Silver and its Large Short Position
Everybody knows that I can always be counted on to go ballistic about silver being such a Screaming Freaking Bargain (SFB) because of (according to the most recent Official Mogambo Count (OMC)) more than a dozen very good reasons, which is a lot of reasons, and that at $17- and-change per ounce, silver is loudly saying, "Buy me! Buy me!" although obviously not in the literal sense, nor (perhaps less obviously) in the "voices in my head" sense, which shows I am responding to therapy and why everybody is so pleased with me.
One of the reasons for my bullishness and bullheadedness about silver is the large short position, which is the number of ounces already sold (opening the short position) but which have not been bought yet (closing out the position), which means these shorts are going to get clobbered if they have to cover their short position by buying silver at a higher price than they sold it.
So I was very interested when Ed Steer's Gold and Silver Daily reports says that the commodity futures market report shows that bullion banks' "silver net short position now stands at 213.6 million ounces...about a third of world silver mining production...all held by 'four or less' bullion banks."
He characterizes this as "grotesque beyond description", which I guess it is, since it is hard to even imagine such a thing, which implies that these "four or less" banks are so stupid that they would be short silver when the fundamentals are so compelling that my throat is bloody and raw from screaming, "The fundamentals of silver are compelling!"
And this is even ignoring the headline "Gold & Silver Market Alert - Buy before the Breakout!" from Julian Phillips at Goldforescaster.com, which reflects my sentiments exactly.
In gold, the situation is similar, in that Mr. Steer says, "The bullion banks' net short position now stands at 211,342 contracts... 21.1 million ounces. This is well over 25% of world gold production. This is also grotesque beyond description".
Suddenly I see an opportunity to hide my rising excitement and get a quick laugh! So I said, "This means it is NOT 'beyond description' when it is perfectly described by silver, which is also 'grotesque beyond description' and which can be described as 'like gold'! Hahahaha!"
Well, I am laughing at my own joke and having a wonderful time when I looked around and noticed that nobody else appreciated my little joke about circular reasoning, which, upon reflection, I admit is pretty bad, and I am pretty embarrassed about it.
I don't know why I thought it was funny, except for maybe it's these new pills that are supposed to keep me from screaming my guts out in fear about the coming collapse of the dollar and the attendant horrific rise in consumer prices that destroys America and plunges us into a post-Apocalyptic nightmare. And, parenthetically, they work pretty well, too, except for the catatonia and the, you know, drooling.
Mr. Steer sees my embarrassment and starts talking about how many of the owners of futures contracts in gold and silver said, "We want our metals!"
People with inquiring minds want to know, "How much gold and silver was delivered so that we can maybe see if the Mogambo Who Thinks He's So Hot (MWTHSH) is actually turning out to be right about gold and silver going so much higher in price because the despicable Federal Reserve is creating so much money and credit that inflation in consumer prices is guaranteed, which would be indicated by a rising price for silver!"
Well, it turn out that "The final totals for August are as follows... gold 5,728 contracts [572,800 ounces] and silver 91 contracts [455,000 ounces]", which doesn't seem like a lot, but what in the hell do I know?
So, I report these things without knowing what they mean because I am pretty stupid and I am just in it for the money, so all I can ever see is the obvious, especially when it is pointed out to me, which he apparently does when he says it means, "August was a big month for gold deliveries...but not for silver. September is a big month for silver deliveries...but not for gold."
I still don't know what it means, but a big buying of gold and silver every other month is plenty enough to keep their prices rising and demand growing, which is Another Good Reason (AGR) to buy gold and silver beyond the obvious good reason that they always soar in value and price when the government is acting so irresponsibly, or when the Federal Reserve is acting so irresponsibly, but especially when both of them are acting irresponsibly, like now!
It's enough to make you squeal with delight, "Whee! This investing stuff is easy!"
Until next time,
The Mogambo Guru
for The Daily Reckoning Australia
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
Related Articles:
- Bullish On Silver
- Gold and Silver Demand Unprecedented
- Price of Silver Climbing to All Time High of US $1,012
- Silver Stats That Will Make You Salivate
- Gold and Silver!
About the Author
Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.
