Stock Market

I’m not a GameStop (NYSE:GME) hater. In fact, I have never traded the stock, nor do I have any intention to. But when I see the market’s reaction to “the return of Roaring Kitty,” I can’t help but think that the Federal Reserve isn’t done raising rates. That liquidity is still too ample. This is not an efficient market. This is not some game. I said before we are going back in time to 2021, and the last time we saw this type of silliness, it was the top for most stocks.

I have repeatedly argued that the Fed can’t lower rates with credit spreads this tight. We went through the fastest rate hike cycle in history, and the bond market has said there’s still too much money sloshing around in the system. Low credit spreads mean the market is not worried about stress to the system. No stress? More speculation.

The GameStop stock rally isn’t about Roaring Kitty. The move today is on too much money that just wants to gamble.

Yes, markets go through periods of inefficiency, but this is just outright silly. Nothing can possibly justify a stock surging on a single post from anyone. I don’t care if it’s Roaring Kitty or Stanley Druckenmiller.

The problem is simple to me. We got to a point where the entire stock market is broken. It isn’t a medium for the proper allocation of capital that rewards companies for their activities. It is now a casino, where there is crowd manipulation and irrational behavior to an extent we have never seen before.

Having said that, if you made a killing today on GameStop, congrats! My criticism is not specific to GameStop. GameStop is but a symptom of a bigger broken system.

With that said, I do believe it would be ironic if, on the same day Roaring Kitty “returns,” we see stocks hit a top and begin on a deeper correction. Stranger things have happened. GameStop stock may ultimately be the catalyst for a realization that there is still too much froth. Pain is the only way to take it out systemwide, perhaps sooner than later.

On the date of publication, Michael Gayed did not hold (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 Publishing Guidelines.

The Lead-Lag Report is provided by Lead-Lag Publishing, LLC. All opinions and views mentioned in this report constitute our judgments as of the date of writing and are subject to change at any time. Information within this material is not intended to be used as a primary basis for investment decisions and should also not be construed as advice meeting the particular investment needs of any individual investor. Trading signals produced by the Lead-Lag Report are independent of other services provided by Lead-Lag Publishing, LLC or its affiliates, and positioning of accounts under their management may differ. Please remember that investing involves risk, including loss of principal, and past performance may not be indicative of future results. Lead-Lag Publishing, LLC, its members, officers, directors and employees expressly disclaim all liability in respect to actions taken based on any or all of the information on this writing.

Michael A. Gayed is the Publisher of The Lead-Lag Report, and Portfolio Manager at Tidal Financial Group, an investment management company specializing in ETF-focused research, investment strategies and services designed for financial advisors, RIAs, family offices and investment managers.

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