"Taking Out the Shorts"
By Bill Bonner
"The reason the market is doing what it’s doing is people are sitting at home, getting checks from the government. This “fair share” is a bullshit concept. It’s just a way of attacking wealthy people." – Billionaire investor Leon Cooperman
WEST RIVER, MARYLAND – "Bloomberg has the big news: "Silver Spikes Past $30 as Retail Investors Swarm Biggest Target". Silver broke above $30 an ounce as the precious metal took center stage in the retail investor frenzy sweeping through markets. Like the buying stampede in GameStop Corp. and other small-cap stocks that has captivated the financial world in recent weeks, silver’s advance can be traced to Reddit’s WallStreetBets forum. One post last week declared the metal “THE BIGGEST SHORT IN THE WORLD” and encouraged traders to pile into the iShares trust as a way to stick it to big banks."
MarketWatch adds: “Influencing the price of silver will not be as easy as a single small or medium sized single equity. Silver’s market cap is in the range of $1.4 trillion to $1.6 trillion as opposed to GameStop’s $1.5 billion before becoming the target of retail investors, and a large proportion of the market is off-exchange. However, it will be interesting to see the small players’ power and how much further they can push prices,” said Hussein Sayed, chief market strategist at FXTM."
Game on!
Snow Day: It’s a snow holiday here at the worldwide headquarters of the Diary. We don’t get many of them in Maryland, so each one is precious. Yesterday, it snowed all day. Today, the ground is covered in white, with a frosting of ice.
The farm in winter.
This is not the kind of snow or cold that Midwesterners suffer. God knows what a winter in Wisconsin is like. But here, snow storms are infrequent enough, and usually mild enough. So we are both completely unprepared for them and enjoy them thoroughly. This morning, we sit in front of the kitchen fire. What a delight!
A cozy spot on a cold day.
Last week, a guest (there haven’t been many during Anno Covidius) made the following observation: “I could spend all of my time checking Instagram, Twitter, Facebook… and following the news and the opinions… one leading to another one… It’s endless. And at the end of the day… what do I know? Who’s right? Who’s telling the truth? What is the truth? I’d rather spend the time baking a loaf of bread…”
Elizabeth added: “There’s a report out by a French psychologist that says a child’s IQ depends on how many hours he spends with electronic entertainment. The more time, the dumber he is. It also says that this is the first generation ever with lower IQs than their parents.”
Yesterday, we did nothing to lower our IQ. Instead, we spent much of the weekend cutting firewood and ricking it up in the barn. Then, after the snow began to build up, we put a blade on the back of the tractor to clear the road. Easier said than done… The old tractor – two-wheel drive, with well-worn tires – can’t make it up the hills when there is snow on the road. We have to raise the plow, and then get a running start. With a little luck, we get to the top and can then scrape off the snow on the way back down.
The result of our efforts.
But while the World Wide Web is full of lies, foolishness, and IQ-lowering time wasters… we nevertheless wade in – it’s our mission in life! We will wash the scum off later.
Angry Letter: The most entertaining story last week was the GameStop saga. Just when you thought you understood it, another layer of complexity appeared. But the most interesting part of the story, to us, anyway, was that this caused everyone to lose his sense of humor. Everyone seems to be angry. Today, we explain why.
When we write something that appears to be critical of Donald Trump, we get angry letters. When we write something that makes it appear that we do not appreciate Joe Biden, we get more angry letters. And most often, when we criticize them both, we get angry letters from both sides at once. Maybe we should stop reading the mail.
But what shocked us last week was that readers are angry about the stock market, too. On Thursday, we tried to explain – as best we could – what had happened with GameStop. The story was dazzling, multi-layered, and fast-moving. To us, it was just an illustration of how crazy things get when you distribute fake money. People start doing funny things with it – including playing high-stakes games in the stock market. But instead of appreciating the lark of it, people got mad – even at us!
Here’s one letter: "Bill, your arrogance is mind-bending. These kids didn’t invent the squeeze. The stock market has always been a gaming platform. The house lost! The status quo got its a** handed to it on a platter. Now, everyone is whining to his lobbyists and congressman to further rig the game in the house’s favor. These kids are sick of being left out of the “inside info,” “IPOs,” etc. The game is changing and these kids are smart enough to understand their power is only in their numbers."
