Why doesn't Eric Sprott buy more Silver? by Kid Dynamite

The Kid asked me to post this simple question. He explores the possible reasons and it's impact on the price of silver on his blog. So mosey over there  and take a look see. He makes valid points and asks some pertinent questions.

http://kiddynamitesworld.com/ask-eric-sprott-why-wont-he-buy-more-silver-for-pslv/

As you know we are bullish long term for Gold and expect Silver to perform as well against the Dollar etc.  We are aware of differing opinions and respect them. We want to be as informed as possible in our investments and we will not stick our heads up our own asses just to hear the echo.
That is pretty much the only reason for this blog.
Question everything. Absorb everything. Weigh it and quantify it. Then you have an informed opinion.

18 comments:

legerde said...

In non quantifiable terms, listening to all of the rhetoric, it should appear that silver is aptly cornered and Sprott or Benton or the Chinese could cause commercial signal failure whenever they want.

It might be that resources are being better deployed to get the Gold market into the same situation so that the drain plug can be pulled simultaneously?

I realize how unverifiable these ideas and theories are, so feel free to ignore my crazy ramblings. :)

Kid Dynamite said...

i think your comment should be turned around to conclude that silver is NOT aptly cornered... after all, if it was aptly cornered, WHY HASN"T SPROTT CORNERED IT?!?! that was kinda the point of my post... HE is in position to do so.. HE is a vocal silver bull... yet he doesn't... you should be asking "WHY???"

The Big Setup said...

Who cares what SPROTT does? I don't get your theory. Why doesn't SOROS corner the YEN? What about the Rothchilds, why don't they corner the GOLD market? How about CHINA why don't they buy the USA?

Kid Dynamite said...

@The Big Setup: slow down, read the post, and use your brain. there's nothing to debate here. Let me give it to you again, slowly:

Sprott is one of the world's most vocal silver bulls, yet he refuses to buy more silver for his fund. See? makes ZERO sense.

So, if Soros spent his days talking about how cheap the Yen was, yet didn't buy it when he had a fund that was trading at a 20% NAV premium, your point would be relevant. If the Rothchilds ran a closed end gold fund that traded at a 20% premium, talked non stop about how great gold was, but refused to do a secondary, you'd have a point...

class dismissed. further lessons on my blog - i can't monitor the comments section of everyone else's blog too.

GM Jenkins said...

Some brainstorming:
Maybe Sprott is buying silver for himself and not his fund? Maybe (like many silver bulls) he doesn't want the price to blast up right away, so he can accumulate more for himself? Similar to why China doesn't use a trillion of its reserves to buy a billion ounces of gold. Maybe he's waiting for the right moment, to maximize the effect of a second offering? Waiting, perhaps, for another series of margin hikes -- perhaps waiting for the manipulators to start running out of weapons. Maybe he was surprised by the summer rally, and is now waiting for silver to fall back, e.g. if the manipulative powers try to paint a double top?

Maybe, given that he's so unhedged in the PMs, he has to be extra careful with silver (e.g. if a short-term 2008 collapse occurs, and silver is hit much harder than gold). Maybe he knows something we don't know regarding what happens to those who try their hand at single-handedly moving the silver price tenfold. Maybe he fears a lynching, Hunt brothers style. Look what happened when Buffett bought all that silver: the price shot up. Then he sold it at the stupidest possible time. I find that curious. He could've sold for 10X what he put in had he held on; and if silver ever shoots to $75, or $200, that will qualify Buffett as one of the most boneheaded traders in history. In other words, I don't easily believe there isn't more to the story of why he sold his silver (*all* of it).

I think we need to consider Bayesian priors here and watch out for circular reasoning. KD scoffs at the idea that silver is the "Achilles heel" of the "Paper Aristocracy." Fine. But then his arguments for why silver is nothing special (just a "momo" trade, as he has put it) all rest upon premises that *do not hold* if the "Achilles heel" theory he flouts at is actually true. If, e.g. Max Keiser, Jesse's Cafe, etc. are right, and TPTB are deathly afraid of silver going to the moon, then they will bring every trick and tactic to bear to preserve their own power. Don;t have time to dig up the source now, but I;ve read that as part of the Patriot Act (or something) the government can allow bullion banks to keep their positions (including their silver positions) undisclosed. "National security."

