Tuesday, February 12, 2013

iShares Silver Trust (SLV), Silver Wheaton Corp.

(SLW): Is Silver in a Bubble?

From insidermonkey.com
Over the past five years, silver as represented by the iShares Silver Trust (SLV) is up roughly 75% on the type of steady march higher that investors dream about, despite being down about 7.5% over the past year. Earlier this week, Silver Wheaton Corp. (USA) (NYSE:SLW) CEO Randy Smallwood told CNBC that he saw precious-metals pricing going much higher from current levels. The comment led me to consider what alternative Smallwood might have to that position, if any, and to consider whether the long-term uptrend could continue.
While there are many typical hallmarks of a bubble scenario, most are not present in the silver market -- I hesitate to say none for fear of a barrage of examples. Ultimately, I agree with Smallwood and remain bullish on silver. Let's look at four common features of a bubble that aren't present in the silver market.
Disconnect from reality: Perhaps the greatest hallmark of a bubble is the ability of investors to ignore reality. For example, during the housing bubble, banks continued to lend on the theory that "housing prices cannot go down." From 2007 to 2009, the Case-Shiller Home Price Index collapsed from 225 down to 150.
The recent decline in the price of silver has been under control and driven by negative catalysts. Recently, the Bureau of Labor Statistics released data that indicated that jobless claims had hit a five-year low. This is negative for silver on two fronts. First, it may suggest that the economy is strengthening, making the safe-haven nature of precious metals less attractive. Secondly, the Federal Reserve, as a part of the current round of quantitative easing, has made clear that its current actions and policy initiatives are tied to the labor market -- the Fed it will keep rates near zero until unemployment dips below 6.5%. Smallwood cited the actions of various central banks and the primary positive catalyst he currently sees for silver prices.
A parabolic move higher. If you go back and study some of the previously celebrated bubbles, one common feature is that before the bubble bursts, buying became so frenzied that the asset prices climbed in a nearly vertical path. When these bubbles then burst, prices tend to crater. That's particularly true in precious metals and even more pronounced in silver.
Yet the move lower has been gradual and not what one would expect in a bubble scenario. You could argue that we are in a bubble, but that the really big up move has yet to come. If this were true, an investment would still be safe. Even so, I do not believe this is the case.
Structural breakdown. In the midst of a bubble, any asset even loosely tied to the hysteria begins to trade as if it were the same thing. In the case of silver, miners such as Pan American Silver Corp. (USA) (NASDAQ:PAAS) and First Majestic Silver Corp (NYSE:AG) would be expected to trade alongside silver. In the past month, however, while SLV is up nearly 4%, Pan American is down nearly 4% and First Majestic is down 6.5%. The move lower for Pan American comes even as the company reported record production for the most recent quarter.
Part of the reason for this divergence is that when recessionary forces exist in the economy, miners may be treated as companies rather than as commodity plays. Ongoing cost pressures, global macroeconomic weakness, and the debt crisis have each contributed to pushing down on mining stocks. Trading the miners can be tricky because of these often competing forces. As some of these recessionary pressures are alleviated, if the upward impetus on silver remains, the miners may outperform in the immediate term.

I forgot this one Shaza sent me yesterday.

China accounts for nearly half of world's new money supply

  • Staff Reporter
  • 2013-01-30
  • 10:59 (GMT+8)
Renminbi banknotes. There's new ones all the time. (File photo/Xinhua)
Renminbi banknotes. There's new ones all the time. (File photo/Xinhua)
China has seen its money supply surpass that of developed countries since 2009 and has emerged as the world's biggest "money printing machine."
In 2008, the country added 7.1 trillion yuan (US$1.13 trillion) to the currency market, while the United States added 5.08 trillion yuan (US$815 billion) and Europe 5.7 trillion yuan (US$915 billion).
In 2009, China added 13.5 trillion yuan (US$2.1 trillion), while the US, Japan and the eurozone significantly scaled back their supplies. China has been steadily adding 12 trillion yuan (US$1.9 trillion) each year since 2009.
Following the global financial crisis of 2008, major economies in the world have been "printing money." Examples include the quantitative easing measures adopted by the United States and the European Central Bank's "unlimited" bond-buying program. Most recently, Japan launched its own version of quantitative easing on Jan. 22 by raising its inflation target and announcing open-ended purchases of government bonds.
The amount of newly increased money supply peaked in 2012, totaling over 26 trillion yuan (US$4.1 trillion), with China accounting for nearly half of it.
China also saw record surplus money in 2012, with its money supply pegged at 1.88 times that of its GDP. The global average in 2011 was 126% of GDP.
A jump in China's consumer price index in December last year had further fueled concerns about the surplus supply of money printed by the central bank and its potential risks. Some analysts played down these concerns, saying that surplus money had become a universal phenomenon and that most of the countries experiencing it could boast a higher per capita income.


