Im out of the may silvers i added a few weeks ago at 33.26. 33.26 is about where i entered a few weeks ago. I made some money on the day of the take down so overall im up but the whole experience has certainly left a bitter taste in the mouth.
And so, here below, some considered thoughts on the ‘pms’ (precious metals) and where we are in at present in the great monetary game that surely defines this recent period of economic modernity.
I would suggest the evidence is beginning to show that the issue of the pms will be resolved by governments and not by traders. This is important to recognise. It seems the market feed back mechanism is no longer allowed to provide the disapline they used to on government actions. The post Bretton Woods age has produced an unside down paradoxical world where foreign exchange markets reward unsound policies and peanalize sound policies. More recently we find the, so called, ‘bond vigilantes’ have evaporated. And last Tuesday precious metal vigilantes were rendered impotent by massive central & bullion bank paper precious metal manipulations. The ‘melt up’ in listed security nominal values can be induced at will via central bank liquidity actions to relieve solvency, deleveraging, growth issues etc. These actions occur as and when they are required with the free market feedback muzzled.
Whether the year 2000 .com bust or the 2012 silver take down event or the 2008 debt deleverage bubble the ‘consequences of actions’ are taken on by central banks. They are battled down via tidle waves of paper money. From one issue to another, the disapline of the free markets have been totally negated, for now, it appears.
For anyone engaged in the markets on a day to day basis, no paranoia is needed to say, it is crystal clear there are large, incumbent, vested powers that are trying to resolve monetary and geopolitical issues. And that the free markets are not to stand in the way of their vision of how to resolve current problems.
But of course there are always consequences. All the central banks do when they prevent or constrain the market’s feedback on their actions is akin to ignoring the warning lights. It seems to me that many warning lights are flashing now but they are all being ignored.
Unfortunately, as each central bank fix exaporates another is born. With each turn of the wheel the USD fiat system (inc euro, gbp) is weakened. There is no long term resolution must be clear to all. Capital is being gradually destroyed but in the absence of an alternative system this process continues and increases in scale as the troubles and the means to resolve them escalates. Will bond yields rise? Will the PMs rise? If not these two issues what is the issue that limits manipulation of the free market? With regards to silver/gold. Imo, the pms will rise, as and when, the em countries are sufficiently confident to take on the USD system. Or are sufficiently unhappy with the US and Euro monetary debasement. How might unhappiness be experienced? Via inflation? Inflation is only effective limitation of monetary debasement it seems. For the moment, EM countries are happy to take the long game. They are accumulating ‘pms’ on pull backs. The longer pms stay at low levels the longer they can be accumulated. Over time the EMs are shifting a greater proportion of their wealth into pms in preparation for an end to USD hedgemony. But this process will take a while. No near term dramatic end game is in play for the USD as yet so long as inflation stays subdued. For this reason it suits both parties to keep a near term lid on the pms. EMs accumulate and the west debases. Its a win win until a critical mass is reached where upon EMs can drive pms to the moon. It may take a while for this to unfold as EM ownership of pms is at a low level for the moment.
On the near term, for this leg up to have closed to us in the way it has seems to me to be most unfortunate. The bullion banks are in the process of covering and therefore reloading. The physical issues will continue and the pm miner’s undervaluations look set to continue for now. Those that take on the US government and central bank in the markets had better watch out. The history is not kind to those that have previously tried eg Bunker Hunt. Bunker wasn’t an idle opportunist speculator on silver. No. He was a fundamental visionary. He saw the USD debasement, unpicked it and sought to put an end all by himself, and make money in the process. It cost him his liberty and fortune as he was charged with manipulation but only after his position was crushed.
So must we all take from this history and more recent experience? Diversification of portfolios is key. You have to ensure you take an income and can achieve capital growth via other means. To depend on pms for this growth is very dangerous in a world where fiat money ensures the continuation of the entire DM political and banking executive classes.
And as for inflation? Inflation will be accutely felt when sufficient particpants move out of cash and bonds. And lets be clear, there is a mountain of capital currently parked in cash and bonds. The simple mathmatical ratio of new cash to existing cash and near cash will be the key ratio that defines inflation. It is logical to suppose that the velocity of cash moving into and out of assets will increase as we march down this road. Cash will move into assets and then experience great shocks, some of them government and central bank created. As the capital moves back into cash central banks will pull the ratio back into line so that new monetizations can occur. Cash will come back into assets until it is forced out and then more waves of monetizations will occur. This has in effect been occurred for about 40 years via central banks and or the banking system creating new money. It is just that the velocity of these cycles is increasing reflecting the system’s weakness and movement into an end phase. But, lets be clear, this end phase could last five or ten years before its volatility is at a point that renders it permanently broken.
Regards Rich
p.s. Here the Bunker Hunt story from Sept 2011 on Capsyn.
http://www.capitalsynthesis.tech/the-hunt-brothers-remembered-regulatory-lessons/
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