Squeezing the Silver Shorts

 I have been noting lately some of the discussion around the short squeezes related to GameStop and certain other stocks. Basically, GameStop short positions exceed the total float of GameStop shares, and a crowd on Reddit decided to bid the share price up so that the shorts would suffer a huge losses. And they succeeded. So then they got the idea to ply their tactics on stocks of other companies such as Bed Bath & Beyond and AMC, with some success with those stocks also.

Flush with the exuberance of inexperienced success, they seem to have lately decided to squeeze the silver shorts. In doing so, they have shown they do not understand the market. It’s one thing to take on the GameStop shorts. Quite another to go up against the silver shorts. Now they are trying to enter the big league. I have very little doubt that the silver price will be energetically headed north, but that process needs no help from the Reddit crowd. Silver tends to be produced largely from mines that are primarily base metal mines, driven by industrial demand. Yes, there are mines that primarily function on account of the silver in them, but a large part of supply is a by-product of mining other minerals. The economic slowdown has reduced such mining activity. In some cases, mines have closed directly as a result of covid. There is a shortage of silver production, just like there is of uranium. Further, the demand for silver as a critical component in several key industrial processes, besides jewellery and investment, is likely to outstrip supply for some years to come so far as I can tell. So yeah, silver doesn’t need Reddit.

The Reddit warriors can’t squeeze the silver shorts anyway. GameStop has a float of less than 50 million shares. If you are short and the price starts getting away, you have to buy stock. You could buy call options to accomplish the same thing, but the short positions were cumulatively so big that buying calls would have driven the options to unreasonable prices. Silver is different. If you are short silver, you can buy futures, options on futures, silver ETFs, and shares in silver mining companies to hedge against losses. You won’t have to get squeezed. Further, I think the main silver shorts have the ability to affect trading rules. These people are powerful. The Hunt brothers, multi-billionaires when a billion was something, found out 40 years ago just how powerful the silver short interests are. If the Hunts could be squished, so can the Reddit mass.

Nothing succeeds like success, but nothing goes to the head like success either.

Is Humanity Being Positioned to Become a sort of Borg Collective?

A friend sent me a link (https://www.bitchute.com/video/OfUvXQAxGnsy/) to a recorded interview with Catherine Austin Fitts, a gal with an impressive resume (look up her details) as an in-the-know economics authority. In the interview, she engagingly makes the argument that the covid vaccinations are a tool for hooking us up to a sort of Borg collective. Her connections would tend to give her fantastic theory credence, but I have problems with it.

As I listened, it was not always clear to me what she meant. For example, she talked about the social security coffers being emptied and the blame being apportioned to the virus, but I don't see any sign of that. She also said, or at least implied, things that I don't think are true. For example, the deliberate destruction of small business to transfer their market share to mega-retailers such as Amazon and Walmart, and she even lumped into her small business category professional practices (CPAs and lawyers), implying they are having their income crippled so they won't support populist political candidates. If the aim of government is to put small business under, why all the grants and subsidies that have kept so many of them in business?

There is no doubt that the virus is real, not just an imaginary invisible affliction. If it wasn't real, someone in health care would have blown the whistle by now.

I agree that the lockdown isn't the way to deal with the problem. Lockdowns work in theory, but they do not seem to have worked in practice. The masks, social distancing and frequent hand washing seem to be what is needed more. They are efficacious and do not demolish the economy. Make no mistake: the economy is being shredded. Yes, we still have abundance, but that isn’t from our production so much as it is from China sending stuff to us.

I agree with the interviewee that there is an effort to get rid of cash, and probably as a tool to control the masses. Maybe someone will be able to use the pandemic as a context in which to do that, but I have yet to see signs of it.

I don't doubt that there are rich people who collaborate with the aim of changing the world. I expect that if I was super rich, I would want to use my wealth to change the world also. I think that what may be happening is that they talk to each other and get so exclusionary that their ideas are inbred. They get out of touch with reality, and their ideas do not have the power we might otherwise expect. The interviewee claims that the elite want to greatly reduce human population, replacing us with robots to serve them. The problem with that is that most disruptive and transformative ideas arise from the intellect of the common man, not from the elite. Get rid of most of humanity, and you have gotten rid of most creativity. I suspect the elite know that, but maybe they are more inbred in their thinking than I think they are, and actually do have the nefarious plan of which they are accused.

I did find it interesting that riots occur in areas where some rich guys might want to buy commercial real estate cheaply. I can believe that happening. So yeah, there are some assertions of Catherine Austin Fitts that do ring true, but I’m not buying her ideas as a package deal.

 

When the Tide Turns

Governments are fond of referring to their dumping of cash into the economy as stimulus. There has been a huge amount of cash released into people’s bank accounts, and very little economic growth. How little? About 22 cents of GDP for each dollar of “stimulus” --- showing that governments have depleted their tools. They don’t know what to do. They are now sowing the seeds of a huge price inflation, and they don’t seem to care. Instead, they point to that lack of general price increases during this past year, and they have positioned Japan as the poster child debtor nation.

What appears to have eluded their notice is that the volatility of money is approaching zero --- a symptom of the lack of demand for goods and services. People want to save. Many are afraid to spend. So even though production and productive capacity are shrinking as businesses close down permanently, demand is falling even more, and prices have not escalated to the extent the money supply has. Once people feel confident, they will begin spending. Then see what happens to price levels. So far as Japan being an example, first, the Japanese economy has been stagnating for 30 years. Secondly, they owe that money to themselves, not to foreigners, so their very high debt to GDP ratio is not the problem our lower ratio is.

There is a problem developing. Commercial real estate has high vacancy rates. Many companies have come to see that they don’t really need all that office space. Empty buildings do not have the value of fully occupied ones. Prices of commercial buildings are bound to drop, at least in real terms, if not in nominal terms. I expect many of their owners will be in financial trouble and unable to meet their mortgage payments. This will reduce the value of the mortgages. The difference between the selling price of a mortgage and the contractual cash flow from the mortgage payments determines the effective interest rate. The cheaper a series of payments is to buy, the bigger the spread between cash paid for it and cash to be collected from it, and the higher the effective interest rate.

When mortgages can produce much higher yields than bonds now do, what will happen to bonds? Investors will not be willing to pay as much as they are now. So, bonds should fall in price. Makes sense since the bond market is a bubble waiting for a pin to pop it. I suspect that a deteriorating mortgage market will be the pin. This is a major economic problem. The bond market is much bigger than the stock market, and the value of daily bond trades dwarfs stock trades. Falling bond prices means higher effective interest rates. When interest rates rise, more real estate owners will be caught in a squeeze that will wipe them out and precipitate even greater problems in the mortgage and bond markets. As the value of real estate declines, balance sheets will deteriorate and credit will tighten up.

Of course, central banks may decide to buy the mortgages and bonds, thus monetizing the debt. More inflation. More problems. No, it’s not looking good.

It is time to be liquid (in cash or in investments that can almost instantly be converted into cash). Time to consider Warren Buffett’s expectation of a stock market crash. Stock markets will not take rising interest rates very well. Neither will real estate markets. There could be blood in the streets. It’s time now to mend relationships and build new ones.