Here we go! Silver under $18...

Thank you, Jim, that is a downright AWESOME link. Those lines under the subhead "The Critics" in Section 3 states my view 100%. Chart jockeys are doing voodoo black magic and incantations. You need to know intimately the asset in which you are investing, its markets, and its history. If you go into it with only a "man on the street" understanding of what you THOUGHT causes inflation, but actually doesn't, you are but a sheep waiting to be shorn.

The most overrated variable when analyzing inflation dangers, and hence by implication any inflation hedge asset, is the money stock. The most underrated one is aggregate income levels. I learned this at great academic bewilderment in 1975, since up until then I had always been taught that inflation was a monetary phenomenon. When I got hooked up with what has been proven the country's top expert on Keynes, a professor at Franklin & Marshall who was a Harvard PhD and knew The General Theory like he knew his own kids' faces, my understanding flourished. That education has never let me down, or led me astray.

One of Professor Lyons' favorite book slamming rants was, "Stop expecting governments to act like people, darn it (cleaned up some), they're NOT people!"

Another classic was, "People don't spend MONEY, they spend INCOME!"

The best thing about the return to fashionability of Austrian School economic "thinking" (as if...), is that it has been becoming too easy to beat so many people at seeing what's actually happening in an economy. I believe Austrian School does have a cogent underlying philosophy, however. It is based primarily on plain old nasty societal meanness, a sociopathic desire to see increased levels of Dickensian human misery.

 

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My thought exactly

 

Keynesians will doubtlessly be big fans of the SDR and a global fiscal rescue soon enough...but that's not the point of this board so </economics-rant>.

Today's visit to the LCS to buy face 90% was interesting in that it was the first time that I have ever been told that none was available. I've been buying there for the past several years with regularity. This was at a major retailer of both PMs and numismatics. They did have other Au offerings and stated that their supply of 'junk' is usually met with walk-in seller based acquisition. Not enough folks are walking in with their pre-65 coinage to meet this particular demand at the moment.

I could have paid then and there and received the goods in an estimated 1-2 weeks.

 

Not surprising. All downturns take a while for the general population to absorb and accept. Nothing new here.

It's not that long ago that dealers refused to bring generic silver to coin shows because they were "in it" at $35. I wonder how it tastes with strawberries and milk now.

 

"...I wonder how it tastes with strawberries and milk now."

We're getting a bail-out?

 

This has been a fine read while I ate my hot wings.

 

Wings are ok. But don't eat the strawberries. That' what EG Robinson did before he became Soylent Green.

"Tell them, tell them, Soylent Green
is Stackers!"

 

Read attatchment.........

 

Edited Political

@longnine009, I invite any so-called "dealer", as opposed to an end saver with a theoretically unlimited time horizon, to, if he refuses to take a loss on silver he bought at $35, that he just eat it. Yes, for a while, a dealer can stand firm, but at some point he has to realize that the loss is already close to booked and realized. Otherwise, all he has left is to retire as a dealer and BE the stacker. As silver goes lower, these dealer readjustments will be more frequent and painful, but they always need to happen. You have to admit your loss and live for another day.

I've seen near $50 silver twice now. In each case, when the downturn happened, at first supply was tight, because too many holders of significant positions were in denial. When silver eventually drifted down to $4, not only could you still buy it, it was MASSIVELY available.

The strawberries and milk go with the cereal Argentos, from General Mills. Watch out for agyria from consuming silver however.

 

Your over analyzing a soylent
green joke.

 

I hate to corrupt your world views, but technical analysis is used by basically everyone. It's the world we live in. Computers and automated trading have made it so.

The fundamentals for commodities are that when a commodity can be consumed, its demand increases. If it can't be consumed, it's value is contingent on what people are willing to accept. Technical analysis fits with commodity trading, since there is no real intrinsically derived value. With securities and debentures, you can do a sum of parts analysis to determine whether there is an arbitrage opportunity to capture against market value. With commodities, you can only assume that consumption habits will continue or change.

If I gave you 100 20-kg bars of gold and asked you if I should buy or sell, what would your answer be? Unless your answer involves analysis of what the proceeds will be used for, you're really just applying a best guess model.

