For those of you who are unaware of the gyrations in the price of GameStop shares in the last couple of weeks, here is a brief rundown as best I can make out. Please note, this is simply commentary and DOES NOT CONSTITUTE FINANCIAL ADVISE UNDER ANY CIRCUMSTANCES.
GameStop is a US company with a chain of shops selling electronic games and equipment. Like many other bricks and mortar businesses, it hasn’t done well in a Covid world.
Short sellers working for big banks and institutions decided they could make a killing by shorting the shares of this company.
This involves selling borrowed shares and then, hopefully, buying them back at a discounted price after the price has dropped.
Some go even further and sell shares they do not even own. This is called ‘naked shorting’.
If enough traders short a stock, it can create a death spiral in the share price, enriching the short sellers immensely.
This, however, is not always the case, and motives and outcomes are not always evil. Sometimes short sellers can drive a stock more rapidly to fair value.
Also, short selling is very risky as if the stock rises in price, the financial risk is without limit.
Until recently, big institutions had the financial clout to fleece just about anyone else and small investors were just like mug punters at the racetrack.
Lately, financial bulletin boards giving advice have joined small investors together to give them the power to take on the ‘1%’.
Punters on one such board called WallStreetBets decided that GameStop had been grossly over shorted and that if they all began buying the stock, they could force the short sellers to cover (buy back stocks) driving them up to the moon.
Turns out they were right. Once they started buying, all hell broke loose.
The stock went from $6 just a couple of weeks ago, to $347 on the 27th of this month.
The pain for short sellers who had millions of dollars’ worth of the stock is immense, to the point that major Wall Street players are in danger of losing their shirts whilst ordinary Mom and Pop traders are sitting on massive gains.
One problem is, that the US stock market is now so badly rigged by Government interventions that a domino like GameStop could crash the whole house of financial cards.
Top level Democrats like Elizabeth Warren and Nancy Pelosi have weighed in with every talking head on the swamp media and big tech outlets who are doing everything they can to save the multibillion dollar banks and hedge funds from losing out to the deplorable day traders.
Rather ominously, the day traders on Reddit boards have been seen chattering about silver. This precious metal has long been rumoured to have massive shorts holding it down.
If enough day traders went long physical silver, the damage they could do to institutions caught short in the market could be devastating.
Couldn’t happen to a more deserving bunch of thieves, I recon.
Unfortunately, the fragility of the financial system after decades of graft, corruption and outright theft is such that an explosion in silver could crash the entire system so – be careful what you wish for.