Guest Post by GM Jenkins
I once consulted an encyclopedia of philosophy to try to make heads or tails of Martin Heidegger's ideas. His entry went something to the effect of: "Heidegger's philosophy is formidably difficult, unless it doesn't make any sense, in which case it's laughably easy." And so it goes with silver: "Trading the silver market is formidably difficult, unless there's manipulation, in which case it's laughably easy."
A case in point. Kid Dynamite, who, Cincinnatus-like, gave up a lucrative position on Wall Street to become a citizen farmer in the woods of New Hampshire, making maple syrup, tending to his garden, and shooting silverbugs for sport, recently asked "why is it that we pay so much attention to silver?":
Compared to some other high-flyers, silver is a total dog, underperforming the really bubble-icious Party-Like-It’s-1999 momo champions like $LULU, $OPEN, $SINA and $TZOO ...KD interpreted this as meaning "the world is not coming to an end":
What’s my point? ... Silver is part of the momentum rally ... Enjoy the ride – profit – but don’t go off the deep end and delude yourself into thinking that it means we’ll all be lugging around carts full of canned food, sawed off shotguns under our soiled trenchcoats, as we wander from one post-apocalyptic wasteland to another looking for fuel, shelter, and a better life now that we’ve defeated the Imperialist pigs and their Fiat experiment.Of course, one could arrive at a different interpretation. If the momentum traders (in conjunction with the Fed's liquidity pump) can promiscuously inflate even garbage stocks like LULU and OPEN to the point that that they perform just as well (or even better) than the fundamentally valuable asset class of precious metals, does that not suggest price suppression of the latter? Perhaps we have yet to see, or are just beginning to see, the full force of the silver fundamentals come into play, sending their fiat prices to the moon.
*The astute reader will note that, of the stocks adduced by KD, I didn't post here the $SILVER:SINA or $SILVER:TZOO charts, which (even to my untutored eye) looked demonstrably less bullish. However, SINA, as KD points out, has some connection to China, and so I'll file that under the dollar bearish trade. And judging from the cheap ticket to Vegas I bought a few days ago, TZOO is a damn good company.
26 comments:
Damn I wish I bought some TZOO but up until a few minutes ago I had never heard of them.
Anyhoo,
KD does make some great points as regards relative values by comparing Silver to high flying tech companies. Silver IS a dog lagging behind some high fliers like Apple. If you compare any of these companies to Silver over 5 years Silver is sitting somewhere in the middle as regards appreciation.
To me the answer is pretty simple as to why people are so excited about Silver.
1. Vindication. It's the a-ha I told you so moment. It's relief after playing the contrary move. The endless waiting for other people to finally catch on. It's the ultimate revenge trade that came good. It's emotional than the way as people get excited about new Apple products.
Looking at a company like netflix fundamentals it has only one place to go and that is down. They came in as a disruptive technology and their business model destroyed the chain video stores. If they can innovate and lock down exclusives and bust the cable companies they will survive and continue to fly high otherwise Amazon, Apple etc will come in and eat their lunch in short order. It will happen eventually unless they can pull off a Sony Blu Ray coup where Sony used their checkbook to make sure every studio produced Blu Ray only.
The problem with all these companies is there is always someone nipping at their heels. There is always a new kid on the block looking to disrupt their technology.
Silver simply is. Gold simply is. There is no way to dilute the physical metals. If you have it and hold it will always revert to the mean. It's Insurance against the Central bankers and politicians stupidity. That is why we are excited. What we have known for a long time is proving to be true.
Just going on my own emotions and what I am reading from others we are second guessing and triple guessing ourselves because there is so much we don't know. We are guessing short covering, No it's fundamentals. No, it's momentum trading. No, it's some Billionaire smelling blood and cornering the market. No, it's Wynter Benton. etc etc
People trading Gold for Silver and vice versa. Short term holders selling. Long term holders selling. We are being whipped around emotionally and it's tough to make a rational call when in this emotional state.
We have a couple of days in which to stew this over before the Asian and European markets open.
To sum up KD is right in a lot of what he says. Silver is a dog compared to some of the companies he mentions. Silver is riding the same wave as many of these stocks. The same emotional forces that whip Netflix and SLV are present in all traders. But go to Google.com/finance or stockcharts.com and pull up a chart and throw PSLV, SLV and any other stock you want into it and you will see SLV and PSLV starting to pull away and diverge from the herd over a 3 month period.
I mention PSLV because I think it is a lot like eBay in showing true price discovery. SLV is for trading and PSLV is trusted as something to hold.
