investing help

Real return or nominal return? Big difference.

 

Log in or Sign up to hide this ad.

Nominal....I only hope that my PM's will help hedge inflation a bit, I have no dreams of making a killing on PM's

 

Per http://www.silverinstitute.org/images/stories/silver/PDF/futuresilverindustrialdemand.pdf on Page 24:

The graph on Page 25 projects the growth in silver industrial demand to be between 4.6% and 7.6% from 2011-2015.

Also on Page 20 regarding recent solar demand increases:

So industrial demand is rising and is projected to continue to rise apart from investment demand.

Also per the image: http://media.chrismartenson.com/images/silver-supply-demand-table.jpg
on Chris Martenson's blog: http://www.chrismartenson.com/blog/screaming-fundamentals-owning-gold-and-silver/59850

You can see that 20% of the silver demand is provided by existing scrap, and that mining supply only provides the other 80%. You can also see that coin and investment demand accounts only for 10% of the total, where as industrial demand accounts for over 50%.

In summary, demand is in fact rising on both fronts, and mining supply does not provide adequate resources to meet existing demand. Coupled with the fact that above ground available silver (minus investment silver) is at it's lowest level (less than 1 Boz) in 700 years, I stand by what I've said in the past that we are entering into a supply crunch.

 

I understand sir, but those projections are not accounting for current pricing I believe. Regarding solar panels, the largest in the US just filed for bankruptcy and shut the plant down. Solar panels are money losers to everyone involved absent substantial government subsidies. I simply do not see the US or other nations being in a position to continue these outsized subsidies.

That is why I stand by position as well. Cloud is right silver has properties that in tiny amount will still require its use. But not for large amounts, which accounts for most usage. I still believe large users of silver have to be researching right this second alternatives to $40 an ounce silver.

http://www.silverinstitute.org/supply_demand.php

What is the largest change in the last 3 years? "Investment" demand. Industrial demand went down in 2009 and back up to 2008 levels in 2010. How does that equate into large, sustainable industrial demand increase they are forecasting?

We can disagree man, I still lover silver just think its getting pricey versus its usefulness, and believe its pricing will start eating into its demand.

 

I generally refer to the summary at the bottom of this page. I don't really trust their forecasting, and only partly trust their past data. But it's the only game in town.

http://www.silverinstitute.org/supply_demand.php

Industrial demand doesn't really show much growth in this presentation. So it is difficult to get to the truth by looking at data from the Silver Institute.

 

Anyone happen to know where demand data for the late 70's to mid 80's would be found? I would find that interesting.

 

http://www.silverinstitute.org/19711978.php

http://www.silverinstitute.org/19791980.php

http://www.silverinstitute.org/19811990.php

 

"Total fabrication demand fell sharply at the beginning of the 1980s, in response to higher silver prices, and worldwide recession. Longer term demographic and technological trends had been pointing to a decline in use, which the price rise and recession accelerated."

Interesting.

 

It's interesting, but recall that the western economies were heavily into manufacturing, and nearly stopped functioning in the early 80s. The present situation is a bit different in that the financial sector, not the manufacturing sector, leads the decline.

 

But worldwide manufacturing did not change much. It simply shifted. If we are in a worldwide slowdown both times, does it really matter in which country the manufacturing is taking place?

I was really commenting how it admitted the price affected industrial demand, something which is not easy to ascertain here. It would be better if they had any estimates on how much pricing lowered demand. The previous post regarding the Silver Institutes future projections were projecting increased industrial demand in the foreseeable future, yet this historical document admits higher prices lowers industrial demand. I am just trying to reconcile those two seemingly unreconcilable statements.

 

In 1999, when gold was less than $300/ounce for most of the year and silver was between $5 and 5.50 per ounce, the Dow Jones Industrial Average had a low of approximately 9200 and high of approximately 11500 for the year. Twelve years later, the DJIA is currently at 11,200, about 300 points LOWER than its 1999 high, and only 2000 points above its 1999 low. Meanwhile, gold is above $1800-- 7X higher than its 1999 low (and 6X higher than its 1999 high), while silver is approximately 8X higher than its 1999 low (and 7X higher than its 1999 high). ANYONE who bought silver and/or gold then from a mainstream bullion dealer and held it until now would have made multiples of their original investment. The same cannot be said for people who bought a DJIA index fund. Or individual stocks like Enron. Or Global Crossing. Or Worldcom. Even some blue chips like GM crashed and burned. And numerous lesser known stocks have also fizzled during that time.

