It seems like a lot of investment professionals are looking at what’s transpiring in various pockets of the markets and wondering “WTF.”
One of the most frustrating elements of this cycle has been the seemingly unlimited reward for degeneracy. At a young age, we were taught to invest responsibly. “Only bet what you can afford to lose.” “Understand fundamentals.” “Invest in what you know.” These parables have helped prudent, risk-averse investors build wealth for centuries. But during 2020 – 2021, a healthy dose of pragmatism has prevented this same crowd from locking in some of the greatest gains financial markets have ever seen. The particularly risk averse — like the distressed-investor-set who see the downside in everything — have been particularly flabbergasted by what’s been going on lately.*
Back in late October, Jack Raines wrote a piece in his “Young Money” newsletter titled, “Play Dumb, Get Rich.” Therein he asks:
…how much money would you have made if you had invested in five really dumb ideas as soon as they started going viral?
He then established some rules:
We start the year with $100,000. We invest $20,000 in five incredibly dumb ideas as soon as we hear about them. Note that we won’t invest in them before any news comes out, as we can’t predict the future. No buying the bottom. Just play the hype. Add up the returns. That’s it. A pretty simple game.
He then chronicled what would have happened if you bought (i) Gamestop Inc. ($GME) stock in October 2020, (ii) Dogecoin ($DOGE) in February 2020, (iii) Trump Media & Technology Group upon the announcement of its proposed SPAC merger, (iv) SHIBA Inu ($SHIB) in September 2020, and (v) an EitherRock NFT on August 4th 2021. You’d have turned $100k into $2.2mm for a 2234% gain!!
Back in March, in reference to the public markets, the Financial Times dubbed this type of activity the “rise of the retail army:”
“A few months ago, these so-called retail traders were a quirky sideshow in US stocks, dabbling in markets to fend off the boredom of coronavirus lockdowns essentially fee-free, thanks to a price war kicked off by Robinhood in 2019. Under the online rallying cry that “stocks only go up” they demonstrated an optimism about the economic outlook that was often lacking among professional fund managers, pumping up some stocks that others would not touch. They ended up piggybacking on a historic rally in equities that has now been running for nearly a year.”
In public markets, this all really kicked off with the aforementioned GameStop Inc. ($GME)’s historic 2,000% rally in early 2020, driven by a lethal cocktail of hedge fund short interest and deep out-of-the-money call options held by retail (and more than a few hedge funds). The rally has stuck around. Amid the run-up, GameStop was able to issue 3.5mm shares at a much higher higher equity value, and repay all existing debt. Restructuring professionals who’d been circling the name like a vulture descending upon a carcass had to f*ck right off. Now GME stock is up 1,112% YTD.
Similarly AMC Entertainment Inc. ($AMC) has been riding the wave of retail fervor with CEO Adam Aron kowtowing to the Reddit crowd on seemingly a weekly (daily?) basis. It wasn’t enough to simply get plucked out of the bankruptcy bin. Mr. Aron has been doubling, tripling, quadrupling…down. To point, on the most recent earnings call, Mr. Aron said this:
“AMC has also been speaking publicly in recent months about cryptocurrencies and NFTs. I can confirm today that we have been exploring with third parties over the past few months, both how we can accept cryptocurrency and if it is feasible for AMC to consider even launching our own cryptocurrency. We think we'll be able to launch the acceptance of Dogecoin in the first quarter of '22 -- And we are now figuring out how we can take Shiba Inu as a currency; that's the next one on our cryptocurrency hit parade -- I might add that we believe we have figured out ways where we do not have to hold cryptocurrency on our balance sheet. So we're not taking increased balance sheet risks with all this potential acceptance of cryptocurrency.”
Just a few days later, this happened:
The Twittersphere was uproarious with joy. There were relatively limited naysayers lest they get ratio’d into oblivion:
A few days later this happened:
Shiba? What?? Whatever. AMC is up 2,023% YTD.
While retail returns in equity have been astounding, the returns in crypto have been simply ludicrous. Exhibit A: the infamous Shiba Inu Whale of $SHIBA fame. BusinessInsider provided the recap:
In what's being dubbed the greatest individual trade of all time, a crypto investor turned about $8,000 into about $5.7 billion by buying trillions of shiba inu coin shortly after it debuted.