Something about the silver market smells rotten. Andrew Maguire's testimony. The attempt on his life the next day. The many lawsuits that haven't been summarily dismissed and have been confirmed by Chilton, who singled out JPM. The "position limits" fiasco, with the meeting postponed inexplicably and the proceedings indefinitely delayed (lol at all those petitions). The regular vertical declines in silver that come in threes, rarely on tuesdays, that Turd Ferguson talks about. The margin hike *in middle of the day* back in November. The precipitous fall of silver on a Sunday when Asia was on vacation (it's forgotten that gold made a new high when the market opened on Sunday, right before that stop-triggering event that came out of nowhere). The Osama bin Laden news hours afterwards. The 5 margin hikes when silver was already falling. The lack of reducing them though silver fell 40%. The fact that silver is back at $40 now (what kind of bubble is re-inflated in 8 weeks? a double bubble?) etc.

Warren James said...

Bron has a good reflections post on the question at hand: Why Won’t Sprott Buy More Silver For PSLV and crash COMEX?.

We still haven't been able to answer where Sprott got his silver from in the first offering (one of the detective work items in the database queue), but it's clear to me now that he would have had no trouble buying off Comex if he wanted.

Silver is a great investment (for many of the reasons GM put forth just now), but the 'tightness' of the physical silver market may have been exaggerated, which by the way is one of the reasons why I think Wynter Benton primary message is fraudulent.

mrttt63 said...

Two things

1) Its about the premium - all these follow on's collapse the premium and Sprott mentioned a while back that he has learned from that. There are entities keeping the premium high just so that he cannot do a follow on.

2) He has set up another fund for Silver - A mutual fund.

So don't try to bend light by focusing narrowly.

Pedestrian

Louis Cypher said...

Some great comments here.
Mrttt63, can you expand on your comment about entities keeping the pslv premium high?
My guess is he will do a second offering or he will do a pslv 2 at some point once he has positioned himself personally so that he can sell the silver to the fund himself. He has so many mining interests that he has no problem buying outside the Comex.
The nav of 20 percent has held for so long now that it can no longer be considered a flash in the pan. I can't explain why anyone would be willing to pay it. But I can't explain why people buy $100 HDMI cables either when 2 minutes research would inform the buyer they are no better than $2 cables. Great marketing I suppose.

Louis Cypher said...

Also as GM pointed out there is more to the story than simply pushing the Comex blatantly to default. Do the Comex send around the leg breakers to someone who blatantly push them towards default? Or simply throw a lot of confetti promises at the likes of Buffett?
I am not going to get into the argument that the Comex cannot default as it's silly. Everyone and everything can be pushed into default. Hunts/Comex, Bank of England etc.

There are pieces missing from both sides of the arguments. Getting back to my HDMI analogy I can easily quantify why tha 100 dollar cables are pure hype. Unfortunately I cannot do the same for PSLV or the price of Silver in general.

Kid Dynamite said...

@mrttt63:

I think you have it backwards.. high premium is when you do the secondary. There are no entities keeping PSLV at a massive premium to cockblock Sprott.

And yes, I'm well aware that Sprott has said he doesn't want to "hurt" the premium- that's not a reason, it's just manipulation on his part. We know why he wants to keep the premium high - because the silver bugs don't understand what the premium means, and it makes them think PSLV is somehow "better"... I addressed all of this already.

also, yes, I know he has set up a bullion mutual fund - which is even more preposterous given the current discussion. I wrote about that too, when it happened.

What I did not address is something Bron pointed out in his piece - he says that he was told PSLV cannot do a secondary until it's 12 months old (around November) - I need to look into that.

and to others: there are plenty of other ways for Sprott to buy silver ex-COMEX.

Kid Dynamite said...

follow up: PHYS did a secondary offering a few months after its IPO, and another one a few months later... I don't know where the claim in Bron's post that PSLV has to wait 12 months comes from.

1inbluemoon said...

Sprott or any other large investor they know whats up. they dont want/need to corner any markets or be heroes. After all see through out history what happens with "heroes". MA almost died in prison, Hunts had some problems, to say the least. I think there is a memo out there - dont mess with the system. Dont forget the big picture, who or what you are fighting against ... and what your chances are... really... Sprott or not.

GM Jenkins said...