  1. If you have to deny there is a bubble, there probably is one.

    I would say silver was in a bubble when it briefly touched $49.50/oz, as it could not hold that price, or even close.

    I don't think it is now, as the price action has been poor, but not a lot of movement there, it has been range bound.

    The author of this post is reaching hard for reasons, if you ask me. Motley Fool is drivel, IMHO.

    One thing he does not mention at all is the interventionist Central Banksters don't want to see silve/gold soar out of sight, and they and their allies (Wall St Banksters) would conspire to fix the market price, limiting it to levels that don't cause people to rush in. Which is what they have been doing for years, no reason they can't continue that policy. Don't fight the Fed, in other words.

  2. That is what I wanted some contradiction of the author's assumptions and their website. So far I come to have found the same opinion of them. I don't always post popular articles as much as I do to stimulate conversation.

  3. I would prefer not to read any comments about Hopey's SOTU address last night. I didn't watch and I don't care what he said.

  4. Queenbee, you always do a terrific job of choosing news articles which stimulate comments & conversation here.

    Having said THAT, I am still holding the position that anybody who dismisses Silver is a troll.

    Just kidding, of course. Having followed it for a while now, I agree with GAW's position that there are powerful folks who are working to hold the price of PM's down.

    Another observation is of Silver's volatile nature. The next time that I see a price rise like there was in 2011, I will sell much of what I have, and then wait until after the inevitable price plunge before buying back in.

    Reading this blog and listening to you all has made this thick-skulled person into a trader.

  5. Queenbee doesn't want Hopey's STOU.
    She wants Hopey to STFU, instead.

  6. Mammoth I couldn't have said it better.

  7. I am not a trader...so my interest in silver is more for protection. I know it is used in manufacturing. I know it is a store of a certain amount of wealth. AND, I know that good intentions are not always wise. Raising the minimum wage sounds good and to go against it would be a political suicide of sorts. But what happens to the goods and services that you MUST buy when the cost of labor increases. That is the ultimate challenge. People want/expect to get a good deal.

    Another 'DAD' example. My father wouldn't pay a man to do his roof (ie buy shingles and then roof it). He would pay a man a fair WAGE for doing the work but HE would ask what materials were needed and HE"D go out and buy them. That way, he had goods for his money and if the guy ran off without doing the job he wasn't left holding the bag for the total cost. (I guess he wasn't a trusting soul ;-)

    But I am much like him. I don't mind paying for a person to make a profit. I dislike it, however, to get ripped off or have the wool pulled over my eyes. (Like I hate buying cars, insurance, etc.) So, I would consider paying a farmer a fair price for his product. But the idea that technology demands I buy something made by someone in basic servitude bothers me. Yet, it is difficult to avoid.

    I see this in religion as well. If I attend a church, I'll pay enough for them to keep the lights on--but I'm not about to pay them to drive a Mercedes and line their pockets on my dime. Not when I can give it to those that I know are really hurting.

    We were thinking of buying silver but then I had to have a new cap put on. (My mouth is still bothering me a bit from all this upheaval the last week.) So I ended up paying $2,000 in a little over a week on X-ray, cleaning, and 2 cavities filled for both of us, and now a new cap for me. It's a shame they don't use silver for fillings any more ;-)

    Seriously, I see people who try to save and simply can't. They are barely making a living from day-to-day. The price for scallions went from $.79 a bunch to $1.29 a bunch. Therefore, I didn't buy scallions. But some are finding milk, bread, eggs, etc. too dear. Those are the people I worry about.

    We have to admit that the world is changing and try to find a solution but we have to admit the problem first. Like most 'addicts' the USA refuses to even address the fact that it has a problem. Unfortunately, the choice will be taken from us at some point down the road. My father said once people find they can disobey the laws without being held accountable you have anarchy and there is no turning back. I shudder to think what he would make of this new place where bankers, politicians, etc. can commit crimes and not be held to the fire.....

  8. The point made about China being a big money-printer is one I have been conscious of for a while, but I don't see mentioned in many places.

