This is Why NO $50 Silver

It was just a word to the wise, passant. We both know that there is no argument or data that will ever convince you that you are wrong. But maybe a few others out there will doubt the certainty that you express about your knowledge of the future.

 

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I think you misunderstand what is going on here, perhaps because you are new. There are many people here who have been investing for decades. My first venture into the PM area was in 1977. I would venture to say that everyone here owns PMs and has done quite a bit of research. Recently, and probably due to the runup in prices, a lot of newcomers have appeared with all the enthusiasm of a teenage boy who just discovered girls and can't wait to tell the older folks about what they have been missing. It isn't silver and gold that we mistrust. It is the recent appearance of so many new people quoting internet gold-bug blogs like Bible passages. This sort of thing sometimes signals that the end of a bull market is near. They say that wisdom comes from experience and experience comes from making mistakes. If you can gain a bit of wisdom from the experience and mistakes of others, you will be ahead of the game.

 

That has been the case for the past few decades. The minimum wage in 1964 was $1.25 per hour, which was also the value of five quarters. In 1990, the minimum wage was $3.80 while five 1964 quarters were worth $4.37, thus minimum wages were only 87% what they were in 1964. In 2005, minimum wage was $5.15 while the quarters were worth $6.62, making wages 78% of 1964. Today, the melt value of five 1964 quarters is $38.50, making the $7.25 minimum wage only 19% of what it was in 1964. That makes sense considering the Fed tripled the monetary base over the past three years; six-fold since 1990. Wages have not been keeping up. I don't expect they will in the future either.

 

So the price of silver has risen sharply, almost sixfold, since 2005 (never mind the abrupt fourfold drop in 2008). Your thesis is that today's dollar, and wages denominated in it, must therefore have only one-sixth their 2005 value.

I can buy gas for around $3.60 a gallon, maybe a bit more. So, by your thesis, the price of gas in 2005 must have been 60 cents a gallon. Hmm.

I can buy milk for a bit less than gasoline. I don't remember what it cost in 2005, but it was a lot more than 60 cents a gallon. In fact, it's been higher at times over the past ten years than it is now.

I can buy bread for $2.00 a loaf. I sure couldn't buy it for 33 cents a loaf in 2005.

I can buy a new car for $18K. I couldn't buy a comparable car in 2005 for $3K -- unless, of course, it was a 1990 model.

Using silver as a value reference doesn't work, because its value fluctuates more than most of the things you're comparing it to. It's that simple.

 

You are correct, of course. But don't expect passant to thank you for helping him understand his mistake.

 

Ok, if that's what we're doing here, then "word to the wise" everyone, Cloudsweeper99 has no argument and no data and wants to convince you not to protect yourself from the coming hyperinflation because he feels like you should doubt it, despite the evidence to the contrary.

Nothing goes up (or down) in a straight line and different commodities have different feedbacks -- wages, embedded costs, suppliers, inventories, transportation, sensitivity to consumer discretionary demands, etc. This is one of the things that makes inflation so insidious, so that, as Keynes pointed out, not one man in a million can figure out the true cause -- though as he said, it is debauchery of the currency at the heart of it. Silver isn't what is volatile, but rather the various feedbacks which set the fiat price of these commodities. Don't be surprised when gasoline shoots up to $5 or $6 per gallon, for example. Monetary expansion is not a smooth process, which is the only reason it's actually effective for the government to do it. But over time, silver maintains its purchasing power with all of the commodities and acts inversely to fiat inflation. You are of course free to play arbitrageur if some commodity looks undervalued compared to the others at any given time. I'm not sure how you would do that with milk or bread though. Seems to me that the safe bet is to just load up on silver (and gold) so that you can buy all that you need at any arbitrary time in the future and not worry about inflation so much.

 

Hedging is not a profit making endeavor - its purpose is to reduce risk and exposure by fixing price. An inflationary hedge is an investment into something (such as silver) for the purpose of being able to buy the same number of gallons of milk at any point in the future that you could purchase with the money you invested today.

 

Yes, you're right; nothing goes up or down in a straight line -- including silver. But you can bundle a bunch of different things into a basket, and track the cost of that basket. I assembled a small basket in my earlier post -- gasoline, milk, bread, a car. (Okay, it would have to be a pretty big basket, but you get my point.) Either all those items dropped sharply in value over the last six years, or silver's value rose. Keep selecting other commodities or consumer goods, and no matter how large your basket gets, I think you'll see a similar pattern. The basket will cost more greenbacks now than it did in 2005, but not anywhere near six times more.

If you're arguing that silver isn't volatile, then you're arguing that all these other things are -- and that their price in real terms has plummeted, in concert, since 2005. I don't think that's the way volatility works. (I'd expect larger independent changes in their values; we see those changes, but they're nowhere near a sixfold increase or decrease.)

If you "loaded up on silver (and gold)" six years ago, I'm sure you're quite happy with its performance. I'm also sure you're fervently hoping that we don't see a repeat of 1980 (with its fourfold drop) or even 2008 (with its 50% drop).