Comment by PARAG KULKARNI on 22 September 2009:
short SILVER FUTURES OF FEB AND JUNE 2010 AND U MAY GET 50 PC RETURNS IN 3 MONTHS. PARAG KULKARNI, INDIA
Comment by prozak on 22 September 2009:
I can't read the shit this guy writes.
I managed to get to the end of the first paragraph this time.
It is not his opinions about gold & silver but the way he expresses them.
Please no more articles from this muppet!
Comment by prozak on 23 September 2009:
I can't read the crap this guy writes.
I managed to get to the end of the first paragraph this time.
It is not his opinions about gold & silver but the way he expresses them.
Please no more articles from this muppet
Comment by mike mccoul on 23 September 2009:
he's good. I like his articles of truth (AOT). LOL.
Seriously I like him he always offers a little bit more/different spin , with some bit of news i did not know previuosly ( at least, not quite so point blank) NQSPB!
Comment by Dan on 23 September 2009:
There's obviously a drug incompatibility there, prozak
Comment by Jim on 23 September 2009:
The first few times I tried to read any of his articles, TMG did 'twist my melon' too - but stick with him, after a while you'll start to appreciate his slightly bizarre humour and writing style... Many a true word is spoken by the jester !
Richard - keep up the good work, even if the wife & kids don't yet appreciate that you're not a Complete Freakin' Loony...
Comment by Ned S on 23 September 2009:
A bit of balance to the guru's perspective:
http://www.kitco.com/ind/nadler/sep222009.html
Comment by gut feeling on 23 September 2009:
He's a crackup and very informative. I love reading his stuff!
Comment by prozak on 23 September 2009:
Well obviously he has his supporters but I cannot agree.
I've not read anything from him that is informative or insightful. EVER!
That is why I can no longer even get past the first paragraph. I know that there will not be anything of substance amongst his "creative" style.
Comment by fiscal vagrant on 30 September 2009:
Prozak go back to your slumber and don't interrupt the whimsical Mogambo guru. I definitely appreciate Mogambo's style and wisdom
Comment by Dave on 15 May 2010:
This guy is a babbler, keep him off, or make him learn the value of brevity for our sake!
D
Comment by Don on 15 May 2010:
I enjoy the Guru so sue me
Comment by Biker Pete on 15 May 2010:
Fruitcakes are welcome here!
http://en.wikipedia.org/wiki/Sosumi
Comment by Steve on 15 May 2010:
"Fruitcakes are welcome here!"
Yes you are welcome to leave comments on here any time you want Biker
Comment by Biker Pete on 15 May 2010:
Thanks, Steve, I see _nuts_ want to be part of the mix, too!~
Comment by Steve on 15 May 2010:
You still over there in Canada Biker or did you more back to WA?
Comment by Biker Pete on 15 May 2010:
We arrived home January '10, Steve. It was a six-month trip: England, Scotland, USA, Canada, Mexico, Hong Kong. All flights were free.
We've nearly completed another rental since getting back... and we seeing the bank about the next project next week.
Interesting fact here. Not sure we can figure it out...
ANZ Variable Rate: 6.71%
ANZ Fixed Rate (one year): 6.65%
We can't recall ever seeing that happen before, except when banks figured interest rates were going to _fall_ ... .
Comment by Steve on 15 May 2010:
Free?
Free as in for example you payed 200K for an investment property and sold it for 500K, so the profit you made was free to spend on your holiday?
Or as Free as in not even having to do that?
Comment by Biker Pete on 16 May 2010:
'Free' as in Visa flight points pay for all our airfares.
We never spend property profits on ourselves. We roll the maximum CG into our Super... pay any tax due... and place the rest into offsets. It works...
Comment by Steve on 16 May 2010:
Steve's quote of the day
"If there is such a shortage of property then why has the auction clearance rate dropped from 83.6% down to 62.5% in just 6 weeks in Sydney?"
Comment by Biker Pete on 16 May 2010:
"If there is such a shortage of property then why has the auction clearance rate dropped from 83.6% down to 62.5% in just 6 weeks in Sydney?"
As I've noted several times, Sydney and Melbourne seem overpriced to us Sandgropers, Steve.
Maybe potential buyers are reading the interest rate trends incorrectly, too.
I can never understand why property auctions appear to _thrive_ in your big eastern cities. The only thing which might explain this phenomenon is high demand. I'm not saying this is about 'a shortage of property', but rather that the _shortage of 'highly-desirable' property_ may be an issue.
