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Floating Ratings and Sinking Silver

04/12/12 by  
Filed under Bourbon & Bayonets

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Some things in this world are a sure bet.  Cigarette manufacturers will always turn a profit.  Moms will always prefer disposable diapers to washables.  And when you write about precious metals in anything but a glowing manner – ‘buy now and buy later, regardless of price or market direction’ – you get a vicious reaction.

We’ve addressed the issue in the past, so we don’t feel it necessary to go into it again in depth.  Well… maybe just briefly.

Let’s just get this out first: Gold and Silver are real money.  No two ways about it.  Almost no one uses them as such, but we won’t quibble.  They are money, and in the end some form of precious metals-backed currency will likely take the place of the current fiat-based structures that dominate the money landscape globally.

We can’t be certain when that day will arrive, however, though it could be very soon.  It could also be a decade away.  No one knows.  And whether your corner grocer will be happy to barter a few chickens and some produce for two ounces of silver is also an open question.  He may be happier to take your new boots or a set of wine glasses.  Again, no one knows.

We view the thing like this.  As long as the market is trending higher, be in gold, be in silver, be in the commodity of your choice.  Buy Treasuries, even, so long as the price is increasing (more on this in a little bit).  But when the price of an investment falls and continues to fall – when the trend is clearly down, as it has been in silver for almost a year  – then it’s a form of madness to sit and do nothing about it.  It’s a form of madness not to sell out, perhaps in the hope of buying it back cheaper at a later date, or outright shorting it – again with a plan to use the profits to load up when the thing bottoms.

Just as a reminder, here’s a year’s worth of silver:

For those who bought near the highs last May, you have your silver, to be sure, but you’ve also been sitting on dead money.  And if we’re correct, you may continue to do so for a while yet.  The goal of successful investing, as far as we can tell, is to have your money work for you.  That means not getting tied up in anything that limits your ability to build your capital base.

Holding a position like silver because the ‘end is near’ or because ‘the Chinese are about to dump their treasuries’ or because ‘Europe is a goner’ is not wise when that position is sinking.

The only argument that would make sense to us for holding physical silver while the price declined, would be that you have to buy now because there won’t be any available later.

Frankly, we don’t see it happening.  On the contrary, we believe there’ll eventually be a rush to unload silver at the bottom of its current downleg, that volumes will swell and the market will be saturated with so much of the hated white metal that no one in their right mind will believe that silver has a future.

A look at the above chart shows no such swelling in volumes for SLV.

We’ve yet to reach a bottom.

But when we do, a right joyous day will it be for us here at Bourbon & Bayonets.  And a major redeployment will then be in order.

We’ll be great fans of silver and silver coins on that day, and we will buy on full margin everything we can get our hands on.

Until then, we remain sellers.

Treasury Market Remains Afloat

We spoke about the fixed income market recently, pointing out that we don’t see a massive waterfall selloff in treasuries as inflation starts to grip.  Rather, we foresee a slow, painful grind lower that pulls all debtholders into negative territory – save those who are content to hold their notes to maturity.

Here’s the iShares Trust Barclays 20+ Year Treasury Bond ETF (NYSE:TLT) for the last year:

It’s not a pretty future for the long bond, with her moving averages rolling over and the most recent highs set half a year ago.

So what’s a bloke to do who needs to be in the fixed income market?  Retirees and widows, orphans and inmates?  How are they supposed to manage when the value of debt is on the wane?

Never fear friends.  Now’s precisely the time to buy up all the floating rate interest bearing notes you can get your hands on.  And don’t be afraid of floating rate preferreds from bona fide issuers, either.

Rates are headed higher.  Floaters are the safest way to ride them.

We note that the Treasury just announced that they’ll shortly be issuing a new batch of FRNs for the first time in a while.  Look for them to be gobbled up quick.

 

Many happy returns,

Matt McAbby

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Comments

23 Comments on "Floating Ratings and Sinking Silver"

  1. mike on Thu, 12th Apr 2012 2:15 PM 

    Meanwhile Gold put in lows 5/5/11, 7/1/11 and of course it does show 12/29/11 and 4/4/12… Each low higher than the last.
    By those accounts, Gold is still in an uptrend that has merely been consolidating.