You say that technical analysis is useless, yet you say we're in a bear market since the price was parabolic. That is technical analysis, whether you want to believe it or not. As with most value investors, I read Benjamin Graham's The Intelligent Investor and Graham and David Dodd's Security Analysis (both the 1934 and fifth editions). That's terrific for discovering opportunities to take advantage of market inefficiencies. You can look at the value the market places on the velocity of the assets (Price to Book) as well as perception of growth (Price to Equity) and come up with a nice short list of companies to research for investment. That doesn't really work with commodities.

P:E for a commodity will generally be negative or infinite, depending upon how you define carrying costs (storage? liquidation?) and earnings potential. P:B for a commodity will generally be par or slightly above par. Simply security analysis would eliminate all commodities as potential investments. That's why you need to consider moat, future consumption demand and future supply.

Commodities, since their distribution is controlled by manufacturers, are the simplest goods to apply technical analysis to. You say dealers will be driven to sell by the market, but that's not the point. Dealers don't control enough of the supply to greatly impact the market. If producers decided they wanted to produce silver at a loss, then we'd see the price of silver plummet. Since logic would say that, unless you must continue to do so (either by contract to vendors or miners), producers won't intentionally operate at a loss long-term, there are logical reasons to define a bottom for a market. Unless the amount of silver extracted from 2008-2012 was enough to satisfy consumption for a decade, we're unlikely to see an extended bear market. The price may languish below $20 or even at $15, but there'd be no logical driver to send it down to the prices witnessed in the 80s and 90s. Prices languishing that low would be entirely fear and deflation driven.

I know you said you gave a speech on silver being a bad investment in Aug 2011. That's terrific. So, effectively, you told people four months after the peak that silver was a bad investment. For what it's worth, we were having discussions about silver being a bad investment in Mar-Apr 2011. Yes, I sold out 10 days before the peak, but I really don't mind getting out 15% before the top on a parabolic asset.

Here are links to the posts that I participated in which were directly related to silver:

https://www.cointalk.com/threads/this-is-why-no-50-silver.163365/page-2#post-1134501

https://www.cointalk.com/threads/this-is-why-no-50-silver.163365/page-6#post-1141557

https://www.cointalk.com/threads/this-is-why-no-50-silver.163365/page-18#post-1159122

When you read my replies, you see an ignorant fool who looks at charts and guesses at things. You might be right, but my guesses tend to be close.

 

Well of course a good part of what you write here is good analysis, that is, your if/then logic is unassailable. The problem I have is with a few, not all or even most, of the "if" statements.

First, you write that technical analysis is used by basically everyone. That is pretty close to true, but it says nothing about its validity. There are things that are false even when "everybody" believes them, and things that are true even if "nobody" does. But to add to that, we also have, in finance and economics particularly, the law of self-fulfilling prophesies. If enough people believe and act upon even a fundamentally untrue thing, their actions will actually CAUSE the market to move as if the analysis is correct, at least for the near term. In my learned opinion, that in particular explains why technical analysis EVER works. I believe it therefore can be "useful" without being true. In fact that is PRECISELY what I believe about technical analysis. Useful due to self-fulfilling prophecy ONLY, and fundamentally bogus. There IS NO SUCH THING as an efficient market. That's a goal and a pipe dream, not an accomplished fact.

Parabolic charts indicate a real world phenomenon - a shared psychological mania. When ANY asset's demand accelerates as its price goes ever higher, it is violating the core assumptions of classical economic thinking, that which requires demand curves and supply curves to be shaped a particular way. Higher prices cannot long result in an inverted demand curve, and that is exactly what is happening when an asset goes parabolic.

Now, keeping in mind I still agree with MOST of your post, you later wrote, "Unless the amount of silver extracted from 2008-2012 was enough to satisfy consumption for a decade, we're unlikely to see an extended bear market." Wow, you're not merely well educated, you MAY be clairvoyant! That is precisely what I think happened, AS LONG AS you define "consumption" the way I do, that is EXCLUDING silver rounds and medals and new issue coins. Many writers do consider that consumption, but I do not. That to me is inventory overhang. I have been INTIMATELY watching silver and its uses for 4 decades now, not just as one asset of many, and I see a slow COLLAPSE of properly defined consumption. Even one firm's demand, Fuji Photo Film of Japan, has never been replaced with newer demand unless you count medallic stacking, which again I do not.

To me, the term "consumption", when applied to a metal, means it has been dispersed to the point of economically problematic recovery and recycling. Aluminum is already self-sustaining, as an example. It is now recycled and being useage replaced so well and thoroughly that literally we need to mine no more bauxite. Silver may very well be headed to the same status, in my view.

