Shiny Things

Risk sentiment looked to recover on the first day of February coming off the largest weekly decline for US equities since October.

The presence (and perseverance) of the retail crowd was on display again as silver surged to an eight-year high.

The Reddit crowd has determined — and I’m quoting WallStreetBets here — that silver is “THE BIGGEST SHORT IN THE WORLD.” It’s far from clear whether this market is as susceptible to being commandeered by the common man (so to speak) as beaten down shares of GameStop and AMC, but Monday’s frenzy did manage to push the most-active future through $30.

It’s also not entirely clear who it is Reddit is angry at in this particular trade. One theory floated by the Reddit faithful is that banks are deliberately suppressing the price of precious metals in a conspiracy to hide inflation. But gold outperformed every other major asset in 2020 (it rose nearly 25%) and silver is up some 70% over the past 12 months. There are myriad additional factors which appear to make this incongruous with last week’s squeeze in GameStop, AMC, and the like. But narrative consistency (or a lack thereof) probably won’t deter this crowd.

If nothing else, they can probably manage to push around shares of miners, and I suppose money is money.

Stepping away from this train wreck in waiting, the yuan fell Monday as the market pondered softer PMIs out of China and signs that the PBoC is done engineering a cash crunch that drove interbank rates sharply higher last week.

The color accompanying the Caixin release wasn’t particularly upbeat. “Overall, the manufacturing sector continued to recover in January, but the momentum of both supply and demand weakened, dragged by subdued overseas demand,” Wang Zhe, Senior Economist at Caixin cautioned. “The gauge for future output expectations was the lowest since May though it remained in positive territory, showing manufacturing entrepreneurs were still worried about the sustainability of the economic recovery. In addition, the weakening job market and the sharp increase in inflationary pressure should not be ignored.”

“There’s a risk that the yuan could see some long unwinding if coronavirus infections continue and result in lingering social restrictions, which in turn affects what is already a subdued consumption dynamic,” one FX strategist said Monday.

“I don’t think the PBoC has any intention of driving up borrowing costs further or causing more volatility in money markets,” AxiCorp’s Stephen Innes remarked. “The central bank’s moves late last week suggest to me that it’s becoming cautious about the market’s overreaction to liquidity tightness.” The PBoC injected 98 billion yuan Monday. Overnight rates dropped for the first time in six sessions.

Meanwhile, in the world’s fourth-largest economy, retail sales fell 9.6% MoM in December, as lockdowns in Germany crimped buying. That was far worse than even the most pessimistic estimate from nearly two-dozen economists. The YoY rise (1.5%) was also a big downside miss. The market was looking for a 4.7% gain.

Also on traders’ radar to start the week will be talks between the Biden administration and GOP lawmakers who ludicrously believe the White House might be inclined to accept a  “compromise” stimulus package worth $600 billion. They (the GOP) are pitching it as a “targeted” bill and hoping to capitalize on Biden’s almost desperate desire for bipartisanship. But last I checked, $600 billion is not half of $1.9 trillion, although admittedly, recent price action in the Reddit favorites does make one question the viability of traditional math.


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6 thoughts on “Shiny Things

  1. Re: Silver – I know you refer to almost all precious metals as “shiny metal doorstops”, but let me explain who they’re mad at and what the investment thesis they are chasing is in supply/demand terms.

    SOURCE –

    The current dollar to silver ratio now is $4,793 per oz. Yet, the current value of silver is $30.00 per oz. Meanwhile the current dollar to crypto ratio is 19.28 to 1, yet Bitcoin is trading at $33,868.10. I’m not saying that Bitcoin should be worth 20 bucks nor that silver is actually worth nearly 5k. But it speaks to the overvaluation of Bitcoin and the undervaluation of silver.

    Who they are mad at is of course, banks, because I suspect this reddit crowd contains some holdovers from the “occupy wall street” movement that received a very underwhelming response to their protests in the form of zero consequences for the financial institutions that shed half of our wealth in the early 2000’s.

    How they get the banks is by forcing them to come clean about silver paper trading. Again, per the source above, the paper to silver ratio right now is 185.96 to 1. Meaning every silver certificate you buy is claiming ownership to an ounce of silver that some odd 200 others are as well. This is obviously bllsht, and if that figure is even close to accurate, well then, someone sure missed out on their oversight duties.

    I agree, it’s hard to fathom a few thousand US retail investors flipping this market on its head the way they did with GME, there are almost $20B in silver reserves globally. But then again, GME is a worthless holding that they managed to turn into a ridiculous run. Silver is a precious metal that has many uses in manufacturing most notably with green energy. It’s not exactly something that’s going to be worthless at the end of the day.

  2. As a millenial who frequents both WSB and here, I have to say that the reddit “crowd” is probably not jumping into the SLV trade much, if at all. There is an understanding that the sub-Reddit is being watched and manipulated. Currently, any trade that is not GME or AMC is viewed suspiciously as a distraction.

    1. Exactly. The “old” (last week’s) WSB is NOT pushing SLV. They’re pushing back against this trade, as it looks like the biggest holders of SLV are hedge funds like Citadel. We’re already seeing WSB co-opted by newcomers (eg, Wall Street folks). Oh well – it was fun while it lasted.

  3. To be clear, I don’t have anything “against” precious metals.

    Sometimes I think my sarcasm and derisive jokes about gold may get taken the wrong way.

    I don’t put gold (or silver) in the same boat as Bitcoin. Not at all.

    I understand why people allocate to gold. I think you might be a bit unhinged if you allocate more than, say, 30% to gold, but to each his/her own.

    For me, it’s purely a portfolio hedge.

    It’s not that I don’t “believe” in gold (or silver) as a hard asset or think people who do are fools. It’s just that when it comes to hard assets, precious metals are way down on the list for me.

    1. I don’t put gold (or silver) in the same boat as Bitcoin. Not at all.

      This, I literally do not understand. The only difference is one is accepted b/c of thousands of years of cultural acclimatization and the other is emerging/in the process of being accepted (or not).

      To me, it’s like comparing Christianity to Scientology. Both are ridiculous but one has the stamp of 2,000 years of cultural and institutional approval (more if you include judaism as the parent religion) while we SAW the other emerge from our primal cultural slime.

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