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Ryan Cohen Sends GME Skyrocketing… Again
On Tuesday, GameStop (NYSE:GME) chairman Ryan Cohen stunned the internet with a $10 million GME purchase.
Reddit investors reacted with predictable cheer… by adding $3 billion to the company’s market capitalization.
My sympathies to anyone shorting the stock.
Mr. Cohen’s actions stand in stark contrast to AMC Entertainment’s (NYSE:AMC) Adam Aron, a CEO selling every share not nailed to the ground. And while Mr. Cohen is pursuing a growth strategy in NFTs and tokenized assets, Mr. Aron has found it worthwhile to buy a Nevada goldmine instead.
Perhaps Mr. Aron’s actions will prove right. GameStop’s NFT and Web3 businesses could flop while AMC strikes literal gold.
But if you’re going to bet on only a single meme stock, just know that the Insider Track has long known which one is a more likely winner.
The Five Surprises This Week
Besides GameStop, there were many more twists and turns this week. Bonds would briefly flirt with an inversion, and a minor oil squeeze would send crude prices over $120.
GameStop Fans Pump Loopring Past $1
After months of “are they together” speculation, Loopring (LRC-USD) has finally confirmed its relationship with GameStop.
“We’re thrilled to announce the GameStop NFT Marketplace has taken its first steps to welcome users. And it is built atop Loopring,” Head of Growth Adam Browman announced on Wednesday.
I can already hear the wedding bells ringing.
Crypto users immediately jumped in, sending prices of the Layer 2 protocol up 40% to $1.24.
And the strangest thing? Most investors don’t seem clear on what role Loopring will actually play. Why would a firm like GameStop need a second zkRollup provider when they already have a contractual obligation with rival Immutable X (IMX-USD)?
There are some clues. Loopring supports ERC-1155 token standards, a version of the ERC-721 standard that allows batch transfers and optional fungibility. LRC also allows wallets, while IMX operates more as a marketplace.
But the exact details of this three-way relationship might not be known for months. Until then, investors are likely better off loading up on first-love Immutable X rather than second-choice Loopring.
DWAC Continues to Stun Naysayers
This week, Donald Trump’s Truth Social app fell out of the top 200 most downloaded apps on the Apple App Store. It now ranks under MeWe, a social app known for gun sales and controversial content.
The app’s anticlimactic fizzling was largely expected. Donald Trump himself has avoided the app; with the exception of a boilerplate welcome message, the former President has remained silent on the highly anticipated platform.
Yet valuations have remained surprisingly firm. Digital World Acquisition (NASDAQ:DWAC) has traded solidly in the $60 to $80 range, pegging enterprise value around $9 billion once PIPE shares are included. And fervent Trump supporters seem unwilling to part with their stakes, despite the app’s declining popularity.
But much like Wile E. Coyote running off a cliff, prices can only levitate for so long. Unless Mr. Trump begins to promote the platform in a meaningful way, investors will quickly find themselves staring at a long way down.
Russia’s Government Shoulders a $350 Billion Market
On Thursday, the Moscow Stock Exchange partially reopened to a 5% gain. Foreign investors can now buy — though not sell — shares of 33 Russian-based companies.
The White House would immediately slam the move as a “Potemkin market opening,” with traders suspecting foul play.
“I must caution it’s not a very convincing floor at the moment,” said Per Hammarlund, chief emerging markets strategist at SEB AB in Stockholm, in an interview with Bloomberg News. “The increase today is very much likely driven by the authorities buying stocks.”
The move will likely remind crypto investors of honeypot scams, a con where developers prevent investors from selling. In one such case, anonymous scammers bilked $3.4 million out of unsuspecting Squid Token (SQUID-USD) investors.
Today, Russia has raised the stakes by several orders of magnitude. With a $350 billion stock market on the line, it’s a game with a diminishingly small chance of a happy ending.
Bored Ape Developers Caught Self-Dealing
And finally, media outlets have finally realized that something is clearly off with ApeCoin and Yuga Labs.
On Wednesday, The Verge published a “tell-all” piece about ApeCoin’s DAO.
“The DAO gifted a healthy chunk of the 1 billion total ApeCoin tokens to Yuga Labs, Yuga Labs’ founders, and the VCs who backed the project,” the news outlet reported. “Is all of this kosher? It certainly has folks I know scratching their heads.”
Other news sites would quickly pick up on the news, with Quartz, Coindesk and others voicing their concerns.
The worry is warranted. At its peak, the 160 million ApeCoins gifted to Yuga Labs was worth almost $7 billion, far more than the company’s $4 billion private-market valuation. Insiders have cemented control of 38% of ApeCoin’s outstanding supply.
Investors should theoretically be screaming bloody murder. Typical IPO fees generally range in the 5% to 6% range; the 14% awarded to its “launch contributors” and 16% to Yuga Labs is daylight robbery at its clearest.
But in practical terms, these figures seem par for the course. In a world where investors are spending tens of millions on easily copy-pasted images, why shouldn’t VCs earn obscene returns too?
The Second Order Effect of Commodity Prices
When the Covid-19 pandemic hit in 2020, the obvious losers were quick to fall. The US Global Jets ETF (NYSEARCA:JETS) dropped 60% within a month. Cruise liners plummeted even faster.
But markets did a poor job at recognizing second-order companies — the ones indirectly impacted by the pandemic. It would take six months for firms like home gym equipment Nautilus (NYSE:NLS) to grow beyond its pre-pandemic price. Zoom Communications (NASDAQ:ZM) and other stay-at-home stocks peaked eight months into the pandemic.
Today, rising commodity prices are recreating those same conditions. Obvious plays like oil and agricultural producers have already seen shares skyrocket, while second-order companies have barely budged. The same JETS ETF is down only 12%, despite a historical link between high jet fuel prices and airline bankruptcies. And midstream oil & gas companies — the second in line to benefit from new well drilling — have also barely shrugged.
The mismatch provides a massive investment opportunity for those thinking ahead. Alternative energy stocks are starting to look underpriced; Canadian uranium miner Cameco (NYSE:CCJ) is only up 30% despite an impending ban on Russian nuclear material.
Meanwhile, valuations of refiners, food processing companies, restaurants and other price-sensitive firms are ignoring commodity prices (and the consumer demand destruction to match). Applebee’s owner Dine Brands Global (NYSE:DINE) is flat for the year. Egg producer Cal-Maine Foods (NASDAQ:CALM) is up 30% and trades at a 5-year high.
Wall Street often ignores what Main Street consumers are doing. With prices rising across the board, make sure you don’t make that same mistake.
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On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.