The value of the value of a bond

Guest Post by GM Jenkins

**With due apologies to our many millions of visitors globally, I'm not letting this one go. I inverted the ratio from my previous post, because it makes more sense to me this way.

What's the value of putting your money into a bond, if you measure value in ounces of silver?

Today, the yield on a 10 yr treasury note rose to 3.18, meaning if you have $100 lying around, you can basically make a risk-free $3.18. But how many ounces of silver can you buy with your guaranteed winnings? You can't even buy a 1/10th ounce coin. Ten years ago, putting $100 into a 10 yr treasury note would've gotten you a silver eagle.

So, to review, on September 11, 2001, you could've bought 1.0 ounce of silver. On September 11, 2010, you could buy only 0.14 ounce. That's a steady decline of 20% a year. But September 2010 is when the decade long trend appears to have ended (and gotten worse).

Until then, look at how well the black trend lines delimit the value of your yield, measured in silver. The few times the ratio escaped the black lines, it fell violently back into the channel... until Turd's Bottom (Jan 26, 2011) when the ratio notably refused to re-enter.

Since then, the ratio appears to be bounded by a significantly steeper rate of descent (see purple dotted lines).

For our many loyal paying subscribers, I will give you actionable advice based on this chart that will earn you millions, guaranteed. For everybody else, I will offer the prediction that the ratio will either find resistance at the purple dotted line, or if that fails, the nearest black line, or if that fails (probably in a scenario that proves deflationists right), the top black line. I don't see it hitting the blue line again before that, though.

*However, soon, the blue line will go through 0. Which means that if/when the ratio hits the blue line again, you'll be able to buy a grand total of 0 ounces of silver for your dollars earned from investing in US bonds.

**A commenter astutely points out: "You won't have the problem of hitting the zero line (at least, not right away) if you use charting paper that has multiple log cycles on the vertical axis instead of just one." (Thank you, Don). So, I guess what I called the zero line here is really 0.05, and you can keep going an equal distance down on the y-axis to 0.025, 0.0125, 0.0063, ... forever (i.e. this shitshow has a ways to go yet). And seeing as the y-axis is ounces of silver, soon your yield will buy you the shavings from a 1964 dime. (At which point Japan will announce another record purchase of treasuries, like yesterday.)


Warren James said...

That 'zero' level is good stuff, like a 'division by zero' error. Your chart also suggests there is less than 6-8 months before blue crosses zero.

Interesting that the black lines were headed there anyway in another 3-4 years or so. That last spike up, does that represent the recent correction in silver? Nice work. I think this is a clear derivatives fingerprint. Good to have something that makes sense from all this.

I've been watching the blow-off top and I'm intrigued at how it looks now, very much like a bull trap. Do you suppose it was painted this way deliberately? (still working on the theory that generating a bubble/interest in silver takes the pressure off the flow of gold and gives them a bit of extra breathing space).

GM Jenkins said...

The dotted purple line would appear to cross the "thin blue line" sometime in 2012. (Just like the Mayans predicted).

As I mention, the dotted purple line also looks like the first line of resistance for this ratio. If silver continues range-bound trading through the summer, then the ratio is scheduled to hit the purple line right around August when Turd (among others, such as Griffiths of Casenove on KWN) expect another explosive silver rally. But I would not be at all surprised if we have a repeat of 2008 (since none of the problems causing that stock market collapse have been repaired), and we shoot past the black trend channel again. But if that happens, I think there will quickly be an even more violent reversal, taking us to the end game.

But as you point out - not a lot of time left whichever way you look at it. What an awful looking chart. I like this one much better than inverted one in my previous post, because you have ounces of silver on the y-axis. We know the price of everything has been going up since 1913 , so, in itself, the fact that silver went from $1 to $50 an ounce doesn't scare most people any more than the fact that a movie ticket went up 50-fold in that time.

But ... both the long bond yield and the price of silver should both have worked into their price the effects of inflation (real or imagined), right? So what's driving this thing down so steadily? The general populace can live with $50 silver like they can live with $50 movie tickets, since wages should also rise accordingly; but can the government survive if the return from treasuries measured in real goods such as ounces of silver falls to 1/100 of what it was in just a decade? Who would buy them?

GM Jenkins said...

