Drive By Poster
- Oct 13, 2004
- Reaction score
- Viva Las Vegas!
That's why I always liked silver better it had the historical relationship to gold and historically it was undervalued just by that measure in relation to it, but I wasn't the only one who knew that or knows that it's relatively common knowledge and it's riding the perfect waive right now, just the right amount of doom, just the right amount of printing, just the perfect setup to go ape.
I'm glad I have what I have, wish I had more, but that goes for every home run you ever hit investing.
It would be ironic if the black swan in all this is JPM's silver short, the ultimate tin foil hat theory wins the race.
Like the Southpark where the mormons were the ones who had it right.
I recently read a very well thought out piece where they discussed how the silver market could be the undoing of the US government and I thought at the time "Well that's interesting, but kinda far-fetched" but now I'm starting to wonder.
Its a little bit convoluted so bear with me.
The theory was that about a dozen years ago China had a massive amount of silver in its vaults which wasn't doing it any good sitting there so they lent it to the major brokerage houses in exchange for cash which they used to buy US treasuries.
As long as silver kept a steady price, all was well as the owners of the silver could suppress the price by shorting it everytime it went up. If the price of silver goes way up, however, then the cost to repurchase the silver to pay back the loan to China goes astronomical. In 2007 the Chinese are supposed to be repaid, but the brokerage houses can't do it.
So Bear Sterns goes tits up along with several of the other houses and the banking system is basically nationalized. So China goes to the US and says repay us, but they can't/won't do it either. China now has a bunch of dollars they're worried about so they start buying massive amounts of SLV and futures from COMEX but instead of taking redemptions in cash they're now taking it in physical. Since the US treasury is backstopping the TBTF banks, they have been shorting silver with everything they've got to keep the price down so that the Chinese get the metal without a default occurring which would kick over the entire apple cart.
The analogy would be like if I (the banks) came to you (China) and borrowed a thousand dollars and when the loan was due I told you to pound sand. So you go to my wife (the US taxpayer) and borrow a thousand dollars and when she comes to collect you tell her "not my problem, go talk to your husband".
If (and who knows how big an "IF" this is) this is true then at some point the pain will become too much for the US (since a short squeeze can theoretically go Buzz Lightyear - "to infinity and beyond") and step aside and let JPM fail. At that point in time then the price of silver will revert back to more historical norms, but the stock market along with the bond market will collapse.
Its hard to see which of these two options is the one which I'd care to live through, although I guess I don't have any choice in the matter either way.
I guess, what I'm saying is that it might be good to hedge a bet on silver at some point, perhaps take a little off the table as it hits new highs, because unless their is complete and total currency collapse, silver isn't going to go up forever without bigger problems stopping it in its tracks.
Just my .02