Is The Retail Mania Over?

Is The Retail Mania Over?

At various intervals over Q1, analysts and commentators suggested the pandemic-era “retail mania” evident in, for example, surging daily average trades at online brokers and small-lot options activity, was likely to abate.

In the 12 months following the initial COVID lockdowns in the US, retail investors “gone wild” were credited with driving all manner of dubious dynamics, including nonsensical rallies in shares of bankrupt companies, a melt-up in mega-cap tech that ultimately buckled under its own weight in September and, of course, the “meme” stock fiasco, that crescendoed in the lionization of “Roaring Kitty” and the figurative crucifixion of Robinhood.

Although stimulus checks were the go-to explanation for increased retail investor interest, plenty of other factors were at play including the substitution of stock trading for sports gambling and the simple fact that people were stuck at home, glued to their keyboards and monitors. The gamification of trading (e.g., Robinhood) and the antics of folks like Dave Portnoy (who, in my opinion, suffers from an extremely acute case of delusions of grandeur) exacerbated the situation.

In the weeks just prior to the disbursement of the latest stimulus checks, many insisted the money would be plowed into stocks. And yet, as the checks landed in bank accounts, there was a palpable sense of disappointment when equities didn’t stage another massive leg higher.

In “What Happened To The ‘Stimmy’ Surge?,” I jokingly lamented the apparent lack of follow-through from retail investors, who many assumed would immediately transfer at least a portion of any new stimulus funds received to their online brokerage accounts. Then, in “Jagerbombs,” I wrote that some of the “disinterest” from the retail crowd may have been down to Spring Break and the gradual reopening of the services sector.

That was a euphemistic way of saying that to the extent the surge in retail activity was attributable to young investors and traders stuck at home with nothing to do, now it’s time for Jägerbombs again.

Fast forward two months and, at least on some familiar indicators, retail investor interest continues to wane. “Retail investors’ euphoria seems to be cooling-off, with AAII Bull-Bear sentiment index down from the fresh highs and closer to neutral now,” Barclays’ Emmanuel Cau wrote, in a Wednesday note, adding that “equity buying from retail investors on popular platforms like Charles Schwab remain elevated and higher than for bonds, but the gap between the two has narrowed a bit this month.”

Further, Cau noted that small-lot call option volume “continues[s] to slow [while] bigger size contracts, likely more used by institutional investors, are picking up as a share of total.

What accounts for the waning interest? Probably not the absence of additional stimulus.

“There seems to be a link between the reopening economy and less new money coming into equities from retail investors,” Barclays went on to write, noting that “most mobility indicators in the US and the UK have normalized, individuals are back to work, have less spare time to look at the market, and also have more discretionary spending opportunities.”

So, they’re back serving Jägerbombs and when they’re not serving them, they’re buying them. And, of course, sports are back, which means sports gambling is too. No need to substitute GameStop calls for the over-under anymore.

If you’re wondering whether Barclays offered any hard evidence of this, the answer is yes. The bank cited a discernible downtrend in card spending on broker/dealers and juxtaposed that with mobility indicators, which are rising in the UK. “In our opinion, this shows some evidence reopening may be diverting retail attention away from markets,” the bank said.

Ironically, I wrote this on a day when America’s meme stocks were back in the news. Call it a last-gasp before WallStreetBets fades (back) into relative obscurity. But hey, it wasn’t all for naught. There’s a case to be made that Reddit may have saved some companies from financial oblivion. Whether they deserved the life raft is another matter.

8 thoughts on “Is The Retail Mania Over?

  1. Well, its quite a last gasp for the meme stocks.

    AMC trading at 19.45 today. ($8.7 billion market cap)

    Call options at 40 strike price, expiring on June 18, are trading at $`1.26.

    Over 97,000 contracts traded today at just that strike one price.

      1. My reply came across as overly abrasive (it happens occasionally). My thing is this: I’ve done enough gambling in my life. And if I gamble today, it’s not in capital markets or at least not beyond the gambling inherent in any investment decision. Bottom line: If I don’t want to own it, I wouldn’t put any money into it. These aren’t poker chips. I don’t want to own a GameStop location or a movie theater in an era where both physical video games and movie theaters are arguably going the way of the dinosaur. So it’s bizarre to me why this is still going on. I can understand getting swept up in the mania initially and still participating in it if all you’ve got is a few thousand to bet, but the idea of putting any sizable amount of money behind these stocks is ludicrous (to me anyway) when there’s an entire universe of companies out there I actually would want to own. That’s really all I’m saying.

        1. This makes sense, and its the kind of simple analysis readers come here for.

          I wanted to lay out the Reddit case for these stocks though, since I don’t think that there is any reason to be confused. This isn’t a fundamental play, instead Reddit believes that:

          -Citadel and other market makers fabricated shares of GME and AMC to sell them short.
          -Retail traders now own many times the float in these companies
          -By holding onto these shares retail stands to become very rich when Citadel needs to cover.

          I don’t own these companies, but I’m closely following the story since I’m interested in what will happen, and since I teach some of the people who are actively involved. Is there any good way to understand whether this story is true? I can’t work it out on my own.

          1. Retail doesn’t stand to “become very rich,” because relatively speaking, retail doesn’t have enough starting capital to matter. They don’t understand what “very rich” means. “Very rich” to them is $20 million. That’s a joke.

            This is a patently ridiculous narrative and speaks to the alternate reality Reddit traders live in.

            It doesn’t matter if a bunch of “Roaring Kitties” make $5 million or $10 million or even $20 million. That’s pennies to the people they imagine they’re “sticking it to.”

            In June of last year, Ken Griffin bought a Basquiat for $100 million. What does he care about Roaring Kitty’s seven-figure GameStop score?

            The point is: It’s quixotic in the extreme. Even if WallStreetBets manages to put a dent in a hedge fund, the manager can just go out and raise more capital from people with $100 million to throw around at fine art auctions and rare wine sales.

            Reddit’s perception of their place in the world is ludicrously out of step with reality.

  2. The frenzy certainly feels like another gamma squeeze, but I’m interested to hear from more knowledgeable people about whether there is any chance that these stocks actually were “naked shorted” in such size that market makers will need to cover and will buy from retail investors at comical prices.

    It seems unlikely, and I can’t really believe that someone short so much wouldn’t have tried to cover over the last 4 months, but I just don’t know enough about how markets work behind the scenes to be sure.

    1. Interesting read given today’s events on GME. it seems like a bunch of redditors know something the rest don’t or don’t want to explain or don’t want to believe.

      It’s clear that the elite are nervous. How is it that every media headline reads exactly the same “forget GameStop”. If they weren’t nervous they wouldn’t have paid for those articles. If they weren’t nervous they wouldn’t have the lights on at all hours of the night. Yes Kenny can buy a 100 million dollar house. I bet he bought it mostly on credit though.

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