Thursday, May 19, 2011
Wednesday, May 18, 2011
SILVER : WHAT IS IT? WHAT IS IT USED FOR? WHAT IS THE STATE OF THE SILVER SUPPLY?
Silver - chemical symbol Ag , atomic number 47 , atomic weight 107.8682 , melting point 1234.93 K , boiling point 2435 K
Silver is a greyish-white atomic element of nature. It is very ductile (meaning it can be drawn out very thin over a great distance) and also very malleable (can be beaten into nearly any shape, though slightly less so than gold). It also has the highest electrical conductivity of any metal, even higher than copper. This characteristic makes it indispensable for electronic applications. Pure silver also has the highest thermal conductivity of any metal, and among the highest in reflectivity.
Main uses for silver, as presented by expert silver analyst, David Morgan:
Batteries, Bearings, Brazing, Catalyst, Coins, Electrical, Electronics, Electroplating, Jewelery, Medical Apps, Mirrors, Photography, Solar Energy, Water Purification
In fact, even though silver is mainly seen as used in coins, over 40% of silver consumed on an annual basis is due to industrial demand! Most of that silver used is irrecoverable economically, meaning that it would cost way more in energy input to recover it than what you would get back, especially at today's prices. Due to it's characteristics, it is indispensable to today's technology, so much so that it is not a stretch to say that much of today's technology simply would not exist without it!
It was estimated that as late as the late 1980's, there was 1.8 to 2 billion ounces of silver above ground. Todays number I am currently estimating to be about as low as 100 million ounces but could be as "high" as 300 million. No one including myself can be certain of this number, but given that the Chinese currently use 1/70th of the amount of silver that the western world uses per 4 person household, even 500 million ounces does NOT leave a lot of silver left for such a population.
It is no wonder that silver is in rather short supply.
But wait, there's more!!
Silver supply and demand has been in a deficit since 1990! In the 1990's silver was trading at about $5. Silver's price was so low, most of the mines mining silver as a primary product closed, and primary silver producers became non-existent! The vast majority of silver mined by the end of the decade was produced by companies that mined silver as a by product to other metals.
Now it seems that this issue is starting to come to a head. Several bullion dealers that I track are reporting having some difficulty obtaining it. The smaller denominations - 1oz to 10oz and US silver eagles are not readily being found. Now it appears even 90% coins minted in the US before 1965 are starting to have their premium rise.. something that in the 6 years Ive been tracking silver has simply never happened. Apparently I am not the only one who is seeing this. consider: http://www.caseyresearch.com/articles/silver-price-least-you-should-worry-about
In regards to the gentleman's comment concerning a secular (10-30 year) top, I would have to add this: You heard absolutely NOTHING about how horrendously overvalued tech stocks were in early 2000 on the TV, and absolutely NOTHING about how horrendously overvalued housing was in 2006!! Yet at the end of April 2011, all you heard when you turned on the "boob-us tube-us" was how much of a bubble silver was in!! It was so bad and so loud it was deafening. This is NOT a sign of a secular top but rather a sign that we are JUST GETTING STARTED in a bull market. Silver was about $5 and crude oil was about $18 a barrel during the 1990's. Now with $100 a barrel oil and $30 silver, what is making these COMEX silver short traders think that silver is going to be mined any easier is certainly beyond me!
In my opinion, it may take a while before we see new highs in the metal. Bull markets do what we refer to as "climb a wall of worry". I will have more later and will track what is happening chart wise right here.
Silver is a greyish-white atomic element of nature. It is very ductile (meaning it can be drawn out very thin over a great distance) and also very malleable (can be beaten into nearly any shape, though slightly less so than gold). It also has the highest electrical conductivity of any metal, even higher than copper. This characteristic makes it indispensable for electronic applications. Pure silver also has the highest thermal conductivity of any metal, and among the highest in reflectivity.
Main uses for silver, as presented by expert silver analyst, David Morgan:
Batteries, Bearings, Brazing, Catalyst, Coins, Electrical, Electronics, Electroplating, Jewelery, Medical Apps, Mirrors, Photography, Solar Energy, Water Purification
In fact, even though silver is mainly seen as used in coins, over 40% of silver consumed on an annual basis is due to industrial demand! Most of that silver used is irrecoverable economically, meaning that it would cost way more in energy input to recover it than what you would get back, especially at today's prices. Due to it's characteristics, it is indispensable to today's technology, so much so that it is not a stretch to say that much of today's technology simply would not exist without it!