Jesse at Cafe Americain takes a stab at this question:
Surmise on my part, based on the facts at hand, but Mr. Sprott seems to have an interesting problem with his Physical Silver Trust. And that problem is indicative of a physical bullion market that is riddled with leverage and irredeemable paper, reminiscent of the Collateralized Debt Obligation and Credit Default Swaps markets, before their virtual default and meltdown.
Cash levels in his fund are rather low, down to about 2 million US dollars or so, which is not much cash on hand for a decent sized fund with a market cap of slightly over one billion US dollars. As a note, I have to extrapolate the cash on hand since PSLV does not release this figure, but they do put out the figures surrounding it. It could be as high as 4 million, which is still rather slim, and a testimony perhaps to their belief in the silver bull and low operating expenses.
But the question remains, with a premium to NAV of over 19%, and with strong demand in silver and their units, how do they respond to this need for additional cash reserves and units?
The answer of course is a follow-on, a secondary offering, acquiring more silver and adding more units, and selling them into the public demand.
Now that they have digested their follow on gold offering of several hundreds of millions of dollars, perhaps they can turn to the silver market again.

GM Jenkins said...

[continued]

But here is the catch. Funds like Sprott don't do paper, to the extent that a listed company's equity might do. They just print more shares.

Even supposed bullion offerings like SLV and GLD do paper chases almost every week. They do swaps for for virtual metal, for example, throwing IOUs on the pile that may or may not be good in a demand crunch for bullion, because they are tracking ETFs, and not closed end funds. They have to manage inventory to the fluctuations in almost real time.

What you see with PSLV and PHYS, and funds like them, is presumably what you get, and in these days of what appears to be a shell game in the silver market, that type of product commands a substantial premium if one has some chance of taking possession in something approaching a reasonable manner.

And in this market structure, no responsible fund manager would agree to do a follow on unless they were able to secure potential bullion inventory in advance at something approaching the market price, which today is around 39.60 per ounce, and have a reasonable plan to take delivery in the foreseeable future. I hear that their last purchase took THREE MONTHS for delivery. Three months or more is a significant period of time in today's volatile global markets. Three months puts us in the historically stormy seas of October, well beyond the known horizon these days.

The current deliverable inventory at the Comex, the single largest depository of tradeable, traceable silver in North American, stands around 27 million ounces, with total value of just over one billion dollars. Not much in today's world of billions flying about, even through individual accounts.

Can Mr. Sprott obtain about 1/5 of the 'visible float' in silver bullion without buying against himself in the market, that is, raising the prices he pays by the demand he himself presents, chasing his tail in the market as it were?

He might turn to the LBMA, the storied London Metals Exchange which is the locus of bullion trade. But with their secretive inventories that change hands in daily multiples of themselves, and purported 100:1 paper leverage, the problem remains the same. When you pull actual bullion out of that system, you start raising leverage, and risk, geometrically.

Alas, the central banks do not have stores of silver which they can strategically sell into the market to satisfy demand and help their cronies in the bullion banks as they do with gold.

Doing a deal to satisfy demand in size is going to become increasingly difficult in such an imbalanced, poorly regulated market. A default tends to occurs at the core of the market, even while supply is available on the retail level, 'at the margins.' Until it is not.

In other words, you will probably be able to buy a few coins locally the day before the wholesalers default on their obligations, there is a run on supply, and nothing is available as deliverable inventory is quickly pulled off the market, except at the most usurious prices. And of course the governments intervene to save, and probably somewhat selectively, the naked shorts from ruin.

Ah, the problems of the successful entrepreneur in times of collapsing paper and its associated delusions.

navderek said...

Good views GM Jenkins...you seem to have an open mind whereas Kid Dynamite is always 100% sure of himself and tends to say "there is no discussion" quite often.

I keep an open mind and do read KD's posts as there can be some truth found. However, I'll beleive KD about as much as Max Keiser - for me they are in the same boat, but on opposite ends.

MH said...

From Bron's blog:

Update 25 July: I contacted Sprott Asset Management and they clarified that they could do a PSLV secondary at any time however the time lag for SEC clearance (possibly up to 45 days) of a new prospectus would allow traders to frontrun the placement. Once the one year public period has passed they would be able to do an overnight deal in which case there would be no frontrunning. Sprott Asset Management reiterated that they would not do a deal that would have a material impact on PSLV’s premium.

MH said...

That is a perfectly legit reason if you ask me.

GM Jenkins said...

Thanks, MH, for finding that out and letting us know.
I think part of the PSLV premium is just a Sprott premum, the way a gold stock like UXG has a McEwen premium. The silver market is a snakepit - look at the dozens of pending lawsuits and even the testimony of the chairman of the CFTC. Sprott is not a criminal. He's certainly a good salesman and appears to have sold into froth now and then (though it's not trivial that he buys more silver with it), but that's not criminal.