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'Very sad tale' in store for day traders: CIO

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As silver becomes the new GameStop, Fiduciary Trust chief investment officer Hans Olsen tells Reuters' Fred Katayama investors should beware whenever a group of traders try to intentionally pump up a stock or an asset class.

Video Transcript

FRED KATAYAMA: Stocks on Wall Street rebounding sharply Monday from that drubbing they took last week. Now an army of retail traders are focusing on silver. Let's get the market implications of that from Hans Olsen. He's Chief Investment Officer at Fiduciary Trust. Welcome back, Hans. Good afternoon.

Hans, it appears that silver has become the new GameStop. A pack of retail traders are driving that precious metal up to levels they haven't seen in eight years. What do you see resulting from this so-called retail revolution?

HANS OLSEN: Well, I think you're right. It is a retail revolution. It's really facilitated, Fred, by a combination of these online, commission-free trading platforms and social media. Apparently, having some stimulus checks also seems to sort of lubricate things.

But that said, you know, it's part of this money rolling around the system. And it's found silver. So it's bid up silver over the weekend pretty significantly. I'm not sure that it's going to be durable at all. Going after the commodity market, and silver in particular, is very different than trying to short squeeze like GameStock or, you know, some of these other beaten-down equities that we've seen over the last month or so.

FRED KATAYAMA: Right, because it's a huge market when you're talking commodities.

HANS OLSEN: Enormous market with a lot of liquidity. It's very hard to squeeze that market with a bunch of retail traders.

FRED KATAYAMA: And Hans, I know a lot of these so-called day traders are trying to stick it to the institutions of Wall Street. Are they going to be able to stick it or are they going to end up sticking themselves? What's the lesson for them here?

HANS OLSEN: Yeah, you know, I think this is a very familiar pattern. For students of history, the trading pools of Wall Street-- although those were more professionals that would do it, now we've got retail folks doing it, where they would pump up the price of the stock, and then sort of exit it and the stock would plummet.

I think this is going to be a very sad and familiar tale for these folks. It'll all end the same way. It'll end when they take it too far. And whether silver represents that sort of a bridge too far, I'm not sure. But it will all inevitably end in the same way, which is not well.

FRED KATAYAMA: Do you fear any contagion going to other assets? We're already jumping from stocks to commodities now.

HANS OLSEN: Yeah, I do think that this has got some legs. It'll tumble around the system. We've heard that-- there's a belief that some of these stimulus checks, frictionless trading, and these message boards all facilitate this. There isn't any reason why this couldn't tumble around as additional stimulus checks get written and the like and, you know, people feel empowered by this.

Ultimately, you know, you come back to the notion of, what are you buying? It's caveat emptor, right? Beware of what you're buying, and also how you're buying it.

FRED KATAYAMA: A lot of them are buying off Robinhood. And if you look at the bigger picture, is this part of possibly a bubble? I mean, we've got high valuations. We've got a lot of frenzied trading in the options markets. We've got a rush to make money with IPOs. There's Bitcoin also on the side as another asset. How do you see it, Hans?

HANS OLSEN: Yeah, I think we've got a series of sectorized bubbles, if you will. Bitcoin, GameStock, some of these like the AMCs, Tesla and the like. Now, some of these companies might be fine companies. But when you get prices that are so divorced from the underlying fundamentals of the company, you have to be worried about that.

However, there are other sectors of the market that haven't participated and that actually have very good earnings possibilities behind them. So I think these bubbles are very localized, and I don't think it is a bigger concern for the overall market. That said, Fred, though, I should point out that we are entering a seasonally weak time for equities. February is known, over a very long period of time, of being one of the weaker months for the equity markets.

And it's also especially a weak month for the equity market after the change of a presidential administration. And you started to see a bit of that at the end of last week, right? As we get into sort of the hard slog of making new legislation and the uncertainty that that brings, I think this is something that investors are going to have to contend with in the days ahead.

FRED KATAYAMA: OK, beware February. Thanks a lot, Hans. Thanks to Hans Olsen of Fiduciary Trust. I'm Fred Katayama in New York. This is Reuters.