(I know KD has a lot to say on that subject but that is another days entertainment)
More to the point you can't short PSLV. You can't short Physical Silver. Could that be why we see them diverge from the herd?
Louis - I'm not about to get into the PSLV debate again - I've written all there is to write on the subject already. But I do want to point out that the two statements you wrote:
"More to the point you can't short PSLV. You can't short Physical Silver."
are nowhere close to being the same thing. if Sprott opened his fund up to creations, he'd get all the silver he could ever dream of and the premium would disappear in a matter of days.
KD
I wasn't looking for a debate on PSLV vs SLV holding. It's a waste of energy.
What do you mean by "open up to creations"?
As far as I know Sprott gets his Silver direct from the refiners (that he owns a piece of).
A waste of energy indeed.
i meant the creation mechanism for ETFs, where participants bring bullion to the trust in exchange for shares. PSLV has no such mechanism. If it did, then the entire market would flood Sprott with silver, take PSLV shares in return and sell those PSLV shares (at a huge premium, to NAV - until the premium collapsed)...
this is why SLV trades right at NAV, and also how you know that "The Market" doesn't think there's any silver shortage and isn't having any trouble coming up with silver to perform this arb with SLV.
Maybe he simply doesn't want a mechanism for nickel and dime transactions for cost reasons and admin reasons.
But yes if he did what you suggested he would be flooded with supplies if people thought they could sell their Silver to him and reap the NAV which would collapse in a nano second.
But it IS closed and as such people are willing to pay a premium and there is no reason for him to consider changing that.
It can be argued that as non leveraged, non fractionalised people feel safe and it is a more true price discovery than the Comex.
(It doesn't matter if that is the case or not as people think that is the case).
Much the same way as eBay has been shown to be a true prices discovery mechanism on just about everything you can think of. eBay collapsed a lot of the collectors market. So if people are willing to pay 10, 20 % etc. more for Sprott or ebay (the sleaziest market on earth) Silver then the people have spoken and it doesn't matter what you, I or Mickey Mouse thinks the price should be. The price for physical is what it is. The price on the Comex is something else.
If the gap keeps growing then the Comex, SLV etc will be forced to open their doors 60 minutes etc to prove what they are saying about inventory is true. The fact that they haven't done so is a little telling don't you think? The debate on inventory has been going on for how long now? It cold be settled in a week if things were a little more transparent.
"It can be argued that as non leveraged, non fractionalised people feel safe and it is a more true price discovery than the Comex. "
No, Louis - that can't be argued - not by anyone who has any idea what they are talking about - that's exactly my point. It is absolutely, positively, a LESS true price discovery - I wrote about 2500 words on this already: http://kiddynamitesworld.com/on-misinterpreting-pslvs-premium/
And we said we weren't going to talk about SLV, but re: your comment about 60 Minutes style: surely you saw the letter from BlackRock that ZH published, declaring it a sign there was a problem! It's ludicrous, and that's why there is nothing the SLV folks can do to appease the doubters. The guy simply explains how, contrary to the vast ignorance spread daily on the internet, SLV does not own futures, options, any other derivatives, etc. They own just silver bullion. I'd rather people just said "We don't believe you," - then there's nothing to waste time debating. Instead, people say things like "No - SLV owns futures. They own leased silver. Their silver is on swap from the Bank of England." It's just pure fantasy and ignorance. But whatever.
Here's another key point: like many, you are confusing the difference between wholesale and retail silver prices with the difference between "paper" and "physical" silver. There is in fact a great product that allows retail investors to participate in the silver market at wholesale prices.... it's called SLV!
But what all this means is that if people are willing to pay a huge premium on EBAY, what we should be doing is working on a way to buy wholesale and resell to retail at this huge markup. I looked into it, and the problem is that I can't make American Silver Eagles, and the cost of minting generic blanks isn't worth the markup you can get on them. (ie, it's the ASEs that really command the big premium)
I think Brian O'Flanagan nailed the EBAY point here:
http://blog.darienwealth.com/post/4418128632/john-embry-ebay-sales-represent-the-true-price-of
KD you are taking that out of context. As I said it doesn't matter what you or I think of SLV etc.
The market has spoken and it is saying something you don't want to hear. But hey that's what makes a market.
I saw the letter on ZH. Again, they can talk and talk. We can talk and talk. It goes no where. That is why I am saying SLV etc should invite GATA, Harvey Organ, Sprott, 60 minutes or whoever to come take a look at their books and inventory and put the issue to rest. Why this hasn't happened is a little odd. To try and defend themselves with a half assed email is a little retarded.
