The return of the king

By Owen A. Lamont

Every country has its King Under the Mountain. A legendary hero who, in our darkest hour, will return to rescue the nation from peril. In Britain, the hero is King Arthur, who slumbers in Avalon, ready to wake when he is needed. In Germany, the hero is Frederick Barbarossa, who lies asleep in a mountain cave in Thuringia, waiting for the time when he will lead Germany to greatness.

In America, the hero is Keith Gill, also known as Roaring Kitty. He led the populist masses in the meme stock craze in January 2021, testified before Congress, and then mysteriously vanished into the obscurity whence he came (specifically, Brockton, Massachusetts). In his absence, his legend has only grown, and he has been the subject of two books, a Netflix series, and a major Hollywood film.

 Our King Under the Mountain has returned. On Sunday, May 12, Roaring Kitty tweeted for the first time since June 2021. His tweet consisted of a wordless image of a gamer engaged in play. When GameStop (GME) opened the subsequent day, it doubled intraday, with market cap rising by $5B.[1]

What can it mean? Are we back in meme-stock mania? 

Here’s my take.

First, the U.S. had a smallish (compared to 1999/2000) stock market bubble peaking in 2021. Meme stocks were a colorful but relatively unimportant symptom of that bubble, which featured nonprofitable tech and crypto-related firms. So to the extent that May 2024 has the same vibe as January 2021, that could be a minor red flag.

Second, let's talk about magnitudes. Although the price of GME is up, as of this writing it remains under its 2021 peak. Similarly, other meme or meme-adjacent stocks of questionable value are up this year, but still below their 2021 highs.

Third, what to make of the fact that Roaring Kitty has given us an enigmatic image but no words? Par for the course when you are a charismatic leader of a populist cult. Belief in GME does not rest on rational analysis of future earnings, it rests on something else; something deeper, something (to the cult followers) truer: faith. Faith does not require spreadsheets or data. Cryptic memes from our spiritual leader will do just fine; the more cryptic, the better. Faith requires sacred words of power (YOLO, HODL, and FOMO), a prophecy (the Mother of All Short Squeezes), and belief in the power of the true people to rise up and smite the wicked oppressors.

Fourth, consider GameStop’s recent pivot. In December 2023, GameStop CEO Ryan Cohen was given authority to purchase equities in other firms using corporate cash. The idea is that Cohen would run a sort of closed-end fund,  Warren Buffett-style. Now if I were looking for a portfolio manager, I would never hire someone whose claim to fame is investing in GameStop, but that’s just me. If Cohen does turn GameStop into a bizarro Berkshire Hathaway with a highly volatile price, it will be an example of the “volatility soiling” I mentioned in my last post.

Last, crypto. Unlike meme stocks, bitcoin is making new highs. So one interpretation of the return of Roaring Kitty is as follows: bitcoin is leading the parade of stupid ever higher, and GME is getting left behind. Summon the hero!

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Endnotes

1. References to this and other companies in this commentary should not be construed as recommendations to buy or sell specific securities.