It was estimated that as late as the late 1980's, there was 1.8 to 2 billion ounces of silver above ground. Todays number I am currently estimating to be about as low as 100 million ounces but could be as "high" as 300 million. No one including myself can be certain of this number, but given that the Chinese currently use 1/70th of the amount of silver that the western world uses per 4 person household, even 500 million ounces does NOT leave a lot of silver left for such a population.
It is no wonder that silver is in rather short supply.
But wait, there's more!!
Silver supply and demand has been in a deficit since 1990! In the 1990's silver was trading at about $5. Silver's price was so low, most of the mines mining silver as a primary product closed, and primary silver producers became non-existent! The vast majority of silver mined by the end of the decade was produced by companies that mined silver as a by product to other metals.
Now it seems that this issue is starting to come to a head. Several bullion dealers that I track are reporting having some difficulty obtaining it. The smaller denominations - 1oz to 10oz and US silver eagles are not readily being found. Now it appears even 90% coins minted in the US before 1965 are starting to have their premium rise.. something that in the 6 years Ive been tracking silver has simply never happened. Apparently I am not the only one who is seeing this. consider: http://www.caseyresearch.com/articles/silver-price-least-you-should-worry-about
In regards to the gentleman's comment concerning a secular (10-30 year) top, I would have to add this: You heard absolutely NOTHING about how horrendously overvalued tech stocks were in early 2000 on the TV, and absolutely NOTHING about how horrendously overvalued housing was in 2006!! Yet at the end of April 2011, all you heard when you turned on the "boob-us tube-us" was how much of a bubble silver was in!! It was so bad and so loud it was deafening. This is NOT a sign of a secular top but rather a sign that we are JUST GETTING STARTED in a bull market. Silver was about $5 and crude oil was about $18 a barrel during the 1990's. Now with $100 a barrel oil and $30 silver, what is making these COMEX silver short traders think that silver is going to be mined any easier is certainly beyond me!
In my opinion, it may take a while before we see new highs in the metal. Bull markets do what we refer to as "climb a wall of worry". I will have more later and will track what is happening chart wise right here.
Friday, May 13, 2011
EXERCISE: mathematical computation and compairison to other measures of wealth & value:
What we will do here is use basic mathematics to directly compare the value of one commodity to another over time. We will use prices from gasbuddy.com, 24hgold.com, and kitco.com For example, silver and gasoline.
2005 MAY 2011 MAY
$6.96 silver $35 silver
-------------- ---------------
$2.15 gas $3.99 gas
3.23 8.77
The result of each equation is below each. An ounce of silver buys 3.23 gallons of gasoline in 2005 and now buys 8.77 gallons of gasoline today. Say WHAT? Whoa silver buys way more gasoline now than it did six years ago?! How about gold?
2005 may 2011 may
$419.25 $1496
--------- ----------
$2.15 $3.99
195 374.93
Looks like gold is a winner too as well! Well isn't that some crap?! I guess precious metals ARE a store of value after all! Let us see what kind of store of value dollars are. How about a hundred dollars in a bank account? We are going to make that money return 5% compounded yearly, because that is about how good you would of expected a CD, demand deposit, government bond, or other instrument might of yielded you:
2005 may 2011 may
$100 bank $127.60 bank
------- ------------
$2.15 gas $3.99 gas
46.511627 31.97
5% year after year in dollars, and it still has lost value as opposed to filling up your fuel tank. I suspect it is also the same case when you replace gas with food, rent, electricity, and most other essentials. I have found no way to measure food at this point like I can with gasbuddy.com for at the pump prices, so it looks like I am going to be starting that one myself out of necessity. More on that down the road.
The point is that you see, Wall Street and MY street seem to have a different definition of what we call safe, if they are calling dollars that buy 31.26% LESS gallons of gasoline than it did six years ago "safe"!
That is why I measure wealth in ounces of gold and silver, but also beef, sugar, coffee, gallons of milk, iced tea, kilowatts of electricity, water, gallons of gasoline, heating oil, and anything else that uhhh is directly responsible for keeping my ass ALIVE. Commodities, commodities, commodities! They are the real safe over time, they are the ONLY safe over time! It is just that when you have floating currency you are pricing it in, the price of it is just going to go up or down! But Ill gladly call something that is useful, tangible, and sustains life safe any day!
2005 MAY 2011 MAY
$6.96 silver $35 silver
-------------- ---------------
$2.15 gas $3.99 gas
3.23 8.77
The result of each equation is below each. An ounce of silver buys 3.23 gallons of gasoline in 2005 and now buys 8.77 gallons of gasoline today. Say WHAT? Whoa silver buys way more gasoline now than it did six years ago?! How about gold?
