Most seasoned investors who have been around the block once or twice may have thought the same thing that billionaire Bill Gross did today. According to the investor, shares of GameStop (NYSE:GME) or AMC Entertainment (NYSE:AMC) are just far too dangerous to pick up, even at these prices. Of course, part of the reason why Mr. Gross suggests GME stock could be the next to fall is this week’s price action of another meme-stock darling, AMC.
Shares of AMC plummeted around 35% on Monday, as a judge approved the company’s plan to convert its preferred shares into common stock. Dilution isn’t great, and while CEO Adam Aron has clearly done a good job of using the stock market as an ATM, it appears most investors don’t appreciate the continued dilution at every turn.
Overall, it appears to be Bill Gross’ view that the speculative fever, which drove the likes of GameStop, AMC and others to insane highs (it’s fair to say that in hindsight) is over. Let’s dive into his commentary and what investors should take away from this renowned investor when it comes to these speculative vehicles.
GME Stock Could Be the Next Domino to Fall
Bill Gross is someone whom many investors respect. The so-called “Bond King,” Bill Gross cofounded Pimco, which has become the world’s largest bond fund. So, he knows what he’s talking about.
Gross’ take on the entire GameStop/AMC meme-stock age is one that’s very common sense. In a series of social media posts on Monday, Gross discussed the key catalyst that drove that mania — cheap money. “Here’s the bigger point: easy money promotes SPACs and NFTs and Memes… When money is no longer easy lots of fun ideas bite the dust.”
The reality is that GameStop is still mostly a brick-and-mortar video game retailer that, while not on the brink of bankruptcy anymore, certainly appears to have a shelf life. And valued at $5 billion, many can certainly make the argument that this is still a vastly overvalued stock at these levels.
Gross’ point (that cheap money fuels manias) is important to consider. In an era of 5.5% interest rates, it’s simply unclear if the shenanigans retail investors managed in 2021 are even possible today. Hoards of investors loading up on leveraged positions and call options maybe made sense then. But the cost of taking on such an endeavor today would be very different.
As mentioned, Bill Gross is one of the best financial minds of our generation. He’s right about GameStop — it’s as simple as that.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