 

Well this is quite the riveting thread today =) Meanwhile silver is at $42.90/oz and continues to exceed my expectations, just slightly. I would really like to see more details discussed as opposed to unsubstantiated opinions. We can compare silver to other commodities and say it's overpriced, but the fact of the matter is that gold and silver are where people turn to when they want to preserve their wealth, not perishable items as passantgardant has already mentioned. I attribute silver's run compared to gold to it's lower price for the same sense of security, and both due to Federal Reserve policy of undermining the value of the USD. Maybe I sound like a broken record, but I'd rather discuss details.

 

I am still wondering who are the silver haters on the board. A few who said they sold, does that make them silver haters? I see far more hyper-bulls on the board who "guarantee profits to the moon, sky, whatever astronomical object" than those who ask for realistic views of the future. Forecasting the current value of anything from the past, whether silver or the NCAA basketball championship is haphazard at best. Being overbearing on one's view of the future doesn't help new investors by convincing them to over commit. If they lose money, would the bulls still be here, saying hang on, it will recover~ over and over? I don't think so. IMO.

Jim

 

No argument here. That said, if the hedging medium is presently undervalued relative to your expected inflation, then you'll also profit.

Your time frame is too short. The commodities in your basket have inputs from the past whereas silver is hedging the future inflation based on the three-fold growth in the monetary base since 2008 (and anticipated continued growth). We haven't yet begun to see the prices rise as a result of this.

Yes, in real terms, the price of those things has plummeted. The next year or so will see those prices snap back toward their old levels as now denominated in severely depreciated fiat currency. If you can find any commodity or finished good which will not depreciate significantly over the next few years (e.g. a solar panel or copper pipe, not a car or milk), it is probably a very good buy right now. Certainly some of these would be a better buy than silver if you have the space to store them. Silver is suitable for anyone and everyone though, and significant value of silver (and even moreso for gold) can be stored in a small, well-secured space.

Actually, knowing why silver would either grow several times the current price or fall to a fraction of it, I would much prefer it to fall. That would mean the economy survives in which I sell my labor for significantly more than I expect to profit from silver, technology and productivity continue to improve, and the world is better for my son. I'm simply not optimistic about that minute probability. Nothing even remotely close to 1980 could occur today because interest rates of 20% would necessitate complete monetization of government finances since even the interest on the debt would exceed revenue. Moreover, the economy would crash and unemployment would skyrocket. The Fed has no choice but to continue monetizing at ever greater rates, and Ben Bernanke has long said he's happy to do so. This is as near assured as I know anything to be.

 

You don't have to store - you can buy futures contracts. Oil - what 5 years, Corn 3 1/2 years, cotton 2 years and etc. And if that is not long enough you can always roll your old contracts into new futures.

 

Yes, those who have sold and are now bitter for their lost profits and yearn for lower prices to buy again -- they are the haters. They would love to discourage people if it could instill any sense of doubt so as to cause a pull-back. Of course, nothing anyone says here is going to affect the market, so it's really just a psychological trick to make themselves feel better, as if there's a chance that any significant pullback might happen. I'm not here to guarantee anything, but to instead point out the clear exponential trend, where it's apparently headed, and the fundamental reasons why. I'm under no illusion that anything goes in a straight line and have said so on multiple occasions. I anticipate a top in the $45-$50 region for silver by mid-May and then a pullback and excellent buying opportunity perhaps down to the low $30s or even remotely possibly to the high $20s this summer before catapulting back to $60+ by year end. This is all about the profit-taking fear and greed cycle and has nothing to do with the fundamentals, which will continue to drive the precious metals much, much higher.

I definitely think the short-term will be overdone soon, just not yet. I can read a technical chart, which is why when everyone here was talking about a top at $38, I warned not to sell yet, but to expect a break-out into late spring, as we've seen. And when the short-term top does come, only trade around the margins of your position, as any expected pull-back could be curtailed by any number of black swans. The bull trend is not going to end anytime soon, so simply holding on without doing any trading at all would be perfectly reasonable, understanding that pull-backs will be inevitable. Nobody should panic on the assumption that the "bubble has popped", as the media will surely be screaming when the inevitable pull-back does occur. That's when you load up on out-of-the-money call options at bottom basement prices.

Frankly, the price is quite high today compared to where I think it is likely to go in the next few months, so I'm not a buyer right now. I bought call options at just under $38 which I'm slowly selling as it goes into the mid-$40s for a tidy profit. That said, if someone new to this is just getting involved and does not have a core position yet, now is as good a time as any to establish at least a very basic inflation insurance policy. And if/when it does pull back, they should back up the truck for much more. Don't anyone believe that silver isn't going over $50 this year though, so hold on through any volatility induced by normal investor behavior, government manipulation, stock market crashes, or unforeseen black swans.

Within a year or two, you won't care one bit whether you bought at $30, $40, or $50, just as my friends and family who were so concerned about $10, $11, or $12 at the time don't care anymore what they paid a few years ago.

