We've Seen This Movie Before

The return of the dumb money... We've seen this movie before... Treat the markets as natural phenomena... Prediction isn't an investment strategy... How you'll find yourself down 99%... [Stansberry Research Logo] Delivering World-Class Financial Research Since 1999 [Stansberry Digest] The return of the dumb money... We've seen this movie before... Treat the markets as natural phenomena... Prediction isn't an investment strategy... How you'll find yourself down 99%... --------------------------------------------------------------- Meme stocks are back... By now, you know the story of Keith Gill... We covered his unlikely fame live in January 2021, and Corey McLaughlin reviewed it in [Monday's Digest](. Gill is the social media star known as Roaring Kitty on YouTube and the social platform X and DeepF---ingValue on Reddit's WallStreetBets message board. In 2019, Gill believed that shares of GameStop (GME) had gotten too cheap... and invested $53,000 into the struggling video-game retailer. Gill recorded YouTube videos about the stock with a red bandana wrapped around his head, as though he were a samurai warrior. Folks started following him and... well... they started buying the stock. In addition to being cheap, GameStop was heavily shorted. Bloomberg reports that as many as 140% of GME's outstanding shares were held short. Never mind how that's possible. Just know that the stock was ripe for an absolutely explosive move higher if enough folks started buying. The combination of Gill's followers and the stock's enormous short interest led to an absolutely ballistic ascent. GameStop soared nearly 2,000% in less than four weeks in January 2021. Another struggling business that was heavily shorted, cinema chain AMC Entertainment (AMC), rose more than 3,000% in the first six months of 2021. In both cases, most of the gains arrived in the last few days of the runup. GME and AMC originated the idea of the "meme stock" – a social media phenomenon rather than a traditional investment opportunity – though other stocks like headphone maker Koss (KOSS) and software company BlackBerry (BB) also rose dramatically. With hedge funds and other institutions on the short side and individual investors on the long side, meme-stock traders cast the two sides as David and Goliath. Though I suspect a lot of individual investors lost money on the meme stocks, I would also bet many of them were holding big profits in the final days before they peaked – and it was just long enough to vanquish Goliath. One hedge fund (Melvin Capital) lost so much from its GameStop short that it eventually had to shut down in June 2022. It was estimated that hedge funds and other institutions lost $5 billion on GameStop alone. The "smart money" didn't look so smart, and the "dumb money" didn't look so dumb... for a few heady days in 2021. The stocks cratered and rallied throughout 2022, and by the end of the year, the affair was mostly over. GameStop went sideways in 2023, and AMC fell about 85%. They eventually traded 88% to 99% off their respective meme-stock peaks. It's unknown how much Gill walked away with from GameStop, but his stake was worth $48 million at the stock's frenzied 2021 peak. He reported losing $13 million in one day in February 2021, and around that same time, he posted a brokerage statement showing an account worth $13 million. Gill retired from public life after posting a video featuring sleeping kittens on June 18, 2021. A 2023 film titled Dumb Money, starring actor Paul Dano as Gill, chronicled the story. But Gill remained absent from social media. The world soon forgot about the whole episode and moved on... Until Sunday night, when Gill took to X to post a picture of a man leaning forward in a chair with what appeared to be a video game controller in his hand. He followed that up with a series of memes and video clips which seemed to have the approximate message to the effect that, "Roaring Kitty is back with a vengeance." Investors responded to Gill's return with a fit of absolute insanity. Meme stocks roared. GameStop rose as much as 118% on Monday and closed up 74%. The New York Stock Exchange halted trading several times for rising or falling more than 5% in a five-minute window. AMC Entertainment rose as much as 102% on Monday and ended the day up 78%. Both stocks more than doubled in pre-market trading on Tuesday and were up roughly 100% when regular trading opened at 9:30 a.m. in New York, causing both stocks to be halted. By the end of the trading day, the two stocks were halted a combined 38 times. Koss and BlackBerry rose again, too, but not as much as GME and AMC. AMC exploited the 2021 affair to great effect, raising $1.8 billion that year by selling new equity. Its share count rose roughly 45-fold from the third quarter of 2020 through the first quarter of this year. And when the ducks started quacking again on Monday, AMC fed them... AMC announced Tuesday