The series of trades began in August 2020, when the investor bought about 70 trillion shiba inu coins, according to their associated crypto wallet. Shiba inu coins began trading on August 1, 2020, and the investor took note that day and made their first shiba inu purchase, buying about 70 billion coins.
About the time of the investor's $8,000 purchase, shiba inu coins were trading at about $0.000000000189. Today, the cryptocurrency is trading at about $0.00007941, which represents a swift 14-month gain of more than 7 million percent.
The crypto wallet now owns more than 13% of the total supply of shiba inu coin, which has a total circulating supply of 549 trillion coins, according to CoinMarketCap.” (emphasis added)
$5.7b in 453 days off $8k in capital? Suck it, George Soros:
Shiba’s performance made it the 10th most popular cryptocurrency on CoinMarketCap. Right behind Dogecoin ($DOGE).
Even avid crypto investors likely missed DOGE and SHIBA. With Elon Musk able to manipulate TradFi and DeFi markets with a tweet, investors interested in maximizing returns might have been better off spending time refreshing social media feeds than reading 10Ks and 10Qs. This phenomenon hasn’t been lost on cryptocurrency developers (aka “devs”). It appears now they’re looking to take advantage of this. Enter the social/culture token:
Good Morning We’re All Gonna Make It Token ($GMWAGMI) is among the first of its kind. $gm borrows from a common phrase found on “Crypto Twitter” where crypto “hodlers” say “gm” to each other. Per the website:
$gm launched on November 8th. Any functionality or utility is deep in the roadmap. Right now, this token is as useless as $DOGE. Which is to say: it is entirely useless.
That didn’t stop $gm from ripping. Dextools.io’s one week chart is pretty stunning:
These candles mask $gm’s tremendous volatility. Digging into the numbers suggests the token traded up more than 94,000% at its peak (PETITION Note: Caveat our math might be slightly wrong here - these charts ain’t easy to read).
Assuming our math is correct, and assuming a quick trader would be able to both get in at the initial drop AND sell at the top, an investment of $1k would have returned $950,000 in just 6 days.
If, on the other hand, one bought at the top when fervor was ripping. 😬😬
How did $gm manage to pull this off? For one, the team was a first mover into the “gm” culture token movement and weaponized the power of Crypto Twitter.
“gm” is a common enough phrase that even major crypto celebrities use it frequently (Tyler Winklevoss of Gemini, CZ of Binance). If Elon pumped DOGE and SHIBA with just a few emojis, imagine the potential of the entire crypto market pumping $gm in unison with a phrase as simple as “good morning.” 🚀🚀🚀🚀🚀
$gm’s dev team translated this enthusiasm into significant trading volume early on. What happened next was a snowball effect. With significant trading volume and high fees, $gm was able to convince a record number of exchanges to sign up the token to improve liquidity and drive new buyers. Per Twitter User @YumYumFarm, $gm is currently available to trade on 11 mid-tier brokerages (Coinbase Global, Inc. ($COIN), Gemini and Binance are considered the gold standard of brokerages and have a lengthy approval process for new issuances).
And it’s not just Twitter marketing: @YumYumFarm wasn’t kidding about $gm advertising in the physical world (here on the outskirts of Los Angeles):
The pump was in full effect.
And FOMO is a powerful motivation.
Crypto “investors” who missed the dog coin rally are seeing this as another bite at the apple of financial windfalls:
Competitor “culture coins” or tokens have emerged…
These new “culture coins” rocketed off their launch, but the majority of speculators here have become bagholders. $WGMI hodlers suffered almost complete capital impairment (a “rug pull”) when early investors (and possibly the devs themselves) sold down their positions in a mad dash for the exits.
Some $gm investors are incredibly bullish on the coin’s potential to galvanize a cultural movement within the crypto community (this is a whole thread ⬇️):
A key concern is whether $gm’s developers are up to the challenge and can fulfill such lofty expectations — especially after massive drawdowns off the high. Indeed the $gm “community” has been up in arms after many of the late comers lost their pants. Many are pleading with the devs to buy back coins directly rather than spending on marketing campaigns or protocol improvements. Some argue $gm is nothing but a pump and dump, and claim $gm’s devs have a checkered history:
gm @gmwagmieth
middle curvers, ngmi https://t.co/vuhnaY9T47
The key question for $gm now is: does any of this damaging information actually matter for the price?