    People think the yuan is going to be some powerful, tiger-like currency? Well, to keep it at its artificially pegged range of prices vs. the U.S. clownbuck, the Chinese have to create 6.2 or so renminbi for every fakedollar the BenBernank creates. They're inflating as fast as the U.S., just to keep pace in the currency wars. When you combine that with things like corruption, pollution, abuse of the population, overbuilding of everything, dependence on foreign markets to buy what their workers are cranking out (because the Chinese can't afford to buy all those Salad Shooters) the Chinese are paper tigers. They will go down when the rest of the world does.

  9. As for silver being in a bubble, that's not going to happen until there is a mass consciousness about it. In past historic bubbles -- tulip bulbs, the South Sea/Mississippi bubbles, stocks in the late 1920s, houses in the early 2000s, etc. the population was keyed into the mania, which gave it legs. Nobody but economaniacs who watch Max Keiser/read SilverDoctors is thinking about silver. That argues against bubbliciousness.

    If anything, there's an anti-bubble, if there's any truth to the viewpoints of Max (who's a showman) and Jesse (whose opinion I trust) about silver price suppression via naked shorting of the futures markets.

    What is intriguing to me is how more average people are talking about gold. Admittedly, I'm basing my take on a limited sample, i.e. the people I talk to. When I was visiting my Mom last month, she'd comment idly on movements in the gold price when she had CNBC on. One of my co-workers, a canny Sikh from Singapore, asked me today about the mechanics of moving gold across borders. (I can talk more openly about that stuff now because my X made off with the bulk of our Au, and controls all of it in the Swiss account. Queenbee knows how irascible my X got about loose lips re: gold holdings.) I've had others in my social circle talk about gold with me in the past few months, because I'm know as a "bug." In years past, people perceived me as eccentric. Now they're interested.

    Again, limited sample of people, but I'm extrapolating to believe that there's a wider interest. It takes a while to filter through to the people who aren't paying close attention, but eventually all the news about currency degradation is going to reach the minds of the sheople.

  10. One more thing that's intrigued me re: silver. I toss this out as a question, because most of those of you who comment on this blog are traders and you know more about the machinations of the market than I do.

    My question is, "What is the profit motive with selling naked shorts of silver futures below the current market price?" I know the motivation behind it -- to keep the price down and to avoid showing the weaknesses of paper currencies. But if a market manipulator consistently loses a lot of money on their schemes, they can't continue to pull them off, even if they want to, because they'll be broke.

    So if silver is selling for $35/oz and someone dumps futures contracts representing the entire world's annual production at $33/oz, how does that someone make money on that? They would have lost $2/oz, and on 7 or 10 or 30 million ounces of futures, that adds up to a lot when you're doing it several times a week. Can wash trades of some sort be set up, where YOU sell at a loss to your partner in crime one week, and they sell at a loss to you another week? Are hedges set up so you sell at a loss, but you've got futures contracts for $33 and you're covered somehow? Are the sales actually completed, or are they like algo stock orders that are initiated and immediately cancelled -- just sort of a fake signal? Anyone have any speculation on how the mechanics of this scheme work?

    As far as long-term prospects for price suppression, the key indicator of that scheme's impending failure will be when there's a divergence between the paper price and physical supply at that price. When a paper price is too low, and people start clamoring to buy physical at that level but find they can't get it, the skunk will be out of the bag. That's why I'm interested when there are reports about how the U.S. Mint is not issuing silver Eagles, etc. When silver was skyrocketing in 2011, I had a hard time buying 100 Maple Leafs -- I had to wait several days after I paid before the dealer would hand them to me. (Short supply because of high demand, and I think the dealer was hedging to see if the price would drop from what I paid, so they'd book an instant profit by buying at the low price and giving that to high-price-paying me.) Backwardation is another indicator of how the physical price of today is real, but the lower price that people are willing to pay for paper silver in the future is a fake.

    Thanks for any intelligent responses to this. I have a lot of things I theorize about, and the group mind is a good way to flesh out my theories.

  11. I am of the opinion that the silver/oil & golf/oil ration is out of whack. Not going to say which it is but my guess is that oil is going much higher over the next ten years.

  12. golf-lulz-freudian slip or typo? you decide.

  13. http://www.zerohedge.com/news/2013-02-13/japan-reflation-deathwish-leads-20-refinery-capacity-cut

  14. bukko--I was around in the 70's and 80's when gold was high and popular. I can remember people buying and WEARING South African kugerans(sp?). People were buying anything of worth--including brass train engines (HO scale) in hopes of keeping/holding profits.

