Posts
NEW YORK (CNNMoney.com) -- All that glitters isn't necessarily gold. If you want a really hot metal, check out silver.
I cringe at the thought of how well other recent "really hot" investments worked out long-term.
But the spike in silver is worth noting since it might be a sign that a global economic recovery could actually be for real.
As a believer in the "illusion" of prosperity, I have a hard time betting on a "real" global economic recovery.
In that respect, the surge in silver prices is probably more similar to the rally in other assets that had been priced for financial Armageddon, such as bank stocks and airline stocks.
As an economic bear, I wouldn't necessarily want my investments aligned with bank stocks and airline stocks. Maybe that's just me.
So, let's sum this up.
- Mainstream media is now telling us to invest in silver.
- Silver is "really hot" right now.
- We should like silver if the global economic recovery is for real.
- Silver is behaving much like bank and airline stocks.
Even as a long-term stagflationist (and one who would therefore naturally embrace a silver bull story), I continue to brace for more deflation. It may or may not come but I do think there's at least a 50% chance that the bottom will fall out of the global recovery. It seems no more sustainable to me now than it did when I first turned bearish in 2004. Although the "decoupling" arguments were completely discredited in the last downturn, they are already starting to pop up again.
August 29, 2009
Emerging points in decoupling debate
"There are many recent signs that some emerging markets are forging a limited version of decoupling from the still very weak developed economies," Mr. Porter said. Over the past quarter, we have seen strong growth in China and other Asian economies while the U.S. economy remains in recession.
That would be all fine and dandy if I actually believed in the China story right now. I do not. As Andy Xie recently said, "China has become a giant ponzi scheme." That's what I believe too.
It isn't easy being a bear. You have to decide what kind of bear you wish to be. A bull can simply buy stocks. A bear has to decide if he should be buying something to protect against future inflation or if he should be selling something to protect against future deflation. No easy answers for a bear. No sure things.
For what it is worth, I'm a moderate bear. I'm neither preaching at the hyperinflationary altar nor am I preaching at the hyperdeflationary altar. I'm somewhere in between. I believe that it doesn't require either extreme to have a horrible long-term economy. Further, altars often require sacrifices. I'm trying very hard not to make sacrifices.
Want to know when hindsight shows was one of the best times in the history of mankind to invest in gold and silver?
May 31, 1999
Gold Glut
One final note: In part, recent price activity has been driven by large speculative net-short positions. These trades have been quite profitable and thus the activity will likely continue. At times, it will lead to sharp but brief rallies as profits are taken. But inevitably, with such bearish fundamentals, rallies will prove to be selling opportunities for savvy investors.
Thanks mainstream media (Barrons) for your keen insights. Using hindsight, you could not have been more wrong about the gold glut in 1999. For those investing in "really hot" precious metals right now, let's just hope that mainstream media is not as wrong now (in reverse) as they were then. I have my doubts though.
It is not whether you are right or wrong, but how much money you make when you are right and how much money you lose when you are wrong. - George Soros
This is not investment advice.
4 comments:
Mark,
perhaps silver laced toilet paper (silver is a strong anti-microbial) is a long term investment we can all "clean up" with.
Kidding.
Stag,
Silver and gold look pricey to me. And I just can't buy the notion that gold and silver are true money either. In 1929 sure. But today how can you buy goods and services or pay your taxes with gold and silver?
Keeping a small percentage of assets in precious metals makes sense just as buying insurance makes sense. But buying gobs of excess insurance is pointless. Rather than gold, you'd be better served hoarding the end goods and means of production imo.
The other thing is that we already had our inflation (if housing is considered). Buying gold after an historic run up when we are still slipping into deflation seems dopey. Of course, dopiness ususally runs way further than most think. I maintain that preventing deflation is not the same as causing high or hyper-inflation.
Commodity prices still look rich to me. A few data points (ignoring peak oil which I think is a bit premature). In 1970, the most useful commodity of all (oil) averaged $3.39/bbl. At the bubble peak, it hit $140/bbl. That was a 41 fold increase (10% annualized!). That's greater than the 4.5% cpi inflation during the same period or the 9.45% S&P 500 annualized gains to date (dividends included).
The cpi is understated in my view, but not by that magnitude. For arguments sake, assume a 6% inflation rate for the period - that would put oil at ~ $31/bbl, about right imo. A similar analysis shows gold doesn't have much room to run although the starting price for 1970 gold is murky.
Commodities should trade for cost of production plus inflation and ~ 2.5% real profit. The rest is speculation, something we have LOTS of thanks to the fed.
Currently inflation expectations/fears are Bernanke's friend, although he has less control than he thinks. A few more down quarters on the cpi and look out. The speculation won't be Bernanke friendly at all.
GYSC,
Hahaha!
Silver bullets may not be the answer. Perhaps the government has it right.
http://en.wikipedia.org/wiki/Werewolf
"...while one Danish belief holds that simply scolding a werewolf will cure it."
Bad werewolf! Bad economy! Bad! Bad! ;)
mab,
"Commodity prices still look rich to me."
Here's a nice one from 2006.
Why the commodities boom is different this time
http://www.moneyweek.com/investments/commodities/why-the-commodities-boom-is-different-this-time.aspx
"Although world demand will fluctuate in line with the business cycle, it’s also likely to keep growing faster than it has in the past. The emerging economies are at a development stage that generates disproportionate demand for natural resources."
"When Chinese and Indians progress from abject poverty to lower middle class status, they move into dwellings with indoor plumbing, electricity and basic appliances."
Think about this for a moment.
1. The article claimed that commodity prices would continue to rise.
2. However, in my opinion rising commodity prices hurt the poor the worst. They spend more than most on basic necessities such as food (pure commodity plays).
3. So how do rising commodity prices have ANY chance of allowing "Chinese and Indians progress from abject poverty to lower middle class status"?
The last commodity bubble ended poorly. Oil crashed from $140+ to $30+. We're doing it again with the exact same thinking as before.
I don't know how much higher commodities can go, but I do strongly believe that it will break the global economy just like it did the last time should it continue.
Had we managed to have a bull market in stocks without an even greater bull market in commodities (again!) then perhaps I wouldn't be so bearish. That's an alternate reality though.
I'm no more a believer in commodity driven stock market rallies than I was in 2004. It feels like an echo bubble forming to me. Could be wrong of course!
Post a Comment