and apes and lots of profanity, which I'm not going to say on the show because then we'll just have to bleep everything out. But you kind of approach. it from a market's angle, which I think tends to get very forgotten nowadays. Everyone's just like, ha ha, GameStop, isn't this silly. But when all of this first started happening, it was kind of an experiment in market structure. And I think people forget that. So the idea was that basically if you bought a bunch of options on a particular stock, then market makers would have to go out and hedge their own risk, and they might do that by buying the stock. And so you get this

sort of like perpetual motion machine that effectively forces the stock to go up. Yeah, that's a great explanation. I think like what, where I had my kind of eureka moment, so to speak, was there's obviously Wall Street Betts was a place where, you know, people were pitching their, their crazy option bets, their large positions, their yolos, what have you. with some of the stocks getting memed several times now, I don't know if, like, Yolo is the way to describe it. You get two or three opportunities, seemingly, on a lot of these things. You only live once, but if you miss it, you get to live a second time.

Exactly. But one of the things that really struck a chord with me was you saw, like, a lot of, you know, intrigue on maybe like smaller names or story stocks. Tesla was obviously a early favorite of the Wall Street Betts community. But there was one user who one time, made the argument. And this was after that, you know, I did a little publishing on the perpetual motion machine as you have it, you know, the quote unquote forced gamma squeeze if we're getting into the Greeks. But one person said, we should try to do this with Microsoft tomorrow in

the pre-market. And I saw this, but I go like, okay, like, let's relax. You're going to meme Microsoft now. Like, this is going to be like a thing you're going to try to do. Why not like, come on, like stick to your own knitting kind of stuff. Then there was the next morning a crazy amount of call activity in Microsoft and buying in the pre-market and Microsoft up. Like it was something like two and a half to three percent for no reason. And that's when I started to take it more seriously as a, okay, well, coordinated buying power at certain times through certain vehicles.

Can even leave an imprint on, you know, what was then the, and probably still is now, the largest U.S. stock by market cap. So that's something that, you know, really blew my mind then and was something worth following up on as it became kind of even more coordinated, even more revolving around kind of, you know, certain stories. And then the success, the proof of concept grew to a point where you, you know, you get more and more power because if nothing else, this is a momentum play that just got, you know, more momentum as it got more attention.

It's so crazy. By the way, I know this is not the point. so wild to me that Microsoft is still the biggest company in the entire world, given it was the biggest company in the entire world, or more or less, decades ago, and so many different things that ostensibly would have disrupted it from the internet to whatever, Apple, et cetera, and yet still at it. But that's a divergence. Joe, no one wants to talk about Microsoft. I know, I know. I know. That's just one of those facts that still blows my mind. That being said, all right, so you mentioned, you know, GME management

should have had that shelf registration ready to go. AMC, which always seemed like, I guess I would say, played a little bit more cynically into the meme stock crowd than the GMC management. They did have that plan ready to go. They did do something because they got a little... They broke the emergency meme stock glass and took their plan off the shelf. Yeah. So, yes, what happened with AMC during this round was they had a shelf offering

that they had pretty much sold out of, so to speak, by the end of. So just as it was starting, they had an opportunity to sell a little more into it. And I remember, you know, on the Monday or something going like, geez, AMC really blew this one, really blew this opportunity. And it's weird because, as you know, you know, the CEO there, Aaron has done a, I would say, a fantastic job in recognizing that to a certain extent, the shareholder base is a lot of the product, both in terms of, you know, integration into, you know, rewards that you get to go to the theater and also in terms of some of the more shrewd, let's call them, uh, financing angles that have been litigated back and forth through the courts,

but seem to have mainly served the purpose of raising more capital from AMC, from people that just wanted to see the stock go up and the company succeed. Uh, and then of course, AMC right after you think that even they kind of missed the window here the next day, they, you know, effectively I've called, you know, they turned memes into a debt jubilee and able to issue borch stairs, trade shares for debt, retire effectively the debt. And that's one of my favorite parts about this

is just watching the memes make things happen in real life for companies that is going to have a meaningful impact on their ability as a going forward concern in the months, quarters, possibly years to come. What was a little different about GME was that as this was happening, as this was starting, GME was already in its earnings blackout period. So, you know, typically that is something that is going to preclude you from coming forward,

if you don't already have, you know, an existing shelf open to be able to sell shares at market. That's going to preclude you from bringing one to the market at that point, unless you're also willing to come forward with your, you know, kind of preliminary earnings results. So it's probably more likely that the, you know, effectively the choke point on GME being able to cash in more on this from the management perspective was just the, you know, I think it was five days it probably took for them to get those numbers together. So they were able to say like, hey, here's our numbers. Also, you know, we want to sell another 45 million in chairs if you'll have them out of price. But, you know, by that time, we had already seen a lot of deflation in the stock price by then.