Summary: Technical analysis is useful to learn about only because enough people incorrectly believe it, and not for any other reason, and silver is a PM because some people stack it, and others see a paper opportunity to profit from the beliefs of stackers, but at its core fundamentals, silver should be, has been, and very well may again be, considered a "junk metal". I need no other theory to explain the 5-year silver spot chart I see on various sites.

I also believe education is about answering questions, but wisdom is about questioning answers. I willingly accept extraordinarily little of what I read online, especially when it's posted by those with a sales interest in the material.

 

Obviously, coinage doesn't count toward consumption, since it's easily recovered from coins. That's why bubbles in commodities are usually defined by a significant (say 40% or more on a YOY basis) increase in "investment" in the commodity. As for Fuji and silver in film production, that isn't as big of a concern as silver stackers wanted to believe in the run up, nor PM bears wish to believe in the ratchet down. The exit of film processing in the silver consumption equation is off-set by the increase in set-top boxes and wireless devices.

Now, the key returns to the 2008-2012 comment, and I don't think that happened, at all. I doubt that five years of "investing" in silver, representing 18% of the production over that time, would be enough to offset a decade of the the other 82% consumption. Yes, removing that 18% from the demand side of the equation would remove excess valuation above the economic profit defined output for producers. Now, the question evolves to whether that 110% of a year's consumption (90/82 lazy estimate) is enough to suppress prices over a decade. I'm not sure it would, since producers would have incentives to purchase on the open market to fill contracted orders, if the price is below the marginal cost of a unit of production for them. As such, a soft floor would develop at the marginal cost of production.

We may witness short-term flooding of the market, as technical investing programs execute stop orders on the sell side, but that supply would be absorbed by producers to fulfill contract obligations. If we assume 2013 was the final year of unhedging of obligations, then manufacturers would also purchase their silver directly from the open market. Lower commodity prices could lead to higher production of final goods, as the economic impact of parts would start to matter again.

Someone wrote, when silver was at $35 that the producer impact of silver doubling would be minimal due to the small percentage of silver used in components. That was, by far, one of the worst arguments for a continued bull market in PMs, since it would also imply that consumption wasn't driving price, which would imply the price was non-sustainable.

This next section is more for a break from the technical argument. It takes 6.5 tons of silver ore and 324 tons of gold ore to make a ton of iPhone 5S devices. A ton of silver ore nets 14.8 ounces of silver, and a ton of gold ore will net 0.03 ounces of gold. So the bubble in PMs drove up the raw materials cost of the iPhone by $1 for gold and silver, alone. If we assume that the cost to Apple works out as a multiplier of 5:1, that works out to a $5 increase in board manufacturing costs, which would amount to about a $35-$40 increase in final costs, after marketing and assembly costs are accounted for.

Back to the commodities case. If we ever reached a point where it was viable to recover silver from phones, yet non-viable to simply mine for more, we'd see recover of the silver from electronic devices. We aren't in that scenario, so miners are still the primary source of silver.

 

lots of words.. lots of debating... lots of arguing...

 

Do you have even a PASSING CLUE what the term "political" means? I think not.

 

Peace, everyone, please. There's a lot of valuable discussion happening in this thread, and I'd hate to see it shut down for rules violations, either real or perceived.

As I've said before, I'm a technical-analysis skeptic; I generally describe it as "astrology" or "numerology". @NorthKorea has offered perhaps the strongest defense I've seen so far, and it's given me a lot to think about. It's certainly a lot more convincing than the "...and that cloud looks like a descending wedge!" that I'm used to seeing.

More to the point, I think @V. Kurt Bellman and @NorthKorea agree on one point: technical analysis works ("becomes a self-fulfilling prophecy") if most major market players are using it. It still seems to me that it's willfully ignoring the factors that actually drive prices, but it's not possible to have perfect knowledge of those factors. It's a bit like what drove behaviorism in psychology. I don't like behaviorism, either, but I acknowledge that it delivers (some) results. Heck, I don't even like statistics, but it seems to be the best substitute we have for omniscience.

Kurt, several times you've mentioned the collapse of the photographic silver market. The numbers really are enormous. Don't you think, though, that most of that damage is done now? Demand from that source was something like 270 million ounces at its 1999 peak, almost 25% of total demand; last year, it was down to about 50 million ounces, just a hair over 5% of the market. From here, whether its decline gets steeper or shallower, it's just not big enough to have a huge market effect.

