Catch a falling silver knife - Notes on EJ's April 29 silver sell call

[vinoveri]

Re: Catch a falling silver knife - Notes on EJ's April 29 silver sell call

Yes, it is.

EJ is not saying that silver will not go up again or that it will be dead money. He is saying that this buy and hold ten-bagger performance will not likely be repeated. More importantly, he is saying that we should focus on things that will do better than silver over the near- to-intermediate term. These things may or may not be evident or even exist at any given point in time, hence my comment about keeping your powder dry.


Rational speculation is always about handicapping among various investment alternatives. And anyone who holds any asset at all is a speculator......

I for one would be much obliged for suggestion on where to keep one's dry powder in a ZIRP environment with real inflation.
The worry for loss of purchasing power of wealth can hinder patience and cause one to invest unwisely.
What would you recommend as a non-cash highly liquid means of storing powder?
thanks

[rogermexico]

Re: Catch a falling silver knife - Notes on EJ's April 29 silver sell call

Errr, what are you talking about? I was simply asking where he gets 628% from.

Obviously I was responding to the whole thread. I agree that you have good math skills....

[DRumsfeld2000]

Re: Catch a falling silver knife - Notes on EJ's April 29 silver sell call

Errr, what are you talking about? I was simply asking where he gets 628% from.

[rogermexico]

Re: Catch a falling silver knife - Notes on EJ's April 29 silver sell call

I would add that despite what I just said about reverse economies of scale, many of the best macro plays are not only in plain view to all investors, but have enough float that any hedge fund could buy or short them.

Think gold in 2001, shorting silver in April 2011, buying natural gas when it trades at a 3 sigma low ratio to crude oil, shorting or selling the NASDAQ in early 2000, etc.

Politics, marketing, groupthink, SEC rules and herd behaviour are what prevent the larger actors from exploiting these opportunities as well as we amateurs can.

[rogermexico]

Re: Undervalued assets: Nearing Extinction?

Buffet and Peter Lynch used to talk about finding undervalued stocks, and recommend it
for everyone. But with more people using the internet, and more money in 401k's, perhaps there are fewer undervalued stocks. Information flows more freely. Buffet is not making most of his money on a "buy and hold" strategy in recent years, but on arbitrage deals.

Grantham is also on the prowl for undervalued assets. He is a macro thinker, so his findings are of interest to bugs and I-tulipers. Doesn't he claim it is difficult to find good investments?

Shiller's opinion is that we are not much better off than people 3000 years ago trying to increase the size of their goat herd, or have more children to take care of them.

I doubt there is any scalable asset undervalued to the extent gold was in 2000.

There may be a myriad of smaller ones you could invest in, but I think there are not enough around for all the investors who want even 6% real returns.

The macro approach we use here is not the only alternative. There are trading approaches and deep value approaches focusing only on equities that work very well and would have given great performance

Grantham and Buffett are hampered by having too much capital to invest, something Buffett has talked about repeatedly. Give these guys a few million instead of billions and they would have no trouble even limiting themselves to equities.

Imagine BRK had funded the entire 5 M B round of trutouch. Even is TTT is a ten-bagger (which is easily conceivable if not predictable) this event would not even move the needle of BRK's market value.

My own preference for asset class based macro investing is because it is much more time efficient for me, not because swing trading or deep value equity investing is impossible or inferior in returns. I've done both successfully in the past. That said, I have also had better IRR over time with macro investing, with the exception of 1999 where my IRR was 97% in that one year. But that was an exceptional year of bubbly market behavior as we all know, and like the silver trade, not likely to be repeated with stocks for a quite a while.

[rogermexico]

Re: Catch a falling silver knife - Notes on EJ's April 29 silver sell call

EJ "Answer: The silver play was for a 628% gain from $4.25 to $48.50 between 2001 to 2011. It won't be repeated.''

Am I being stupid here as I write early in the morning, but is this not a gain of over 1,000%?

Yes, it is.

EJ is not saying that silver will not go up again or that it will be dead money. He is saying that this buy and hold ten-bagger performance will not likely be repeated. More importantly, he is saying that we should focus on things that will do better than silver over the near- to-intermediate term. These things may or may not be evident or even exist at any given point in time, hence my comment about keeping your powder dry.

Rational speculation is always about handicapping among various investment alternatives. And anyone who holds any asset at all is a speculator......

[bart]

Re: Catch a falling silver knife - Notes on EJ's April 29 silver sell call

A clock that tells the wrong time is still right for half the day, lol.

"Krugman: Bring Back the 91% Tax Rate"
– The New York Times, November 18

He is redeemed!!! /sarcasm

[verdo]

Re: Catch a falling silver knife - Notes on EJ's April 29 silver sell call

One of the worrying aspects about prominent economists calling for inflation is that one of them is Krugman. ;-)

A clock that tells the wrong time is still right for half the day, lol.

[bart]

Re: Catch a falling silver knife - Notes on EJ's April 29 silver sell call

I have often wondered about this. Gold is best for central banks, who want to stabilize currencies, post collateral for international loans, etc.

Are you thinking the "inflation blow off" will result in a barter system, or that people will want to store wealth in silver coins instead of paper bills? Silver might well be the "metal of choice" in that situation, since even a 1/10oz gold coin will be too valuable for most transactions.

That's certainly one of the reasons, due to the quantity of folk expecting a 'Mad Max' scenario, but I don't think a 'Mad Max' scenario is very likely.