2005 may 2011 may
$419.25 $1496
--------- ----------
$2.15 $3.99
195 374.93
Looks like gold is a winner too as well! Well isn't that some crap?! I guess precious metals ARE a store of value after all! Let us see what kind of store of value dollars are. How about a hundred dollars in a bank account? We are going to make that money return 5% compounded yearly, because that is about how good you would of expected a CD, demand deposit, government bond, or other instrument might of yielded you:
2005 may 2011 may
$100 bank $127.60 bank
------- ------------
$2.15 gas $3.99 gas
46.511627 31.97
5% year after year in dollars, and it still has lost value as opposed to filling up your fuel tank. I suspect it is also the same case when you replace gas with food, rent, electricity, and most other essentials. I have found no way to measure food at this point like I can with gasbuddy.com for at the pump prices, so it looks like I am going to be starting that one myself out of necessity. More on that down the road.
The point is that you see, Wall Street and MY street seem to have a different definition of what we call safe, if they are calling dollars that buy 31.26% LESS gallons of gasoline than it did six years ago "safe"!
That is why I measure wealth in ounces of gold and silver, but also beef, sugar, coffee, gallons of milk, iced tea, kilowatts of electricity, water, gallons of gasoline, heating oil, and anything else that uhhh is directly responsible for keeping my ass ALIVE. Commodities, commodities, commodities! They are the real safe over time, they are the ONLY safe over time! It is just that when you have floating currency you are pricing it in, the price of it is just going to go up or down! But Ill gladly call something that is useful, tangible, and sustains life safe any day!
Thursday, May 5, 2011
MODERN FIAT CURRENCY SYSTEM EXPLAINED
PROVERBS 11:1 A FALSE balance is abomination to the LORD: but a just weight is his delight.
This next post will explain the basics of our modern currency system.
Our current system is what at least I refer to as a debt-usury-fiat currency system. Now this term is a mouth full! But I found throughout my life that in order to understand complex systems, you have to break it down into its constituents. To wit:
DEBT (well we sure know what that is! It is when you owe something to someone)
USURY (usury is a fee that you pay for the use of someone else's money. The interest that you pay on a loan is synonymous to this term)
FIAT (an authoritative decree, sanction, or order)
So, lets put it back all together: Our currency is actually DEBT to the central bank that issues them (hence the term FEDERAL RESERVE NOTE) that must be paid back with USURY (interest) and by FIAT is "legal tender for all debts, public and private".
This means that someone, namely the US government and the US banks, have to borrow every single dollar that comes into existence, of which it must be paid back with interest. "With interest" is in italic because you need to catch the significance of this phrase! Now if the borrowed funds draw interest, then I, or someone up the "food chain", need to borrow even MORE to cover the interest! Therefore, loans need to be constantly made and thus currency constantly created to cover the interest.
If not enough loans are made, then currency is constantly being drained from the system, and we get the economic condition that dominated the 1930's, a deflationary depression! On the other hand, over the past 70 years, we have been in a period where currency is being created and spent faster than the currency can be taxed and taken via interest out of the people's hands. This process is what is called inflation and is the primary cause for all the increase in prices.
That is the basics of how this system works.
Central Bank policy is not the only factor but it is a major factor in whether the economy expands or contracts. The other one is the government and how much it taxes and regulates. The higher the taxes and the more cumbersome the regulation, the more hindered the economy becomes when attempting to mount a recovery. What things the government is doing in this reguard is beyond the scope of this posting.
Until those in power stop blaming the wrong things and doing the wrong things, our situation is only going to get worse until a really bad collapse takes place (I am talking way worse than 1929 or 2008). Then our ability to rise from the ashes form that are going to depend on how much we learn from this experience and what we do about reforming the system.
This next post will explain the basics of our modern currency system.
Our current system is what at least I refer to as a debt-usury-fiat currency system. Now this term is a mouth full! But I found throughout my life that in order to understand complex systems, you have to break it down into its constituents. To wit:
DEBT (well we sure know what that is! It is when you owe something to someone)
USURY (usury is a fee that you pay for the use of someone else's money. The interest that you pay on a loan is synonymous to this term)
FIAT (an authoritative decree, sanction, or order)
So, lets put it back all together: Our currency is actually DEBT to the central bank that issues them (hence the term FEDERAL RESERVE NOTE) that must be paid back with USURY (interest) and by FIAT is "legal tender for all debts, public and private".
This means that someone, namely the US government and the US banks, have to borrow every single dollar that comes into existence, of which it must be paid back with interest. "With interest" is in italic because you need to catch the significance of this phrase! Now if the borrowed funds draw interest, then I, or someone up the "food chain", need to borrow even MORE to cover the interest! Therefore, loans need to be constantly made and thus currency constantly created to cover the interest.