Yeah. I've said this before, but I think one of the nicer interpretations of the meme stock phenomenon is people basically treating the stock market, buying shares of a company that is very much struggling to maintain or achieve profitability as a giant go-fund me for businesses that they kind of like or feel some sense of nostalgia for, which again, in 2021, when no one was able to go to the movie theater, that did actually make a big difference for AMC. Luke, I have a really important question for you as a fellow Redditor. Is it true that you may be a mod on Wall Street Betts? And how did that rumor get started?

Wow. I can say confidently, so I am not a cat and I am not a All-Street subreddit monitor. I am a mod on nowhere on Reddit. I have no clue where at all this got started. I think it may come from the era where I was, you know, back in 2020, where I was more kind of fervently having back and forth with folks there. And the thing I remember most vividly about that is I was probably, I think, the only one posting Bloomberg charts on Wall Street Best Because everyone was like, what is this chart background?

A lot of e-trades and stuff of that nature. So I think that's maybe why I stood out to some folks back then. You would be a really good Wall Street Betts mod. So I'm just saying I would probably be even more inclined to pay attention to it if you were. But I will trust your denial. I don't think you would be dishonest with us that you're not one of the people secretly running that page. Here's the other thing I'm thinking about. like with this sort of seemingly brief round of meme stock mania over like,

it all felt like, I don't know, people are saying like, what a stuck culture we have, we're doing this again. It's like we know how the story begins, we know how the story ends. And so why not just like fast forward the tape and get through the entire process quickly? Like all of the ups and downs without the sort of awe and mysticism around at this time. Yeah, I would say this was a lot more of a, of a, cynical episode. And I think if you just compare and contrast the previous rounds we've had, you can A, see it in the, you can see it kind of in the raw numbers, whether we want to talk

about, like, how much total call volumes rose, how much volumes rose, turnover, value traded, yada, yada, yada, all of that is very different from now to then. But it's almost kind of like a chicken and egg question there because is there something about the story that was different? Is there something about the market structure that was different this time around? I would say, yes, on both sides. I'll start with the story first. Heading up to 2021, there had already been, you know, a small crowd, including Roaring Kitty, including Rod Olsman, I think you've had on in the past, who are really making the vigorous value case for GameStop that, you know, you have this one big last puff, so to speak,

of the legacy business that was being priced, though it was going to imminently go. go out of business, but it probably had a lot more runway in terms of another full cycle of generating some free cash flow. And then maybe you also have this big effective option on, you know, the loyal GameStop subscribers that, you know, you can maybe turn into and monetize a little bit better than you are. Couple that with also the high amount of short interests. So that was a story that started good, got even better when, you know, the stock four-xed effectively over the final four-so months of 2020, and then you had Ryan Cohen coming in in early January. So there was actually like a lot of potential catalysts that were happening at that time. I think you also got another

round of Stimmy checks. And on the entertainment side, I don't know how much pro sports we really had back on then. So all the stars really aligned for the story to be a lot better and that to be able to command a lot more mind share compared to now, nothing's been happening in Game Sock. There's really no change in the fundamental story. All that really happened is, you know, right before this, shares got back to where they were in January 20, 21, right before they went parabolic. So that's really all that changed this time. I would also say potentially something to highlight on the market structure side that may have changed a little bit. It's, it's tough to quantify.

And this is, you know, still somewhat of a more embryonic hypothesis on my end. But if you just want to compare the, you know, let's look at the. the peak in call volumes traded on GME at different times. At this, the call volume peak was about $650,000. And today, back in January 2021, that peaked at over $4 million. So one of the, you know, factors that goes into to options pricing is effectively, you know, the more an option is in demand, the higher the implied volatility for that option, i.e. its cost should be. What happened this time was we did see in my eyes for a lower amount of volume and for a lower move in the in the stock. Some of those options, those lottery ticket options, you start to see the implied volatility

jack up a lot faster than they had in the past. So that's a bit of a sign that, you know, maybe if GME didn't have the shelf ready to go, market makers had their playbook ready to go on how more or less they were going to respond to something like this happening again. build themselves a little in a little better margin of safety, I would say. So just worse story and better market mechanics probably are things that help this fizzle out a lot, lot quicker and just be a lot more about making a quick buck than any kind of, you know, grand story you can wrap around about, you know, sticking it to the man or, you know, sticking it to a particular hedge fund. Yeah, I think that's right, especially about the market makers being more prepared for this and also

