During the first round of meme stock mania in late January, I wrestled with the concepts that underpinned the mania that we were witnessing. I wrote a piece that attempted to define a uniting theme for why that seemingly eclectic group resonated with a group of young investors, newly empowered by social media and stimulus checks. Now that we are amidst what I termed “meme stock 2.0” yesterday, I think it is an opportune time to see if those original ideas have continued relevance. Meme stocks are sharply lower today, and the reason appears to be a development that seemed evident yesterday because it was the rational move for AMC Entertainment’s (AMC) management.

The original article defined what I thought constituted a meme stock – a combination of stories in a group of names that inspired nostalgia among a group of newly empowered individual investors linked via social media. The names were the type that could inspire an “us vs. them” mentality because they were the companies that defined many of their youths and the idea that “the big guys” were ganging up on them via short sale was enough to galvanize them. I quoted my 23-year-old son, who clarified the notion in a nutshell:

“The short squeezed WSB stocks all have one thing in common besides being short squeezed. They’re all things a 20-something person would be nostalgic for. GameStop, AMC, Nokia, Build-a-Bear – things that would make you sad to hear are failing business because it means that you’re old.”

Now I think the concept has evolved into pure economics – or pure greed. The group of stocks that defined memes in January and February have become a sector unto themselves. To an extent, we can consider them in combination with cryptocurrencies. On my market monitor the meme stocks have a section of their own, and I assume that I am not alone in doing that. I wrote about this part of the phenomenon last week when I asserted that highly speculative financial instruments were seeing their own sort of market rotation. I don’t think it’s strictly a coincidence that meme stocks roared back to life after a significant correction in bitcoin and other cryptocurrencies. Put plainly, the latest group of traders is jumping in simply into whatever seems most exciting. For better or worse, it’s metastasized into something much more about greed than anything else. 

Yesterday I wrote about how it appeared that AMC management was beginning to fully embrace the stock’s meme status. The rallying stock could be used as a way to dig a company that was only marginally profitable pre-pandemic out of a deep financial hole. Today’s news of another secondary offering fits that narrative completely. Issuing highly valued equity is a perfectly sensible maneuver for a company that needs to service and eventually repay billions of dollars of debt. Yesterday, the market gleefully ignored a small secondary offering that was immediately flipped on Tuesday. Perhaps they were distracted by an offer of free popcorn, or the greater implication that AMC management was a full participant in the meme stock game, or simply the “buy” switch had been flipped among enough investors that it was going to rally no matter what. It is quite possible that today’s fall is more about price vertigo after sharp rallies than anything else. 

Meme stock mania didn’t die in February, it simply went into hibernation. Like cicadas, meme traders returned in a wild blaze of activity after being seemingly underground for several months. It remains to be seen how long this latest period of activity will last (it’s too soon to say that it’s over yet), and whether it will be repeated in similar bouts in the months ahead.