Yellen Discusses Recent Trading Frenzy in Wall Street

The United States Secretary of the Treasury, Janet Yellen, is discussing with market leaders the recent fluctuations in the stock market due to speculation trading.

Yellen is holding a meeting with the heads of the Securities and Exchange Commission (SEC), Federal Reserve Board, Federal Reserve Bank of New York, and Commodity Futures Trading Commission (CFTC).

The aim of the meeting is have a full understanding of the recent surges, followed by declines, for a number of stocks of listed companies, such as GameStop and AMC Entertainment, which resulted by increased demand from users of the social media platform Reddit, who were betting on the otherwise ailing companies.

The surges in GameStop among other shorted stocks were attributed to what is called a short squeeze, a phenomenon in which investors who bet against a stock are forced to buy shares to cover their positions as it rises.

The movements are leading many analysts to emphasize the new power of digital communication and social media platforms on the trading scene.

Recently, the President of the Federal Reserve Bank Dallas Robert Kaplan suggested on Tuesday that the Fed’s huge bond-buying program could be one of the reasons behind the recent trading frenzy by Reddit users.

“Some of the current situation you are seeing — one of the factors — is there is a lot of liquidity, and some of that relates to Fed purchases of $80 billion of Treasuries and $40 billion of mortgage-backed securities every month: I think it’s wise for us to acknowledge that,” Kaplan stated.

“I still think we need to be doing what we are doing right now, in the teeth of the pandemic, but again, I think if we go beyond it, it will be healthier to start limiting this liquidity and normalizing policy down the road,” he added.

The trading frenzy extended stocks and reached metal trading, with a recent call for “Silver Squeeze” resulting in silver futures surging to their highest level since 2013, before dropping by more than 10% earlier this week.

A recent report by CNBC showed that an exchange traded fund (ETF), named iShares Silver Trust, which facilitates trading silver and tracking the move of silver prices was trading higher at the beginning of the week.

On the other hand, other analysts argued that the rise in silver prices was prior to the call for the silver squeeze, which encouraged investors to seek the metal.

Another analysis by Dow Jones’s MarketWatch indicated that repeating the GameStop scenario may not plausible in this case, since the global silver market cannot be compared to the small market cap of a company such as GameStop.

Accordingly, the majority of banks shorting silver do so to hedge their ownership of the metal, instead of betting on the falling prices.