Silver in a bubble?

The caveat here is that supply and demand is determined by the paper market, not the physical market. The physical market does need a certain price range or else it won't be worth mining it, but silver is mostly mined as a byproduct. That statistic would change overnight if the price of silver got high enough for it to be the primary bread winner at a mine even with the same level of production (distinction based on profits, not production), but it's going to come out of the ground regardless unless other metals also become unprofitable. I would only expect the cost of production to be a factor for primary silver mines which are the minority. I wouldn't argue against economic laws being static, but when the variables being plugged in are not representative of the real market it takes away from their ability to function properly.

 

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I never meant to imply anyone is dumb by only talking about DCA. Cloud's assertions about it can be debated, (and we have on other occasions), and the argument boils down to boring monetary opportunity cost assumptions, financial modeling, and other yawn inducing activities. I have not read extensively his preferred alternatives. I simply suggested something that would lead you down the correct path, even if later you think it was 5 or 10 feet off the optimal path, at least its the right direction versus what most other investors want to do if they rely on "gut instincts". "Gut instincts" for the general public regarding finance is most generally wrong.

In other words DCA leads you generally north instead of off southwest somewhere.

Chris

 

And read what I wrote...
"...unless the price rises to enable firms to cover the additional cost." So I don't know what the problem is. It was just a point of clarification.

Regarding the second part, prices always rise to the point where it is high enough to elicit a quantity of supply high enough to fill demand. This price rise isn't always proportional to the change in quantity demanded.

 

I was attempting only to speak in generalities. I don't feel as if you have belittled or spoken down to anyone here. I really appreciate the time you have devoted to this thread. I am new to the game. I love the debates. One person makes a comment and another steps in and challenges. I get to sit back and soak up the knowledge. It's a great starting point to at least find that path in the forest! From that point I have to learn how to read a map myself, as the WWW has been known to present a crack pot or two. (not anyone here I'm sure. )

I actually am using DCA right now, but the more involved I get the more curious I get. I look forward to looking at cloudsweepers suggested reading and deciding what to do from there. If I keep it simple am I leaving money on the table? If I try to get to fancy will I get burned? I'm in the kiddie pool right now and I know it. I'm just going to have fun learning as a I go.

This is all academic for me right now anyway. I'm looking a bullion as not only an investment but also a bit of an insurance policy against the possible inflation that could be ahead. (yes, I'm one of those) So for the near future I will be buying what I can when I can regardless of mild price fluctuations until I am more comfortable with my stack size. Hopefully by then I will have gotten a better feel for some of the curves on this roller coaster. I have a young family to build a future for. Oh, if only I had known that college life was not forever. I never would have spent so much money on beer and strippers!

 

IMHO, most of the commentary here regarding supply and demand assumes "efficient markets". I do not believe markets are efficient. If they were, we wouldn't have bubbles in the first place. In the past, markets saw big moves based on euphoria or doom. I believe much of the world markets are being moved by huge forces, whether sovereign wealth funds, EFT activity or Hedge Fund managers, moving from one "flavor of the month" sector to the next. We saw the recent run-up in grain prices and other commodities, at the expense of the equities market. That money is moving out of grains and into other places, en mass (crude oil?). If the developed economies enter another "bear" phase and we realize disinflation due to lack of demand, I believe we run the risk of a major precious metals correction. JMO.

For the conspiracy theorist:
http://freemanglobal.com/uploads/Economic_Warfare_Risks_and_Responses.pdf

 

You can't take your metals with you so you may as well enjoy life along the way =) Just make sure you save enough cash so that you never have to sell unless you want to. That way it's on your terms, not the terms of 'oh crap I need money right now and have to sell at a loss'. I pretty much just buy as much metal as my common sense will let me lol. My DCA was a lot better before this year started, but I believe strongly enough in the fundamentals that I think it's still a good time to buy. Even if we don't see it for years to come, eventually I think supply will not meet demand without much higher prices. Anybody trying to turn a quick buck is cruisin for a bruisin in this volatile market.

 

I agree completely markets are completely inefficient. Long term they have to be, but sellers as well as buyers manipulate the markets giving it the wrong signals. If anyone invests money believing in perfectly efficient markets they have SUCKER written on their foreheads. Its my firm belief that while manipulation can go on, etc, the most inefficient part of the market is human emotions. For that, there is no easy answer ever.

