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 before 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.
From Crude Oil Futures