Nothing shook the financial markets quite like the first few weeks of 2021.
With every week bringing nerve-racking headlines and the market weaving up and down like a rollercoaster track, it was a challenging start to the new year.
But with every market event comes significant opportunities — though not necessarily the ones that seem obvious.
Today, we’ll take our final look back to your favorite 2021 Smart Money articles by looking at the GameStop-AMC-Reddit short-squeeze debacle — and what it implies for your money even today.
The GameStop Frenzy Fizzles
Note: This article was originally published on Jan. 13, 2021.
Welcome to Reddit-land!
Thanks to this online stock-chat forum, numerous previously unloved stocks have been rocketing higher over the past few weeks.
Reddit has become a powerful, albeit narrowly focused, force in the stock market, and Reddit traders have sunk their teeth into heavily shorted names like GameStop (NYSE:GME), AMC Entertainment (NYSE:AMC), and BlackBerry (NYSE:BB) and created massive “short squeezes.”
In other words, the Reddit traders have been buying these stocks… then coaxing others to buy these stocks… then boasting about the thousands they’ve made buying these stocks… and then gloating about the millions that hedge funds and other professional short-sellers have lost by betting against these stocks.
Before this began, GameStop shares were trading hands below $20. But by Friday, Jan. 8, 2021, they were trading around $350!
And since nothing succeeds like success, the Reddit crowd has been scouting around for some fresh red meat.
Already, some folks are calling what we’ve seen over the past few weeks the “future of the market.”
I doubt it…
Cats and Dogs Unite
On Thursday morning, Robinhood (NASDAQ:HOOD), TD Ameritrade, and other platforms started restricting trading on GameStop and other Reddit faves. (Is that even legal? I suppose we’ll find out.)
That led U.S. Representative Alexandria Cortez (D-N.Y.) and Senator Ted Cruz (R-Texas) to find the one thing they agree on: Robinhood shouldn’t be doing that.
And here’s a headline, from Fox Business, that none of us ever expected to see: “Treasury Secretary Yellen ‘Monitoring’ GameStop Stock Situation.”
So, maybe these Reddit frenzies are already the past of the market.
But I doubt that, too.
While the Securities and Exchange Commission may toss some regulations in their way, the Reddit Army’s share-price manipulations are likely now a part of the stock market.
The inmates will occasionally get to run the asylum. It’s just something we’ll all have to consider when making trade decisions.
But for the most part, it’ll be a sideshow. The market will continue churning along… and Wall Street and smart investors will keep making money.
Now, I’m not here for a lecture about “fundamentals” or the “purpose of the stock market.” After all, the stock market left reality behind a long time ago.
These are smart kids, there are a lot of them, and they’re going to keep finding flaws in the market to exploit. Good for them!
If you want to join them — and you don’t risk more than you can afford to lose — have at it. However, treating the market like a casino just isn’t what we do here or in my other services.
After all, the Reddit Army could evaporate as quickly as they appeared. So, there is no real disciplined or academic way to trade off these frenzies.
If one of my trades gets caught up in the chaos, I’d be stupid to not suggest cashing in. But I will not recommend buying any stock as a play on Reddit chat.
Instead, I’ll keep using a global-macro approach to find and recommend stocks and other trades as long-term plays on huge trends like the global 5G deployment.
That story continues to gain traction…
This 5G Play Is Set for a Comeback
5G isn’t simply the thing-that-comes-after-4G. It is a uniquely powerful investment opportunity that will deliver outsized gains for many years to come.
Trillions of investment dollars will flow toward and through 5G infrastructure over the next several years, no matter how well or poorly the global economy is faring.
Qualcomm estimates that 5G networks will generate a whopping $13.2 trillion in global sales activity by 2035. Typically, an industry measures its growth potential in the billions of dollars, not trillions.
Perhaps that’s why telecommunication companies are placing astoundingly huge bets on 5G’s future profitability. They’re doing so through their bids in federally run 5G airwaves auctions.
In January 2021, U.S. wireless carriers like Verizon Communications (NYSE:VZ) and pay-tv providers like Comcast (NASDAQ:CMCSA) bid more than $80 billion for access to 5G airwaves in auctions run by the Federal Communications Commission (FCC). That’s far more than analysts’ estimates of $47 billion… and it smashes the old record of $45 billion in 2015.
Telcos are spending all those billions now because they believe in those forecast trillions in revenue in the years to come.
Also in January, China upped the ante on 5G growth by unveiling ambitious new plans to nearly double its 5G wireless capacity in 2021.
Clearly, we’re on the cusp of a 5G revolution… and this revolution will create enormous opportunities for select companies and their shareholders.
No company or country can afford to ignore 5G or to lag behind constructing and utilizing it. This new network will quickly become the essential oxygen of the coming tech-based economy… and the dollars involved will be astronomical.
An Update From Eric
The 5G revolution is far from over; as I’ve mentioned before, we’re only in the first or second inning of it. But some companies are prospering already from this new megatrend. In fact, during the 12 months that have passed since the article above first appeared, many of my 5G-focused stock recommendations have delivered “surprisingly strong” earnings growth.
Obviously, this growth has not been a complete surprise to my subscribers and me. It is exactly what we have been anticipating… and exactly what has been powering recommendations like Ciena (NYSE:CIEN), Nokia (NYSE:NOK), and Aviat Networks (NASDAQ:AVNW) to market-beating gains.
I’m expecting the 5G sector to continue gaining momentum in 2022.
On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends… before they take off. In fact, Eric has recommended 41 different 1,000%+ stock market winners in his career. Plus, he beat 650 of the world’s most famous investors (including Bill Ackman and David Einhorn) in a contest. And today he’s revealing his next potential 1,000% winner for free, right here.