The Game Stop Fairy Tale And Its Lesson, by Michael Lebowitz

The big picture lesson from Game Stop is that financial markets are government-sponsored casinos designed to enrich one class of players at the expense of the other class. From Michael Lebowitz at realinvestmentadvice.com:

nce upon a time, there was a zombie corporation named Game Stop ($GME). For the last few years, it has been circling the bankruptcy drain. Similar to Blockbuster, its business model, renting and trading video games and equipment, is going the way of digital streaming. GME’s brick and mortar operations held a competitive advantage versus most competitors. Unfortunately, in today’s digital streaming world, they are minnows, prone to attack by the likes of Amazon.

We tell the story of GME because it’s fascinating. More importantly, however, it holds an important lesson about the level of speculation the Fed is fostering.

Preamble- Know Who You Are Squeezing

As we wrote this article, the short squeeze phenomena were shifting toward the silver sector. There are two essential differences between shorting SLV, an ETF, and GME. First, because SLV is an ETF, dealers can create shares. Such makes it more difficult to squeeze. To create shares, the dealer must deliver silver in exchange for the new shares.

Second, while squeezes in GME primarily only affect GME shareholders, SLV affects the price of silver itself. If SLV continues to rise, it brightens the outlook for silver miners but raises input costs for manufacturers that use silver in their production process. Silver is widely required to produce many high tech goods; therefore, a rising price has economic implications. As such, it is a more critical squeeze to follow, and no doubt the Fed is closely watching.

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