If not enough loans are made, then currency is constantly being drained from the system, and we get the economic condition that dominated the 1930's, a deflationary depression! On the other hand, over the past 70 years, we have been in a period where currency is being created and spent faster than the currency can be taxed and taken via interest out of the people's hands. This process is what is called inflation and is the primary cause for all the increase in prices.
That is the basics of how this system works.
Central Bank policy is not the only factor but it is a major factor in whether the economy expands or contracts. The other one is the government and how much it taxes and regulates. The higher the taxes and the more cumbersome the regulation, the more hindered the economy becomes when attempting to mount a recovery. What things the government is doing in this reguard is beyond the scope of this posting.
Until those in power stop blaming the wrong things and doing the wrong things, our situation is only going to get worse until a really bad collapse takes place (I am talking way worse than 1929 or 2008). Then our ability to rise from the ashes form that are going to depend on how much we learn from this experience and what we do about reforming the system.
Monday, May 2, 2011
SUPPLY, DEMAND, & CURRENCY
Nearly every one has heard of the economic laws of supply and demand. I am pretty sure you have heard it said, "supply and demand are what determine price". This is, with certainty, truth, to an extent. Say what? To an extent? How can that be?!
Thousands of years ago, humanity for the most part, lived under a barter economic system. For example, I am a farmer who grows wheat. My friend who lives along side a major river, fishes for a living. I have something to trade, and he has something to trade. I can trade a measure of wheat for some fish at a level that we both feel is an equitable trade.
Now the problem with this kind of system is that economic calculation is nearly impossible. Who made out like a bandit, and who gets ripped off? Someone who really likes fish might say "That was a good trade for the wheat farmer.", while someone who does not like fish might say "Call the cops! He got ripped off!" So who is to say who really benefited from this trade? No one really can. Another good point to make is that it sure would be quite cumbersome to carry around a bunch of wheat all the time, not to mention that it could spoil and rot and thus be no good. Think about what happens to fish when it spoils!
Eventually, a new economic system had to be developed, and one did emerge. It is called the MONETARY system. Now money, by my definition, is:
#1. a medium of exchange. Instead of directly exchanging one good or service or another, we are using an indirect exchange - a medium if you will.
#2 the money must be relatively abundant, but relatively scarce. (example: Rhodium would not be abundant enough and hold too much value, where grains of sand would be too abundant and hold too little)
#3 the money must easily be portable or taken from one location to another.
#4 money must also be easily divisible, and each divided piece must add up to be equal in value to the whole. example: four US quarters equals one US dollar. A merchant will accept a paper dollar bill as readily as the four quarters because they represent the same amount of purchasing power.
#5 the money must hold a relatively steady value to prevent all economic calculation from becoming too skewed.
Now back to my example, now that I as the wheat farmer, have a medium of exchange, I can receive that money instead of things like fish and exchange that money for something else with someone who would otherwise not have a need for my wheat. But, unlike the barter system, I am now dealing with an additional economic entity besides the wheat I am trading and the good I am trading it for, that is the medium of exchange, money. The fact of the matter is that the money is its own economic entity with its own supply and demand fundamentals.
CONCLUSION: That means that ultimately, it is not just the supply and demand fundamentals of the good/service you are exchanging it for, be it a service, commodity, bond, company stock, even another currency, but also the supply and demand fundamentals of the MONEY ITSELF you are using.
Case in point: Gasoline. It has been rising in dollar terms since October 2010 and is up over 45% since then. Has the demand for gasoline increased by that amount since then? Hardly!! Yet the dollar you are buying it with has declined against all major currencies during that same time period! You can pretty much do this for just about every other necessity for life.
Nobody can seem to explain exactly why gasoline is going up, but I just gave you the answer. It is not just because of "middle east tensions" or "greedy oil companies", but it is also the fact that the value of the dollars the gasoline is being traded with is going DOWN. (In fact the oil company is anything BUT the reason why for the high price in gasoline. The company needs to make money or else otherwise you will have no oil company and thus no gasoline. Those record profits? They are priced in depreciating dollars too!)
In fact it has been going down since the year 1913!! The two main reasons why the dollar can still be exchanged for a reasonable amount is because all the other currencies of the world are also going DOWN as well.. only at times the dollar goes down faster or slower than say, the euro, the British pound, or the Japenese yen for example. The other reason why is that worldwide up to this point, all commodities are pirced in dollars. (Hence the "worlds reserve currency")
But why this race to the bottom in terms of value of currencies around the world? The answer to that question lies in the type of monetary system we have today in and of itself, which is probably going to be the subject of my next blog post.
