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Commentary: Meme stocks are still with us, offering new temptations for novice and unwary investors

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Commentary: Meme stocks are still with us, offering new temptations for novice and unwary investors

If you blinked you may have missed this, but the stock of Beyond Meat, the purveyor of meatless burger patties, had a spectacular run a few days ago.

The stock had surged by more than 1,400% in the four days through Oct. 22, when shares hit an intraday peak of $7.69, up from a low of 50 cents on Oct. 16.

Given that this El Segundo-based company has never had a profitable year since its 2019 initial public stock offering, the run-up was apparently triggered by the online touting of the stock by a trader named Demitri Semenikhin, and the shares have since settled back to $1.65 (in intraday trading Thursday), the action has market observers asking if “meme stocks” are back.

The answer is no — because they’ve never gone away.

I’ve been seeing signs of a ‘flight to crap’ recently.

— Market strategist Steve Sosnick

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The appetite of small retail investors for what beckon as big scores in unloved stocks has remained strong since the meme stock trade attracted attention during the pandemic year 2021.

The “meme” sobriquet points to the most notable factor driving the swift run-up and rapid downfall of these stocks: They feed on momentum generated by internet touts, not sober assessments of business prospects and financial results. Indeed, the quintessential meme stock has little in the way of profits to catch the eye of serious investors.

Beyond Meat is just the latest company to enjoy sudden meme-dom, followed by an equally sudden dose of reality. In Beyond’s case, the surge came in the wake of its Oct. 13 announcement of the results of a debt swap deal that will massively dilute the stake of shareholders. Short sellers piled into the stock, setting up the momentary rebound typical of meme stocks.

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Over the last few months, meme stock traders have piled into, and then out of, shares in Krispy Kreme, GoPro, Kohl’s and other companies that are disdained as underperformers by the Wall Street establishment, only to be taken up by an internet-fueled army of small investors. But those investors seldom have the resources to survive the almost inevitable snapback.

For those who may not recall the meme stock frenzy of 2020-21, here’s a trip down memory lane.

The emblematic meme stock of 2021 was GameStop, a spavined mall-based video game retailer that was struggling through the transformation of its franchise from brick-and-mortar stores to online commerce. The company had lost a combined $1.36 billion from 2018 through 2020, and its future looked bleak.

Then, as if out of nowhere, the stock got noticed by online investment promoters, who urged followers to buy GameStop shares to hurt Wall Street short sellers, who were betting that the stock would keep falling.

The shares climbed relentlessly through January 2021, soaring from a low of $12.16 in mid-December to an intraday high of about $483 on Jan. 28. It closed that day at $193.60, delivering a prompt lesson that investing in stocks based on claims touted online is a mug’s game.

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All this action was the product of several confluent factors. One was the pandemic and its attendant lockdowns, which prompted people deprived of social contacts and customary entertainment pursuits to fill their empty hours day-trading stocks. Internet influencers goaded their followers into trading in concert with the goal of putting it to the Man — i.e., rich Wall Street hedge fund managers who were shorting unloved stocks and deserved to be taken down a peg.

GameStop stock wasn’t the first issue to get memed. In 2020, investors piled into Hertz, even though it had been forced to seek bankruptcy protection after the COVID-19 outbreak cratered the rental car market,. Bloomberg even declared 2020 “the year of the meme stock.” (Hertz abandoned a plan to sell new shares into the frenzy after regulators raised questions about it.)

But it was GameStop that made meme stock trading into, well, a meme. GameStop displayed all the elements that drove the meme frenzy, the Securities and Exchange Commission ultimately reported: “(1) large price moves, (2) large volume changes, (3) large short interest, (4) frequent Reddit mentions, and (4) significant coverage in the mainstream media.”

A key element of the meme market was an influx of young individual investors enthralled by get-rich-quick trading come-ons. Robinhood, an online brokerage that cut commissions to zero and enticed new customers with an app that made stock trading resemble playing a video game, disclosed that “its average customer is 31 years old and has a median account balance of $240,” the SEC reported.

One might have expected that as these factors ebbed, the meme stock frenzy would evaporate. It did, somewhat, but not nearly as much as Wall Street pros expected. Indeed, as GameStop rose, the buyers gleefully declared victory over the shorts, fueling the search for more meme-able stocks. Some investors made the theater operator AMC Entertainment a meme stock. Some joined new crazes, such as cryptocurrencies, nonfungible tokens and other assets more or less immune from the traditional investment fundamentals such as revenues and profits and business plans.

