I live in the USA and I am concerned about the future. I created this blog to share my thoughts on the economy and anything else that might catch my attention.
This is the End and a New Beginning
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I've been thinking about this for some time.
After 21 years of writing this blog almost daily, I've decided to stop
writing the daily updates on the blog.
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Silver Deep Dive
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Silver had a memorable year (+148%). Some of this can be explained by a
decline in the dollar. I decided to do some ML analysis to look for other
insights....
As one commodities banker told me: "The Chinese traders assure me that demand for copper kettles from households has increased massively. They can't buy copper derivatives, but they can buy those."
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This is not the Chinese government cleverly diversifying its way out of the dollar, as some retail commodities salesmen and advisers would have it. The Chinese state has declared purchases of just 235,000 tonnes this year, and has made it clear that it is unhappy with the rise in the copper price, and with private Chinese speculation.
Hell hath no fury like a Communist Central Bank's currency scorned?
What they plan to do about it, what they can do about it, and/or when they plan to do something about it are certainly topics open for discussion.
Perhaps the small Chinese investors have asavvy exit strategyall planned out. Then again, maybe they don't. Who knows?
In monetary economics, the quantity theory of money is the theory that money supply has a direct, positive relationship with the price level.
That is one scary inflationary chart.
In aluminum economics, the quantity theory of aluminum is the theory that aluminum supply has a direct, negative relationship with the price level.
That is one scary deflationary chart.
Nothing is ever easy, is it? Inflation? Deflation? We should all be thankful that the debate can continue.
In my last post I showed why I believe aluminum appears to be very cheap relative to silver. That does not necessarily mean aluminum is cheap relative to dollars though. In fact, I think there's at least a decent chance that there is more deflation to come.
Warehouses holding enough aluminium to build 69,000 Boeing 747 jumbo jets are why Peter Sorrentino says the most abundant metallic element in the earth’s crust is too expensive.
“I don’t see why the aluminium price has gotten so high,” said Sorrentino, a fund manager at Huntington Asset Advisors in Cincinnati. “There’s plenty of supply around and demand is still quiet. There’s a disconnect between the price and reality.”
This chart shows the price of silver divided by the price of aluminum going back to the year 1900. I've also included today's data point. Silver is currently trading at $18.25 per troy ounce. Aluminum is currently trading at $0.8887 per pound. There are 14.5833333 troy ounces in a pound. The ratio is therefore currently 299.50 to 1.
Why the chart?
I chose aluminum because...
1. It represents overcapacity of hard assets (deflation). 2. It is plentiful. Aluminum is the most abundant mineral in the earth's crust. 3. It is hard for speculators to influence its price. There's nearly an unlimited supply of aluminum available to be hoarded.
I chose silver because...
1. It represents overcapacity of printed money (inflation). 2. It is rare. Silver is one of the rarest minerals in the earth's crust. 3. It is easy for speculators to influence its price. There's a very limited supply of silver available to be hoarded.
I've mentioned in the past that if I was running my portfolio like a hedge fund then I would buy toilet paper and aluminum foil and sell precious metals. The chart is my attempt to show why I feel this way. Can the parabolic ratio continue higher? Of course it can. Might it someday revert to the mean though? Of course it could. Either aluminum could get more expensive, silver could get cheaper, or both.
I guess you could say that I am just not a believer in the theory that silver is good at any price, any more than I was a believer in the theory that real estate was good at any price. I could be wrong to think this way. Time will tell.
Disclosure: I own a LOT of toilet paper, aluminum foil, canned goods, and so on. As you can see, I am not exactly bullish on our long-term economy. Other than several silver coins held for sentimental value, I currently have no position in precious metals though. Right or wrong, I took profits at much lower prices.
Despite suffering a decline in the stock market in 2008, my faith in owning shares of businesses is unshakable. Nothing comes close in performance over the long term, with stocks outperforming every other asset class by a factor of two or more. And after a decade of underperformance relative to other assets, stocks are the asset to own for the coming decade.
Over the last few months the relationship between the U.S. stock market and the U.S. dollar has been totally inverse. The lower the dollar the higher the stock market. Thus, the bear has been luring inexperienced analysts and investors deeper and deeper into his trap. His mission is to get as many investors as possible fully invested and than he will spring the trap door which will make it very difficult for investors to liquidate their holdings.
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The break in the Euro will cause convulsions in the U.S. and Asian stock markets because China’s currency is pegged to the Dollar.
A stronger euro makes European goods more expensive for dollar-based importers in the U.S. and in Asia. EU nations such as Germany depend largely on exports to drive economic growth.
0.00% is the absolute floor. There's just 0.16% left to go.
The maximum possible upside reward is now just 0.80% (0.16% x 5 years).
In my opinion, that's one of the wimpiest maximum possible upside rewards (adjusted for inflation) in the history of investing, especially considering that the maximum possible downside loss is much, much higher.
It will be interesting to see what happens if indeed the rate does hit 0.00% again. I find it hard to believe it will just permanently hover there. It didn't last time. Take a look back in time to 2007-2008.
I would also point out that a 0.00% floor is a momentum trade killer. You can see it in the chart above. It's just like hitting a brick wall. I can't think of a single other investment where momentum trading can be killed off that easily. Can you? That's no coincidence that it bounced at 0.00% in my opinion.
That said, I'm certainly taking some risk being out ofTIP. It's up nearly 1% since Itook profitslast week. Investors continue to flood in. On the other hand, my gut says I should probably be selling the TIP in my IRA too at this point. I'm certainly thinking about it.
It isn't just deflation that can hurt TIP. It could be that there's more supply of US Debt than demand at some point. It could be a hint that the government may default on its Debt at some point. It could be that the stock market euphoria continues to the point that everyone wants stocks again. There are lots of reasons real yields could rise again, and any one of them would be bad for TIP.
Just opinions. Please don't think of this as investment advice. It isn't.
A New Report Shows Largest Ever Jump in Adults Moving in Back in with Parents
This does wonders for the housing market.
Also according to the AP, less than half of 16 to 24 year olds (46.1%) are currently employed which is the lowest number ever recorded since the statistic began to be analyzed in 1948. Also, a record 11.5 million Americans are currently attending college.
Too bad many of the jobs of the future don't require a college degree, and the ones that do often require very specific training.
"Being frugal is in, and being lavish is out," says Beth Strobel, director of marketing at PayPal. So shoppers are programmed to wait for huge bargains.
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