We advised our son (your age) to _buy_ the beautiful 38th floor inner-city apartment he was renting in Melbourne just over two years ago. He had the cash, but believed as you do, it was too high-risk. That same unit is now worth well over $200K more. He's not concerned... he _lost_ nothing.
But it's interesting, nonetheless... .
Comment by Steve on 16 May 2010:
Ok Biker so you are not in denial?
you see if a house is worth say 500k and tomorrow the price went up to 600k
In reality to me it makes no difference because it was unaffordable in the first place so making in more unaffordable makes no difference because I am not going to buy it at 500K nor 600K.
What is the average house price in Perth I would think it wouldn't be too far behind Sydney or Melbourne so if you are saying that you as a sandman think sydney and melbourne are overpriced then really you would be thinking Perth is overpriced too right?
Comment by Stillgotshoeson on 16 May 2010:
Auction clearance rates have dropped a little here in Melbourne the last 2 weeks..
The REIV are saying the main reason is there are more properties coming up for auction...
http://blogs.news.com.au/heraldsun/barefootinvestor/index.php/heraldsun/comments/beating_the_pain_barrier/P20/
I expect those inner Melbourne Hi-rise apartments to be one of the hardest hit property markets when the correction does arrive. They were hit hard at the start of the crisis (admit was a good time to by then as you advised your son BP), Those properties could well fall back to those same levels in a correction. All the subsequent gains nullified.. If the owners have used that equity to fund lifestyle (many have) then it will be a bad situation for many of them.
Comment by Steve on 16 May 2010:
The more properties that come up for auction could mean people are starting to panic that they better try to sell now because they know what is coming.
In Campbelltown where alot of first home buyer were with the Kdud con the auction rate had went down even lower than the syd average I think it was something like just about 50% don't quote me, but ill have to check.
Comment by Biker Pete on 16 May 2010:
"If the owners have used that equity to fund lifestyle (many have) then it will be a bad situation for many of them."
Yes, I'll concede there are mug punters out there who do that, Shoes.
These are the same folk who park on our rental driveways in shiny new cars... and then tell us, highly indignantly, that $400pw is too much money!
Steve, the median in Perth is around $540K. Some homes are too expensive at that price. Others represent reasonable buying. Hard to see how that viewpoint puts me 'in denial'... .
I agree that given your current circumstances, Sydney is unaffordable.
Comment by Steve on 16 May 2010:
Hmm so ok Biker given the fact that Sydney is a more international city and more highly desirable to live in rather than Perth the fact that the average house price is only 70K more give or take in Sydney should suggest that Perth as a whole is overpriced too given that you say Sydney is overpriced.
Comment by Steve on 16 May 2010:
Biker what do you consider a reasonable price to be
If you ask me Shoes or any international organisation a reasonable price is 3 to 4 times average income
But now you seem to think 8 to 9 times is too expensive
Given you are a massive bull what do you think a house should cost?
Comment by Biker Pete on 16 May 2010:
"Given you are a massive bull what do you think a house should cost?"
A house should cost what buyers are prepared to pay. If that's say $400K for you, then that's what _you_ should pay.
"...a reasonable price is 3 to 4 times average income..."
Then the next time you're in a bidding war I'd _never_ enter, tell those bidding against you that _that's_ the real value. Good luck with that strategy.
Comment by Biker Pete on 16 May 2010:
Phone just rang five minutes ago. Caller: "Asking about that property corner of X & Y. How much do you want?"
"We want $396,500."
"Uh, OK. Thanks."
I don't expect he'll call back. Clearly he hoped that because it has our own sign on it, it's a forced sale. We don't blame him... . We do the same thing ourselves, frequently. C'est la vie... .
Comment by Stillgotshoeson on 16 May 2010:
"These are the same folk who park on our rental driveways in shiny new cars... and then tell us, highly indignantly, that $400pw is too much money! "
Have always said that renting is OK if you invest the difference you otherwise would have been paying on a mortgage. Renting and pissing any extra up against the wall is foolish.. many are foolish though, and I have no sympathy for them.. I am a capitalist but have a social conscience, I do not mind paying taxes and the government using those taxes to help the genuine needy.. it does erk me to see my taxes being spent on the irresponsible.
