Was GameStop the Ultimate Expression of ‘Don’t Fight the Fed’?

Before it fueled the run-up in GameStop’s stock, WallStreetBets, the Reddit message board, had another claim to fame: It helped popularize a series of memes centered on Federal Reserve Chair Jerome H. Powell and his central bank’s policy of keeping interest rates near rock-bottom while buying government bonds to bolster the economy.

“Money printer go brrrrr,” many of them read, suggesting that the Fed chair was essentially printing money and propping up markets by pumping cash into them through its program to buy government-backed bonds.

Reddit and Twitter made images playing on Mr. Powell’s persona — he’s referred to almost exclusively as “JPOW” on WallStreetBets — so ubiquitous that they’ve become paraphernalia. Amazon now sells sweatshirts (Prime eligible!) printed with an image of the Fed chair as a Christ figure ringed in a halo of golden light. In place of the Bible, the gospel he holds declares “recession canceled, stocks only go up.”

The blind optimism embodied in that statement — one might call it irrational exuberance — runs the risk of inflating bubbles in markets. Some experts see the saga of GameStop as a cautionary example of problems that can develop when investors get swept up in market momentum, driven to some extent by the Fed’s attempts to keep the economy humming along with low rates and bond purchases.

“We’re observing a market mania and the cost of money has something to do with this,” said Peter Fisher, who teaches finance at Dartmouth’s Tuck School of Business and once served in the Treasury Department and Federal Reserve. “It’s just not credible to suggest that the momentum in equity markets has nothing to do with the Fed’s efforts to keep interest rates so low for so long.”

To be clear, GameStop has been an unusual situation.

Hedge funds had been betting against the retailer’s stock, or “shorting” it, assuming its share price would fall. A rush of retail traders coordinated to make that bet go bad by pushing up GameStop’s price. Because of the way short selling works, the hedge funds were forced to buy GameStop themselves to limit their losses. The stock price skyrocketed, jumping more than 600 percent in days.

GameStop vs. Wall Street

Let Us Help You Understand

    • Shares in GameStop, the video retailer, have crashed from their January highs, which were driven by memes on social media.
    • Amateur traders egging on one another on Reddit bet heavily on shares of the company in January, sending the price up more than 1,700 percent at one point.
    • The wave was in part aimed at hurting large hedge funds that had been short selling — betting against — GameStop stock. Some of those funds experienced huge losses as a result.
    • But many of the individual investors who pumped up the stock could lose huge amounts of money, too. Some believe the price will go back up and are refusing to sell, even as the share price has collapsed.
    • Now, regulators are looking into how the rally started and whether new rules should be created because of it.

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