17th May 2024
This week I was reminded of the first ever Crescendo blog we wrote, all the way back in January 2021. Firstly, I can’t believe it’s been over three years since we started these blog posts! In many ways, the world is unrecognisable from back then. The winter of 2021 was particularly bleak. The UK was in a prolonged lockdown after Christmas had been ruined by the government letting people loose a few weeks before and covid running riot… not that I’m still bitter!! Although, this winter hasn’t been much better given the weather has forced everyone to stay inside anyway!
Our first ever Crescendo was titled ‘Merry men target financial elite’, a play on the wave of speculative retail trading that took financial markets by storm through trading platforms like Robinhood. Retail speculators targeted hedge funds who they perceived as profiting from covid and lockdowns. They identified stocks that hedge funds were short and aimed to squeeze them out of their positions by buying the stock in huge volumes, forcing the share prices up and hedge funds to close their short positions to avoid spiralling losses. The helicopter money that flew into pockets in the US as covid support, with the intention of it being spent in the real economy, was instead mainly spent on speculation.
Why was I reminded of it this week? The best example of this fight against the financial elite was spearheaded by ‘Roaring Kitty’, aka Keith Gill, who came to fame through his posts on the subreddit r/wallstreetbets analysing the opportunity for a short squeeze on Gamestop, the American video game, consumer electronics and gaming merchandise retailer. His posts sparked a frenzy of buying from retail investors, which then forced buying from hedge funds who suffered monumental losses (estimated at a whopping $10bn) and had to close massive short positions, resulting in GameStop shares soaring as much as 2,400% in 2021. This episode of market history has been immortalised in the film GameStop: Rise of the Players – it’s no Wolf of Wall Street or The Big Short, but worth a watch.
This week, Roaring Kitty returned on X (formerly Twitter). Posting for the first time since June 2021 on Sunday, Gill posted a meme of a man leaning forward in his chair – the very same image that GameStop had posted on its own X account in February. On Monday morning, GameStop shares soared, doubling in a matter of minutes as the band of merry men came back to play again.
Conditions in the stock today are different, however. It is a long time since the covid stimulus payments, and in the meantime, inflation has roared to multi-decade highs, squeezing the spending power of retail speculators. Roaring Kitty will also probably be upset to learn that Renaissance Technologies, one of the best performing hedge funds of all time, had built a long position in GameStop in the first quarter of the year and will have benefited immensely from the doubling of the share price. Hedge funds rarely make the same mistakes twice and have been monitoring forums like wallstreetbets as well as the X accounts of prominent retail figures ever since to avoid being stung again.
Since that first post back on X, the Roaring Kitty account has posted a further c.50 memes and videos. How this ends is anybody’s guess, but you can rest assured the HFM team will be sat on the sidelines watching rather than participating in the latest meme stock craze.
Dan Cartridge – Fund Manager
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