Thursday, May 5, 2011

Thoughts on the commodity massacre

For those that have been following, the commodity complex was absolutely decimated with silver leading the decline with a brutal 13% loss. Crude oil followed with a 10% decline. The US dollar popped against other currencies as the US dollar carry trade blew up in many traders faces. The carry trade is simply when investors (speculators) borrow in a falling asset class to fund other investments that are high yielding or rising. As the dollar continue to decline in value against commodities and other currencies, traders borrowed in dollars to buy the rising assets. Hence, the term carry trade. The risk of course is when the trade is too crowded and can cause terrible losses for those that are caught holding the bag.

As my readers know I'm a silver bug and have invested in silver for the past 3 years. I have been warning about a correction for some time and alas it is here. The last couple of days have been brutal but not necessarily unexpected. On a technical basis the silver metal was insanely overvalued. Throw in some multi-pronged attacks from the powers that be (record margin requirement increases from numerous trading exchanges) and the result is a 30% crash in as little as 4 days. Whereas in the past the government physically confiscated precious metals, today the exchanges change the margin requirements again and again and again until leveraged holders are forced to sell, hence the violent collapse in price. However, due to the artificial methods employed by these institutions to bring down the price of silver, the end result will be a silver shortage. Anytime governments institute price freezes on any commodity, shortage is the result. Thus, as soon as the price falls to a level that I feel comfortable buying I will resume my personal silver purchases. Consider this takedown a gift.

9 comments:

  1. BIN LADEN'S DEATH MEANS THAT THE WAR MACHINE WILL BE CUT BACK, THUS LESSENING DEMAND FOR COMMODITIES, AND ALSO THAT IS WHY THE STOCK MARKET IS DOWN OVERALL--A LOT OF WALL ST REVENUE IS FROM THE WAR MACHINE, AND OBL'S DEATH MEANS THAT THE PEOPLE WILL WANT TO SCALE IT BACK EVEN MORE THAN THEY DO NOW.

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  2. Homeless Lawyer,
    With your reasoning abilities it is no wonder that you are homeless but very perplexing that you passed your law school exams.
    As for my buddy Subprime, thanks as usual for the insights,
    Your two pals from the East Coast!

    ReplyDelete
  3. How much money did you lose in your silver investments? You know you're supposed to sell high right?

    Sounds like you're setting yourself up to get ripped off again. Are the people who are giving you investment advice the same people who advised you to go to law school?

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  4. The commodity bubble is popping. And the inflation fears, as they were two years ago, are still overblown. I've been hearing forever that liberals aren't practical and don't understand the markets. But it was liberals who correctly called both of these phenomena, and conservatives who incorrectly pushed the bubbles.

    I don't mean to pile on. I hate to see people lose money in the markets, or otherwise. And I honestly hope that, since you do seem like a smart guy, maybe this brings you a little closer to our side, or at least understanding that we do have a point. We're not just blindly opposed to conservative dogma; we honestly believe it's a bad idea.

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  5. Subprime JD:

    Have a look at the 10 year chart at the bottom right of this website.

    http://www.kitcosilver.com/charts.html

    Tell me that doesn't look like a BUBBLE. A bubble that you are investing a lot of money in.

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  6. A fool and his money:

    Don't know how long you have been following this blog but I have been warning of a silver price correction since the mid 30 levels. And with regards to "losing" money lol lol my entry points are in the single digit level and in the teens. In addition I make sure to make money on long and short positions (check out older posts where I discuss ZSL). The recent $50 price level was a joke and any trader with half a brain should have top ticked that blowoff top.

    Longer term, silver to the moon

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  7. If $50 was a joke, why didn't you sell. That is how you make money at these things, you know.

    ReplyDelete
  8. eToro is the ultimate forex broker for new and pro traders.

    ReplyDelete

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