morning that it had raised $250 million in new equity by selling 72.5 million shares at an average price of $3.45. With the stock trading for more than $10 on Tuesday, another offering would surprise no one. On Wednesday, it announced it would issue 23.3 million shares to pay off $163.85 million in outstanding debt. Since 2021, AMC's management has been in the business of extending its tenure by selling new equity to naive, know-nothing ignoramuses who think its stock is going "to the moon." The debtholders who took the stock probably aren't in that category... although they did lend AMC $164 million, so who knows? We've seen this whole meme-stock movie before. We know how it ends. It's practically an iron law of markets that any asset price that goes ballistic will soon fall pretty fast, too. Just look at this chart of AMC over the past few years... As the chart shows, every sharp rally soon collapses and sinks to new lows. The stock price rose nearly 600% in about 20 days, then crashed 51% in 44 days, and eventually fell 98% in 570 days. Anybody who got involved in that stock on either side once it started taking off in late 2020 was making a big mistake. Markets in haywire mode run everybody over, whether they're long or short. Just like in 2021, both stocks started rallying before their rapid meme-stock ascensions. From April 15 through May 10 (the last trading day before Monday's explosive move), GME was up 73% and AMC was up nearly 18%. In this way, the meme-stock episodes are like the blow-off tops of mini-bubbles, preceded by mini bull markets. The most likely outcome after such an episode is exactly what happened the first time around: a protracted bear market. I hope it's fairly obvious why these stocks took much longer to fall back to reality than to rise. When they soared, it was a surprise to all but the few investors who'd been paying attention to them. But after they became meme stocks, all eyes were on them. Human nature being what it is, we must assume that as the meme stocks fell, their newfound popularity continued to attract more naive gamblers before finally wiping them all out once the stocks had fallen 99% from their all-time meme-stock peaks. Markets are perverse that way... They suck the novices in, then eviscerate them. So the timing of the current rally makes sense... Nobody cared about GameStop or AMC in 2019. And once again this year, nobody had thought about the meme stocks for a while. Only three Wall Street analysts cover GameStop, with two sell ratings and one hold. I for one thought it was over and that we'd never hear from Gill or much from GME or AMC again. The market was complacent, just like in 2019 when Gill first bought GME. And here we are, once again watching them soar out of sight in just a few trading sessions. This rally, like all meme-stock rallies, is a burning match... It won't last, but it'll take longer than you might have expected for the stocks' prices to return to their pre-rally lows. The return of Roaring Kitty might add a little more longevity to the overall nonsense of things, but in the end, GME, AMC, and the other stocks riding along with them are doomed. They're lousy, deteriorating businesses that are fading away. Without the meme-stock phenomenon, nobody would be talking about them at all. I understand that folks will buy absolute garbage for the craziest reasons if they think they'll make a lot of money very quickly. That's human nature. But the meme stock phenomenon was never sustainable beyond the very short-lived (but admittedly spectacular) rallies, like the current one. And once again, the folks who own AMC are posting on social media with the hashtag #apesnotleaving, meaning these primates are going to hold the stock indefinitely. As I've pointed out before, the meme-stock buyers are loading up on the worst garbage in the market and holding onto it like it's Berkshire Hathaway. I've seen a few posts on X suggesting the current meme-stock rally means financial markets are broken. I disagree. They're neither broken nor unbroken, any more than the rivers and lakes are broken or unbroken in floods and droughts. I view markets as natural phenomena, not machines... They happen when humans are allowed to interact with one another with far less likelihood of having force or fraud used against them. The meme-stock episode means today what it meant the first time around: We live in a world we don't understand, and financial markets move in ways you don't expect and can't predict. They include all different types of risk... including the chance that lousy, deteriorating businesses will suddenly take off in blistering short-squeeze rallies. Folks who buy meme stocks at insane valuations because they think they'll go to the moon are fools. But I feel no malice toward them. I feel embarrassed for them. Trying to get rich quick is not the act of a confident person building a worthwhile existence for himself and his