    SLV tested Jan 2011 lows on 12/29 and has since put in what seems to be a higher low.

    Of course lower highs have also been seen with higher lows. That is not a downtrend losing money, but a convergence of trends.

  2. Ken on Fri, 13th Apr 2012 11:05 AM 

    Still waiting to hear your downside objectives for gold & silver. Are you still short?, where will you add?

  3. Ed Sheldon on Fri, 13th Apr 2012 11:10 AM 

    Your ref. to SLV and Silver going down is horseshit! The physical market is on fire and I should know. SLV will go belly up when those buyers that want delivery of Silver find out there was less silver available (large shorts) than thought for the longs in SLV to feel comfortable. JPMorgan will go down or default on their silver shorts. Silver will go higher than the price of Gold (sooner than most bulls even think). In less than 9 years all the silver in the Earth’s crust will have been found and mined out.

  4. George Pecoraro on Fri, 13th Apr 2012 11:12 AM 

    I suspect Matt is right. I have big holdings in silver and silver stocks. I have sold options against the stock positions and continue to hold the silver. I have to hold the silver metal or sell at a loss. I suppose I can sell SLV short to protect myself going forward.

  5. R. Thompson on Fri, 13th Apr 2012 12:39 PM 

    I’m not selling my silver. However, I believe Matt’s instincts may be correct. The manipulation of silver is ongoing and the manipulators can set the price wherever they please. To an extent. If they go too low with their paper price the buyers will load up on the real stuff and this would defeat their purpose. Sometime in the future there is a high probability that they will lose control of the price of silver.

  6. dave on Fri, 13th Apr 2012 1:15 PM 

    My old friends the silver permabears are at it yet again!! You guys have done great at riding the short to intermediate term downward silver price manipulation perpetrated by the likes of jp morgan & co. but you should be extremely careful not to wear out your welcome on the short side of silver. I have to laugh at your description of silver as being in a near 1 year downtrend and technically you could make the case for that but it has been more of a massive basing formation and consolidation caused by jp morgans manipulation of the silver market.
    There is still little doubt in my mind that silver will break 50.00 per ounce in 2012 and hit 100.00 per ounce in the next 12 to 18 months and all the jp morgans and perma bears will see their financial fate end in tears. I dont know exactly when the price of silver will resume its blast off to the upside but i believe we are very very close perhaps a few weeks or less away!!! Best of luck !!

  7. Ken on Fri, 13th Apr 2012 1:19 PM 

    The manipulators are working with the Fed and other central banksters to “manage” the price lower so they can cover their short positions. Not a problem if you are willing to trade both sides of the paper market and buy physical on major dips. Just trade in harmony with the market action up OR down.

  8. Robert on Fri, 13th Apr 2012 2:22 PM 

    Matt -

    You say, “[Gold and Silver] are money, and in the end some form of precious metals-backed currency will likely take the place of the current fiat-based structures that dominate the money landscape globally. . . . We can’t be certain when that day will arrive, however, though it could be very soon. It could also be a decade away. No one knows.”

    Are you not aware of how precarious and “upside down” the economies of the entire globe’s developed nations are? Why gamble a drop in silver against a sudden, unannounced, massive cascading collapse of confidence by investors everywhere in one or several currencies, which could occur at any time? Did the lesson of MF Global go unheeded?

    As I unfortunately am not privy to the secret decisions of JPMorgan and other entities capable of manipulating the commodities markets to their profit ( … and the surely do!), it seems obvious to me that a slow accumulation and holding of the physical metals is the only low-risk approach for us small investors who wish to have most of their “wealth” still around when currencies inevitably die, and as to the USD abandoned as the reserve currency.

    Just my two cents.

