What Will Reddit Do With Silver?

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The hot story this week is the incredible run-up in the stock price of GameStop GME. A week ago, this was a $40 stock, with the company losing well over $4 a share. That’s not surprising for a retail store operator in the world of lockdowns. What is surprising is what happened this week.

The share price ran up to almost $500.

To understand why let’s take a step back and look at the context.

What Caused GameStop to Run Up?

The stock is heavily shorted, including by hedge funds—probably because the prospects for money-losing retailers are bleak. Then a group on Reddit, Wall Street Bets, promoted the idea of buying the stock because the short interest was greater than the total number of shares (they assumed that this means illegal naked shorting—not necessarily.)

But buy they did. And squeezed the short-sellers. And the price ran up.

On Thursday, some trading platforms blocked users from buying the stock. The Reddit users believe this is an attempt to manipulate the share price down, to benefit the short-sellers who are big players. We have little doubt that they blocked buying because they are afraid of lawsuits from users who will lose money buying at the top. And regulatory action.

After all, the whole sales pitch for regulation is to protect the little guy from the big guy. Forget whether this “protection” actually helps the little guy. Look only at the optics, which is what drives voters to support it. Little investors are presumed to be incapable of assessing risks or running their own affairs. Like those under age 18. They need to be protected, which is why they are prohibited from buying private placement investments.

A Call for More Regulation?

And now we have a case that turns this on its head. The institutions that would lobby regulators to force Robinhood to stop little-guy buying of GameStop make a self-serving argument. They want the buying to stop so the price will stop rising and their losses will stop. Which sounds like, “protect the little guys from the big losses when the stock crashes.” Meanwhile, the little guys think there should be regulation—of the big guys.

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Disclaimer: The content in this article is provided as general information and for educational purposes only and should not be taken as investment advice. We do not guarantee the accuracy ...

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William K. 4 weeks ago Member's comment

Certainly there foes need to be more regulation, BUT not of planning and plotting and focused discussion. That area is thin ice with deep water below.

The regulation needs to be on the use of credit, and limiting that use of credit. Make the futures a cash-only realm, and then enforce the rule. That would have put a serious damper on the run-up of fuel prices a while back, and it would probably put a damper on short sales as well. All that just by increasing the risk without really encroaching freedom. Credit is too easy a shield for gamblers, so just making the game a bit more serious may be all that it takes to solve the problem.