maybe even the hedge funds. And you see this discourse on Wall Street Betts itself, where people talk about how, like, Wall Street couldn't beat them. And so they decided to join them instead. And now you have a lot of hedge funds that are actively monitoring all sorts of social media. But Wall Street Betts is certainly one of them or plugging into Discord servers and things like that to try to track sentiment. So in some ways, the big irony here is that I guess Wall Street bets has kind of become more intertwined with Wall Street itself. I think if you, if you know that momentum is a factor. If you have seen this story play out before, I think there's a reason why a lot of the stocks with the kind of similar characteristics or have had the similar history

during serious previous rounds of retail mania. I don't think it's a surprise that, you know, to some extent they traded like a bit of a basket. That is, that's something that suggests a, lot more professional piggybacking at play here rather than just a more grassroots move in all of these names at the same time. I find that at this point, I hadn't, I, unlike Tracy, I don't troll, uh, troll, uh, wall street bets. I troll too. Don't worry.

You troll too. Uh, you troll and you troll. But I don't troll, I don't troll either, but I don't troll. I did not realize this phenomenon that the inherent richness of the options as measured by their, uh, the volatility had gone up so much faster in this whole phenomenon with the market makers just getting better. It's like, oh, we've seen this before. We're going to price them more when we sell these call options to end retail, that we're going to like make them pay more right off the bat because we've seen that playbook before. I find that really interesting. Well, the other thing

that I noticed looking at Wall Street bets recently is that like Roaring Kitty has basically been excommunicated from that subreddit. So when he tweeted, you know, someone made a post about it. But then the moderators came in and said, you can't really talk about Roaring Kitty. And if you want to talk about GameStop, then go over to Super Stunk or there's a dedicated GME subreddit as well. When did that happen? And why? Like, why is Roaring Kitty basically not part of Wall Street Betts anymore? At least I can say that in terms of the, the archive post, like, they're, they'll still there. So the record of, you know, all of Roaring Kitty's position. updates, all of that still there. In terms of the lack of GME, AMC, I think that is more a

legal liability thing wrought on by, you know, that particular subreddit mods, opinions on what is tolerable, what is not. And in the wake of, you know, a lot of people faced SEC investigations after 2021 and, you know, had demanded all their, SEC demanded like all their messages on Reddit, this and that, any other message boards, any discords scrubbing for that and, you know, at pretty amazing legal expense. So I think that's certainly an angle here in terms of, you know, those folks trying to cover some legal liability. Also, you know, around the same time, I think there's been more of a divide or divorce among that, that Mauds community of which I was never a part, including, including one that, you know, saw the effect of the first founder,

Jamie Rogazinsky exit around during these times and, you know, in the wake of publishing his book and, you know, some question over trademarks, some questions over self-promotion. I believe still in legal battles with Reddit over that to this day. So I think just with all the attention that came on the sub, because of GME, AMC, and Roaring Kitty, you know, they say there's no such thing as good press, but I guess when good press can lead to potentially high legal bills, then maybe that's a way where it can. I think you meant to say there's no such thing as bad press, but I actually think there's no such thing as good press is actually.

Joe. I did me too, yeah. Yeah, no, I think that's probably true. Never talk to the media. I kind of believe that. Don't ever, no one, everyone ignore that, especially future online. Joe, you do realize what we're doing here, right? Well, we're media talking to media right now.

Yeah, it's okay. On other days, people outside of the media do talk to us. Why, though? Who talks to media? I would never talk to media. But don't, but don't, no one pay attention. Please, for the sake of this podcast, everyone who's listening, don't, don't take that to heart. Ignore Joe.

Okay. You know, the other thing, when the first round of meme stock mania happened, there was all of this sort of, I would call it like amateur anthropology or maybe amateur sociology is like men and they're gambling and blah, blah, blah. And, you know, that faded. But now we have sports betting, which people talk about the explosion of crypto has been doing very well. Is there, is that a thing, did it like spread out? Did it, um, metastasized to other areas? Or was there really sort of this fever pitch in 2021 with that stuff that we haven't really come back to?