But what kind of scenario will cause silver to "hugely outperform gold"? It seems like Hyperinflation, radical currency devaluation, or sustained high inflation, or the fear them.

In my opinion those are the primary reasons, with the addition of 'social unrest'.
I haven't seen any posts by EJ backing away from an expectation of prices doubling in some 3 year period either, although I could have missed it.

In favor of that idea, I have seen any number of articles from "prominent economists" calling for inflation or negative real rates, to encourage individuals and institutions to spend the money they have. As though saving for the future is unpatriotic.

This so called "paradox of thrift" should be thoroughly debunked by some one.
Slowly falling prices are beneficial, unless the economy has high debt levels.

We already have both inflation (my CPPI is around 6%, Williams SGS-CPI is around 9-10%) and negative real rates. Even just using CPI, the current 3 month Treasury rate is around minus 3%.

One of the worrying aspects about prominent economists calling for inflation is that one of them is Krugman. ;-)

The huge wild card though is the whole area of geo-politics. We had nothing like the political control and lack of sanity and "PR crud" and fascism we have today when compared to the late 70s and early 80s.

[Polish_Silver]

Undervalued assets: Nearing Extinction?

Buffet and Peter Lynch used to talk about finding undervalued stocks, and recommend it
for everyone. But with more people using the internet, and more money in 401k's, perhaps there are fewer undervalued stocks. Information flows more freely. Buffet is not making most of his money on a "buy and hold" strategy in recent years, but on arbitrage deals.

Grantham is also on the prowl for undervalued assets. He is a macro thinker, so his findings are of interest to bugs and I-tulipers. Doesn't he claim it is difficult to find good investments?

Shiller's opinion is that we are not much better off than people 3000 years ago trying to increase the size of their goat herd, or have more children to take care of them.

I doubt there is any scalable asset undervalued to the extent gold was in 2000.

There may be a myriad of smaller ones you could invest in, but I think there are not enough around for all the investors who want even 6% real returns.

[jpatter666]

Re: Catch a falling silver knife - Notes on EJ's April 29 silver sell call

I have often wondered about this. Gold is best for central banks, who want to stabilize currencies, post collateral for international loans, etc.

Are you thinking the "inflation blow off" will result in a barter system, or that people will want to store wealth in silver coins instead of paper bills? Silver might well be the "metal of choice" in that situation, since even a 1/10oz gold coin will be too valuable for most transactions.

But what kind of scenario will cause silver to "hugely outperform gold"? It seems like Hyperinflation, radical currency devaluation, or sustained high inflation, or the fear them.

In favor of that idea, I have seen any number of articles from "prominent economists" calling for inflation or negative real rates, to encourage individuals and institutions to spend the money they have. As though saving for the future is unpatriotic.

This so called "paradox of thrift" should be thoroughly debunked by some one.
Slowly falling prices are beneficial, unless the economy has high debt levels.

I do not see silver outperforming gold purely on a monetary metal basis. On the other hand, silver has very interesting industrial uses, potentially in its antibacterial properties (as I recall, might be wrong here, but something along those lines) which could lead silver higher.

I do not see a return to only using actual silver coins/gold -- the electronic payment system is NOT going away as the government has many, many reasons for moving away from a cash basis. I do see the possibility of having electronic debit/credit accounts which are denominated in grams of gold against some physical reserve held elsewhere (basically bullionvault taken to the next level)

[Polish_Silver]

Re: Catch a falling silver knife - Notes on EJ's April 29 silver sell call

. . .

It remains my strong belief that silver will hugely outperform gold in the inflation blow off that's ahead, but not imminent.

I have often wondered about this. Gold is best for central banks, who want to stabilize currencies, post collateral for international loans, etc.

Are you thinking the "inflation blow off" will result in a barter system, or that people will want to store wealth in silver coins instead of paper bills? Silver might well be the "metal of choice" in that situation, since even a 1/10oz gold coin will be too valuable for most transactions.

But what kind of scenario will cause silver to "hugely outperform gold"? It seems like Hyperinflation, radical currency devaluation, or sustained high inflation, or the fear them.

In favor of that idea, I have seen any number of articles from "prominent economists" calling for inflation or negative real rates, to encourage individuals and institutions to spend the money they have. As though saving for the future is unpatriotic.

This so called "paradox of thrift" should be thoroughly debunked by some one.
Slowly falling prices are beneficial, unless the economy has high debt levels.

[DRumsfeld2000]

Re: Catch a falling silver knife - Notes on EJ's April 29 silver sell call

EJ "Answer: The silver play was for a 628% gain from $4.25 to $48.50 between 2001 to 2011. It won't be repeated.''

Am I being stupid here as I write early in the morning, but is this not a gain of over 1,000%?

[Raz]

Re: Catch a falling silver knife - Notes on EJ's April 29 silver sell call

A true investment pearl. There is ALWAYS some asset that is cheap enough to have a high probability of abnormal gains going forward. ALWAYS.

The key to investment success is having the discipline to keep your powder dry until you find this asset, and then having the courage to buy enough of it to make a difference.

This is the only way I've made any significant gains during my lifetime.

[jpetr48]

Re: Catch a falling silver knife - Notes on EJ's April 29 silver sell call

Yes I agree and did buy a good amount of coal stocks early September with thesis of Mideast war and spike in energy prices. However thankfully this war did not happen. Coal is cyclical and will get hit hard in coming months, so i sold and may rebuy on next correction. I was ready to buy natgas at 2.80 but I do not have time nor energy to learn futures or to roll over contracts. Thanks though rogermexico for your contribution.