$DOGE’s developers left the project before it ever became a meme. And $SHIBA investors suffered multiple 80 - 90% drawdowns before significant gains were realized. If cultural & social tokens are the new hot commodity, it may not matter who runs the project. As crazy as that is to say.
All of this will just continue to have conventional investors shaking their heads.
*To make returns, distressed investors are looking into riskier areas. Oaktree Capital, for instance, is getting heavily involved in China. Others are looking into Brazilian real estate. Credit investors aren’t faring well either. As they compete with one another for “yield, baby, yield,” they keep finding that yields are flexing down directly in their faces. Per LevFin Insights, a number of recent deals are getting the “aggressive reverse flex” treatment “highlight[ing] strong investor demand for some transactions despite crowded market conditions.” They might be better served by opening a Coinbase account and going full steam ahead of dog coins. 😜
🔥The Next Great Category of Restructuring Advisory🔥
Callback to this portion of former Canyon Capital Partner and Senior Portfolio Manager, Dominique Mielle’s “Notice of Appearance” with us:
PETITION: In recalling your experience during the dot-com bubble, you wrote: “My most humbling experiences were to listen to my hairdresser, dental hygienist, or OB-GYN describe how much money they made in stock picking.” That sounds a hell of a lot like what we’ve been experiencing in 2021. Everywhere we turn, there’s another story about a retail trader living in his mom’s basement who made a 1000% return on GameStop, XYZ crypto, or even a god d*mn JPEG. Is there any reason for us to think this time is different, or is it just a matter of time before it all comes crashing down?
Dominique: Try arguing EBITDA multiples when your hair is wet, your mouth open or you're butt naked. It feels the same today – the market part I mean. I don’t know how to analyze crypto or tech, but I do know AMC. I’ve covered it and invested in it for decades, through the transformation from multiplex to megaplex that resulted in bankrupting most of the industry and led to consolidation, the Apollo LBO, the IPO, the Wanda acquisition etc. And it ain’t worth what the screen says based on fundamental valuation. But that’s the key right there, the new paradigm that retail traders have introduced into the stock market. There’s a new premium in town: the premium that comes with having fun, being part of a community, screwing the system, cooperating on stocks. It’s real. It’s widespread. And it can last. (emphasis added)
If it can last and it can help potential chapter 11 debtors avoid the bankruptcy bin a la Gamestop Inc. ($GME) and AMC Entertainment Inc. ($AMC), then perhaps firms ought to, like, pay more attention to this potential growth area?!? We know: this seems bonkers but if achieving meme stonk status is the latest and greatest bankruptcy avoidance mechanism, shouldn’t restructuring firms perhaps invest in capabilities there?* All it might take is hiring some smart MBA students with experience running a meme account and the sky is the limit.**
Here is Bloomberg’s Matt Levine:
The basic issue is that right now everything is dumb. You can complain about that, or you can embrace it. In investing in 2021, “my channel checks and fundamental modeling suggest that this company will grow earnings faster than the market expects so I will buy it with a price target 20% above today’s price” might sound smarter than “this company’s chief executive officer just tweeted a picture of a dog at Elon Musk so I’m going to buy out-of-the-money call options expiring Friday because the stock will go up 200% today,” but the latter approach happens to work better right now.
This is all well and good if you’re a retail investor on Reddit; you just buy the right memes at the right time and get rich. (This is really, really not investing advice!) You are essentially a passive observer; your job is to notice which companies are doing the dumbest things and then buy them. (Read the previous parenthetical!) (emphasis added)
He continues:
But other people are active participants in this dumb economy and can nudge companies to be dumber so their stocks will go up. This most obviously works for the chief executive officers of companies. If you are the CEO of a public company, I want you to consider very seriously going to an investment conference with no pants on. Your stock will go up, your shareholders will be happy and your cost of financing will go down. “Why would my stock go up because I don’t wear pants,” you ask me, and I say, shh, shh, it just will, don’t ask why. “I have my dignity, I am not going to go to an important business conference with no pants on just to amuse some apes on Reddit,” you say, and I say: You are not as committed to maximizing shareholder value as I thought you were.
