The DORK Trade

The Meme Stock Crowd Grows Up

Oh no, not this again…

Remember early 2021, when a bunch of investing neophytes bid up the share prices of left-for-dead companies like GameStop and AMC Entertainment?

They’re back this week — only this time the objects of their affection are Krispy Kreme, Opendoor, Rocket Mortgage and Kohl’s. Given Krispy Kreme’s ticker symbol of DNUT, the foursome has been christened as the DORK stocks.

As the week has gone on, other names have similarly gotten hot. Like GameStop back in the day, some of them have nostalgia value for millennials or Gen-Zers — such as American Eagle Outfitters and GoPro, the company that makes those forehead-mounted cameras for surfers, skydivers and what-not…

Nostalgia trip: GoPro founder Nick Woodman during the company’s 2014 heyday…

Then as now, the ramp-ups in share price are swift — followed by equally swift plunges.

But this isn’t 2021 anymore. The meme stock kids have grown up.

The mainstream pearl-clutching that accompanied the 2021 frenzy is mostly missing this time — that “unserious” bit above from The New York Times notwithstanding.

Back then, it was absolutely insufferable. For instance, New York magazine’s business editor…

The politicians piped up, too: Sen. Elizabeth Warren (D-Massachusetts) demanded regulators step in to ensure markets “reflect real value” — as if that were something government officials are capable of determining.

What the media and the politicians didn’t understand was that the meme stock phenomenon of 2021 had its origins in the financial crisis of 2008.

We saw it plain as day: The meme stock crowd came of age living in mom’s basement after graduation, navigating a miserable job market. And that’s assuming mom hadn’t been foreclosed on.

As the 2010s wore on, their existences were defined by crushing student debt and underemployment as baristas and Uber drivers — and even those jobs went away with COVID lockdowns.

But with lockdown came “stimmy” checks. These folks had time to spare and money to burn. And they had a grudge against everyone who got bailed out in 2008.

“I vividly remember the enormous repercussions that the reckless actions by those on Wall Street had in my personal life,” said a typical post on Reddit’s WallStreetBets forum. “We lived off of pancake mix, and powdered milk and beans and rice for a year.”

But it seems the mainstream has made its peace with the meme stock crowd now.

By and large, there are no articles tut-tutting about young adults who have no idea what they’re getting into. They knew very well then, and they know very well now.

At Yahoo Finance, Steve Sosnick of Interactive Brokers describes the attitude of meme-stock traders in terms reminiscent of any bull market. "Everything they’ve been trying has been working for them. If the basic stuff’s working, why not try a bit more speculative stuff?"

“Meme stock traders are no longer a punchline,” says the Axios site — which quotes an analyst at RBC named Amy Wu Silverman. These traders, she says, have a "savviness that is very interesting to me that wasn't there 10 years ago.”

Good on them. Still, there’s a cynicism at work here — or what my acquaintance Demetri Kofinas, host of the Hidden Forces podcast, calls “financial nihilism.”

It’s an attitude in which investing is not about macroeconomic forces or traditional valuation metrics like sales and earnings. It’s about the creation of a narrative — and the ability of enough people to move an asset by sheer force of their numbers.

If, like me, you come from an older generation and can’t relate to this approach, much less put it to work in your portfolio… at least you have to understand it.

Meme stocks, memecoins, zero-dated options — they’re all, in their way, a totally logical response to what the economist Kurt Richebacher called “late-stage degenerate capitalism” — Big Business in bed with Big Government, the dollar’s purchasing power cratering, a hollowed-out middle class.

Like it or not, this is the world in which we invest now. Adapt or die…

Seven Days

It’s now seven days before Donald Trump’s tariff deadline — and even the handful of done deals looks shaky at best.

Barring any further trade agreements, “reciprocal” tariffs will kick in next Friday against about 50 countries. The administration has struck deals with a half-dozen so far — most recently Japan this week.

But as Japan’s Nikkei news service reports today, “Details released by the White House on its tariff agreement with Japan include many points that are unclear or out of sync with how Tokyo has explained it, including the date it goes into effect and the framework for Japanese investment in the U.S.”

For instance — Trump’s announcement that Japan will invest $550 billion in U.S. projects. As Nikkei points out, “The sum involved exceeds the Japanese government's tax revenue for a full year.”

Between the tariff deadline, any fallout from the next Federal Reserve meeting and the job numbers due a week from today… next week could be mighty interesting for the markets.

But that’s then and this is now. “Despite new record highs, the averages are barely budging this week,” colleague Greg Guenthner observes at The Trading Desk.

The S&P 500 notched another record close yesterday — and it’s up another quarter percent today to 6,378. The Nasdaq is also in record territory after closing over 21,000 for the first time Wednesday.

“We have to respect this market strength,” says Greg. “I know I’ve talked a lot about how stocks are overextended and need to cool down. But what I think doesn’t matter — and markets can stay overbought for much longer than you might think.”

