Unimpressed by Fed criticism: Retail investors unconcerned about harsh words about meme stocks
The hype about so-called meme stocks like GameStop or AMC could endanger the entire US financial stability, warned the US Federal Reserve in its semi-annual report. But according to “MarketWatch” columnist Thornton McEnery, this leaves small investors cold.
• Fed sees financial stability at risk from meme stocks
• Small investors are now angry with monetary authorities
• Meme investors want fairer financial systems
New trading platforms such as appealing, mobile trading apps are also attracting a new generation of young traders to the stock market. But according to the Federal Reserve, this increase in first-time investors organizing on social media was largely responsible for the ‘meme’ volatility in the equity markets in the first half of 2021.
Although the price fluctuations of meme stocks such as GameStop, AMC & Co. had so far had only “limited” effects on financial stability and the “outbursts of volatility in trading driven by private investors quickly subsided,” the Fed advises financial institutions to avoid these developments to keep an eye on. Because it certainly has the potential to pose a threat to the financial system. For example, the monetary authorities pointed out that, firstly, younger equity investors tend to have higher levels of debt, which makes them potentially more susceptible to large fluctuations in share prices. Second, as social media and retail investor interaction occur, episodes of increased risk taking may evolve and are difficult to predict. Third, the risk management systems of the financial institutions concerned may not be prepared for the dangers that could arise from these trends.
The effects are already noticeable
According to Lael Brainard, a member of the Board of Governors of the Federal Reserve System, the effects of these new trends were already felt when the investment company Archegos Capital Management collapsed. This shows that hedge funds and other leveraged financial institutions could face high losses.
But according to Thornton McEnery, meme investors feel only confirmed by this. Through social media, they let the Fed know that their ultimate goal was to overturn the current financial system by using stocks to make hedge funds bleed. Using volatility, they want to expose what they believe is widespread corruption.
Former stock broker Jordan Belfort, who achieved fame as the “Wolf of Wall Street”, got right to the point in February when he declared that hobby investors are not primarily interested in making money, but rather in striking back . Everyone instinctively knows that something will go wrong when hedge funds join forces, spread negative news or initiate investigations to push stock prices down. This ultimately made small investors so angry that they allied themselves against the big shortsellers and declared war on them.
Small investors criticize the Fed
Thornton McEnery recently wrote in his “MarketWatch” comment that meme investors want to destroy hedge funds in order to ultimately create a fairer system in which small investors can also be successful.
“How can it be that the ultra-rich can practically gamble on the stock market for years, with over-indebted positions, dark pools, inside information, etc. and still there is no need to worry,” McEnery quoted as an example from a very popular post subreddit r / superstonk. “And suddenly a group of people find out which bulls *** the ultra-rich are running to earn an infinite amount of money and BAM, holy bastards, now the entire market is in danger, oh no !! !!!! ”
Another criticism on social media touched on the role of the Fed itself: “Yes, those are big words from an institution that printed 33 percent of the money in one year and then claimed it did would not lead to long-term inflation, “McEnery quotes another user. “I guess you don’t have as much power over the economy as Reddit has,” it said sarcastically.
It is true that the Fed’s warning was linked to a call to financial institutions to prepare for the new trends. But the reactions on social media show that the Fed’s statement did not seem to go down well with numerous private investors.
Image source: Gamestop, JIM WATSON / AFP via Getty Images, Sergej Lebedev / Shutterstock.com, Casimiro PT / Shutterstock.com