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Nothing was especially new about individual stocks having a moment in the sun before falling back into obscurity, but the frenzy of early 2021 turned meme stocks into an assiduously followed investment category all its own. Financial pages and tout sheets ran wrap-ups of meme action every year. GameStop and AMC were perennial members of this club, supplemented by newcomers.

In 2022, the star was the bankruptcy-bound retailer Bed Bath & Beyond, which staged a nine-day rally that summer culminated in a one-day 40% surge Aug. 8 on extraordinary volume of 120.5 million shares. (Its Chapter 11 bankruptcy filing finally arrived in April 2023.)

To define the category, market analysts generally rely on the factors mentioned by the SEC in its reference to GameStop. But not all meme stocks were similarly obscure before having their day. One that has recently landed on meme stock rosters is Tesla: “Wildly overvalued compared to rival automakers, its shareholders are betting that they can sell their holdings to a greater fool in the near future,” economist J. Bradford Delong of UC Berkeley wrote in May 2024.

Earlier this year, Yale professor Jeff Sonnenfeld polled the attendees of his most recent CEO conference on the question: “Compared to NVIDIA’s 40x P/E forward multiple and Apple’s 30x multiple, has Tesla at 160x become the biggest meme stock in modern financial market history?”

Of the 100 participants, 83 voted “yes.”

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Meme investors have acquired new tools to follow and invest in meme targets. Bloomberg and UBS have developed meme stock indexes, and in October a meme stock exchange-traded fund — a mutual fund that trades like a stock — was launched by the investment house Roundhill.

One can hardly fault Roundhill’s warning of the risks of meme investing: “Meme Stocks are characterized by high trading volumes and significant price volatility, often driven by social media trends and investor interest,” it advises potential investors. “Meme Stocks often trade untethered from … fundamentals, driven instead by speculative fervor and viral momentum.”

“Volatility” is the mot juste for this ETF: Despite notching a 17% gain over four days shortly after its introduction, MEME is currently down more than 23% from its Oct. 14 peak.

Meme-stock buying is often triggered or sustained by a nugget of bull-market sentiment. The Beyond Meat narrative included its Oct. 21 announcement of a deal with Walmart that will place its products in more than 2,000 stores. But whether that’s enough to overcome the company’s evident financial headwinds remains questionable.

For Opendoor Technologies, a money-losing residential real estate broker that quintupled in price during a few weeks this summer and nearly doubled in price on a single trading day in September, the story was that lower interest rates would spur more housing transactions.

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Opendoor Chairman Keith Rabois bristled at a CNBC anchor’s description of the company as a meme stock during an interview in September, arguing that investors have begun to appreciate its “potential upside.” Beyond Meat didn’t respond to my request for comment on its share price. (Opendoor was the Roundhill ETF’s largest holding when the ETF was launched; more recently, the largest holding has been Beyond Meat.)

The economic fundamentals underlying the overall stock market don’t seem to have much to do with meme stock rallies. The original craze developed when interest rates were close to zero, making stocks look attractive compared with fixed income investments; the current craze has unfolded during a period of high interest rates and economic uncertainty — though that hasn’t stopped the major stock indexes from notching record highs lately.

Small investors would be well advised to keep in mind that the meme market could be the very definition of a risky place to trade. Meme investors tend to crowd into a stock after it has already begun its rapid march upward — and sometimes when that trend is about to reverse.

GameStop hasn’t fallen back to its pre-frenzy price in the low double digits, but with its current price below $23, investors who bought at its January 2021 peak have lost about 80% of their money. (The company staged a 4-to-1 stock split in July 2022, so one must multiply its current price by four to replicate its 2021 prices.)

The smart money says that the meme trade is with us to stay. There’s just too much uninformed, misinformed and self-interested commentary washing about in the investment sphere, too easily accessed by unwary and novice investors. Most of the advice being pushed on investors today isn’t much good, and what can be gleaned from promoters on Reddit even worse. The term “buyer beware” has never been so important.

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HBO Max subscriber sues Netflix to halt merger

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HBO Max subscriber sues Netflix to halt merger

Let the legal battle begin.

On Monday, a Las Vegas-based HBO Max subscriber sued Netflix over concerns that the streamer’s plans to buy some of Warner Bros. Discovery’s assets would create an anti-competitive environment in the entertainment industry and raise subscription prices.

Netflix said last week it agreed to buy Warner Bros. Discovery’s film and TV business, its Burbank lot, HBO and the HBO Max streaming service for $27.75 a share or $72 billion. It also agreed to take on more than $10 billion of Warner Bros.’ debt, creating a deal value of $82.7 billion.

Michelle Fendelander alleges in her lawsuit that if Netflix’s deal were to go through, it would decrease competition in the subscription streaming market. She is asking the court to issue an injunction to prevent the merger from happening or issue a remedy for the anti-competitive effects.

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“American consumers — including SVOD purchasers like Plaintiff, an HBO Max subscriber — will bear the brunt of this decreased competition, paying increased prices and receiving degraded and diminished services for their money,” according to Fendelander’s lawsuit, which is seeking class-action status. The lawsuit was filed in a U.S. District Court in San Jose.

Netflix on Tuesday called the lawsuit “meritless” and “merely an attempt by the plaintiffs bar to leverage all the attention on the deal.”

The Los Gatos, Calif.,-based streamer is long seen as the winner of the subscription streaming wars, boosted by having successfully entered the streaming content space earlier than rivals and for its superior recommendation technology. By buying Warner Bros. Discovery’s assets, Netflix would gain access to more franchises and characters, including Batman, “Game of Thrones” and Harry Potter. Netflix said it plans to keep Warner Bros.’ commitments to bringing its movies to theaters.

But Fendelander and some industry observers are concerned that Netflix owning one of its streaming rivals will hurt the entertainment industry because it means less competition.

“The elimination of this rivalry is likely to reduce overall content output, diminish the diversity and quality of available content, and narrow the spectrum of creative voices appearing on major streaming platforms,” according to the lawsuit by Fendelander, who has never been a Netflix subscriber.

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Streamers over the years have steadily raised their prices, and some analysts said they would not be surprised if subscription prices continued to go up.

Netflix executives said they believe their deal to acquire WBD’s assets will benefit key stakeholders.

“It’s going to mean more options for consumers,” said Netflix Co-CEO Greg Peters on a call with investors last Friday. “It’s going to be more opportunities for creators, more value for our shareholders. Together, we’ve got the chance to bring great stories, cutting edge innovation and more choice to audiences everywhere.”

Peters also pointed out at a UBS conference on Monday that Netflix combined with the assets it is acquiring from Warner Bros. Discovery would still amount to a smaller share of U.S. TV viewing than YouTube.

Whether the deal will get over the finish line remains to be seen, although Netflix executives say they believe it will. On Monday, Paramount said it would directly appeal to shareholders to offer an alternative bid.

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Federal judge strikes down Trump’s order blocking development of wind energy

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Federal judge strikes down Trump’s order blocking development of wind energy

A federal judge on Monday struck down the Trump administration’s ban on federal permits for wind energy projects in what supporters said was an important victory for the embattled industry.

President Trump issued the ban on his first day back in office through an executive order that called for the temporary withdrawal of nearly all federal land and waters from new or renewed wind-energy leasing. The president said such leases “may lead to grave harm” including negative effects on national security, transportation and commercial interests, among other justifications.

U.S. District Judge Patti B. Saris, for the District of Massachusetts, ruled that the ban is “arbitrary and capricious and contrary to law,” and said the concern about “grave harm” was insufficient to justify the immense scope of a moratorium on all wind energy.

The challenge was brought by attorneys general in 17 states, including California, and Washington.

In it, they argued that halting federal wind permits created an “existential threat” to the wind industry that could erase billions of dollars in investments and tens of thousands of jobs.

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“A court has agreed with California and our sister states nationwide: The Trump Administration’s attempt to thwart states’ efforts to make energy more clean, reliable, and affordable for our residents is unlawful and cannot stand,” California Atty. Gen. Rob Bonta said in a statement. “The Trump Administration seems intent on raising costs on American families at every juncture — and California is equally committed to challenging every one of its illegal attempts to make life more expensive for Californians.”

At least seven major offshore wind projects were paused as a result of the federal permitting ban, according to the nonprofit Natural Resources Defense Council, plus several more that were in early phases of development.

“This ban on wind projects was illegal, as this court has now declared. The administration should use this as a wake-up call, stop its illegal actions and get out of the way of the expansion of renewable energy,” said Kit Kennedy, the council’s managing director for power, in a statement.

The lawsuit noted the president’s executive order was issued the same day as his National Energy Emergency Declaration, which encouraged domestic energy development not tied to wind and other renewables. The president has heavily supported fossil fuel production including oil, gas and coal.

In a statement to The Times, White House spokeswoman Taylor Rogers said offshore wind projects were given “unfair, preferential treatment” under the Biden administration while the rest of the energy industry was “hindered by burdensome regulations.”

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“President Trump’s day one executive order instructed agencies to review leases and permitting practices for wind projects with consideration for our country’s growing demands for reliable energy, effects on energy costs for American families, the importance of marine life and fishing industry, and the impacts on ocean currents and wind patterns,” Rogers said. “President Trump has ended Joe Biden’s war on American energy and unleashed America’s energy dominance to protect our economic and national security.”

California has vowed to stay the course on offshore wind despite the federal challenges.

The state has an ambitious goal of 25 gigawatts of floating offshore wind energy by 2045, by which point California officials say offshore wind could represent 10% to 15% of the Golden State’s energy portfolio. Five ocean leases have already been granted to energy companies off Humboldt County and Morro Bay.

In August, the Trump administration said it was cutting $679 million for “doomed” offshore wind projects, including $427 million that had been earmarked for California.

Ted Kelly, director and lead counsel of U.S. clean energy at the nonprofit Environmental Defense Fund, said obstructing the build-out of clean power is the wrong move as the country’s need for electricity is surging from data centers, industry and other demands.

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Wind, solar and battery storage offer the most affordable ways to get more reliable power on the grid, Kelly said.

“We should not be kneecapping America’s largest source of renewable power,” he said, “especially when we need more cheap, homegrown electricity.”

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Sick City Records tries to ‘keep the music alive’ as potential closure looms

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Sick City Records tries to ‘keep the music alive’ as potential closure looms

Just a few storefronts away from the now-vacant Button Mash, Sick City Records is on the brink of sharing the same fate.

For nearly 20 years, therecord shop has offered Echo Park a rocker-themed hodgepodge of rare vinyl, vintage band tees and dapper haircuts from its singular barber shop chair. But as rent continues to increase and fewer people stop by to browse its sonic selection or get a trim, Sick City Records is struggling to keep its doors open.

“We’ve worked so hard for this. We’ve been doing this for 20 years. We have to fight to keep this place open — it’s what we love to do,” said Jesse Lopez, the record store’s co-owner and resident barber.

Lopez and his business partner, Brian Flores, attribute their financial difficulties to an overall rough year. In January, when the Eaton and Palisades fires broke out, the shop was desolate for around a month. Then, right as summer kicked off — usually a lucrative season for record-collecting tourists stopping by — ICE raids began happening all over the city.

According to Flores, the streets were filled with large fleets of cars all summer, with loud sirens on, trying to scare people. Recent data from the L.A. Economic Equity Accelerator and Fellowship and the L.A. County Economic Development Corp show that 43% of Latino business owners in the county reported revenue losses of 50% or higher since June.

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Co-owner Jesse Lopez, left, cuts the hair of Los Angeles resident Jason Berk, 33, inside of Sick City Records.

(Ronaldo Bolanos / Los Angeles Times)

“No one was walking around. It was June. Nobody’s walking their dog,” said Flores. “In this whole shopping center, everybody is an immigrant.”

The record shop’s finances reached an all-time low in October. The duo was two months behind rent; their inventory had gone stagnant and their once regular barber shop clients had become sporadic. The prospect of closing up shop and cutting their losses became more real than ever.

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In a last effort to save their music hub, Flores and Lopez have since picked up a vendor spot at the monthly Rose Bowl Flea Market, started a series of collaborative fundraisers with local artists and launched a GoFundMe account.

Since they first opened in 2006, Flores and Lopez have always specialized in rock, punk and alternative — carrying bands like the Velvet Underground, the Smiths, Siouxsie and the Banshees and Suede. The inside of their space reflects that — the walls are filled with wheatpasted skulls; rows of Iron Maiden and Suicidal Tendencies tees line the perimeter and their most valuable merchandise — like a sealed Iggy Pop vinyl, a clear variant of Portishead’s “Dummy,” and a signed Echo & the Bunnymen record — hang high on elevated shelves.

“A lot of stuff’s been sitting here for a long time,” Flores confessed as he looks around at the different half-filled genre crates.

“We try to make what we can. We make our own buttons. We do our own silk screening. We can’t buy high-end vintage. We can’t afford it right now,” he added. “It’s embarrassing when the kids are asking for new rap records and these record guys come in looking for something special, but we don’t have it.”

Band T-shirts and vinyl records hang on a wall inside of Sick City Records.

Band tees and vinyl records hang on a wall inside of Sick City Records.

(Ronaldo Bolanos / Los Angeles Times)

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In recent years, Sick City has also made an effort to expand into other genres, and now carries anything from country to jazz and rap. Between albums like Tyler the Creator’s “Cherry Bomb” and the Cocteau Twins’ “Heaven or Las Vegas,” Flores says they will always dedicate several of their crates to local underground acts, featuring anything from their customers’ passion projects to bands who play the city’s bars and house shows.

Their local selection is usually most popular during the summertime and when people are in town for events like the relatively nearby Coachella Valley Music and Arts Festival.

“Truthfully, this year we haven’t had that many tourists. People are usually looking for L.A. bands to take home to places like Australia and Canada and ask us for recommendations,” said Flores. “But this year, without tourists, it’s still slow.”

Their dedication to L.A.’s local sounds goes back to their roots as a business. In 1999, the duo first sold vintage band tees at Melrose Trading Post. At the time, the market was mostly older vendors selling novelty items. Flores and Lopez decided to shake things up a bit by playing Metallica in the early-morning hours and began to build a younger clientele who were interested in their vintage clothing. Over time, they learned how to screen print and started selling their own designs.

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After about five years of selling at the market, they decided to upscale into a more permanent business that would focus on music. In 2006, they opened a space in Silver Lake that functioned as a barbershop with a couple of record crates. Despite it being the early 2000s, the vendors were ahead of the up-and-coming vinyl revival, as millennials started to pay more attention to physical media.

As record-collecting grew in popularity and events like Record Store Day went mainstream, they saw a surge in sales. In 2008, they expanded the record portion of their business, opening their current location in Echo Park.

With this stint of success, the record shop started to function as a record label as well. In the early 2010s, the duo helped some customers and longtime friends who were in bands release, distribute and promote their albums. Flores and Lopez would help choose the album art, the order of the track list and help book shows.

Sick City Record owners Jessie Lopez, left, and Brian Flores pose for a portrait.

Sick City Records owners Jessie Lopez, left, and Brian Flores at their Echo Park shop.

(Ronaldo Bolanos / Los Angeles Times)

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One of the first bands they worked with was local rock group the High Curbs, who were teenagers at the time and thereforestruggled to get into the bars where they were booked to play. With the help of Sick City, they were able to release their 2016 album. The band, which still regularly tours and releases music, made its return to the record shop earlier this summer for the annual music festival Echo Park Rising.

“They told me, ‘We don’t do any small shows anymore, but for Echo Park Rising, we want to give back and play for you guys.’ We had a full house,” Flores said. “We felt the love back.”

At the height of the business, when they were funding their record label, Flores says they were making around $8,000 a month. Now they are making closer to $2,000 monthly, with customers spending an average of around $10 per visit. On a weekday afternoon in November, a handful of patrons came into the shop to sift through their vinyl selection, but only one customer made a purchase.

“We want to do more. We want to do more shows and promote more bands. We’ve done shows at Los Globos, the Silverlake Lounge, the Redwood [Bar and Grill]. But all this costs money,” Flores said. “So when we were able to put out those records, it was very expensive at the time, but we were able to do it.”

Flores and Lopez continued to operate out of both stores until 2020, when they decided to consolidate both businesses into the one that exists today.

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Since the pandemic, Sick City Records’ rent has continually increased. In 2020, the duo paid $1,800 for the space. Today they pay $3,500. In the last several years, gentrification has taken hold of Echo Park, hiking up both residential and commercial rent. Flores says that in the nearly 20 years that they’ve been on Sunset Boulevard, he’s seen many small businesses collapse from these strains.

Scenes from the inside of Sick City Records in Echo Park Wednesday, Oct. 16, 2024 in Los Angeles.

With a specialty in rock, punk and alternative, Sick City Records’ selection often spotlights local L.A. acts.

(Andres Melo / For The Times)

“There are a couple of small coffee shops, like Woodcat, that are still there. But Spacedust [a clothing shop] is gone. Cosmic Vinyl is gone,” said Flores. The latter establishment shuttered in 2018 but reopened earlier this year at a new location in Eagle Rock.

“There’s no parking. I don’t know why they keep raising the rent. But Echo Park has always been a hub where people want to be.”

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Sick City Records has several fundraisers and flea market pop-ups planned before the end of the year. On Dec. 13, they will be hosting an art show at the shop called “Hold On to Your Friends,” which will feature live DJs, local artists and vendors. All proceeds will go to keeping Sick City in operation.

“Hopefully, people don’t forget about us. We’re just trying to keep the music alive, keep a good vibe and keep promoting the music community,” said Flores. “We just got to get back on our feet. We want to bring in product that we’re proud of.”

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