Thursday, January 30, 2014

Silver Bubble Continues to Collapse

This is great! The low last summer was 17.75 and it's back down to 18.50 today. Down more than 60 percent from the peak when all the silver bugs were hassling me in the comments section.

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Absolutely grand. I'd guess the thing that would make retail commenters most irate right now would be owning ten year Treasuries. I should do an experiment on Seeking Alpha.

And the silver/gold ratio has been steadily falling. Air coming out of the speculative tire.

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Finally, take a look at the ratio of the biotech ETF to the 10 year treasury ETF.

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Look at that parabolic bubble with the blowoff top!!


Stagflationary Mark said...

Regarding bonds (TIPS and I-Bonds in particular), I blame Jeremy Siegel (repeatedly). ;)

August 18, 2010
The Mother of All Sarcasm Reports (v.58)

Why didn't I think to compare my TIPS to the tech stocks of 2000?

If we buy the 10-Year TIPS this very minute and hold it the full 10 years then...

1. We are GUARANTEED to get ALL of our money back, even if deflation strikes.

2. We are GUARANTEED to get an additional amount to compensate us for 10 years of inflation.

3. We are GUARANTEED to get an additional 0.96% per year in interest.

Yes sir. That's exactly like Jim Cramer's Winners of the New World, well, once you strip out all the guarantees anyway.

I wish you could see my eyes rolling now. They've never moved this sarcastically before. I can't even keep them in the sockets. It's making me so dizzy that I'm tempted to vomit.

I have never purchased a TIPS or I-Bond with the intent to search for a "greater fool" someday. In fact, the government won't even let me sell an I-Bond to someone else.

Stagflationary Mark said...

The deflation protection for TIPS applies to the face value and if held to maturity. In secondary auctions where a particular bond has been bid up, the deflation protection can be reduced dramatically. I therefore generally prefer to buy in initial auctions, all things being equal.

It is unlikely that we would have deflation over the full life of a TIPS bond (5 year minimum), but the deflation protection is there.

Japan's long-term "deflation" was a 0% inflation rate, which to me, makes deflation a relatively odd way to describe it.

Stagflationary Mark said...

As for silver, toilet paper has dramatically outperformed silver in recent years.

1. Both are hard assets.
2. Both should perform well in hyperinflation.
3. Only one has speculators who buy with intent to sell to others for a greater fool profit.

I think #3 is key! Anyone who thinks I hoarded TP for resale purposes should rethink it. I bought TP for the same reason I bought bonds.

1. Neither requires a greater fool if held to maturity.
2. Both would likely outperform treasury bills (assuming I was right about how long we'd be stuck in ZIRP).

This coming from a guy with stagflationary in his name who made 50% on silver speculation from 2004 to 2006. In early, out early. Not getting back in unless prices were to fall much, much more compared to toilet paper. I sold at just over $10 in 2006. Not interested at these prices. If anthing, it just makes me want more non-speculative toilet paper. ;)

Stagflationary Mark said...

Apologies for hogging the thread but I just did a chart of the 30-year conventional mortgage rate you might be interested in.

You Can't Handle the Truth!

Over the long-term, rising interest rate environment my @$$!

Heaven help us all if I'm wrong on that, lol. Sigh.

CP said...

I like your point the other day that if interest rates rise, it's bad for stocks and bonds - but if interest rates fall, bonds will do well.

Stagflationary Mark said...


I don't understand why more people don't get that. Jeremy Siegel warns of the great bond bubble as a tactic to convince everyone that stocks are a relative bargain. Surely even he must understand what 10% interest rates would do!!

In the 1970s, Buffett went on and on about what interest rates and inflation were doing to company profits. Called it a tapeworm that continued to eat regardless of the health of the host. Picture what would happen to our weakened economy. Would not be pretty.

This economy requires interest rates to fall endlessly. Bonds are holding up fragile stocks. Without that support, look out below!

There's a lot of weight being supported by bonds. Some of that weight slid off over the past week and bonds sighed in relief! ;)

We've had stock bubbles without bond bubbles. I don't recall ever seeing a bond bubble without a stock bubble though.

CP said...

Exactly. Exactly!