Comment by Steve on 16 May 2010:
So you are starting to sell off your properties Biker why is that?
Comment by Steve on 16 May 2010:
"...a reasonable price is 3 to 4 times average income..."
Then the next time you're in a bidding war I'd _never_ enter, tell those bidding against you that _that's_ the real value. Good luck with that strategy.
Biker I think I have made this point before, you can not compete with MORONS
Comment by Biker Pete on 16 May 2010:
It takes a _really_ good moron to compete with them, Steve!
Everything we own has a price.... except our main property. If we can build two, with the proceeds of the sale of _one_, we sell... .
Comment by Steve on 16 May 2010:
"Everything we own has a price"
Why not give it to me for free???
You are a nice bloke Biker why not?
Comment by Biker Pete on 16 May 2010:
"Why not give it to me for free???"
Discussed this proposal with the missus for the last couple of hours, Steve. There are undoubtedly _some_ good reasons for doing that, but we couldn't think of any. Opposed to that, we came up with three good reasons against:
1.) We never gave our own sons anything at all, except access to a very good state school education and uni; and 2.) You'd learn nothing of value. The only material things we value are those we had to work really hard to achieve... and wait for... and strive to own; and 3.) We plan to retire independent (happy, wild) and free... no pensions, no drag on the state, whatsoever. Giving away our a$$ets would mean your generation would have to _support_ us. Wouldn't make _you_ happy; wouldn't make _us_ happy.
No, think I'd rather just lash out on a new Ducati Multistrada, thanks!
Comment by Biker Pete on 16 May 2010:
Yep, it _was_ difficult....
Give a house to Steve, or http://www.youtube.com/watch?v=kzd6Ai9aRAw
Comment by Steve on 16 May 2010:
"We plan to retire independent (happy, wild) and free... no pensions, no drag on the state, whatsoever. Giving away our a$$ets would mean your generation would have to _support_ us. "
We do have to support you Biker (not me personally but other young Australians) we are the ones paying twice as much for a house as we should be to support your retirement (wealth distribution/socialism as I have explained to you before)
So the state is paying for your retirement in a different way
Both you and I know that
Comment by Biker Pete on 16 May 2010:
Thank you, state!
Comment by roy on 16 May 2010:
We can't recall ever seeing that happen before, except when banks figured interest rates were going to _fall_ ... .
Hi BP a fixed loan is what price (interest rate) they can "buy" for the same duration of the loan offered, they apply a margin (profit) and re-package it for the consumer. When banks offer a fixed rate they don't assume any interest rate risk they just clip the ticket as it passes through.
Banks (in my day atleast) never took on the risk of fixing a rate with a consumer without having the same amount of the loan also fixed ( a balanced risk position). They would never lend on a fixed basis without them also borrowing (or at times having excess fixed deposits for the same period). Their money is made on the margin. You might remember I was a risk manager for a large bank during my working life this is some time ago now but I doubt whether this has changed.
Have any readers heard that APRA may require an increase in bank reserves soon. I was told the increase could be from 8% to 12%. Although this makes a great deal of sense, I find it hard to believe as it would have a major impact on lending and probably lead to banks issuing more shares. On the positive side if this is the case it may slow down lending enough to take the pressure off the RBA from lifting rates for a few months.
Comment by Biker Pete on 16 May 2010:
Thanks for that info, Roy. Much appreciated.
Comment by Biker Pete on 16 May 2010:
Changes to the First-Home Savers account scheme may cheer you considerably, Steve. The four-year 'lack of access' was an issue, as was the requirement that funds be rolled into Super, if not used to purchase a home. Both were impediments to its success. Noel Whittaker, whose column we study carefully every week, just advised (Sunday Times, p. 68) that proposed changes will benefit people in your situation (including our two sons).
To quote Whittaker directly:
"... a first home buyer may buy with a mortgage before they can access the money in their FHSA. Accordingly, the proposed changes will allow them to roll the money into their mortgage once they gain access, instead of being forced to place it in Superannuation."
We agree with Whittaker's closing comment: "Sure it's only a repair job, but it's a good one." noel.whittaker@whittakermcanaught.com.au
Comment by Biker Pete on 16 May 2010:
Sorry about that:
noel.whittaker@whittakermacnaught.com.au