There is no shortage of silver, but that didn’t stop uneducated retail investors from believing a few new (and suspect) WallStreetBets (WSB) members from posting that they read physical silver was in short supply, and Hedge Funds were leveraged 100% shorting the price of silver.
The short supply would send prices of silver stocks up and the short positions would hurt the Hedge Funds, the new members claimed.
It is believed these new members were trolls sent by the Hedge Funds, trying to take pressure off the short squeeze on GameStop and AMC stocks.
Many of the 6 million new members, who joined WallStreetBets over the last month month, fell for the baseless claim and began buying iSilver Shares Trust (SLV), spamming chat rooms on the internet that SLV was the new WSB target.
A visit of SLV fundamentals shows the Leveraged ETF Factor is 100. For the uneducated, it would appear the shares are shorted 100 percent, but you have to know what an ETF factor indicates.
In fact, a Leveraged ETF factor of 100 indicates leveraged positions are “long” – the leveraged are betting the price of SLV will rise. Only a negative number (-100) would actually indicate there are “short” positions.
The story of silver shortage is an old one. It can be traced back at least to 1998, when analysts started to claim that silver would enter a state of permanent shortage. Surprise, surprise – it didn’t happen.
What does it mean for investors?
Don’t listen to the so-called experts who have been calling for the silver shortage for years.
Given the relatively large holdings in the world, it’s actually hard to imagine a lasting shortage of the white metal. (Silver holdings are smaller than gold holdings, but still larger than holdings of other commodities.)
There is no shortage of silver. Forget about this idea. Making decisions based on false premises is the shortest way to suffer losses.
There was a saying among retail investors of my generation. “Do your due diligence.” Meaning, be sure you find out all you can before investing in something.
Most new investors that have poured into the stock market in the last year buy on momentum of a stock, rather than fundamentals. If the price is rising they’ll jump on the rocket.
Jumping on a rocket isn’t always a bad idea, but they don’t have an exit plan, should the price fall, nor do they set a limit on how far they’re willing to ride it down, take less profit, and get out.
The Hedge Fund millionaires have called the army of new investors, “Dumb Money,” indicating they are easy to fool and take their money.
In this instance, they are correct.
The largest 10 holders of silver futures are Hedge Funds and banks. Citadel Hedge Fund is the 4th largest holder and wants to see the price climb. Those diving into SLV, driving up the price of silver by buying shares, are actually increasing the wealth of hedge funds who short other stocks.
Citadel, who was caught in the short squeeze of GameStop (GME), is actually making money on silver prices going up, and pressure on GME, the stock they shorted, has been reduced.
The moderators on WSB posted more than once that SLV was not a target of a short squeeze, as they tried to get members to understand that Hedge Funds were setting a trap.
WSB members were warned. When SLV and other silver stocks have risen to whatever target Hedge Funds have chosen, they would then buy short positions on silver. Only then, will it be announced by silver companies that there was plenty of silver available, and they had no idea how such a rumor got started.
The price of silver will then tumble overnight. Hedge Funds will make a boatload of money, and ignorant retail investors will be left holding the bag, taking huge losses.
I knew WSB had lost the battle with Wall Street Wolves by the time the NYSE opened this morning at 9:30.
Every morning news program, including English speaking broadcasts from France and Japan I get on my TV, were reporting the rise in silver prices, with large banners on the screen that read things like, “WallStreetBets Puts Focus On Silver,” “WallStreetBets Moves From GameStop To Commodities,” among others.
I have no doubt the story and the claim WSB had given up on GME and AMC was fed to the media by Wall Street.
Following my exit plan, I unwound my position in AMC, following the usual bounce up at the opening bell. I had hopes of making far more than I did in this squeeze, but I’m not complaining. I got out starting in small increments that would sell quickly, with my final sell order providing me a decent gain for 3 days owning AMC.
After-hours trading saw it hit a low of $11.55.
Thankfully, I took no position in GameStock. It finished down at $225 in after hours trading.
I’d be surprised if WSB can recover from this dirty trick in order to mount another serious squeeze on GME or AMC. Too many idiots are chasing silver.
As for me, I’ll let Dumb Money buy silver.
Notice: Any and all discussion of a stock(s) should not be considered financial advice and is for entertainment purposes only. I often lose my car keys and forget where I park my car. I am not a financial advisor.
Disclaimer: On January 4, 2016, the owner of WestEastonPA.com began serving on the West Easton Council following an election. Postings and all content found on this website are the opinions of Matthew A. Dees and may not necessarily represent the opinion of the governing body for The Borough of West Easton.