I'm also not advocating that silver or gold be anyone's sole preparation for the hyperinflation I see as virtually inevitable. Everyone should establish emergency preparations for their principle needs first and foremost, with gold and silver serving as a backup to those preparations. I live in an off-grid house on a few dozen acres of woods and fields, surrounded by Amish neighbors, so my quality of life will not significantly decline with total economic collapse. I will still have food, water, shelter, heat, electricity, communications, etc., and I will watch this unfold on TV comfortably in my media room in front of a warm fire. Those who are unprepared living in cities, particularly northern cities, will not be so content.

 

Everyone has to decide for themselves. There were dozens of folks like you in the old AOL investment chatrooms in the late 1990s. Like you, they preached that tech stocks [now it's silver] were cheap, that past valuation levels were meaningless, buy the dips, and that this time it's different. But it is never different, and eventually the dip came along where everyone bought more, and it just kept going down.

Personally, I think there is a 50/50 chance between high inflation and deflation depending on policy decisions that haven't been made yet. But HYPERINFLATION is unlikely. Notice that people never say inflation. It's always HYPERinflation. Always the extreme. All or nothing. That's how you can seperate the real analysts from the frauds.

 

My advice isn't for people who have been investing in PMs for years. It's for the other 99.9% who haven't yet realized splitting your investments between Treasuries Bonds, JP Morgan stock, and Apple stock isn't really diversification. There seem to be a lot of people who come to this board asking questions like "when should I sell?" The general sentiment from the regulars is suprisingly bearish to me considering this is a Bullion board on a Coin Investing forum. Someone comes here and asks if they should sell their total five ounce investment of silver and the responses are more yes than no. I recommend people check out ZH and TF and decide for themselves what the truth is.

My exuberance comes mostly from the limited time I belive is left to purchase physical PMs. I know PM prices have gone through big swings in the past and will again in the future, but right now is the time to protect yourself from the financial hurricane that is brewing. The US Dollar is going to be crushed by the debt burden. I know you belive deflation is coming (as do I). Fortunately for PMs and unfortunately for the rest of us, basically every scenario possible for the US to deal with their debt problem is good for PMs in the long term.

Regardless of what either of us say, the proof is in the pudding. I'm not speaking to you specifically, because I see that you are closer to the middle than the other obvious PM bears here. The prices of PMs are soaring to all time highs. Those who were bearish in the $20s were wrong and they are the same one's who are bearish today. It's my opinion that the US we are headed much higher in the long in terms of US dollar price. The cautionary advice toward PMs that is so abundant here should be applied to those holding their wealth in US Dollars. That's where the bubble is.

 

Indeed, it's not different -- every fiat currency in history has failed, generally in hyperinflation. It is YOU who claims this time is different, that somehow we can just keep trudging along irrespective of the fundamental data. Anyone who says there's a 50/50 chance of one extreme or another is obviously a fraud and has no idea what they're talking about. I can see why you chose your name... clearly your head is in the clouds (or maybe 50/50 in the sand depending on policy decisions). There were dozens of folks like you in investment chatrooms in 2007-2008 who thought the mortgage market was perfectly sound and that subprime defaults were nothing to worry about. Like you, they preached that the mortage system [now it's the Dollar and other fiat currencies] would continue on forever and continue to grow, and that fundamental evidence to the contrary was just conspiracy theories and spin. But eventually the day came when enough people opened their eyes and certain banks [now it's governments] just couldn't remain solvent, and so the public panicked and the con game fell apart. The same is going to happen in the sovereign debt market and our currency is going to fail to catch a bid. The FUNDAMENTAL case for HYPERinflation is perfectly clear to whoever wants to read the DATA. There's no 50/50 about it.

 

$43

 

Under normal circumstances I would be on board with you, but I also wouldn't have dumped my savings into silver to begin with either. The prospect of a failing USD is what is driving people into hard assets. All the futures in the world won't do you much good, no matter how much they accrue, if there's no medium of exchange to recoup their value. The other thing is that I frankly don't trust other people with my money or assets. Why anyone else would put my interests ahead of their own profit is beyond me. I like having something I can control, that I don't need a middle man to realize the benefit of, and that is not reliant on a system that is designed to benefit the few at the expense of many.

 

I agree that no one political party created the mountain of debt we currently have. As well, agreed that politicians that go to the voters with the message of raising taxes and cutting spending (especially programs in the Congressperson's district)
have a diminished chance of getting re-elected.

This is one reason the cure for reducing the debt may take decades. Watered down proposals palatable to voters will not be truly effective debt reduction instruments.

And the politicians are savvy if nothing else. A recent poll indicated that only about 15% of American voters consider the current deficit/debt an important issue. This tells politicians they can be elected without even bringing up the subject.

So, to segue into the topic of this thread (silver price), as long as it appears that the politicians don't have the political will to tackle the the problem and the voters don't demand that they do, I believe that I'll be holding on to my PM's in the meantime.

 

I think that your thesis is well reasoned, and logical, and also wrong. When it comes to markets, greed and fear are more powerful forces than reason and logic.