  9. JG Fenstermacher on Fri, 13th Apr 2012 3:59 PM 

    So your saying, sell silver knowing full well that it eventually will be going back up. Sounds like a poor mans mantra, buy high and sell low. I know that`s not what you mean, but it has a familiar ring to it. I think I will hang on to silver and wait for the next time around, which I don`t think is too far away. J Bird

  10. Kirk Smeeton on Fri, 13th Apr 2012 5:22 PM 

    I’ve sold my silver mining stocks. Silver seems to be struggling and though many PM investors are still bullish, I believe the risk of further price drops are too great. Many investors on the TSX in which I invest seem to be of the same mind as many of the producing silver miners are getting close to their 52week lows. Hopefully those same investors locked in profits before silver stocks reached current price levels.I would be very careful about buying at these price levels also, until silver has made a clear upside breakout above $35.00

  11. Stephen on Fri, 13th Apr 2012 7:28 PM 

    I think holding silver’s still not a bad option. Or buying in now. I differ with Oakshire on silver.
    It’s the other gold, and gold has a future.
    I don’t know anymore about this current come-back in the market.

  12. Stephen on Fri, 13th Apr 2012 7:43 PM 

    And I hope your not telling us to buy into U.S. Treasuries..
    This country BETTER do something about it’s national debt!
    My God. Those clowns who were the Super Committee should be fired. You can’t come back and say, “We don’t have any answers?
    Make public, who the Super Committee was.

  13. Stephen on Fri, 13th Apr 2012 7:45 PM 

    A plebian uprising, [that of it's people], wouldn’t be such a bad thing. The current government is King George.
    Don’t declare; join a tax uprising.

  14. Mike on Fri, 13th Apr 2012 10:17 PM 

    Two words (insurance Policy)

  15. Ken on Sat, 14th Apr 2012 2:31 AM 

    Most of us know where this is eventually going. The Fed & banksters will continue printing to pay for past risk management failures. Gold and silver prices are being manipulated downward so banksters can cover their short positions;

    ultimately fiat currency dilution will buoy PM prices. In the meantime, enjoy profits from falling paper PM prices while selectively accumulate physical PMs.

  16. Joel on Sat, 14th Apr 2012 4:20 AM 

    Love your newsletter! I’m with you with silver. Love it long term, hege/short it near term. I wonder sometimes the time frame of the people who doubt Oakshire/B&B. Anyway, any opinions on the dollar/euro cross? Thinking about shorting the Euro again soon. Are there better trades? (always…) Keep it up guys.

  17. william shierling on Sat, 14th Apr 2012 8:32 AM 

    How do I purchase these notes, I dont see them at Treasury Direct.

  18. riverbirch on Sat, 14th Apr 2012 1:10 PM 

    It never, never fails that owners of SLV will hold on until the price is almost at its bottom at which time they will unload at the low. Human nature!

  19. Trolling for Silver Stackers on Sun, 15th Apr 2012 12:57 PM 

    An excellent post, Matt, and many jim flippies were enjoyed. Profit!

  20. Charles Savoie on Sun, 15th Apr 2012 6:11 PM 

    One of the first things I said about silver over 10 years ago was a statement any short seller would love—”silver is in danger of falling below the price of manure,” this was said in sarcasm. I’m fighting a lonely battle getting some too-choice info to silver investors, that the top of the USA/UK silver suppressing establishments are all enrolled in an organization calling itself “The Pilgrims Society” fully documented at http://www.silverstealers.net A lonely battle, because Gold Anti Trust Action Committee and many who want to stay in good graces with its extraordinarily arrogant and conceited leadership, won’t cover the documentary. Many other sites however, are covering the story.

  21. Jim on Wed, 16th May 2012 6:06 PM 

    Silver just hit $27 which is over $20 off it’s high in 2011. I wonder how much lower it will drop before bouncing back with a vengeance?

  22. dave on Thu, 17th May 2012 11:11 AM 

    My old friends the silver perma bears are at it again!! I would not want to be short silver here . Be short at your own peril. Silver will be north of 50.00 by the end of 2012.

  23. rob on Wed, 6th Jun 2012 3:23 AM 

    It’s about 2 months later now, and I pulled up a five year chart of silver. There is a strong case to be made, right here and now, for silver to be putting in a bottom. Matt, the problem with your chart is that the time frame is too short. Precious metals move in very long cycles. Check out the five year chart and see what I mean. It will be apparent that silver still has not broken its major support trendline.


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