The lesson of this most recent sell-off in silver. Why did it occur? And what should you learn from it?
Was there any obvious real world developments in actual silver supply and demand fundamentals that caused the price to decline? Not from anything I‘ve observed. Investor demand for real metal remained strong for every measurable category from strong ETF flows and record coin production and sales, to dramatic COMEX warehouse withdrawals, to continued disruptions in silver production and refining. Industrial consumption, admittedly weak, didn’t suddenly plunge anew in the last few weeks.
The explanation for the sell-off was the same as it ever was - price rigging on the COMEX. The big commercial shorts engineered the market lower to force leveraged longs on margin to sell, in order for the big shorts to buy back futures and other derivatives. Once again, the derivatives market tail wagged the real world price of silver dog. The good news is that the concentrated short position, while still large and manipulative, appears to be just about as low as it’s going to get, after this recent sell-off and the engineered decline over the past 8 months.
OK, if that’s the answer to why silver sold off, what’s the lesson? The lesson is that you must approach silver in such a way that you are not a victim of the manipulators. Buy for cash, don’t borrow or go on margin. You can’t prevent silver from dropping due to these rigged sell-offs, but you can prevent your silver from being taken away from you by forced margin call selling.
There’s a simple decision that every silver investor must make. You must decide whether you believe that the price of silver is manipulated or if it is functioning as a free market. This may sound weird at first, but if you decide that silver is not manipulated in price, but is trading free from control, you shouldn’t buy it or continue to hold it as an investment, in my opinion.
That’s because if you believe that the price of silver is free from an active downward manipulation, you must believe it is priced in accordance with everything you see around you. You must believe that consistent record demand for an item should result in sharply lower prices. You must be comfortable with delays and rising premiums being compatible with lower prices. You must be able to disregard documented proof of an unprecedented concentrated short position as unconvincing, and regulator stalling and double-talk as reassuring. You must see something I don’t see.
Instead, if you do see manipulation permeating the silver market, that is the best reason for buying. If you see manipulation, you see an artificially depressed price, a price screaming to be bought. If you see manipulation, you see a condition that can’t last, that must end. If you see manipulation, then everything makes sense about silver’s price history and circumstances. If you see manipulation, you know the usual commentary about silver is nonsense. If you see manipulation, you can understand the sharp sell-offs. If you see manipulation, you know it will end explosively to the upside.
Like the Madoff ponzi scam that lasted 13 years and 12 investigations, the termination of controls on the price of silver will be something we look back upon and marvel over how long it existed. Just make sure you are looking back while holding as much real silver as you can.
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People email me with comments like, “Don, why don’t you do a video about how we are all getting screwed by Obama’s socialist agenda? He’s added trillions to the deficit in only his first 60 days in office. You need to tell people about this.”
Some people email to say, “Don, there’s a video going around that shows how this (insert coming month of your choice) there will be a (insert calamity of your choice). You need to warn people!”
Can you imagine the kind of things people send?
To which I reply: Why would I do those videos?
I tried to do something BEFORE we found ourselves where we stand, now. I begged people in 2006, 2007, and, 2008 to PLEASE:
1) Sell or short the market from “Dow 13,000″ to “Dow 14,000″.
2) Buy gold and silver.
3) Get out of debt as soon as you can.
4) Stop watching the liars in the mainstream who all have a stake in whether you are “in the market”.
5) Learn to trade and increase your wealth incrementally in all market environments.
6) Be liquid more often than not.
7) Get out of debt as fast as you can. (Such a good idea, I must say it again!)
None of the things I argued people should do depended on who the President was, what the makeup of Congress was, whether or not the federal reserve were “good guys” (thanks for that one, Jim Cramer!), or, what the next financial disaster would be. My comments were - I thought - common sense.
You know, like, “When a market is at a top for the day, week, month, quarter, year, decade, century, and, uh, forever, you are at the ‘high’ in the ‘buy low, sell high’ equation.”
Or, “Look at the charts. Every time the fed starts to cut rates, the market gets hammered. Every time the fed raises rates, the market goes straight up. If the fed starts to cut rates, the market will be destroyed. Maybe down to ‘Dow 8,500′.”
And, “When Goldman Sachs comes out and says that it’s time to buy oil at $150 a barrel because it’s going to $200, and, every chart in the world shows that oil is overbought and about to hammer people, and, every analyst on TV is shouting ‘you gotta buy oil’ (Fast Money, Mad Money, CNBC’s entire network), you gotta short that thing.”
Bet, you forgot my call to BUY THE DOLLAR and SHORT THE EURO in MARCH 2008.
But, this is not about my great calls. It’s about the response to them.
I was laughed at. I was mocked. I read comments about how I dressed like, looked like, or, was a: redneck, hillbilly, nobody, “Jim Cramer wannabee,” etc.
A few folks took heed. For them, I am happy. Most, laughed as they lost money, time, and, most importantly, freedom.
My own dad and father-in-law scoffed openly to me. I begged both to buy gold and silver in 2005. I begged my dad not to buy real estate in 2006. I begged my father-in-law to sell his stocks at “Dow 14,000″.
And, the chuckling drowned out my pleas.
Speaking of freedom, I hear people now worried about what the Obama administration has “planned” for us all. The odd thing is, the people who worry about Obama are - get this - the same ones who LOVED George Bush, the Patriot Act, and, excused the handouts Republicans gave to the banks and brokers last year as “necessary, under the circumstances.”