Re: your theory that "generating a bubble/interest in silver takes the pressure off the flow of gold and gives them a bit of extra breathing space" - I thought of that too in trying to make sense of this whole Wynter Benton thing. Anyone who thinks WB was some wanker pulling off a hoax hasn't taken the time to read the groups predictions carefully. Could that have been part of a concerted effort to siphon away dollars away from gold into silver? I remember them signing off, saying "Turd is now doing our job better than we can do" - or something to that effect. At any rate, since it appears WB is no longer with us, one has to assume some kind of chicanery was going on, and chicanery organized by someone with at least some inside information.

Warren James said...

GM I agree (with pretty much all of what you said just now). For what it's worth I think the fabric of derivatives is stretched so tight that it has taken on a life of its own - i.e. starting points and perspectives are skewed beyond recognition at this point ... if you start with the assumption that there would always (must) be a buyer for treasuries and always a return then other stuff has to change to suit. Like the way the market is crashing relative to gold.

Here's a prediction based on nothing but my intuition, I think the line we're seeing here WILL cross zero and keep going down. The only way I can defend that suggestion is that it is the only one that makes much sense. i.e. the alternatives are that the yield from the 10Y steadily approaches zero or price of silver goes up above $500-1000/oz in the next year or two(or some combination of both). To be honest I can't see either of those scenarios happening because there is too much bulk to move.

Is there a relationship to Gold? Perhaps the graph you've discovered is a precursor pointing to something really massive. How about a freegold revaluation, which drags silver with it for a while as a secondary wealth storage, where it effectively gets removed from the monetary system (and effectively the line from your chart just stops when it hits zero)?

The weird shit-o-meter is certainly going way of the scales - everything points to some kind of monetary change in the future ... your chart certainly is scary - especially if the effect accelerates at all.

I took a look at the increase in money supply in Australia since 1981 and for me it matches the march in silver so I don't think silver is overpriced @ the minute, it seems to be what it always was (this is influencing my decision to hold for the minute).

Re: WB - yes, their calls were uncanny. I am following the Blythe 'Trinity B' troll on Turd's site as well (she has turned to the light side), this is similar stuff - her calls are pretty accurate and she is calling for some heavy shorting on Thursday (I assume US time).

Trying to draw the links between silver and gold is difficult but I'm getting a less fuzzy picture now. I have taken a leaf from your book and concluded that if the markets are manipulated then trading silver is easy. A big thumbs up for Turd's latest post because I think he's got the price movement for the next 6 months to year end (yay, dollars for me).

I also see a massive cup-and-handle (or whatever) formation in silver. Been suspecting it was something like that earlier in may. I also suspect it's being drawn that way deliberately - to form that bull trap formation ... it should push silver way up into the $80 Wynter Benton range, by the end of the year perhaps? I don't know a whole lot but I am putting my money where my mouth is.

Warren James said...

If anyone else sees 'the cup' which looks to be about four/five weeks wide (we're about half way through) let me know. I'm not a technical analysis guy.

GM Jenkins said...

Warren, the ratio with gold looks just as bad, as does the ratio with probably all commodities, including copper. But only silver appears so well managed and (in hindsight, anyway) predictable. What could it mean?

Maybe I'm missign your point, but I don't follow you when you say "I think the line we're seeing here WILL cross zero and keep going down .... the alternatives are that the yield from the 10Y steadily approaches zero or price of silver goes up above $500-1000/oz in the next year or two (or some combination of both). To be honest I can't see either of those scenarios happening"

The ratio obviously can't go negative, so if the downward trend is to continue, silver must increase in value faster (or decrease in value slower) than the yield. The only alternative is that the trend comes to an end, and we see over the next several years silver crashing in $value while yields rise or stay constant or fall slowly (I'm assuming we wont see silver move up slowly while yields shoot up, because can the government survive with Volcker-like yields?)

Warren James said...

True - I guess it's a bit like a car that either has to swerve or hit the wall no other logical options ... but if neigther of those two options are allowed to happen (through whatever magic) then the only third possible alternative is for the wall to disappear and the car keeps driving.

This would be a bit like how some yields are already negative when inflation is taken into account.

But yes, this is a bit too much zen and possibly I have had too many medz. If zero cannot be mathematically crossed, then only the reference point can change. Maybe your chart supports what FOFOA is talking about?

Unfortunately I don't have the creativity to express this in chart form.

But I am fascinated how silver's fate is tied up with the 10Y bond. It is as if it is a foundation stone for modern finance, but again I don't know how.

GM Jenkins said...