Hardly had the sting eased when we realized that everyone was choosing sides. And Alexandria Ocasio-Cortez, bless her heart, was making a federal case of it: "This is a serious matter. Committee investigators should examine any retail services freezing stock purchases in the course of potential investigations – especially those allowing sales, but freezing purchases."
And here’s Politico: "The spectacular rise of GameStop’s stock from a surge of buying by small investors has rattled both markets and Washington, with some lawmakers demanding that regulators step in and others threatening action against brokers that suddenly kneecapped retail traders on Thursday."
Crying Foul: Yes, as the story developed, it became something of a cause célèbre for the young Reddit traders… and an embarrassment to the trading platform that hosted them – Robinhood. In order to protect its clients, or so it said, (including perhaps its biggest clients – the Wall Street firms that fund it), it stopped taking buy orders on GameStop on Thursday.
The Reddit crew found this exceedingly unfair. Robinhood seemed to be protecting Wall Street and not the little traders. (More likely, it was protecting itself from a huge blow-up that would have put it out of business.) Meanwhile, the hedge funds that had shorted the GameStop stock were crying foul because it appeared that the price was being manipulated by these callow traders who were out to destroy them (see Cooperman, above).
Lost Their Shorts: And of course, everyone was already mad at the wicked Wall Street short-sellers. These companies earn their keep by identifying stocks that they think are overvalued. Sometimes, they can’t help but tell the world what a great opportunity they’ve found… and occasionally, are instrumental in causing the very price collapse they predict. (A smarter person would make a witty comment about how they exploit the Heisenberg Principle, but we can’t quite figure out how it works. Besides, it’s a snow holiday.)
The shorts borrow the stocks and sell them, hoping that the price will go down when they have to “cover” by buying back the stocks they borrowed. Of course, they don’t actually “borrow” anything. Instead, they receive money for selling shares they don’t own and have a contractual obligation to pay the money back based on the future value of the stock. The lower the share price goes, the less they have to pay back.
So naturally, they are keen to see in the newspapers that the Federal Trade Commission has just seized their target’s bank account and the CEO has been arrested for sex with a minor. (The most “activist” of the short-sellers are probably not above arranging a blind date.)
By the end of the week, the shorts had suffered billions in losses on GameStop. And the players who were “long” – such as discussions website Reddit standouts Roaring Kitty and DeepF**kingValue – were in the chips.
Apparently, Roaring Kitty was recently fired from MassMutual insurance company. According to the chatter on the World Wide Web, his bets on the video game seller have netted him some $33 million, which is not bad for a 34-year-old unemployed guy. And by Friday, word on the street was that not only had some of the hedge funds lost billions… at least one of them decided to get out of short-selling altogether. Citron Research, for example, announced that it “will no longer publish short report.” All good fun.
Hate the Rich: But why so much anger? You already know, don’t you, Dear Reader? Rolling Stone magazine explained: "Take a look at the last 15 years of American economic history. In 2007, a housing bubble burst and led to a financial crisis that threatened to take down massive financial firms. The government rushed to inject public funding into those private companies on the grounds that if megabanks failed, the fallout would be devastating for everyone. That’s true, but it’s also true that it’s devastating to lose a house you were told you could afford, or to get laid off, or to see your retirement savings wiped out. And all of that happened to a lot of people in the Great Recession, but no such emergency help was extended to them. The banks were “too big to fail,” but individuals weren’t, and many of them did.
The post-recession recovery saw the rich again do far better than anyone else. The main economic intervention during that time came in 2017, when Trump and the GOP massively slashed taxes for corporations and the wealthy — and then got around to some meager tax perks for workers. A few years later, Covid-19 threw us into another global economic crisis. Congress and the Federal Reserve found astonishing amounts of money for banks, airlines, and other big companies that needed cash fast. For most people, help (so far) has come in the form of a temporary bump in unemployment benefits and two skinny stimulus checks over the course of a year."
New Target: When the money goes, everything goes. You can quote us on that. And as things have been going, the fake money system cheats the young, the poor, and the middle classes, while enriching the top 10%, the insiders, the Establishment, and the elite. Few people understand what is really going on. But feelings of resentment and unfairness don’t need airtight logic to sustain them. And as the going gets worse, anger is bound to express itself in even more peculiar ways.
The Federal Reserve is still monetizing every cockamamie scheme to come down the pike. And now, the crowd of Reddit vigilantes is said to be targeting the silver shorts. How will it turn out? Stay tuned…"
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