Clearly Levine is referring to Adam Aron, the CEO of AMC (see article above). But Aron is a unicorn; a real master of the meme arts. It’s unlikely that every management team will be as skilled as he is. Or GME’s Board Chairman, Ryan Cohen, for that matter, who just happened to tweet this ⬇️ stupid AF message early on Monday morning before markets opened:
Confused as to its meaning? Hint: read it backwards. Naturally, the market rewarded this literary genius: at the stock market open on Monday, GME traded at $203.86/share. At market close on Tuesday, the stock was up to $207.18. Did some change in the fundamentals of the business warrant a $4/share increase? Of course not. But the Chairman of the Board tweeted about his junk so 🤷♀️.
Levine goes on to describe the recent efforts by activist investor NuOrion Advisors vis-a-vis Macy’s Inc. ($M). In brief, NuOrion urged Macy’s management to embrace electric vehicles and cryptocurrency to unlock value for shareholders. Seriously, folks. This is peak 2021 right here. We’re, frankly, surprised that they neglected NFTs and weed (oh, PETITION, weed is SO 2019!). Clearly NuOrion recognizes the value of hopping on whatever hot bandwagon happens to be departing the station at the moment. The stock us up $1.50/share since this letter came out.
Once there’s buzz, we all know what comes next: the meme stonk army will pump the sh*t out of a stock on Twitter and Reddit, squeezing any shorts in the process. The stock will go up and suddenly management will find itself in a situation where their company can do an at-the-market equity offering and generate more cash, paydown some debt, and go on to live another day a la Hertz. Easy peasy.
So shouldn’t restructuring firms, as Levine suggests, “embrace” all of this? Doesn’t teaching a company how to lean into meme-stonkification classify as some form of “performance improvement”?
We’re old enough to remember when bankruptcy groups were just bankruptcy groups. Now they’re “Business Finance & Restructuring” or “Business Solutions, Governance, Restructuring & Bankruptcy” groups. Investment banks no longer provide “Restructuring Advisory” services; rather, they provide “Liability Management” services. That’s a larger umbrella and is far less daunting to the casual management team. Who’s going to be first to market with their “Liability & Meme Management” service line or “Business Solutions, Meming & Anti-Governance.”
We know. This sounds insane. But never underestimate the power of the almighty fee. And as things stand right now, there very well may be some money to be made here.
Don’t @ us.***
*This might also help with recruiting efforts since most major investment banks are getting the sh*t kicked out of them in the MBA recruitment wars by Silicon Valley startups and cryptocurrency companies.
**There are probably more of them out there than investment banks would like to acknowledge.
***We’re being tongue-in-cheek.
📤Notice📤
Blake Lueder (Associate) joined Meru from FTI Consulting.
📚Resources📚
We have compiled a list of a$$-kicking resources on the topics of restructuring, tech, finance, investing, and disruption. 💥You can find it here💥.
💰New Opportunities💰
Boeing Capital Corporation is seeking driven professionals to join our Supplier Financial Risk Management team. These individuals will be responsible for helping to assess risk, develop risk-mitigation solutions, and lead the development of strategies in connection with our suppliers. For more information, please go here or contact Stevie Mussie (stevie.n.mussie@boeing.com).
Greenhill is seeking an experienced associate to join its Restructuring & Financing Advisory team in New York. The position offers qualified individuals the opportunity to assume significant responsibilities on both restructuring and financing matters, and provides a unique opportunity to work closely with clients and experienced senior professionals. For more information, please visit here to apply online, or submit your resume via email to thomas.mccarthy@greenhill.com
PETITION is making two (paid) internship slots available for the Fall semester. We’re looking for entrepreneurial, commercial, creative and, frankly, not too “corporate” MBA or Law school students to work with us and help take us to the next level. Primary responsibilities include (i) research and writing and (ii) ownership of some new strategic and creative initiatives. We want to try some new sh*t — even if that means failing. Current paying subscribers will get first look (logically, paying subscribers have a much better sense of what we write about and what we stand for). Email us at petition@petition11.com and write “PETITION Intern” in the subject line.
ToneyKorf Partners is recruiting talented, experienced, and driven people for our Vice President and Senior Associate levels. If you are interested in a culture that focuses on making a difference in people's lives, colleagues who know and care for each other, and clients who appreciate our commitment and passion for their businesses, then ToneyKorf Partners would like to hear from you. ToneyKorf Partners is a results-driven management and advisory firm specializing in helping healthcare organizations address complex and critical challenges. For more information, please visit here or contact us at Careers@ToneyKorf.com.
*****
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