Every day in the early afternoon, money-market traders are glued to the Federal Reserve Bank of New York’s website to see the results of the overnight reverse-repurchase agreement facility.
They’re not the only ones.
A screenshot of this obscure but important facility’s daily usage is religiously uploaded to a Reddit forum called Superstonk, a discussion board similar to WallStreetBets where users swap memes and stock tips. As usage of the facility swelled, the post regularly became one of the site’s most popular of the day, often attracting thousands of comments.
While professional traders check the central bank’s website to see how much excess liquidity the Fed is sopping up, many Reddit users are interested in, well, something else: Signs of an impending market crash. Or, in some cases, you guessed it: more evidence for why stocks like GameStop Corp. are headed “to the moon.”
“Ok this is actually f---ing ridiculous how the market isn’t tumbling after seeing all this lmao I can’t believe these f---s are this f---ing stupid,” wrote one Reddit user who goes by the handle BarryRoadCrusader.
If this all sounds a little weird, that’s because it is. There is no way for the type of individual traders who frequent Reddit boards to use the facility, yet the posts appear to be influencing their trading. And the behavior is worth scrutinizing because it’s the type of hive-mind theorizing that has a habit of beginning as a social-media curiosity and ending up having big effects in the real world, such as the wild price action in meme stocks earlier this year.
Fed’s Reverse Repo Explained
The Fed’s facility, which is typically referred to as reverse repo or RRP, shares some common traits that have proven to be fertile ground for other types of anti-establishment, conspiratorial thinking: Obscure and complicated systems that are perceived to be controlled by elites and prone to misinterpretation by novices trying to understand them.
And to the credit of some Reddit posters, the fact that the financial system needs to park more than $1 trillion in the facility each night is without question evidence that these are not normal times. “It's not risky to put your money into the RRP. The problem is they have nowhere else to put it in. These high scores show us that something is wrong in the market, not the RRP,” user “pblokhout” posted on Sept. 23, adding a profane analogy about how people will buy napkins when the supermarket is out of toilet paper.
That’s similar to the way it’s being viewed by a Reddit user who goes by “oldmanrepo,” a retired repo trader named Tim who tries to stem the tide of misinformation that floods the forum. He’s no stranger to laymen misunderstanding the market: For the first five years of his career in repo, he was pretty sure his mother thought he was stealing cars. Tim asked that his full name not be used out of concern for his safety, given the zeal of some of the Superstonk regulars.
“The RRP is like crutches,” Tim said in an interview. “If you see someone walking down the street using crutches, you don’t think something bad is about to happen. It already did, and now they need the crutches to get healthy again. The Fed flooded the market with liquidity and the RRP is now being used to mop it up. It doesn’t tell of a bad thing to come. It tells of a bad thing that happened.”