Reddit Sent Me. Now Where’s My Damn Popcorn?

Unfortunately for anyone who’s inexplicably inclined to insist that markets are efficient and/or that the people who participate in them are a semblance of rational, shares of AMC rose more than 100% on Wednesday.

With the rest of the market floating in pre-NFP limbo, meme stock mania was the only story “worth” touting for mainstream financial outlets. The scare quotes around “worth” are meant to cast doubt on the notion that anyone should be spending an inordinate amount of time documenting what it’s entirely fair to call a speculative frenzy.

Headed into the close on Wednesday, AMC was up 3,000% in 2021 (figure below). It’s up 400% in the past two weeks. (GameStop who?)

I’m not here to cast aspersions. And I mean that sincerely. If you cashed in (or, more to the point, out) on this and you put enough capital behind it initially to make the whole endeavor worth the effort, then good for you.

For anyone else, be apprised that this is wholly dubious. Dubious doesn’t imply anything nefarious, but the company’s decision to offer a new popcorn- and ticket-based incentive program for retail investors at a time when management knows the shares are the target of a coordinated effort to bid the stock to infinity, will probably be remembered unfavorably in the annals of financial history. Something like: “Remember when that theater chain offered a free large popcorn to small investors and the stock doubled?” And then: “Now that you mention it, remember movie theaters?”

As Bloomberg pointed out in their coverage, AMC is expected to lose $100 million (EBITDA) over the next 12 months and has $5.4 billion in long-term debt. I suppose this goes without saying, but the pandemic ushered in a series of arguably epochal shifts in the way feature films are delivered to audiences. It’s not about fear of disease. It’s about the latest blockbuster going straight to streaming and it’s about the fact that pretty much any middle-income family in America can afford a 70-inch flatscreen. I don’t know how much plainer I can make it.

Although these kinds of statements admit of some subjectivity (assuming you’re not a fortune teller and you’re not talking about the laws of nature, everything is an opinion, after all) I’d submit that the rally in AMC is totally divorced from anything that can even loosely be described as a fundamentals-based investment thesis and that the shares are almost guaranteed to collapse from these levels.

So, that’s that. Elsewhere, US equities continued their sideways grind. Nomura’s Charlie McElligott explained some of the dynamics behind that in a Wednesday note. Treasurys were similarly subdued.

Ostensibly, anyone not on vacation is waiting on May payrolls. But not everyone is convinced it’s going to be a “make or break” data point. BMO’s Ian Lyngen and Ben Jeffery described themselves as being “in the uncomfortable position of suggesting the market will once again look beyond the realized data in favor of the reopening optimism that has arguably prevented 10-year yields from retracing below the 1.464% low set last NFP Friday.”

It all comes back to the same thing: Is the recovery and the reflation narrative priced in or isn’t it?

“The challenge then becomes estimating the extent to which recovery expectations will persist even as much of the rebound is assumed – and priced accordingly,” Lyngen and Jeffery added.

For his part, JPMorgan’s Shawn Quigg recommend puts on some tech stocks. “Our economists anticipate peak inflation occurr[ed] in April [but] it will take until late June, or later, to confirm the peak,” he said. Despite the bank’s Overweight in Tech, “downside risks could remain for stocks triggering negative momentum signals,” he wrote, adding that although “some pundits continue to debate whether the style shift from Growth to Value is sustainable, a recent Bloomberg article suggests even BlackRock is acknowledging the shift, and rebalancing funds accordingly, supporting a view some Technology stocks may still be at risk of additional downside.”

As much as I don’t want to (because honestly, I’m not a fan), I’m going to give the last word to Matt Levine. When it comes to deadpan humor around things like the AMC spectacle, he’s pretty difficult to top. The following is from a piece he published Wednesday:

Yeah. I have no notes, that’s perfect. “If you buy AMC stock it comes with popcorn” is the greatest capital-markets innovation of the century so far. I used to work in investment banking, building equity derivatives and equity-linked securities to help companies raise money and optimize their capital structures, and in hindsight we were idiots. “What if we used the contingent payment debt instrument regulations to increase the tax deductibility of non-cash interest paid on a 30-year-non-call-5 convertible bond,” we thought, like fools, when the actual way to optimize equity capital raising is by throwing in a large popcorn.