Is GME the Forbearer of the Market Crashing?

The Reddit post titled “Are we Headed Toward a Hype-Induced Market Crash?” written by an anonymous user has predicted a crash of untold proportions. The author wrote a summary which I will include but I suggest reading the whole article to get a deeper understanding of why they believe this, and the evidence that they provided. Here’s the summary:

An ongoing battle between retail investors on reddit speculating on GameStop stock (and other “meme stocks”) and malicious hedge funds who are manipulating the stock market using counterfeit shares is about to come to a climax and uncoil a tightly wound spring of debt, fraud, and corruption. The situation appears so dire that the mechanisms in place to control the debt that the malicious hedge funds have accumulated, should they default (get margin called), are not adequate and are about to fail. The government has taken notice and is signaling that they are about to close the loophole that allows for counterfeit shares and enforce the rules. Meanwhile, large financial institutions are propping themselves up for a major financial event that is rapidly approaching. This appears to be a financial event similar to the global financial crisis of 2008, or worse.

A major part of this theory hinges on the idea that the majority of US markets have changed from mortgage-backed CDOs (Collateralized Debt Obligations) to US Treasury bond-backed CLOs (Collateralized Loan Obligations). The Reddit user didn’t provide a source for this and the few sources I’ve found have just hinted at the rising amount of CLOs. This means that investment banks and firms are increasing their buying of company loans and because their tied to bonds if they default on the loans it’ll cause a shockwave through the bonds market. The bonds market with supposedly massive amounts of counterfeit bonds.

Now the author says other Reddit users have done the research and have come to the belief that the bond market is being injected with counterfeit bonds. However, there’s no source linked in the Reddit post, but upon further investigation the author could be referring to this post “The EVERYTHING Short” written by u/atobitt. The post covers how Citadel has been using a company they own to short the treasury bond market, as well as how they own over $123 billion in assets with 80% being owned by offshore investors.

This brings up a whole other mess of problems but keeping on track with GME and bond shorting, if both of these claims are correct, what makes this a problem is if GME short squeezes again it could end up being such a strong squeeze that the Federal Reserve would have to intervene. This in turn would cause the bond bubble to pop causing a similar, if not worse crash than the 2008 recession.

This post was written twenty-three days ago (at the time of writing this) and that allows us to see how the markets are doing.

On May 12 both the Nasdaq and Dow Jones are down compared to what it was at the time of the Reddit post (April 19th); Nasdaq going from $13,914 to $13,095, and Dow Jones going from $34,077 to $33,746.

GameStop’s stock in that time has decreased only $17 from $164 to $147 but is currently trending upwards.

This downturn in the market could also just be an effect of the frightening doomsday posts on Reddit getting to people wanting to sell. It can also be the investment firms wanting to liquidate and protect themselves from an incoming crash. It’s not a crash on the scale of the 2008 recession but it could be the start of something greater. Time will tell.

This article is not financial advice and encourages readers to do their own research. I own GME and like the stock.


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