I agree that we might see the wall disappear and the car keep driving. Something liek freegold. Unfortunatley, I don't really understand what that dude is trying to say. He's so verbose, that my eyes just glaze over trying to read it. I did try once, made an effort to systematically dissect what was being touted as one of his best posts ever, but I recall noting some logical inconsistencies (or more like hand-waving) on a fundamental premise he was trying to explain, and I haven't been able to break the intertia and read more of his stuff. It's liek someone recommends you a band, and you listen to this long self-indulgent intro, waiting for the song to pick up, but it never does. It's hard to listen to other songs by that band. I figure his take-home message is that gold will be the equivalent of $50,000 (in today's purchasing power) and it will happen instantly and conspiratorially. So I guess time will rpove him right or wrong.

But another possibility is we move to a gold standard, as many people have started to come out of the woodwork in saying (such as Rickards, or Salinas-Price most recently on KWN, saying silver will be monetized in Mexico this year, I believe). Some kind of monetary backing would, I presume, change the whole nature of this ratio, as the yield you earn couldn't really fluctuate in value against silver, since it would be silver (or more likely gold). That's probably the end game we're seeing approach. I could see in the next few years silver at $100, and yields start to shoot up as well (long term yields are less easy to manipulate than short term, I'd imagine), such that the ratio starts to move down slower and slower, until finally interest rates are too high to keep the ponzi scheme going and all hell breaks loose.

Don said...

You won't have the problem of hitting the zero line (at least, not right away) if you use charting paper that has multiple log cycles on the vertical axis instead of just one.

I like your idea, though.

GM Jenkins said...

Thanks Don - I've added a correction.

Louis Cypher said...

Nice article GM. Never seen that comparison made before. It might be an eye opener for the paper bugs.
I have been thinking about doing a "Another, FOA & FOFOA for dummies". Just thinking about it makes my head hurt though.

Robert LeRoy Parker said...

Outstanding post and comments!

Robert LeRoy Parker said...

But I still think WB is a wanker! And I read all that crap religously.

Warren James said...

RLP, you appear dissapointed that Amber has not resurfaced (I am too - we were possibly their biggest fans). Have you considered that they might be related to the recent correction in silver? If this is the case they would draw the ire of most day traders and might be a reason they have their head down.

Not sure if it helps with any perspective, but one of the things that lend their story credence ... they stated from the outset that their entire purpose was to make boatloads of money. So unscrupulous and dishonest as they were/are, they did not set out to deceive.

I know (from your comment @ the watch tower) that you don't put any stock in the 'Trinity B' troll's claims, so I won't discuss it - but just to note that she/they/it has a similar verbal pattern to Amber/WynterBenton. I'm not going to discuss this or even post on it (I do want to) because I've got a SLV database to manage which is providing far more objective information. FWIW, I think I am fully in the 'they have the silver' camp.

Robert LeRoy Parker said...


I was one of WBs biggest fans, but in retrospect they didn't make any calls that lots of others did. And they propogated a story that is impossible to fact check, and then worst of all, disappeared after calling the top very early.

At this point I will continue to call BS until they offer some new info which I don't think will ever happen. Plus if they were real, its possible they got burned worst of all and at this point are finished.

GM Jenkins said...

Louis - if you put together an FOFOA/FOA/A synopsis, you'd be doing God's work. Let me know if you need amphetamines :P

Warren - Good point that the WB group disappeared at $32 silver (or whatever), and moreover made a big deal about $36, which a month ago seemed foolish (though now, hmmm, we're back at $36 as resistance). But, yeah, once $36 was crossed, they have been unexpectedly silent. Maybe a victor_the_cleaner comment at this site comes closest to the truth; he recognized that there was enough evidence of inside information to pay close attention to the $36 barrier, but his impression was "It might be someone who occasionally talked to an insider but who only learned their finance from the internet and who made up a fancy story around this information."

GM Jenkins said...

*Actually my previous comment was addressed to RLP, not Warren.

Warren: I stopped reading Turd's comments because of the noise:signal that you spoke about previously. Can you point to a claim by TrinityB that reflected some kind of inside information?

Warren James said...

I speed-read the Watchtower - there are still some nuggets. As you know, I let my intuition guide me and pick up things of interest. Our paying subscribers will probably beat me up for this (RLP specifically will not enjoy the suggestion), but I think Trinity B == Amber = Wynter Benton. The Trinity B has a 'signature' which is nearly identical.

