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Jan 27, 2021

Reddit stock frenzy 'a sign of frothiness' in market fringes: CIBC's Dodig

CIBC CEO sees low interest rates as fueling froth in reddit stocks


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CIBC Chief Executive Officer Victor Dodig said that the recent rallies in shares of companies like BlackBerry Ltd. and GameStop Corp. is a sign of "frothiness" occurring in the fringes of the market. 

Dodig said in an interview taped on Tuesday that the recent run-up has been caused by frenzied retail investors pouring into companies with significant short interest and is not having much of an effect on the bank. However, he noted that much of that trade originated from cheap money that came from stimulus funding and low-interest rates. 

"Will there be some unintended consequences at the fringes because of all of this? Is it a sign of frothiness? There's no doubt it is," Dodig said. "That's why I'm hoping that we can get past this and the economy can normalize, which would also include normalized interest rates."

Companies like BlackBerry, Express Inc., and GameStop – the last of which had sizable short interest tied to its stock prior to this week - have seen their shares skyrocket over the past few days as retail investors spurred by social media and message boards like Reddit plow heavily into those firms. The crush of investors has led to a short squeeze as other institutional investors scramble to cover their positions. 

Dodig said some asset valuations have been "stretched" thanks to stimulus measures, leading to some unintended consequences that could weigh on the economy. 

"When money is cheap and accessible, it's not always a good thing for the economy," he said. "It's better to have a measured, appropriately priced rate of interest. I'm hoping that that will occur as we get back on our feet, post-pandemic."


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