family. I know most of them are young, but they're behaving with the sad desperation of an old man who is not aging gracefully... trying to relive his youth and looking foolish doing it. There's no better way to say that you don't understand what you're doing with your money than to get involved with meme stocks while they're going haywire making enormous moves in a single day. That also applies to anyone who tries to short these stocks. But I don't feel embarrassed for the "smart money" short sellers. They knew – or should have known – that there was a much higher likelihood that GME, AMC, and other meme stocks could soar again. I can't imagine entering this trade without realizing it was riskier than other shorts. Skilled traders all tell me the same thing: Markets that crazy are untradeable and should be avoided. The meme-stock phenomenon is amusing for those of us who refuse to participate in the craziness. It's even funnier if you believe (as I do) that a guy who calls himself Roaring Kitty has generated what is very likely a massive "dead cat bounce" in meme stocks. The meme-stock resurgence this week is likely a sign that speculative gambling is back on the menu for individual investors and the hedge funds that try to game their behavior. I'll leave them to it and encourage you to do the same. The return of a speculative frenzy suggests that the market's rally has at least some room to run... As usual, you won't catch me trying to predict a market top, which is always a fool's errand. All I will say is that this isn't how bull markets begin... It's how bear markets begin, as Jeremy Grantham from asset manager GMO noted in a recent podcast appearance: We have totally full employment, totally wonderful profit margins. All the things you would not want to start a bull market from. This is where you start bear markets from. Great bull markets start with exactly the opposite. But it always feels wonderful... You've got the peak P/E, so you feel wonderful, the stock market has gone up and up and up and up. So everyone feels great, and that's how you get to a market peak. You feel great about everything. Of course, almost by definition. [And when the market starts falling,] you still feel great. You just don't feel quite as great as you felt the day before. That's why it's so damn hard, at both ends. That last sentence means not only that you can't call tops and bottoms, but that you don't even get to know if a bear market has begun until it's well underway. And as he implies, bear markets are hard on both bulls and bears. All that uncertainty and unpredictability is why I repeat my mantra in the Digest over and over: "Prepare, don't predict." There's no such thing as a successful investment strategy based on making market predictions. Investing means investing for the long term. It means buying assets you know well and are willing to hold onto through the market's inevitable ups and downs. Otherwise, you're just speculating on market direction, like a meme stocker. And you don't want to do that. That's a recipe for finding yourself down 99% in less time than you'd ever imagine. Be careful out there. Avoid the meme stocks – and reconsider buying any speculative position right now. --------------------------------------------------------------- Recommended Links: [99% of Investors Will Make This 'May 22 Mistake']( Investors waiting for the Nvidia earnings call on May 22 need to be cautious. According to the man who has delivered seven doubles using one of Nvidia's biggest competitors, there's a much better way to double your money in the coming days – without buying a single stock or gambling on earnings reports. [Here's what you need to know](. --------------------------------------------------------------- [Mysterious Gold Leverage Just Announced]( As gold continues to break all-time highs, many folks will run out and buy bullion or mining stocks. But that's not the best way to ride this gold bull market higher. Note, this investment idea showed a 995% gain the last time we shared it. [Click here to find out what to do](. --------------------------------------------------------------- New 52-week highs (as of 5/16/24): Alamos Gold (AGI), Brown & Brown (BRO), Costco Wholesale (COST), Cambria Emerging Shareholder Yield Fund (EYLD), Alphabet (GOOGL), JPMorgan Chase (JPM), Kinder Morgan (KMI), MAG Silver (MAG), Markel (MKL), Motorola Solutions (MSI), Mettler-Toledo (MTD), Procter & Gamble (PG), Sprouts Farmers Market (SFM), Sprott (SII), The Trade Desk (TTD), Verisk Analytics (VRSK), and Consumer Staples Select Sector SPDR Fund (XLP). In today's mailbag, feedback on [our Tuesday edition]( which quoted macroeconomic analyst Lyn Alden and her thoughts about "fiscal dominance" in the U.S. today as a driver of inflation... