“1) Because interest rates are so low, there are fewer compelling investments. A meme stock might act as a de facto store of value so long as its forward-looking valuation is somewhat plausible.
2) Misvalued stocks might correct sharply if rising interest rates pop speculative bubbles.
3) Early traders might benefit from a surge of demand. Late traders may end up buying completely misvalued assets.
4) It is foolish to trust anonymous posts on the internet. Fraudsters may be emboldened to make false claims on anonymous internet forums. I never fully trust any information that doesn’t come with a face and a name. On WallStreetBets, I have seen considerable amounts of demonstrably false information being posted and repeated. There’s also evidence of large institutional traders posing as retail investors. I fear that many retail traders were used as cannon fodder by hedge funds on the buy side during the GME short squeeze. Unfortunately, this may be difficult for the SEC to investigate. Although there are examples from the 90s of successful prosecution of internet-based stock fraud.
5) The recent activity arising from WallStreetBets mirrors the 90s almost perfectly. It’s just happening to a different generation. Much of the misinformation about short squeezes has already been spread in similar events. The SEC already has a FAQ about their regulations that address common misperceptions. It’s from 2015. https://www.sec.gov/investor/pubs/regsho.htm“
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