Yet, it’s those same Republicans who now freak out at the thought that the Obama administration will actually use - gasp - all those “tools” created by the Bush administration.
Well, some people warned about this happening 8 years ago.
And, those people who warned were mocked, scoffed-at, and, called “conspiracy nuts”.
Are the stories about the Obama administration’s “plans” true? Who knows. I mean, if you listen to Rush Limbaugh, Obama will destroy America. If you listen to every single Obama supporter I’ve spoken with, Obama is the “one,” the “answer,” the “chosen one.”
Polarization has not been this strong since any time I can recall. Clinton polarized with his personal life, Bush polarized with his policies, Obama, though, seems to polarize with his BEING.
And, now that it’s the Obama administration, right-wingers are all beside themselves with fear, worry, and, anger. The “conservative” crowd can’t believe what’s happened to our budget deficit in the last 60 days.
As if what happened in the prior 6 months did not happen. As if the largest increase in our A) deficit, B) size of government, and, C) trade imbalances, did not happen since George Bush took office in 200. As if, Bush’s former Treasury Secretary, Henry Paulson did not receive the ability to take as much of our money as he wanted (and now, Tim Geithner) and do with it as he pleased…
…which includes literally handing money to foreign banks, brokers, and, fatcats on Wall Street.
AS IF THEY DID NOT ALREADY PRINT, HAND OUT, and, GIVE AWAY MORE MONEY IN THE SIX MONTHS PRIOR TO OBAMA TAKING OFFICE THAN HAD BEEN DISTRIBUTED SINCE OUR COUNTRY BEGAN.
While, your kids, grandkids, (etc) will be saddled with all that debt.
And, wait, let me get this straight, I’m supposed to be upset about Barack Obama? What in the world? Why?
Why would I be upset about Barack Obama? He is just doing what he said he’d do. At least I knew what we would get with Obama. There’s nothing to be upset about. Barack Obama just does what he told us he’d do: Spend, spend, spend.
As for Geithner: What do you expect from the man who engineered most of what’s happened to our economy? He was at the federal reserve prior to his stint with the Treasury, before that, the IMF. And, even earlier, the Council on Foreign Relations.
So, why would I be surprised that Geithner blames US for “what happened”? He said today, “We came through a period where people borrowed too much and we let our financial system take on much too much risk… And, the consequences of those choices, made over years, were a huge boom. And that boom, the air is now coming out of that and that’s causing enormous damage.”
Left out of Geithner’s position is the fact that the reason for all that “borrowing” was that the federal reserve dropped interest rates to their lowest rates in history (until Bernanke got a hold of things last year). That interest rate drop under Greenspan was championed by none other than, Timothy Geithner, your current Treasury Secretary.
The man who now holds the keys to your money.
Why in the world would I be surprised?
Geithner also said today, ” “the market will not solve this” while disclosing a bailout fund for battered banks has $135 billion left and might need more.
Does it surprise me that Geithner’s answer is to give the government more control? To blame the people for “the problem?” Should I be surprised that “the market” is blamed, when, in fact, “the market” simply acted on the “leadership” of the federal reserve (Tim Geithner, etc), Goldman Sachs, er, The Treasury Department, and, the past 16 years of policies handed down under Clinton and Bush?
No.
I acknowledge that it happens. I accept that it happens. I understand why it happens. This is what happens to a country run by banks, not on a sound-money standard, and, with a fiat-currency (read: printing presses that run non-stop to “liquify” markets).
Yet, the time to be “upset” was in 2006, 2007, and, 2008. The time for worry was before all this “news”. The time for preparation was years ago.
Which, ironically, is when I tried to, well, you know.
That was when the laughter, tales of goldilocks, and, “economic nirvana,” filled the halls of every brokerage firm in America. While Americans filled the aisles of Home Depot and Wal-Mart and spent all that “wealth” they’d “created” when they refinanced the house they lived in (yet was - and still is - owned by the banks, who, now own their house, and, have their money, too.)
If you want to watch videos about how “evil” Obama or his administration is, head on over to YouTube. (I’m not convinced that Obama is any more or less “evil” than any other President. He just does what he says he’d do: Spend. That’s kind of rare, I suppose. A President who does what he says he’d do.) If you want to find out how much of your money flows down the drains now, there are plenty of channels on YouTube that outline all that for you.
But, please don’t waste your time or mine with an email explaining how “evil” and “terrible” Obama, Geithner, or, anyone in this administration “is.” If I want to find that “information”, I’ll do as I suggested you do: I’ll head over to YouTube and get my fill of that “information”.
I do not like where we are with our economy. I am not happy about the situation we find ourselves in with congress. I do not believe that the Obama administration holds “the answer” to any of this.
Those opinions of mine, though, are based on my desire for fiscal and social forethought. Ideas which were posited by me over the last 20 years.
So, no, I have no plans to do videos about the Obama administration, Geithner, or, their “plans” outside of my continual quest to help you: Get out of debt, increase your wealth incrementally through smart trading, and, prepare as best you can for whatever comes our way.
If you get out of debt, increase your wealth incrementally, trade smart, and, prepare yourself and family for whatever may come your way, you’ll find an interesting truth:
The President, Treasury Secretary, and, federal reserve’s actions will worry you in direct proportion to your debt, wealth, and, preparedness.
Sincerely,
Don Harrold
http://www.donharrold.net