 

The recession in the late 70s and early 80s was world-wide, not a shift as is occurring now. But it is difficult to get good statistics from back then so who knows. Just because someone writes that the decline in industrial demand was due to the price doesn't make it so. Every day we hear reasons why markets do what they do, and for the most part it is just a guess by the commentator because they are expected to say something. I don't even think the statistics above show that price reduced industrial demand. Not knowing how the statistics were gathered, they might be (1) wrong, or (2) due more to the global economic situtation than the price of silver.

It is easier to observe what markets do than to determine why they do it.

 

While it is true that silver greatly outperformed stocks over the past 12 years, that is more reason to buy stocks and sell silver. Your observation is correct that the underperformance of the averages is due to a few industries. Anyone who avoided tech, real estate and financials and bought, say, energy stocks did very well. Investing through the rear view mirror is futile.

 

In other words, you can't make a blanket statement like "stocks have historically outperformed precious metals" because there are too many types of stocks with too many variables. While some stocks have been winners, many others have turned out to be absolute disasters. And the stocks that my grandfather invested in that provided him with a decent income in the 50s-80s have all but faded from the scene. 1000 shares of Woolworth's, anyone? How about Sunbeam? S.H.Kress? Munsingwear?

 

But you can make that statement. A basket of stocks like the S&P 500 can be compared to other investments. True, you cannot buy a stock in 1950 and just let it ride. If you wish to mimic the S&P 500 you have to buy a fund or make the changes the index makes. However, a basket of stocks like that has outperformed other investments in the long term. Can you pick and choose timeframes where it didn't? Yeah, of course, but most unbiased observers looking at the data will conclude it returns higher. However, two caveats. One, it is more risky so it should return higher. Two, its not as much higher as you think once you adjust for biases and mathematical errors. The mat errors I won't get into since its pretty boring, its just most comparisons do not use the correct math.

I for one alwsays thougth stocks were oversold in comparison to many other asset types, including PM. I don't know the financial market got so into stocks to the exclusion of other financial products like bonds.

 

I agree sir, just pointing out to others who believe price will not/can not affect demand for silver that at least one group attributed majorly declining demand at least partially to it. To strip out the two causes and to the extent each caused decline would be impossible.

 

Of course anyone can cherry pick dates to somehow justify any investment strategy. It's irrelevant. (yes, I admit I have done it here too) The only thing that matters is what is driving the market today and in the future. The past is only a guide when there is an understanding of what drove prices at the time in question. On the matter of responses, you were quite silent when it was pointed out to you the reasons for the gold price drop in 1980 do not exist now.

#2 investment advice "Past performance does not predict future gains". Only an understanding of what is driving the market now should be used by investors.

 

Of course this is good advice that the past is the past. The only thing its good for is similar market conditions and reversion to a mean, (if it happens). The major problem with NOT looking at the past is it drives a "its different this time", a time honored cry of jubilant investors that makes me cringe, since its usually NOT different this time.

Regarding 1980 versus today, I grant you its not anywhere near identical. The one similarity I would point out is small investors. I was there in the coin stores back then, and saw the "buy at any price" euphoria of people believing the economy is melting down. I see the same looks in people's eye buying PM today. Everything else is different I will grant you Fatima, and I do not believe I have claimed differently here, but I believe the small physical purchasers are the same mentality of 1980, that is of believing the economy will crash around them and the only safety is PM. Whether this is good or bad/right or wrong, I will not judge, just pointing it out.

Chris

 

Isn't is different this time though? People around the world can invest in precious metals, not just the US and London. People can invest in options and futures, and aren't bound by picking up the physical metal as in years past. The global economy is now largely homogenous. Technically, it's different every time by some degree, but that's not an excuse to throw conventional wisdom out the window and believe whatever you want, or get caught up in a frenzy without justification. I would agree it can be a dangerous mentality that people often cling to when they want to see things through a certain lense, but that doesn't mean it isn't true, more so that it's used as a crutch.

 

No, you can't make that statement. You have to qualify it. "Stocks" can refer to anything-- A Dow index fund, an S&P index fund, individual stocks that might include both winners and big-time losers. It is too generic a term and therefore loses its meaning. You have to be specific

As for comparing stocks with precious metals, we really only have a 40-year time frame or so-- that is, starting around 1968 or so , when the price of silver exceeded the face value of 90% silver coins and the public became fully aware of the disappearance of silver from coinage, and when most of the restrictions on gold ownership by Americans had been lifted or ignored.