I have looked into some way of making a few dollars on the Silver eBay premium etc. but I think eBay is a slum and I wouldn't sell or buy anything there ever again. But that's whole different story. I'll take a read on what Brian has to say later.
I am working on something right now to get Gold at a 25-50% discount :)
When I have it all worked and proven I'll post it.
I enjoy the PSLV debate because it gets to the heart of the matter. I've been bothering my mother to buy PMs for years, to no avail because she's afraid of getting robbed. I decided to go with GLD/SLV or PHYS/PSLV. I read KD's case against PSLV and found it compelling. On the other hand, this being a significant chunk of change and moreover a buy-and-hold transaction, the redemption mechanism tipped the scales, justifying the risk of losing a premium should silver tank. As I see it, GLD/SLV are great trading vehicles, but when buying something to hold long term, one in the hand beats the shit out of two in the bush. In other words, if I didn't suspect the government and the too-big-to-fails of world-historical malfeasance, I'd have no problem buying SLV, but then I probably wouldn't be buying silver in the first place. Who's to say at some date in the future I'd be able to get my hands on 400 ounces of gold by liquidating GLD and calling Tulving (like i can with PHYS)? I could see PSLV continuing to do well as very wealthy people who don't want to store silver (obviously much harder to store than gold) see it as the best alternative to doing what Bass did at UT.
Louis, I hear you on TZOO -- it was up 28% on Thursday in what appears to have been a short squeeze, after already being up 80% for the year. If silver or gold ever jump by 28% in one day, that would mark the beginning of the end of the world as we know it. That's why, I presume, "we pay so much attention" to silver's ascent vs. TZOO's.
Louis - I don't want to belabor the point, but again you wrote: "The market has spoken and it is saying something you don't want to hear. But hey that's what makes a market. "
no - that's EXACTLY my point. I wrote an ENTIRE piece about it already. The Market can't do anything about it (PSLV premium)!
But do you know where The Market actually is speaking: SLV. THAT is what the market is telling the silver bugs, but it's what THEY don't want to hear! THe Market is telling the silver bugs that there's no problem getting silver, that there's no such thing as spot vs paper price, and that their fears are unfounded. SLV tells you this every day - and it IS "The Market" speaking because it's an efficient instrument.
There's also the EFP market which tells you the same thing (exchange for physical - spot for futures - paper for physical - there's no premium).
ps - SLV invites Inspectorate to come take a look at their books...
To recapitualte my points from my post:
Either silver is fundamentally very underpriced (due to prolonged suppression and aggressive pro-fiat propaganda) or it is not. Showing that silver's chart looks a lot like the chart of mindless momentum stocks x, y, z, has little bearing on this debate. That's neither here nor there, because silver's chart is also consistent with the alternative hypothesis of true price discovery going on (e.g. the September ascent coinciding with lawsuits against JPM and public skepticism of QE2). Further, just as fundamentals and momentum trading differentiate e.g. TZOO from LULU, so both are also at work in silver (which does appear to be outperforming the stocks since the Feb 8 explosion). Finally, if money-printing can inflate garbage as much as silver (the u;timate anti-money-printing play) then shit ... maybe the explosion has yet to even begin.
Strong evidence (either way) must pertain to questions of motivation and means. E.g. "the government doesn't care about PM prices because of x" or "yes, massively powerful entities might want the gold/FRN ratio to remain as low as possible, but they could never get away with such a scheme because of y" or else "if they were suppressing PMs, we would absolutely have to see z, but we don't so they're not" etc.
Hey GM,
It appears you are a bit of a troublemaker :)
See what you started :)
Yeah, I have tried to get my Mom and siblings to buy physical or at least get into paper to no avail before things really started to move.
KD, I don't own PSLV or SLV for that matter. So no horse in the race for me there.
Simply put I am not willing to pay that premium and I can store my own Silver thank you very much.
But to say the market can't do anything about the Sprott premium is a little disingenuous. The market could drop the premium if people said screw it I will sell my Sprott stuff and buy some physical or just buy mining shares or whatever. If there are enough people selling the NAV would collapse from lack of bids. If the price of Silver collapses the NAV will collapse.
Again, who cares what you or I think? Obviously the market doesn't. The market thinks SLV is worth X and PSLV is worth X plus 20%.
I am not trying to be a wise ass or argue for the sake of arguing. I see your position and understand what you are saying but my position is the NAV is there because people/ the market think it deserves it. I don't personally but I am not the market. So to me the market is saying "we are sure Sprott has the silver and we are willing to pay him to store it".
Again, if things were a little more transparent we wouldn't be arguing. Either I would be proven to be wrong or you would.