There's constant pressure to reduce silver consumption in other industrial processes, because the stuff's expensive. There's constant pressure to reduce all feedstock expenses in industrial processes. But as we find ways to reduce the amount of silver those processes need, we keep finding new processes that require it. From a chemical-engineering-spectator point of view, I don't see silver demand diminishing in the large; it's just too incredibly useful in too many widely varying ways.

 

Since we agree with your first line here, why do so many writers on silver insist on counting coinage in the consumption line? Could it be "pump and dump"? That's my only remaining explanation. They need to create a plausible yet flawed argument to argue on silver's fundamentals.

Now, as to the really true remaining actual consumptive uses of silver: most have quite literally come and gone over silver's history. While smart phones and set top boxes and photovoltaics may be snazzy for now, I keep remembering the film industry, in which I toiled for over 25 years. Every picture anybody ever shot, every one, "used" (we could get into a 100 page treatise on the rises and falls of silver recovery efficiency as the film business evolved, but let's not) a measurable amount of silver, more with B&W, less with color. It underpinned silver as a PM for more t han a century. It can reasonably be argued that the introduction of the Kodak Instamatic camera, with its easy loading that anyone could do, in the early 1960's did as much for altering the value of silver, and hence its demise as a circulating coinage metal, as any other single factor. I did mention Fuji, the number 2 consumer, and not number 1 Kodak up thread.

Where we part on the 2008-12 deal, at least I think so, is I am trying to talk about new demand, or the loss of it (call it silver demand's "delta") and if I'm reading your comment correctly, you seem to be referring to total demand. If so, I think you make a good factual point, but I believe CHANGES in prices are driven by CHANGES in demand and CHANGES in supply and not their respective unchanged components so much.

Now, supply. Aka mining. I end up forced to read mining reports, because the news aggregators I read put it in my face. I am seeing scads and scads of new silver deposits being found. Big time stuff almost on a weekly basis. Am I missing something?

Second source of supply - finite but still significant one-time recovery from discarded radiographs. The silver recycler my sister's firm uses, (yes, she's the only sibling still in the old family business), is Pyromet, out of the Philly suburbs. In addition to ion replacement canisters, which photo labs still bring them, their BY FAR hugest source of new silver supply is truckload after seemingly endless truckload of recently digitized and now purposeless X-Rays, medical and industrial (remember Jack Lemmon's character in China Syndrome?). There is a MASSIVE supply overhead still banging around out there in not yet discarded radiographs, particularly from smaller market towns where digital systems remain unaffordable. Who says? Pyromet does.

And now that I have read Jeff's post above mine, this last part of mine I hope answers one of his queries. Yes, I do believe that MOST of the damage is done, but radiographs from secondary markets are STILL BEING DONE other than digitally, and that in particular still needs to unwind over time.

OTOH, if it were up to artsy colonies like Portland, Oregon, (or me for that matter) silver photography would still be the Mac Daddy. I still have never seen a digital photo that can compare with my 1970's Kodachromes.

I do have to admit one thing - one of my favorite reasons for listening to and watching someone I think is utterly clueless substantively, is the inexplicable attractiveness of Kitco's Daniela Cambone. I can't explain why, but I find her compelling. But when I hear her earnestly asking questions of guys who are chart jockeys, I almost can't breathe from laughing so hard at what they apparently are taking seriously. Given my age, I'll probably need to soon put on an adult diaper before firing up Kitco. Too funny!

Advice from a guy who's seen a good deal more than most - cancel the Forbes subscription (Steve is no Malcom), and buy a lifetime one for The Economist. The profits you'll book from following better advice will more than pay for the upfront hit. and if you want to try before you buy, fine, download The Economist in podcast form. Yes, the Brit accents almost sound put on, but the content is magnificent.

 

By the way, this is my last day on CT. I have asked Peter to remove my account. I can no longer tolerate the immoderate moderation I find here. If you are interested in reading my thoughts further, see my posts exclusively on the ANA's site, money.org. They will all be for all viewers, not merely ANA members.

I return you now to your previously scheduled internal resonance chamber.

 

Is it possible that both technical
and fundamental analysis go through
cycles of success and failure? Seems
that when something gets a track record of success, the me-too sheep
hop aboard the turnip train and negat
it. At least that's how it appears to me. I guess what I'm asking is, can technicians chart charting and see it's
future success or failure up ahead?

 

This thread is TLDR...