Ever since the unexplainable rise of Tesla (TSLA) , which is the stock that keeps on giving, it seems a group of retail traders have amassed a team to buy any asset that is rising, because of the "stocks only go up" mantra. Very few people have actually taken the time to do the proper work on Tesla and its valuation. Cathie Wood of Ark Investment is one exception who has nailed this head on, and articulates her thoughts in a unique yet disruptive way. But given the massive surge in stocks like Tesla, which have a huge short base as most cannot fathom its meteoric rise, keeps getting squeezed more and more. Bitcoin is another phenomenon that has seen it rise from the dooms day levels of $4000 all the way to $40,000 this winter. But the true rise in Bitcoin evades most as it is not a traditional asset. But these are very specific assets with specific stories, can it really be applied to any short out there?
The name of the game is to target any asset that Hedge Funds or "dinosaurs" using their traditional valuation techniques to position themselves into their assets of choice and to squeeze them till the bank breaks. This technique is done via upside call options which means the retail gang can levered up to 10x what they have, making the moves all the more squeezy. What could possibly go wrong? It is one thing to squeeze a stock like GameStop (GME) with a market cap of $7 billion. But to squeeze a mature asset like Silver whose market size is in the trillions is no laughing matter. In addition, it is a metal that has actual physical and industrial use, other than just looking at the open interest and trying to outbid the offer side. There is a time and place for everything. Thanks to the Fed and endless money printing, there is too much free money in the hands of people who have no idea what trading is, but more importantly what risk management is. That is when men or women stand out from mere boys and girls.
It is important to ask what is the true driver of Silver or Gold for that matter. The fact that globally central banks have been printing money ad nauseam to keep the economy from stalling, to the point debasing every single Fiat currency, causing a rise in inflation not seen in decades, are just some of the points why one needs to own hard assets. It is true the physical market is trading at a substantial premium to the paper market around 40%+ or so. There is no readily available physical silver for delivery in some cases. The paper market is a different beast though. In theory, it is supposed to "converge" with the physical market but it rarely does as the big boys who dabble in the paper market, keep leaning over the ETF's and arb the physical market. This is the beauty of commodity markets, where there is a real arbitrage between paper and physical, it is way beyond any retail trader and certainly last-minute johnnie's paygrade level.
The banks surely have been leaning on the paper market for years, and have been fined for this as well. The trade that cannot go wrong is to own the physical metal, but most do not. The ETF has its flaws as much as it is easier to trade. The Silver market was lagging and was disconnected. It had all the right catalysts for a fire to be lit underneath it. Reddit and Wall Street Bets are just an excuse, it becomes self-fulfilling after a while. But make no mistake, when moves happen outside of their "true" drivers then the move is not sustainable.
Investing is about risk vs. reward. The inflows into SLV and ETFs on Thursday and Friday were at records simply show that most do not understand how the Silver market works. Now their resolve will be tested when it has fallen today, because make no mistake the Silver market is not like the Fed manipulated Equity market, it can go up as well as down.