The big story last week happened when a group of seemingly amateur investors (i.e., not part of the elite) bought up shares of GameStop (GME) and delivered huge losses for those shorting the stock. It nearly bankrupted a big hedge fund (ironically named, since they didn’t hedge).
In the past, short sellers were often vilified. I have been a defender of short sellers, or at least a defender of the process. Short selling is a valid market mechanism that helps in price discovery. If a stock, or anything else, is overvalued, it is better to have short sellers around to more correctly price it.
This time around, the establishment (i.e., the ruling class) had a conniption fit, but it wasn’t about the short sellers. “How dare these young punks on Reddit try to manipulate the market and profit off of short sellers, including a major hedge fund?”
The statists of this world continually talk about the need for government regulation. In this case, the market did a pretty good job of regulation.
I’m not saying these short sellers deserved to suffer huge losses, but they set themselves up for it. There were supposedly more shorts than shares available. Regardless, they were obviously over leveraged in their positions and a group of people pooled their money and corrected the situation.
Maybe this whole thing served as a good lesson for hedge fund managers, or really any investors. You need to be careful in overexposing yourself, especially in any one position.
Of course, big tech and all of the statists are outraged by what happened, while many libertarians, some conservatives, and even some hardcore leftists rejoice. It is just another dividing line between the populists and the elitists. In this case, the populists are coming down mostly in favor of the free market.
It is absurd for platforms like Robinhood (also ironically named, it seems) to ban trading of the stock just because some rich guys are suffering heavy losses due to their stupidity. It is even more absurd for social media platforms to attempt to censor discussing these types of actions.
I don’t know what kind of regulations will come out of this whole thing, but at least for now, it seems like a victory for the little guy. But we know that the establishment seeks revenge and then some.
The Silver Squeeze
On Friday, January 29, I heard rumors of a similar situation possibly taking place with silver. Some people in investor groups were advocating buying silver. As they say, you buy the rumor and sell on the news. Well, I should have bought on the rumor.
By Monday morning, February 1, the news hit the mainstream media and silver spiked even higher in price, along with some mining stocks. The price retracted on Tuesday. Where it goes from here, nobody knows.
It is interesting to contrast the difference between what happened to GameStop (a stock) and what could potentially happen to silver (a commodity).
I have been hearing forever that the silver market is manipulated. It is typically silver perma-bulls saying this. They always say that it is a manipulated market and the price is going to skyrocket any day now because it is severely undervalued. But it never seems to happen. Silver is incredibly volatile. It tends to move in tandem with gold, but with wilder swings.
Maybe there is manipulation (whatever that means) in the silver market. But unless it is going to be corrected, then it isn’t much of an argument for buying.
The thing with silver, as with any commodity, is that you can actually buy the physical version. You can actually buy silver bars or coins. When you buy a stock, you don’t take home a piece of the building where the company resides.
Much of the precious metals market, particularly in gold and silver, happens electronically. Most of the trading doesn’t actually involve silver and gold changing hands. It is largely done in the futures market.
If there is a group effort to buy up physical silver, this could really disrupt the futures market and electronic trading.
Right now, when people trade futures, they don’t actually demand delivery of the good. I’m not sure what happens if they do. Instead, they get the money for the value of the commodity.
It makes a little sense to go after the silver market. It is obviously cheaper than gold. And as far as I know, most central banks don’t hold silver, so it would be difficult for central banks to react to such a move. If it were gold, the Fed could actually sell some gold into the open market (assuming they have some) and quickly shut down some relatively poor investors.
With silver, if a large enough group of people decide to start buying up silver, it really could cause a shortage, which means the price would rise quickly.
The one problem I see with this strategy is that many of these people are young and just want to buy with a push of a button on Robinhood or some other app. Most of them probably aren’t going to pay a visit to their local coin dealer to buy some junk silver (which isn’t really junk).
It will be interesting to see if this run on silver has any legs. And if it does, will gold follow?
I am a little concerned that it will call attention to the regulators (the busy bodies) and give them an excuse for government regulation. I obviously don’t want to see higher taxes, trading restrictions, or an outright ban on precious metals. If silver is going to go up in price, I would rather it be obvious that it is due to currency depreciation.
Of course, maybe the amateur traders will just expose that silver has been undervalued, especially when you see how much stocks have spiked from the Fed’s ultra easy money. But right now, the focus is on these investment groups pooling their money together to supposedly manipulate the market.
I am tired of the government and central bank manipulating the money supply and interest rates, but this is a core value for the ruling class. I wonder if a group of investors on social media will start discussing how to expose the federal government and the Fed with their massive distortions and spending and debt.
If you think the ruling class is upset now with a nearly bankrupted hedge fund, wait until people start selling dollars en masse and dumping government bonds.