Floating Ratings and Sinking Silver
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,