 

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I don't agree. My experience has been that markets are pretty efficient most of the time. That is why bubbles are so rare and why it is difficult to make money in the markets. During the past couple of decades, we have experienced two real bubbles -- one in Nasdaq stocks and the other in real estate. I think the fact that these occurred recently have influenced people's thinking about markets, believing that the exception has become the rule. CNBC now reports every price rise as a "bubble." Perhaps it is because they completely failed to identify the Nasdaq and real estate bubbles, and don't want to be caught a third time. Perhaps this is why people see bubbles everywhere these days.

 

I agree everyone is "bubble crazy". I was not referring to bubbles at all. I am referring to simple human nature and how good news in one sector will raise prices in unrelated sectors, and vice versa. Technical trading and improved prospects of firms are fairly efficient, but the human emotion behind many market moves is not efficient, but psychologically based.

That was the basis of my comment. Long term I believe markets are efficient, but not short term. Too many people only make investment decisions based on last week, last month, though, so to someone with a short time horizon markets seem VERY inefficient. If someone takes a 10 or 20 year outlook, I agree markets are much more efficient. But, you know as well as I that most investors choose their investments based on what has happened the last month or 6 months.

 

Markets work well when they are actually left to be free markets. However start tossing in taxation, tax incentives, governmental regulation, financial intervention, politics, give aways, bailouts, etc. etc etc. and this is where the trouble always starts. When government and the institutions it creates gets involved, ultimately what is always achieved is that one entity in the market is picked to benefit over the other regardless of performance. It's central planning by people who are not involved in the market and the end result is always the same, markets that don't work and bubbles.

 

A very fair and insightful comment Fatima.

 

The problem with a free market (and no, I'm not arguing against it), is that inevitably someone or some entity will perform well and have the ability to consolidate power. This is why some level of government regulation is essential. Today we have far too much regulation, and the regulations that do ensure market stability aren't being enforced.

 

$$$ Bought Silver @ 30.50, hopefully it sweeps upwards to 35.

 

Except even this is overemphasized by government to support their intervention. Long term such power is never sustainable in a free market absent breaking other laws, (threat of violence, etc).

Let's talk it through. Standard Oil was held up as the poster child for Monopolies and the government broke them up. Do we really believe SO would today still be a monopoly in gasoline in the US today? You don't think the profits from this industry would not have attracted competitors? You don't feel at the least international companies would not have jumped in? Sure, SO could have held a monopoly for a while, but increasingly they would have to resort to threats and intimidation tactics, (all illegal civilly), to maintain it. If it became too severe, a SO monopoly may have forced automakers to convert to electric cars earlier, or encouraged more mass transportation.

A more recent issue was people trying to say Microsoft should be broken up because they had a monopoly on operating systems. Well, we didn't, and the market has moved to different platforms, MS is still intact and we still are fine.

I am saying this just to make sure you don't drink the, "only the government can save us" koolaid. This is assuming there are no other motives to break up a company, something you KNOW is never the case. There are always firms "persuading" government officials to do their dirty work for them, so to speak.

You are very right the biggest drag on our entire economy is too much government regulation. We need a 1980's deregulaton sweep again, to start over getting rid of old obsolete regulations, and putting into place ones that are needed, and only those needed.

 

I would contend that in a true free market, the ability to create a monopoly is close to impossible. Monopolies always have needed some sort of governmental intervention. Generally attempts by the government to fix these things end up causing more problems than they solve.

 

I am glad we finally completely agree on something Fatima. One of us must be getting old.

Chris

 

Don't worry Chris, I am all for small government and non-intervention in markets. I just go out of my way to point out that some government is necessary so I don't get labelled an anarchist I think the founding fathers had the best idea ever on government, but what we have today is nothing like what they conceived. I don't have a problem with government in general, but the one we currently have is not doing its job. The thing that seems funny to me is that I always thought the JP Morgan and Rockefeller monopolies got busted up in the Industrial Revolution, yet here they are today doing the same old song and dance.

 

In a perfect world I totally agree, but a monopoly is not required in order to have enough wealth and power to influence government. The monopoly only comes after that has gotten out of hand. I'm not contending that the government should try to fix anything. They should just do what they're supposed to, and not what they're not, and things would fall into place automatically IMO.

 

A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves money from the public treasury. From that moment on the majority always votes for the candidates promising the most money from the public treasury, with the result that a democracy always collapses over loose fiscal policy..." -Sir Alex Fraser Tytler (1742-1813)