Care to expand on the p.s. because just looking at the books would not satisfy any skeptic?
p.s. KD,
I haven't read your piece but I will.
LOL, Louis, now that the Fed's made online poker illegal, I have nothing else to do.
I just read KD's link to Brian O'Flanagan's site and yes, it's def worth looking at
http://blog.darienwealth.com/post/4418128632/john-embry-ebay-sales-represent-the-true-price-of ... there's a good back-and-forth btwn KD and a fellow named John.
It seems to me that KD is saying (I'd be happy to be corrected) the following:
"The longs ultimately control the silver price, because all they would have to do to nullify naked shorting would be to demand delivery. Therefore JPM (or whoever) couldn't possibly be suppressing the price over time."
Isn't his premise also the silverbug position? For whatever reason, in the past, longs simply haven't been demanding delivery. Maybe JPM simply bets that this won't change, for the same reason a bank assumes not everyone will withdraw their deposits at once. Maybe they even feel they'll be bailed out (or have some other evil trick in mind) if such a thing happens, especially if they are doing the shorting in conjunction with the government's interests/requests. Moreover, aren't we witnessing more people start to take delivery relatively recently (justifying their decisions like Bass at UT) (e.g. the Wynter Benton rationale), and hasn't that coincided with the price going up: i.e. just what you say, the longs ultimately controlling the price?
Hey GM,
Back in the day I was trying to organize a poker site with a few friends but they were too chickenshit to do it even though I said I was willing to live in Antigua and be the front man. Between us all we had the cash to get it off the ground with no VC interference. Unfortunately only two testicles amongst the five guys. Oh well.
I'll read KD's and Brian's stuff tonight. Promise.
I like the way both guys write and think from what I have read. Always good to have an opposing opinion so as not to get stuck on one track.
"p.s. KD,
I haven't read your piece but I will. "
ahhhh. good. I'm glad you haven't read it yet. Once you read it, you'll see what I'm saying.
@GM Jenkins - I think that's a fair summation - the quote you summed up for me - yes...
gotta run. have a good one, guys
How far back in the day are we talking, Louis? I think online poker is only about 10 yrs old... Did having pussies for friends impede you from pioneering a multi-billion dollar industry??
It was just as the industry was starting. There was maybe one or two players in the market and catering to the USA. One co. I knew of was making serious money and living in Antigua and the US govt wanted their asses bad. One of the companies had 3 guys as founders and two of them ended up doing time. The third guy never ventured to the USA again as far as I know. So we are probably talking 1999 time frame.
It wasn't original thinking but it was obvious it was going to be big and worth the sacrifice of steering clear of US jurisdiction. At least to me anyway. Never got into the online poker thing as I simply don't trust it. That and I am the guy you hate to sit beside at the Blackjack table. Because I will pull some moves that piss people off just to re shuffle the deck a little or because I feel like it.
By the way if you are ever thinking of taking a gambling vacation hit the Bahamas. I was there a few years ago and they do such a lousy job of shuffling cards you can within half an hour figure out the deck. The dealers also hadn't a clue how to play Carribean poker and paid out when they shouldn't have a few times and didn't pay out when they should have. I spent the whole three days in the casino mostly on Blackjack. Never saw the beach once and left with more money than I arrived with.
I still haven't read KD's and Brian's stuff yet. Busy prepping for the Easter Bunnies arrival.
How hard would it be to get some weighted dice to the craps table...
Here's a seekingalpha article on non-manipulation-related reasons why the PSLV premium of 20-25% may not be totally irrational (including the often overlooked 15% vs 28% tax difference, since SLV is stupidly deemed a "collectible")
I should note that the author is not anti-manipulation; he mentions it agnostically then moves on. What's interesting is, in mentioning it, he uses the 80% premium figure. That's the 3rd time I've heard that now (the second being Louis Chapman post above) since "amber's" (much maligned) update post here. So is that where it's from?
Wow, Louis, I agree "steering clear of US jurisdiction" would've been worth it, especially had you known that in 15 yrs you'd probably want to do that anyway :P
@RLP: well I'll be in Vegas on Friday. If you'd like to join me and supply the dice, I'll distract the croupier. . .
GM Jenkins,
Just got to lake tahoe for a week of R&R. Haven't hit the tables yet but just waiting for the giants game to end.
I've got silver profits to grow.
Not too far from Vegas right? I usually play at Bellagio - I'm the dude in the Ed Hardy shirt. (kidding) - Hartford Whalers cap :P
Fuck! Got back from the tables and see silver at damn near 50. The whole time i wae shooting i was thinking, why isnt this as fun as it normally is? Well, clearly because the stock market is FREAKING AWESOME right now.
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