Click to enlarge.
The 1980 data point represents the average price for the entire year. The August 2011 data point represents the average price for the entire month.
Both data points were roughly 4x the level of the red trend line.
Here's another look at that same data using the banana price index to adjust silver prices (as opposed to the CPI overall).
Click to enlarge.
Where are all the banana speculators? Why are bananas still selling for 69 cents a pound at my local grocery store? Why silver? Why not toilet paper or aluminum foil or things we may someday actually need personally? If we are investing in silver then these would probably be pretty good questions to ask ourselves.
I continue to have absolutely no interest in buying silver at these prices (even as silver has dropped to $30). I did just buy some bananas today though. Go figure.
If we know that easy money/credit creates bubbles and we know that we have a legendary amount of easy money/credit right now then how hard is it to accept that silver could very well be a bubble? It is just an opinion of course, but I continue to believe that it is. Hindsight might show that it is not a bubble priced in dollars, but I do believe it is one priced in bananas. If so, that won't exactly help silver investors if the price of bananas rise to close the gap.
Put another way, I do not believe that any asset is good at any price.
This post inspired by dearieme's interest in seeing a banana chart. I could not supply the requested chart but I thought this was better than nothing.
Source Data:
BLS: CPI Database
USGS: Historical Statistics
Kitco: Silver
Stag,
ReplyDeleteBananas? How about a banana republic chart? ;)
All kidding aside, precious metals are "true" money even though they're not legal tender. Just ask Mish - he understands the religion. And religious doctrine supercedes common law!
mab,
ReplyDeleteI keep waiting for the Banana Republican party to campaign at my door. Heck, I'd even volunteer to hand out brochures on their behalf. ;)
Silver is down to $30 today, 25% lower than your August bubble point. That makes it a little less bubbly, but I still wouldn't go ape over it. Don't monkey around in the silver market unless you can handle the jungle. At $25, it's chimp change, and I'm a buyer again. Bananas still taste better.
ReplyDeletedisclosure: long one bunch of bananas
Your "chimp change" target is roughly 4x what I paid for silver in 2004. Just how much more profit do you expect to extract from the barbaric relic? ;)
ReplyDeleteAt $25, it might start a slow upward rise again, or might go bubbly again in the chaos of a disintegrating dollar system. It's not like I am going to back up the truck, but I sold the shiny back in April-May and sort of miss it. I know that's a terrible investment thesis, but the lizard brain must be satisfied. Is BofA stock a better deal?
ReplyDeleteOT.
ReplyDeleteThis bit from the Onion was posted on CR's site today:
http://www.youtube.com/watch?v=9U4Ha9HQvMo&feature=player_embedded#!
Humorous.
Mr Slippery,
ReplyDeleteIs BofA stock a better deal?
Must I choose between silver and BofA?
If I was looking for a "sure thing" then I'd put all my money on Really Fast Horse in the 9th, lol. :)
mab,
ReplyDeleteYour link is VERY amusing!!!
The 1980s, wasn't that when the Hunt brothers tried to corner the silver market?
ReplyDeleteYeah, I remember that. They own a lot of property down here, and it was big news at the time.
GawainsGhost,
ReplyDeleteSilver Thursday
But on January 7, 1980, in response to the Hunt's accumulation, the exchange rules regarding leverage were changed, when COMEX adopted "Silver Rule 7" placing heavy restrictions on the purchase of commodities on margin. The Hunt brothers had borrowed heavily to finance their purchases, and as the price began to fall again, dropping over 50% in just four days, they were unable to meet their obligations, causing panic in the markets.
Investors tend to borrow a lot of money to finance "sure things".
No mention in the Wiki that COMEX also changed their rules that silver futures could be cashed settled? At least I thought that was the case. Can't find a cite for it now, but there were many other rule changes? And that was the undoing of the Hunts -- they changed the rules. (Well, that and the Hunts were true believers in their cause, which I suppose one has to be to undertake something as audacious as they did.)
ReplyDeleteAnyway, that they will change the rules to suit themselves is a not unimportant point that always seems to be glossed over in the history books.
Speaking of... Mark, your Berezina call from last week was looking incredibly prescient up until about 3:00 EDT today. Wow. :-)
AllanF,
ReplyDeleteSpeaking of... Mark, your Berezina call from last week was looking incredibly prescient up until about 3:00 EDT today. Wow. :-)
One word: dialectics. ;)