Precious metals have been grinding lower during the back half of this week. Gold is down $100 since Tuesday — the bid $3,329 at last check. And while silver will likely conclude a third-straight week over $38, it was over comfortably over $39 on Wednesday. Bitcoin is losing ground, now barely holding the line on $115,000. 

Crude’s sideways action this week continues, a barrel of West Texas Intermediate fetching $65.63.

The big economic number of the day is durable goods orders — down 9.3% in June. That’s not a huge shock; the previous month’s number was skewed by a surge in orders for aircraft and military hardware. But if you strip those out, you get a nasty surprise — a drop of 0.7%. Among dozens of Wall Street economists surveyed by Econoday, every one of them expected the number to rise slightly.

Crime and Punishment

The Trump administration is gearing up for a massive crackdown on tax evasion — not that the White House is framing it in those terms, of course.

Bearing in mind that tariffs are taxes, here’s the start of a Bloomberg dispatch…

Federal prosecutors are laying the groundwork to criminally charge companies and individuals that try to evade U.S. tariffs as President Donald Trump readies a fresh round of levies next week.

American customs officials have long sought to thwart attempts to avoid duties using relatively common schemes like changing the country of origin on imports or misclassifying goods on forms. However, such issues historically have been handled through fines or civil settlements and seldom by criminal prosecution.

But now, the Justice Department says it’s adding “significant personnel” to a new unit to focus on trade fraud and other corporate crimes. Meanwhile, prosecutors at U.S. attorneys offices have been requesting records of transactions involving foreign goods during the Biden administration as they look to build cases — setting up a potential blueprint for moving against those accused of shirking new tariffs.

This enforcement campaign could get really interesting if the tariffs are ultimately struck down by the Supreme Court.

As you might recall from our May 9 edition, several small businesses that rely on imported components for their goods are suing the feds. They argue the president has no authority to impose tariffs without the say-so of Congress — again, because tariffs are taxes.

In late May, a federal court ruled the case has enough merit to proceed — even while leaving Trump’s tariff regime in place for the time being. The plaintiffs asked the Supreme Court to fast-track the case, but in June the justices turned down that request.

The case will almost certainly find its way to the Supreme Court eventually — but probably not during its term that starts this fall.

Imagine if the justices rule in, say, early 2027 that the Trump tariff regime is indeed unconstitutional.

Would the feds have to issue refunds to the affected businesses? That’d blow a hole in the federal budget, given the surge in tariff revenue this year.

Comic Relief

We have nothing to say about the call that Trump paid on the Federal Reserve yesterday — other than what we said on Tuesday and this meme we spotted today.

From JFK to Jeffrey Epstein

“I question the reference to Jeffrey Epstein as a financier,” a reader writes after Wednesday’s edition — a comprehensive follow-up to 2023’s “From JFK to Jeffrey Epstein.”

“What business did he ever raise money for? Did he ever obtain a bank loan or equity investment on behalf of any business? Did he invest any of his customer's funds in any business?

“From what I've been able to discern, the answers to all these questions are no.

“Maybe it's possible I'm overlooking something in his sordid history. If so, I'm willing to be educated on this. But the only finance-related activities I've been able to find that he engaged in were blackmail and extortion.”

Dave responds: No, you’re not overlooking a thing. That was at the heart of Vicky Ward’s 2003 expose of Epstein for Vanity Fair: How did he come to acquire his vast wealth?

Literally no one she interviewed believed Epstein could support his lavish lifestyle simply by managing the money of billionaires and taking a commission.

“I cannot express in words how profoundly well you've done with this topic. I could not agree more,” writes another.

“But what offends me the most and perplexes even my jaded self is the decision to not pursue the investigation. It is not about Epstein or his ‘list’ per se. It is about those that preyed on young girls and abused them mercilessly and those victims, whose lives were forever altered.

“The memo released by the DOJ/FBI was pretty carefully drafted in that it said that a review of existing materials did not provide enough evidence to prosecute. That's the right answer to the wrong question. The question should be why the investigation is ended… for good.

“Is there an insurmountable statute of limitations? If not, then just like with any cold case, investigators need to see what they can find. If they can't find anything because the victims' memories are too unreliable, flight records don't exist, emails don't exist, videos don't exist, etc., where it can be shown that the people that are mentioned in the current files can't be charged or named, fine. But to just simply end an investigation and state none will be conducted in the future is the most problematic thing.

“I can't tell whether Trump is directly being influenced or those that provide him information are the ones being influenced, but in either event, why Trump hasn't ordered an investigation into whether more evidence exists is beyond me.”

Dave: Trump has decided it’s a hoax ginned up by Democrats — even likening it to Russiagate now. That’s his story and he’s sticking to it.

The conclusion is inescapable, even if there’s no smoking-gun evidence that’s come to light: There’s dirt in the Epstein files on both Republicans and Democrats — and now there’s a joint effort to cover it up under the guise of yet another partisan food fight.

Same old, same old, sadly…

Best regards,

Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets