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What the Reddit vs. Wall Street battle means for the economy

By January 28, 2021 No Comments

It has been all over the news, social media, and a conversation between friends and family. The organized attack on hedge funds Citron Research and Melvin Capital. Never has there been anything of this kind, a 5700% jump in a single day for GameStop’s stock which was valued at around $3 per share. This attack was not orchestrated by elite hackers or seasoned investors, it came from a rather unexpected place-Reddit. On a Reddit thread called wallstreetbets, millions of users decided to come together to teach billion-dollar hedge funds a lesson on short selling. The stocks targeted were GME, BB, AMC, and NOK. More are being added to the list as tech-savvy young day traders realize the influence they have when mobilizing together. But economists, journalists, wall street, and the government are asking, what kind of domino effect will this move have?

CEO Elon Musk, who has openly criticized short selling in the past, took to Twitter and shared the Reddit thread, encouraging others to join with the caption, “gamestonks”. The SEC had begun to monitor the Reddit group Wednesday, the Nasdaq CEO even suggested a halt to trading to combat the influx of young Reddit users. Politicians have also weighed in, with progressive senators like Alexandria Ocasio Cortez and Elizabeth Warren saying “for decades the stock market has been a casino for Wall Streeters”, now it is the casino for the middle class.

Neil Wilson from markets.com observes, “We are seeing some serious funny business in some corners of the market.” While Thomas Hayes, managing director at Great Hill Capital hedge fund warns, “Will it end badly? Sure. We just don’t know when.”

Late Wednesday, discord banned /wallstreetbets, creating a larger conversation online about how the free market is reserved to be exploited by the elite. New groups have already started to pop up on Reddit, with plans to continue moving forward. Robin Hood and other trading platforms have halted buying of GME, BB, NOK, AMC, AA, and others on Thursday as a response to the unprecedented market volatility. The implications of this are millions of dollars of losses and possible bankruptcy for these hedge funds while many have vowed to boycott platforms that have restricted trading as well. Many are speculating the government will step in and bail out the hedge funds. What young investors aren’t considering is that like the bailout in 2008, the funds for it will come from taxpayers and have a cascading effect on an already suffering economy.

Another effect of this debacle could be a spike in precious metals. How are the two related? What people have realized during this market battle is that stocks and money have no real basis and can be easily influenced by hype and social media, similar to what Wall Street has been doing discretely for years. As people lose faith in a stock market that doesn’t seem to reflect the real economy, they may begin a move to precious metals as it is a physical asset with real-world value. On Thursday, January 28th, gold and silver regained early losses and are on the climb as well as major gains in mining companies.

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