One last thing I am going to leave you all with: When I was working at a job in 2009 in the break room, there was a change machine where you could change $5, $10, or $20 bills into $1 and $0.25 coins to use in the snack machines. One night it was apparently broken as it would not take my bill. I wrote on a note "BROKEN. WILL NOT ACCEPT CURRENCY!" A friend of mine saw the note and asked me "Is that Russian, English, or European currency?" I explained to her that our money is not really money, but a CURRENCY because money is supposed to HOLD and STORE my value for a later date, and our CURRENCY fails miserably is doing so.
My friend promptly agreed with me!
Thousands of years ago, humanity for the most part, lived under a barter economic system. For example, I am a farmer who grows wheat. My friend who lives along side a major river, fishes for a living. I have something to trade, and he has something to trade. I can trade a measure of wheat for some fish at a level that we both feel is an equitable trade.
Now the problem with this kind of system is that economic calculation is nearly impossible. Who made out like a bandit, and who gets ripped off? Someone who really likes fish might say "That was a good trade for the wheat farmer.", while someone who does not like fish might say "Call the cops! He got ripped off!" So who is to say who really benefited from this trade? No one really can. Another good point to make is that it sure would be quite cumbersome to carry around a bunch of wheat all the time, not to mention that it could spoil and rot and thus be no good. Think about what happens to fish when it spoils!
Eventually, a new economic system had to be developed, and one did emerge. It is called the MONETARY system. Now money, by my definition, is:
#1. a medium of exchange. Instead of directly exchanging one good or service or another, we are using an indirect exchange - a medium if you will.
#2 the money must be relatively abundant, but relatively scarce. (example: Rhodium would not be abundant enough and hold too much value, where grains of sand would be too abundant and hold too little)
#3 the money must easily be portable or taken from one location to another.
#4 money must also be easily divisible, and each divided piece must add up to be equal in value to the whole. example: four US quarters equals one US dollar. A merchant will accept a paper dollar bill as readily as the four quarters because they represent the same amount of purchasing power.
#5 the money must hold a relatively steady value to prevent all economic calculation from becoming too skewed.
Now back to my example, now that I as the wheat farmer, have a medium of exchange, I can receive that money instead of things like fish and exchange that money for something else with someone who would otherwise not have a need for my wheat. But, unlike the barter system, I am now dealing with an additional economic entity besides the wheat I am trading and the good I am trading it for, that is the medium of exchange, money. The fact of the matter is that the money is its own economic entity with its own supply and demand fundamentals.
CONCLUSION: That means that ultimately, it is not just the supply and demand fundamentals of the good/service you are exchanging it for, be it a service, commodity, bond, company stock, even another currency, but also the supply and demand fundamentals of the MONEY ITSELF you are using.
Case in point: Gasoline. It has been rising in dollar terms since October 2010 and is up over 45% since then. Has the demand for gasoline increased by that amount since then? Hardly!! Yet the dollar you are buying it with has declined against all major currencies during that same time period! You can pretty much do this for just about every other necessity for life.
Nobody can seem to explain exactly why gasoline is going up, but I just gave you the answer. It is not just because of "middle east tensions" or "greedy oil companies", but it is also the fact that the value of the dollars the gasoline is being traded with is going DOWN. (In fact the oil company is anything BUT the reason why for the high price in gasoline. The company needs to make money or else otherwise you will have no oil company and thus no gasoline. Those record profits? They are priced in depreciating dollars too!)
In fact it has been going down since the year 1913!! The two main reasons why the dollar can still be exchanged for a reasonable amount is because all the other currencies of the world are also going DOWN as well.. only at times the dollar goes down faster or slower than say, the euro, the British pound, or the Japenese yen for example. The other reason why is that worldwide up to this point, all commodities are pirced in dollars. (Hence the "worlds reserve currency")
But why this race to the bottom in terms of value of currencies around the world? The answer to that question lies in the type of monetary system we have today in and of itself, which is probably going to be the subject of my next blog post.
One last thing I am going to leave you all with: When I was working at a job in 2009 in the break room, there was a change machine where you could change $5, $10, or $20 bills into $1 and $0.25 coins to use in the snack machines. One night it was apparently broken as it would not take my bill. I wrote on a note "BROKEN. WILL NOT ACCEPT CURRENCY!" A friend of mine saw the note and asked me "Is that Russian, English, or European currency?" I explained to her that our money is not really money, but a CURRENCY because money is supposed to HOLD and STORE my value for a later date, and our CURRENCY fails miserably is doing so.
My friend promptly agreed with me!
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