Retail traders on Reddit are theorizing that a complex Fed facility is flashing signs that a market crash is on the horizon

In this photo illustration the Reddit logo seen displayed on a computer screen through a magnifying glass.
  • Retail traders on Reddit are theorizing that signs of a market crash being signaled by a complex Fed program.
  • Reddittors are closely watching the growing use by big firms of the Fed's reverse repo facility.
  • A number of theories have surfaced on Superstonk, a subreddit with 679,000 members.
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Retail traders on Reddit are theorizing that a market crash is imminent, with one sign of a crash trumping all others: the Federal Reserve's overnight reverse-repurchase agreement facility.

A recent Bloomberg report revealed how this complex facility has drawn the eye of Redditors on a forum called Superstonk, a subreddit that boasts 679,000 members, far smaller than Wall Street Bets' 11 million.

Similar to the now-famous Wall Street Bets, Superstonks is dedicated to calling what stocks may be next to go to the moon. In the forum's keen observation of the Fed's reverse repo facility, it differs.

The Fed's reverse repo facility allows big institutions - mostly big banks and money-market mutual funds - to buy securities from the Fed with an agreement to sell them back to the central bank for a specified price at a specific time.

Every day, firms submit proposals to the bank's FedTrade system with the amount they want to invest in the facility. and the daily total is posted on the Fed's website.

So why is Reddit interested in this program?

According to Bloomberg, one user going by the name pctracer began posting daily RRP results starting this past May. The user noticed that the figure invested by participating firms has been growing. "Numbers here are out of control, a very BIG crash is incoming," ptracer posted.

It did not help that soon after he began updating the post, usage of the facility ballooned to more than $1 trillion for the first time since its inception in September 2013.

While users have different reasons for why they look to RRP for indicators, the increasing obsession over the otherwise unglamorous and obscure Fed program seems like an attempt to interpret a distorted economic picture in the wake of unprecedented policy responses to the pandemic.

The Bloomberg article states that Redditors' theories about the ballooning reverse repo facility say banks are not lending or investing their cash. Instead, they are parking it in reverse repo facilities because "they know something's getting ready to happen," said user snowlock27.

Another theory says it points to an imminent collapse of many highly levered hedge funds, said user callingallnerdz. This, Superstonk posters say, will force these funds to close short positions and give GameStop another push to the moon.

Read the original article on Business Insider

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