    Now, I think people would be afraid to wear too much gold as they might end up with someone threatening their life. Course, same might hold true of all these expensive phones!

    Now, you can take my opinion/info for what it is worth--nothing ;-)'

    As YOU know, if you have your health and mental state...you are RICH indeed.

  15. Edgar, when I saw the golf/oil wording, I thought it was some sort of lulz joke. That, or you're getting arthritis and you need to oil your joints to get a less painful swing.

  16. CL -- in the age of the omniscient Oogle-brain, if you ever have a question about the correct spelling of something, just open a browser window, start typing the word, and within three or four letters, Oogle will have guessed what you're driving at and will have a pop-up that tells you how to spell it. Ain't technology marvelous? Until it tries to track your every move and sell you crap that you don't need.

  17. I think Jesse explains it better than I can, but I'll give it a stab, of sorts. There were several posts on FT:Alphaville by Izabella Kaminska, (very smart girl) IIRC, in which she really dug deep into how a major player COULD manipulate the metals markets (she mostly leans to there not being a lot of manipulation), and as she described it, the process is mind-bendingly complicated to the point where she lost me.

    FT:A is behind a log-in firewall now, but it is still free, and still well worth reading. If you go there and search for her name, the posts will show up. I can't even begin to break it down here, as it has been a while since I read them, but she goes deeper into it than just about anyone I have ever read, including most of the goldbugs, whose theories are not even close to the reality of it, IMHO.

    To sell that much short, a player has to have access to real metal, which they get by "leasing" it from Central Banksters (think the usual 3 letter names that are among the world's largest Banks) - even though that metal may have been in fact "leased" out to several players at once (who can really audit The Fed, after all),

    It is a deep rabbit hole to go down, and really, I did not understand the whole thing, even an expert futures trader would be fazed.

  18. When you are playing at that level, they would have thousands of contracts both short and long, they just increase one side at times when they want to make an impact.

    With that amount of capital in play, smaller players have to get out of the way or be crushed. There intent would not be to make a trading profit per se, but to keep the price within whatever they deem is an "acceptable" range, and if they did lose while doing that their backers, Central Banksters would help to smooth it out by allowing their friendly Bankster to make a profit in other areas.

    I doubt they lose much anyway, when the price goes up or down, they have enough positions they can reduce one side and increase on the other (short/long), and it probably washes out. Once in a while they do force an abrupt move, which they are pre-positioned for, of course, and then they make a larger profit which offsets losses they might take at other times.

    Of course there is no proof of this, nor will there probably ever be any, so that fact, plus the Billions they can throw at the issue, is why I say "Don't Fight The Fed", and why most goldbugs will probably lose in the end, or fail to capture the profit they "should have".

  19. THey played part of Obummer's speech today on the radio here, and I would have to describe it as political pablum for the infantile masses.

    So you didn't miss much.

    Everybody is delusional, in their own special way. If you read Edgar's link above, the Japanese have really lost their minds, and Abenomics is Idionomics.

  20. http://www.zerohedge.com/news/2013-02-13/23-america-illiterate

    What can you say about that, some of the comments below (LOL):

    "I know how to write good. I can read anything as long as there are no more than 140 characters."

    "What does illiterate mean ?"

    "That's unpossible. America is perfectly cromulent."

    "Just think how stupid the average person is, and then realize that half of the population is worse.'
    George Carlin"

    "How ken this b? O w8 i gotta txt my bff. K thx bye."

    "I would comment but I only know enough English to write this one sentence."

    "Clearly the Teachers Union needs more money."

  21. I'm not inclined to sign up for even free access to the Financial Times -- can't be bothered! as they say Down Under -- so I will accept your summation of the explanation, GAW. If you couldn't wrap your head around it completely, I'm sure I couldn't either, because you're smarter about that sort of thing than I am. Your points about how massive institutions have thousands of contracts that can balance out an apparently losing trade makes sense. As does your point about how smaller players just have to get out of the way when the elephants are stomping. That explains to me why small fish aren't snapping up those $33 silver contracts when they know the price SHOULD be $35.

    I tell ya, the closer you look at the workings of the financial universe, the more it looks like quantum physics. The more you know about the latter, such as the simultaneous "being and not-being" state of subatomic particles, the more you wonder whether anything actually exists.