Wednesday, December 14, 2011

The Waiting Was the Hardest Part

Silver is getting crushed today, back below $30 an ounce. It has completely reversed the bubble gains from the spring of this year. Silver could actually be a good short from here since it has no "support" and is still trading far above fundamental value. The best part is that the bulls on Zero Hedge are saying "we are still in a bull market". Sure.

On the other hand, equities are currently lagging the drop implied by silver. Normally they are highly correlated. Also the U.S. equity market is lagging the decline in the Chinese stock market. Anecdotally, the bears seem scared to press their advantage here.

17 comments:

Stagflationary Mark said...

There is support from me at around $10. That's the price I got out at. Backed up the truck in the $6s. Sold in the $10s.

It was one of my better investments of the last decade. Wouldn't touch it at these prices though (even with "stagflationary" in my name). Same goes for gold.

I had a third of my entire investment portfolio in gold and silver. I did not step in lightly.

In once. Out once. I figured that would have worked during the last bull market in gold and silver and I did not want to overstay my welcome.

Those who recently bought silver at near $50 have to be wondering what the @#$% is going on with their "save haven" asset.

Want safe? Should have hoarded toilet paper. No greater fool needed and it offers excellent tax treatment. Simply flush the capital gains right down into the septic tank. ;)

Nexuiz said...

While I follow and agree with a lot of things on this blog .. I believe you have it wrong when it comes to Gold & Silver. I can see Gold going down to even 1400 and not break it's 2011 high in 2012 .. but Gold is nowhere near a bubble. The high price of Gold and oil is the adjustment for money printing. Gold will be in a bubble when your barber or dentist starts recommending it. And yes, I've been hurt recently w/ Gold's drop. The trend in the 1700's wasn't my friend.

Stagflationary Mark said...

The high price of Gold and oil is the adjustment for money printing.

The same thing could have been said of real estate. It only goes up because the government prints so much money and credit. Buy now or forever be priced out.

August 18, 2011
Gold to Aluminum Price Ratio Update

Just look at that parabolic rise in gold from the year 2000 (as priced in aluminum). Amazing.

Where are the aluminum speculators?

CP said...

Well, the post was about silver. I am officially agnostic about gold.

I wouldn't buy gold, though, because there are assets that I think will outperform gold under every conceivable scenario.

It's the silver bulls who have really gotten jammed, though - 40% now! How does that compare to "worthless Federal Reserve fiat paper notes"?

Mark, you should update the gold/silver ratio posts.

Also, platinum is very very cheap relative to gold. That should be investigated for mean-reversion potential.

Stagflationary Mark said...

CP,

I'm not sure I've even done a gold vs. silver chart, if only because so many others have.

It is my ultimate desire to create a silver to toilet paper price chart. One would think that silver bulls would eventually want to buy toilet paper with their silver profits. In fact, that point may have arrived about "40%" ago!

Disclosure: Long many years worth of toilet paper. With t-bills at 0%, what's the harm? (It's still cheap.)

CP said...

I mean, gold and silver ratios versus other things like aluminum or bananas. Or natural gas. Or MHz of processing power. Or LCD screen pixels.

You've been killing it on TP and trash bags!! Just make sure you don't use more than you otherwise would...

Stagflationary Mark said...

CP,

I mean, gold and silver ratios versus other things like aluminum or bananas. Or natural gas. Or MHz of processing power. Or LCD screen pixels.

Ah! Perhaps a silver to TRS-80 Model III price ratio would prove valuable.

You've been killing it on TP and trash bags!! Just make sure you don't use more than you otherwise would...

Well, I am tempted to inflate the garbage bags as a symbol of American prosperity but I opted instead to just keep them in storage.

I joke! :)

CP said...

You should look at the energy convertible preferreds that I am always beating the drum about.

I can't think of a scenario where TIPs would outperform them.




The waiting is the hardest part.

Stagflationary Mark said...

CP,

I was once an investor but now I'm a saver. It's a different mindset.

I retired off of investing. Now I'm simply coasting on the proceeds.

I am no longer attempting to maximize my risk adjusted investment gains. I am trying to cut risk and middlemen. Buying TIPS and I-Bonds directly from the government and holding to maturity allows me to sleep better at night. I know where I stand. Less guess work.

Even my purchases of gold and silver in 2004 were with the intent of saving, much like a squirrel would hoard nuts for the winter. It was never intended to make me better off. (It did though. Go figure.)

This may come as a shock, but I actually plan for a -2% real yield (after taxes) going forward. Anything more than that is just a bonus. I tend to be a near worst-case planner. Life is full of pleasant surprises that way (assuming worst-case doesn't actually appear).

In a bear market, the goal is to lose less than the next person. It's been one set of landmines after another since I retired in 1999. So far, so good.

CP said...

I can't say I agree with you.

Think about this from an engineering perspective. There's no such thing as a free lunch, and "saving" - storing order and energy - without effort is asking for a free lunch.

P.S. Crossed over the Rubicon after hours!

Stagflationary Mark said...

CP,

We'll have to agree to disagree.

As a saver, a penny saved is a penny earned.

Investors want their cake and eat it too (income AND capital preservation). That's the free lunch from where I sit.

CP said...

I don't think you get a free pass just because you are trying to break even and not earn a return.

BTW. How much are you allocated to paper towels vs garbage backs? Do you track the petroleum vs paper consumer goods sectors?

Stagflationary Mark said...

CP,

I don't think you get a free pass just because you are trying to break even and not earn a return.

I don't have a free pass. TIPS and I Bonds are not 100% safe stores of value. There are no safe stores of value.

I simply see them safer than many alternatives. If this was a game show I'd clearly take more risks in order to win. I retired 12 years ago. I cannot afford to take extra risks and lose. I have nothing to fall back on. I have no job. (I'd invest differently if I did.)

The amount of assets held in paper towels and garbage bags is a very tiny portion of my nest egg. There's only so much I will need. I wish I could hoard all future expenses as well as I have hoarded those. No such luck. Sigh.

As for oil, I definitely watch it. Unlike some, I don't entirely live in a cave. ;)

CP said...

There are no safe stores of value. I simply see them safer than many alternatives.

Right but my argument was that there are investments that would outperform TIPs under every conceivable scenario. How is that not "safer"?

I wish I could hoard all future expenses as well as I have hoarded those. No such luck. Sigh.

That is definitely true. What if you could hoard health care?

Stagflationary Mark said...

CP,

Right but my argument was that there are investments that would outperform TIPs under every conceivable scenario. How is that not "safer"?

It is my contention that you are incorrect. I can conceive of many scenarios where TIPs would outperform.

I'll start with the short list.

1. Fraud. People thought Enron would outperform. I worked at Cendant. People thought it would outperform too.

2. Mr. Fusion

Those are just the ones I can think of off the top of my head. It isn't the potential risks you see that tend to get you though. It's the ones you haven't even thought of.

Stagflationary Mark said...

CP,

If I could safely lock in my current standard of living by hoarding every single future expense then I would do it today.

Chances are that I would miss out on great opportunities by doing so.

Then again, I consider myself very fortunate to have been born when I was and in the right place. I'd have nothing to complain about even if I could have done better (thanks to potential ongoing productivity miracles making the lives of people better).

I guess it all comes down to how pessimistic one is. Will the standard of living for the typical American be better or worse in 30 years? There is a risk that it will be the latter.

CP said...

Standard of living will probably be better in 30 years although not in 5.

There should be a futures market where you can bet on this!