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com. "I read the [Digest on Tuesday] and would like to see an article on corporate price gouging and inflation." – Subscriber Larry H. Corey McLaughlin comment: Larry, I know what you're getting at... I'd point you toward the great Bill Bonner's take, published just yesterday [in his free newsletter]( about claims that price gouging is the primary driver of inflation. He doesn't agree, and neither do I. I especially love Bill's assessment of members of Congress calling for legal action against businesses: "Instead of worrying about the real cause of inflation – themselves! – lawmakers want to sic Justice Department lawyers on businesses that raise prices." Good investing, Dan Ferris Eagle Point, Oregon May 17, 2024 --------------------------------------------------------------- Stansberry Research Top 10 Open Recommendations Top 10 highest-returning open stock positions across all Stansberry Research portfolios Investment Buy Date Return Publication Analyst MSFT Microsoft 11/11/10 1,374.8% Retirement Millionaire Doc MSFT Microsoft 02/10/12 1,340.1% Stansberry's Investment Advisory Porter ADP Automatic Data Processing 10/09/08 906.1% Extreme Value Ferris WRB W.R. Berkley 03/16/12 716.2% Stansberry's Investment Advisory Porter BRK.B Berkshire Hathaway 04/01/09 632.5% Retirement Millionaire Doc HSY Hershey 12/07/07 514.5% Stansberry's Investment Advisory Porter AFG American Financial 10/12/12 461.8% Stansberry's Investment Advisory Porter TT Trane Technologies 04/12/18 418.9% Retirement Millionaire Doc NVO Novo Nordisk 12/05/19 380.8% Stansberry's Investment Advisory Gula TTD The Trade Desk 10/17/19 363.4% Stansberry Innovations Report Engel Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any Stansberry Research publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio. --------------------------------------------------------------- Top 10 Totals 5 Stansberry's Investment Advisory Porter/Gula 3 Retirement Millionaire Doc 1 Extreme Value Ferris 1 Stansberry Innovations Report Engel --------------------------------------------------------------- Top 5 Crypto Capital Open Recommendations Top 5 highest-returning open positions in the Crypto Capital model portfolio Investment Buy Date Return Publication Analyst wstETH Wrapped Staked Ethereum 12/07/18 2,291.8% Crypto Capital Wade BTC/USD Bitcoin 11/27/18 1,636.4% Crypto Capital Wade ONE/USD Harmony 12/16/19 1,225.9% Crypto Capital Wade MATIC/USD Polygon 02/25/21 807.2% Crypto Capital Wade AGI/USD Delysium AI 01/16/24 434.8% Crypto Capital Wade Please note: Securities appearing in the Top 5 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the Crypto Capital model portfolio. The buy date reflects when the recommendation was made, and the return shows its performance since that date. To learn if it's still a recommended buy today, you must be a subscriber and refer to the most recent portfolio. Stansberry Research Hall of Fame Top 10 all-time, highest-returning closed positions across all Stansberry portfolios Investment Symbol Duration Gain Publication Analyst Nvidia^* NVDA 5.96 years 1,466% Venture Tech. Lashmet Microsoft^ MSFT 12.74 years 1,185% Retirement Millionaire Doc Inovio Pharma.^ INO 1.01 years 1,139% Venture Tech. Lashmet Seabridge Gold^ SA 4.20 years 995% Sjug Conf. Sjuggerud Nvidia^* NVDA 4.12 years 777% Venture Tech. Lashmet Intellia Therapeutics NTLA 1.95 years 775% Amer. Moonshots Root Rite Aid 8.5% bond 4.97 years 773% True Income Williams PNC Warrants PNC-WS 6.16 years 706% True Wealth Systems Sjuggerud Maxar Technologies^ MAXR 1.90 years 691% Venture Tech. Lashmet Silvergate Capital SI 1.95 years 681% Amer. Moonshots Root ^ These gains occurred with a partial position in the respective stocks. * The two partial positions in Nvidia were part of a single recommendation. Editor Dave Lashmet closed the first leg of the position in November 2016 for a gain of about 108%. Then, he closed the second leg in July 2020 for a 777% return. And finally, in May 2022, he booked a 1,466% return on the final leg. Subscribers who followed his advice on Nvidia could've recorded a total weighted average gain of more than 600%. --------------------------------------------------------------- Stansberry Research Crypto Hall of Fame Top 5 highest-returning closed positions in the Crypto Capital model portfolio Investment Symbol Duration Gain Publication Analyst Band Protocol BAND/USD 0.31 years 1,169% Crypto Capital Wade Terra LUNA/USD 0.41 years 1,166% Crypto Capital Wade Polymesh POLYX/USD 3.84 years 1,157% Crypto Capital Wade Frontier FRONT/USD 0.09 years 979% Crypto Capital Wade Binance Coin BNB/USD 1.78 years 963% Crypto Capital Wade You have received this e-mail as part of your subscription to Stansberry Digest. If you no longer want to receive e-mails from Stansberry Digest [click here](. Published by Stansberry Research. You’re receiving this e-mail at {EMAIL}. Stansberry Research welcomes comments or suggestions at feedback@stansberryresearch.com. This address is for feedback only. 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