the money game

‘Buy the Dip’ Goes Bust

From Wall Street to r/WallStreetBets, traders find their pandemic strategy doesn’t work anymore.

Traders work on the floor of the New York Stock Exchange on March 11, 2022. Photo: Spencer Platt/Getty Images
Traders work on the floor of the New York Stock Exchange on March 11, 2022. Photo: Spencer Platt/Getty Images

Last week was the second anniversary of the publication of arguably the most important five words on Wall Street since the start of the pandemic, a rallying cry that instantly demystified finance for untold numbers of people and presaged the extremely online populist revolt that would take hold of the stock markets months later: “haha money printer go brrr.”

The words are, strictly speaking, dumb — and that’s the point. On the left is the bow-tied dweeb in wire-rim glasses, yelling about the central bank “distorting the natural rate,” whatever that means, so hard he’s crying. To the right is the smirking gray-haired man, knowing and ice-cold, next to a Federal Reserve crest and a printer making dollar bills. Who would you rather be? (When the now-defunct Twitter user @femalelandlords first posted the meme on March 9, it was two weeks before Congress would pass the $2.2 trillion CARES Act and days before the World Health Organization would declare the start of the pandemic.) Still, “haha money printer go brr” went viral like nothing else that’s ever come out of Financial Twitter. Despite its deficiencies — the Fed doesn’t technically print money, but do you care? — the meme explained the contradictions of the world to come. When people weren’t working but all of a sudden had more money than ever, or when the stock market continued to rise even as COVID deaths reached new heights, all of a sudden people had an explanation for why.

If Federal Reserve chair Jerome Powell revved up the proverbial money printer during the U.S. economy’s worst moment in a generation, he’s expected to unplug it on Wednesday. The U.S. is experiencing the highest rate of inflation in 40 years, with Russia’s invasion of Ukraine and retaliatory sanctions pushing the price of oil to new records. Wall Street has already priced in the rate hike, and now expects Powell to hike up interest rates as often as 11 times through next year to keep prices from spiraling even higher, which could in turn push businesses to start laying workers off and possibly impose a recession.

On Wall Street, the confusion is palpable. Last week, the Dow Jones Industrial Average marked its fifth straight week of losses, the longest period in the red since 2019. The major indexes are all officially in bear markets, losing at least 10 percent from their peaks in January, making for one of the worst starts to a year ever. It turns out even some of the most hardened traders in the industry are just unwilling to stomach the wild swings that have characterized the markets. “People are getting spooked, people are getting panicked,” one managing director in sales and trading at a major Wall Street bank told me recently. “You can’t invest in Russia. The economic fallout is going to be massive. So no one knows. It’s literally throwing darts.”

But it’s not just the professional investors who are giving up. One of the most common refrains on day-trader message boards like Reddit’s WallStreetBets has been BTFD, or “buy the fucking dip,” a mantra that reveals a belief that stocks only go up, and any movement otherwise is a brief and inconsequential aberration that’s there for the smartest and bravest to exploit. BTFD is also a product of the money printer. During the pandemic, the Fed acted as a backstop for the economy by buying up debt, making it easier for companies to hire more people, produce more goods, and pay more in wages. For the trading crowd, that program essentially acted as bumpers in the gutters, letting investors hit more strikes by making it harder and harder to fail. But that debt-buying program is not only over, the central bank is planning to start selling those bonds back into the market. When I talked to that Wall Street trader about the markets, he mused that, with war driving fear and the Fed tightening up the economy, it was the end of “buy the dip” and the start of “sell the rally” — essentially a black mirror where the smartest prey on the market’s optimism by selling off or shorting everything in sight. Since then, the BTFD strategy has only gotten weaker, even pushing some in the die-hard Reddit crowd to throw in the towel. “It weeds out the real portfolio managers and the real smart guys from the ones who got lucky riding the trends over the last ten years,” the trader said. “Everyone is trying to survive.”

What’s set the world’s markets — and, increasingly, economies — reeling is a series of miscalculations. Economists saw long odds that there would be high, persistent inflation, just as most of the world thought it was unlikely that Russia would invade Ukraine. Putin also reportedly made a mistake in believing that U.S.-led sanctions would be about as harsh as they were in 2014, the first time he had invaded the country to annex Crimea. Instead, Russia’s central bank had its assets frozen, companies are pulling out, and the Russian elite have suddenly found that they may not even be able to escape to their luxury condos and yachts anymore. Russia’s path from the world’s eighth-largest world economy to a pariah state similar to Iran was unprecedented and showed how fast and brutal U.S.-led sanctions could be.

Then there’s China. In the last few weeks, there’s been an intense sell-off in Chinese tech stocks, the country’s economy is slowing down, Xi Jinping’s government appears to be cracking down on China’s largest companies, and the country’s largest landlords — already teetering on the brink — still have $100 billion in debt to pay off this year. Then, this weekend, the manufacturing and shipping hub Shenzhen imposed a weeklong COVID lockdown, which stoked fears of a supply-chain meltdown. Liqian Ren, a director at asset manager WisdomTree, said that the rules are porous enough that manufacturing is still happening; Apple, which has some of its iPhones made there, said it wasn’t really affected. A JPMorgan Chase analyst called some Chinese tech stocks “uninvestable” because of the geopolitical risks.

All this has been made more precarious by Russia’s war, which may drag China in. Beijing has reportedly been open to providing military equipment to Russia, though it’s still unclear how serious the matériel is and if these are part of ongoing discussions. (Prior to the invasion of Ukraine, Russia and China put out a joint statement saying their relationship has “no limits,” but China has since strained to strike a diplomatic balance.) Stuck in the middle in a U.S.-Russia economic war, China has few good options. The country is the largest trading partner for both Russia and the U.S., and it’s gotten to that position in large part by staying out of the others’ affairs — or, at least, projecting an image of doing so.

“The top risk is Russia, the war, and how much the U.S. will tie China to the war,” said Ren. “Whether China will face secondary sanctions from the U.S. is the biggest uncertainty, because right now, nobody knows.” The worst-case scenario, Ren said, would be something similar to the 2019 U.S. sanctions against telecom giant Huawei over espionage concerns, which cut more than a third of its revenue. “China wants to focus on economic growth, but if it aligns with Russia, economic growth is going to suffer,” Ren said. “If the U.S. wants to just play hardball with Russia, then for China, it’s almost impossible to decouple completely from Russia.”

‘Buy the Dip’ Goes Bust