Read more: http://maxkeiser.com/2011/05/19/stacy-blog-show-me-the-silver-bubble/#ixzz1Mou4tnj2
There are some that since 2001 have doubted the bull market in precious metals. In these past six weeks, however, everyone from former silver bulls to those who sell freeze dried chicken **** for a living are out shrieking the bears on the shriek factor. Do a google search and you will find hundreds upon hundreds of references to Hunt brother days. Bubble. Hunt Brothers. Suckers. Bubble. 1980. Bubble. Lose money. Bubble.
What the heck is going on???? Is the sky falling? Should we retreat?
Well, note that during every long, steady march up of a bull market, there are violent corrections down. And during every single one of these violent corrections, most of the media and many of the analysts will begin shrieking with fear or gloating with vengeance that the bull market is over. Read this editorial by Peter Schiff dated 2006 when silver corrected by 35% in 6 weeks. As you see, people were obviously shrieking that silver was in a bubble and now it was plummeting, popping and tumbling from I think it was $12 down to $9. No doubt Schiff will have received loads of hate mail from people who had ‘lost’ money by selling their silver after buying ‘at the bubble high’ on his recommendation. But without losers, there can be no winners in markets. It is because there are so many losers during a bull market that some can win. Their shrieks shake out even more losers, so the winners can win even more. Their loss is your gain.
To some, the losing is worth it. I have a friend who bought silver at the 2008 ‘bubble high’ of $22. Yes, again, in 2008, the silver bubble burst! This friend sold at $9 where silver once again fell. He ‘lost’ money by being ‘suckered’ into a bubble. Of course, $9 was obviously a support level for the next ride up on the bull. He doesn’t regret his losses as he says he just couldn’t deal with the emotional swings of the bull market ride.
Anyway, once again, for the third time in three years, the silver ‘bubble’ has burst. The fall is not as great as the 60% fall of 2008, but there are far more precious metals website owners and analysts mocking and ridiculing the ‘losers’ who bought at the top of the bubble. Some are suggesting silver is one of the biggest, craziest bubbles in history.
CPM Group has just released their 2010 silver supply and demand data, so I’ve gone through it to look for signs of a bubble that has collapsed. I’m not a mathematician, so I welcome any corrections on my maths and invite any additional observations that can be added to my own.
So if we’re in a bubble, of course, we must see the classic signs of mania. Buyers must be stampeding to the doors to buy at the high. Silver inventories should be bursting at the seams as all the crazies load up at mania highs. So let’s look for signs of that . . . you’ll find me in italics.
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CPM: The value of investor silver holdings was estimated at $14.7 billion at the end of 2010, the highest level on a nominal basis since 1988, with the record at $42.2 billion – nominally – in 1980. The value of silver holdings is the product of the price of silver and the cumulative silver bullion inventories.
Stacy – So on a nominal basis, the last time investor silver holdings were valued at $14.7 billion – nominally – was already 7 years into a 20 year bear market? On an inflation adjusted basis to 1988 dollars, the nominal value of last year’s $14.7 billion of investor silver holdings out to be $72.7 billion.
And at the peak of the last silver bull market – a time to which many are now comparing the current silver market – when it entered true parabolic stage, the total nominal value of investor holdings were $42.2 billion. $42,200,000,000 1980 dollars = 272,467,430,863.75 dollars in 2010. So on an inflation adjusted basis the size of the holdings in 1980 were roughly about 19 times bigger at a time when the global population was 50% smaller (1980 global population – 4.4 billion). And in 1980, half of that 4.4 billion global population was behind the iron curtain and when China was a micro economy of peasants far removed from the global economy.
So, essentially, this current ‘biggest bubble in history’ is actually at least 19 times smaller than the ‘Hunt brothers bubble’ and with 2.3 billion more potential investors on earth? Either many millions of ounces more of silver have to be owned by investors or the prices have to go much, much higher to get anywhere near the 1980 levels to which so many are comparing today.
Let’s return to the nominal numbers that CPM presents:
2010 nominal value silver holdings = $14.7 billion. 1980 nominal value of silver holdings = $42.2 billion
SH: Now compare that to:
2010 nominal US national debt = $14 trillion. 1980 nominal US national debt = $900 billion
Stacy: In other words, compared to 1980, nominal holdings of silver were 4 times smaller in 2010 but U.S. national debt was more than 14 times higher on a nominal basis compared to 1980? And silver is in the bubble?
CPM: On a global basis, however, the value of these [silver] assets represents 0.007% of total global financial assets, up from 0.003% in 2004. It was 0.34% in 1980.
Stacy: You do the maths on that, I get that silver assets represented 48 more times the percentage of total global financial assets in 1980. Of course, we all know that debt and derivatives have exploded since the 1980′s and that will account for the collapse in silver as a percentage of total global financial assets and it is also one of the reasons that many believe silver will go higher.
Back to investor demand . . .
This material is for informational purposes only. Although it is obtained from sources believed to be reliable, Leland National Gold does not guarantee its accuracy, or being all-inclusive. Past performance is no guarantee of future results. There are risks in buying and selling physical metals. The potential for loss as well as gain increases by leveraging physical precious metals transactions. Never trade with more money than you can afford to lose, and always be sure to read the Risk Disclosure provided in your account documents.
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