His/her most recent post is intriguing because it gives a reason for making the price calls. He/she suggests that they don't like seeing retail getting burnt. Impersonating Blythe is the link I'm interested in, but recently someone else impersonated them as part of a 'Ben Bernanke' joke sequence and the entity took it rather badly (similar to WB trying to get 'acceptance/treated seriously') and they are persistent, clever and well presented.

I did a chart in one of my earlier posts about the price calls from this character. As Louis points out to me, there certainly is a lot of noise, but your comment about insider information is also relevant - if these guys are moving the market single-handedly then that's prosecutable and they do have to be careful.

On of the recent Trinity B calls was that the correction is done and we were due for a few 'up' weeks. I have a good collection of 'Trinity B' posts - I find it hard to believe that Blythe would convert to the good side of the force. I also think they might be helping paint the bull trap.

Okay, I'm done. Probably just noise but I will continue to collate the trinity B comments. Amber, any comments? ;)

Robert LeRoy Parker said...

Damn Warren,

Looking at my comments in the old post I'm really kicking myself for not getting out in time. Oh well.

For the record I like talking about WB because it might bring them out of the woodwork and maybe they will have something to say after all. As for trinity B, why bother changing names if its Amber? Lowers credibility.

K, way past bedtime. Don't know how you east coast guys manage to get up in the morning.

Warren James said...

RLP, I think you will get another chance shortly to convert to gold at (your desired) favourable silver:gold ratio. It's difficult not to trade emotionally and the current correction has crushed a lot of joyful spirits. Watch for the end-of-financial year where (I assume) the ECB need a high paper gold price to do their end-of-year-statements (or whatever that is).

I may never get the satisfaction of proving my hunch about Trinity B, but I'll be watching closely. I do have a few explanations but not ready just yet ... we here @ Screwtape files will continue to try and draw out Amber again. Happy trading! Enjoy the next couple of weeks if you're still holding silver.

GM Jenkins said...

So I thought about it... if the purple dotted lines are really the new trend channel for this ratio, how can we use that fact to print cash? Because, if someone had drawn that black trend channel early in the game (whatever a seasoned technical analyst would've said about its merits) he would've made a killing. Some back of the envelope calculations explain why.

For the 9 yr period Sept 2001 - 2010, roughly 95% of the data points are between the black trend channel (minus ~8 months out/ 108 total months). The distance between the black lines is always 50% (i.e. top line is always 50% higher in value than bottom black line). So, if we assume the data points are normally distributed, and draw an average center trend line (i.e. a line drawn exactly in between the two black lines, not pictured), then that means that for 9 years the two black trend lines captured 2 standard deviations worth of data points in each direction from the center trend line, and that one standard deviation from that center trend line = 12.5%.

In other words, if you give me a date, I can plug it into the equation of the center trend line (easily calculated), and have a 95% chance of guessing where the ratio falls plus/minus 25% for 9 years. I could have a 68% chance of guessing the exact value plus/minus 12.5% for 9 years (i.e. 1 standard deviation). That's pretty remarkable, if you ask me.

Now lets project this into the future by making the (pretty big) assumption that the purple trend lines, which are also ~50% apart, will capture future data points with the same fidelity that the black lines did.

I drew (not pictured) a center line between the purple dotted lines starting on Jan 1, 2010. The equation for that center trend line can be easily determined using any 2 points; I got y=(.20)(.9982)^x, where x is the number of days since Jan 1, 2010. That means on Jan 1, 2012, there's a 95% chance the ratio falls between 0.04 and 0.67. (There's a 95% chance that today, the value falls between 0.1 and 0.6, which it does.)

If on Jan 1, 2012 I am proven right, I'll be sure to remind everybody. If not, no-one will have read this or remember my claim anyway, so I cant lose.

GM Jenkins said...

* ^correction: "There's a 95% chance that today, the value falls between 0.1 and 0.06, which it does."

GM Jenkins said...

Moreover, there's a 68% that it will fall between 0.047 and 0.06, which means that if yields are at 3.25 (what appears to be the average value over the past 3 yrs or so), there's a 68% chance silver will be between 55 and 70.

Alright then. Time to sleep.

Anonymous said...

GM Jenkins,

thanks for your work - this is a fantastic chart!


GM Jenkins said...

Thank you, sir! Glad you liked it. Guess I should update it every month or so.