The stage is set for an epic show; the battle
lines are drawn. People across the world, some of who have never been bothered
about stock markets or investors for that matter, are watching the duel between
the hedge funds and the WallStreetBets, the Reddit group that grabs headlines
this week, for variety of reasons.
In the profile picture of the WallStreeBets, a gentleman
resembling President Trump, is making coded gestures, perhaps in the form of a rallying
cry, while remaining in chartered waters on a yacht, anchored between two
tropical isles.
As far as the motive of the group is concerned, it
has done the trick. That’s why we all talk about it and fear it will jostle the
markets.
In direct proportion to the soundbites, the public
interest is growing exponentially and there are clear signs that the
development may take roots beyond the GameStop with far reaching consequences.
The news about 1000% surge in value of the stock
price of little-known oil trading company is a case in point.
No one knows how and when regulators can intervene
to pull the warring factions apart, as any high-handed activity may reflect
very badly on the central pillars of the well-hackneyed concept, the free
trade.
As things stand, the Reddit group in question consists
of a determined group of individuals at the core, exactly like the nucleus of
an atom, holding the human equivalent of electrons on the periphery with a
formidable force of attraction, discouraging them to vanish into oblivion while
making their fortunes.
In this context, as of Friday evening, on one hand, the
members of the WallStreetBets are sticking to their guns and on a clear
mission. On the other hand, the top managers of the hedge funds hold on to
their positions despite heavy losses with their shorting going horribly wrong,
in the hope that the Redditors will blink first at some point.
Since a compromise, acceptable to both sides, does
not seem feasible any time soon, there are already casualties – apart from the
hedge funds at the centre of the conflict, of course.
For instance, popular investor apps such as Robinhood
and Trading 212, are severely restricting trading: a customer could only buy
just one share of GameStop on Friday! Just imagine the scenario if Redditors
turn their wrath on these apps, as part of the evolving process of what they
call, ‘democratisation’ of the stock markets.
As far as oil price is concerned, the WTI was down
on Friday beore markets were closed, when Brent stayed in the green.
If this dramatic development continues for another
week, there is going to be inevitable collateral damage in the financial
markets – at a very bad time for trading in particular and the health of the
economies in general.
Let’s hope sanity prevails in the middle of an anticipated
hyperactivity in the markets next week.