I'd say a little bit from column A, a little bit from column B here. I think if you see, you know, a lot of the accounts that are, you know, willing to, you know, post their, you know, sell to jam me into the moon. I, I bought even, you know, 100% into the move. bought more options type of folks. Those are also the same kind of people who their next tweet will be a coin I've never heard of or a like, yeah, a lot of all coins that I've never heard of effectively that are also, you know, preferred vehicles of there. So I think like having it be more dispersed, more outlets effectively for you to speculate in,

I wouldn't be surprised if that's something that helped kind of cool this round a lot more. but I really don't think it can be emphasized it much the complete lack of a story. Like at least last time, my personal view is that nobody ever really cared about Roaring Kitty's story. If you look back at, you know, the streams he used to do,

the last one he did, and he talked about this in front of Congress, the last stream he did in December 2020, stocks already up 300% by this time in a matter of months, had 96 concurrent viewers. It isn't until, the stock starts to move more in January and people, Roaring Kitty effectively connects the dots

that, yes, I'm also a deep effing value, that you start to see all of the interest in him pick up, pick up because he was winning. People weren't interested in fundamentals. They turned the fundamental guy into their momentum catalyst. So that's all it was. And this time, we started from that standpoint with nothing on the fundamental side. And that to me is another just huge reason why this is just a really, really faint echo of what we've seen before. We can't even pretend there's a story. Tracy, like I said, I haven't been following Wall Street bets as much. Do people still sort of post their negative screenshots just as enthusiastic?

Yeah, the loss porn. You know, I read this biography once of a professional poker player and he said he had a friend, trying to think how I could say, who would get into a state of arousal upon losing a big hand in poker. And I'm just sort of curious if that's still a thing there where people seem to just get just excited about losing money as they make money. I'll find that book. Luke, one thing I was wondering is, so Roaring Kitty on Twitter, I think he follows like 90 people just about. I know he follows you and he follows me randomly. He does not follow you. I checked. He does follow me. I'll show I have a screenshot right now.

All right. We can argue about this. We have to argue. I have it right here. Look. Wait, I'm going to walk over to Tracy's side of the studio. One second.

I can't believe we're arguing over who. Roaring Kitty follows. Oh, that's weird. Okay, fine. Fine. Joe wins that round. But have you had people reaching out to you asking for you to get in touch with Roaring Kitty for them?

Because this has happened to both me and Sid recently, which is kind of nuts. Like this idea that there's, There's one guy on Twitter who is tweeting out at the moment memes and like clips from movies and not actually saying anything about specific stocks. But you have a bunch of people who are like, oh, please, please put me in touch with Roaring Kitty. Yes, I will say a big deluge. A lot of it from just general can you get me in touch, egg adjacent type accounts. But also I would say a lot of interest from people who operate in the. in the social V-India sphere of wanting to be able to contact to effectively say like,

hey, will you do sponsored or integrated sponsored content? I'd be interested in letting you do that. And, you know, my kind of personal view on that is certainly not, you know, passing any of them along. I would love to get in contact first, though I don't think that's necessarily a very high probability endeavor. I assume we've all tried Z-Ming him. We've all tried.

And I assume he responded to none of us, yes. I made an excellent meme. I made a meme of the guy sitting up and I put on the screen odd lots, hoping, and I sent it to him, hoping that that would entice him. But I'm afraid to say it hasn't worked yet. Yet, yeah, no, exactly. So a lot of that and I mean, I think the social media angle is very interesting. Because, again, there was at the beginning a lot of confusion.

misinformation. Is this actually Keith Gill? Is this, you know, a performance art scene? Was his account sold to someone? No reports I've seen that, you know, suggested it isn't him. And the reports that suggest it sold have been debunked. But I, you know, I think that's where you have to really think hard and contrast the, like the reason why this had the power to move the, you know, move certain stocks this time around was because of the decentralized nature of the, you know, the trust, I would say, that Keith Bill, Gill built up as a person. He was, you know, one man doing fundamental research, betting big, doubling down, doubling down, and winning consistently and never selling as far as, as far as anyone knew. So, you know, compare and contrast that to

even Elon Musk now, if you look at the, if you look at the action that happened in like any Argentinian ADRs or just ETFs that US investors can access, what happened after Elon Musk said, invest in Argentina. I love Argentina. You know, how they are is great. I really didn't see a pickup in anything there. So it really just goes to show the kind of, I think, newfound focus on, you know, who we select to trust to tell us about whether things will go up or not. Elon Musk has obviously spent a lot of currency on different vehicles effectively in terms of

things that might degrade his trust by talking about different things that, you know, have gone up and then down a lot. Keith Gill hadn't. So, you know, that's what kind of makes the, that's what kind of, you know, adds a certain cachet to the comments coming out of, of this account and certainly why people would want to use this account if they could to be able to promote their own ventures. That's why there's, you know, seemingly a lot of interest in that. You know what else is funny on that note? No one refers to Keith Gill as anything other than Keith Gill or Roaring Kitty anymore. And of course, originally on Reddit, he was known as

deep effing value. I think I can say that. But no one says that anymore. Value is dead. Tracy, the only person in the meme arena that I trust is not Keith or Elon is Luke Kawa. That's fair.

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