Peter Schiff: Reddit Raiders Ride Silver

As of Monday morning, the Reddit Raiders had driven silver to a 6-month high of over $29 an ounce. Peter Schiff talked about what’s going on in the silver market on his podcast Friday. He said that silver is a great buy right now, with or without the attention of the Reddit message boards.

Peter opened the show noting that all the major stock indices were down on the week, and both the S&P 500 and the Dow Jones were down on the month.

There’s an old Wall Street saying about the January effect: so goes January, so goes the year. And if that’s the case, we’re in for a rough year because we had a very rough January.”

The hedge funds were hit particularly hard. This was in large part due to the fact that a lot of the stocks that the hedge funds shorted went up the most. It was the biggest rally in the most heavily shorted stocks that we’ve ever seen, and this was primarily a function of the so-called Reddit Raiders driving up the prices of these stocks.

So, the hedge funds are really hemorrhaging, at least the ones that were short those names, because not only did they lose money on their longs because the market is down, but they lost even more money on their shorts. And they’re supposed to make money on their shorts when the market goes down. Instead, they took it in the shorts because of a massive short squeeze that put a lot of pressure on their short positions.”

Peter said he thought the short squeeze was a brilliant move, and the people who organized it and got in early hit a home run.

What I’m concerned about is the smaller investors who don’t understand this concept who have actually bought stocks like GameStop and who paid $200 a share, or $300 a share, $400 a share, even $50 a share, who have sold, who are just holding on, who have been encouraged to continue to hold. And in many cases, I think some of the people who are online that are encouraging other people not to sell, are themselves selling.”

Part of the problem is these shorted stocks were shorted for a reason. GameStop isn’t exactly operating a strong business model. The company sells video game cartridges at brick and mortar stores. That’s not how people do video gaming today.

On his podcast on Wednesday, Jan. 27, Peter talked about the big short squeeze that he thought was coming in gold and silver. It was almost as if the Reddit investors listened to the show because on Thursday, they turned their attention to silver. There was a lot of discussion on message boards about buying physical silver, SLV (as silver ETF), and also silver mining stocks, First Majestic (AG) in particular. Peter said what’s happening with silver is fundamentally different than what we saw with the heavily shorted stocks like GameStop.

The big difference between what they’re doing now with silver and with silver mining stocks, and what they’re doing with these heavily shorted stocks is when these guys are going in and buying GameStop, they’re buying an overvalued company that was probably going to go bankrupt. Now, it may be a smart trade from the perspective of a short squeeze, if you can get out in time. Because remember, the only people who are going to make money on the short squeeze are the people who sell into the rally. If you just hold on through the entire thing, you’re going to be a big loser. But the big difference is GameStop and these other companies are overpriced. In many cases, the companies aren’t worth anything because they’re going to go bankrupt. And some of them may not go bankrupt, they may survive, but at a much lower price than the price that people are now paying to buy the stock. So, you can’t buy and hold these investments. On the other hand … buying silver at $27 an ounce — that’s a great buy! Buying silver stocks at their current price is s a great buy.”

Peter emphasized that these are good quality investments. Silver is cheap. Silver stocks are a bargain.

So, rather than buying overpriced stocks supposedly to make a point and a political statement, you can make a much better political statement, a much better point by buying some physical silver and buying some silver stocks, because then you could stick it to the billion dollar banks who are short and also make some money for yourself. That is a much better outcome.”

Of course, the real question is will the Reddit Raiders be able to push the price of silver up in the same way they did GameStop and AMC. Peter said he doesn’t think so.

Because these heavily shorted stocks had a much, much smaller float and were much more easily manipulated in this organized short squeeze. (Float is the number of shares available to the public for trading.) It is not going to be nearly as easy to move the price of silver, either in the physical market or through the ETF. It’s too big a market relative to the size of this group.”

Peter conceded that if some of the big players jump in on silver, it could move the market significantly. But ultimately, he just hopes the people buying the silver and silver stocks hold on to the buys.

Because the market’s going up anyway. It’s not going to go up because of what they’re doing. It would have gone up anyway. They did cause GameStop and all these other stocks to go up. They’re not going to cause a big move up in silver or silver stocks. I mean, they did for a day or two, but it didn’t have that big of an effect. … But if everybody is patient, they will make a tremendous amount of money, I think, in silver and silver stocks.”

Why? Because at its core, silver is a monetary metal and the Federal Reserve is going to continue to print money out of thin air. The US government is going to continue to borrow and spend. That means the dollar is going to continue to devalue and that’s bullish for both silver and gold.