The past week has been a strange old time for the stock market. In just a few days, Reddit users have managed to cause GameStop stock prices to shoot into the double digits, resulting in an escalating situation that has likely caused many hedge fund managers to burst into tears. However it now seems that the meme-fuelled situation has managed to get the attention of the White House.
During a daily briefing on Wednesday, White House Press Secretary Jen Psaki made the following comments in regards to the events [via Gamespot]:
“Our team, our economic team including [Secretary of the Treasury Janet Yellen] and others, are monitoring the situation. It’s a good reminder, though, that the stock market isn’t the only measure of the health of our economy.”
The whole affair is sure to confuse many (including me) who have no idea how hedge funds work, nor how buying GameStop stock affects them.
Essentially, the whole thing revolves around the practice of “short selling”, a term used to describe when someone borrows shares of a company then immediately sells them, in hopes that they can buy them again at a lower rate in the future.
This is where the Reddit group r/WallStreetBets comes into play. Members of the forum purposely bought GameStop shares en-masse, causing their value to shoot up from single digits to triple.
This, of course, throws a huge wrench into the workings of short selling and hedge funds, as now the banks have to buy the stock in order to fulfil their borrowing obligations, despite the fact that the price is now higher, not lower.
Still confused? This tweet by a helpful Twitter user should help to explain things a little more effectively than I can [via Polygon].
Needless to say, it seems that despite the GameStop share now being extremely profitable, the group of Reddit rebel stock exchangers has a point to prove, one that’s sure to cause some ripples in the big Wall Street pond.
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Featured Image Credit: WhiteHouse.gov/Reddit