Murphy's Devils Advocate

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murphy
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Murphy's Devils Advocate

I would like to start a new forum. I always ask myself what would cause my investments in PM's and miners to fall long term?  As we are like minded, I would suggest we play devil's advocate and try to postulate what could make the metals and miners turn down.

The only theory that will not be allowed is to use the EE, TPTB and their manipulations as an excuse. Let's assume their end game is to let the metals run ahead of a currency overhaul.

Here's a first example. The Federal deficit does not get increased, the budget gets cut 10% and taxes are not increased (I know this is totally ridiculous).  The result is the dollar goes up, unemployment goes up, GDP slows and tax revenue goes down. What is the bottom line result for the metals prices?

Edited by admin on 11/08/2014 - 06:05
Eric Original
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Deflation

The arguments for PM's falling are all basically the deflation arguments. I don't really buy those for a second but probably the best blog for that point view is The Automatic Earth.  I read it every now and then, just for some balance.  There's a lot of good stuff there and a lot to agree with except when they start getting into where they think the metals are going.

http://theautomaticearth.blogspot.com/

__________________

This isn't a metals blog anymore. It's a right wing circle jerk, masquerading as a metals blog.

Mr. Picklepants
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10% across the board cuts,

10% across the board cuts, still gives us massive deficits. You need to play devil's advocate a little harder :)

Anything that saves the dollar, ends the FED. And since the FED isn't going anywhere......

There is no way the dollar makes it out of this alive.

Jasper Puddlemaker
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murphy wrote:I always ask

murphy wrote:

I always ask myself what would cause my investments in PM's and miners to fall long term? 

Long term?  One thing:  Confidence.  People choose AU/AG over paper currencies when confidence in paper (confidence in government) is declining.  Metals will peak when confidence has reached its lowest point.  When?  Who knows.  But everything is cyclical.

As for the miners, as a whole they could all fall in unison at that point, but what I love about the sector is there are always specific companies whose share price will increase even if the sector is falling.  (Those would be the successful explorers.)  The explorers  are not for everyone obviously, but I personally love the challenge and opportunity that exists there in both good times and bad.

maravich44
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@Jasper/ Jr Explorers

If you have the interest and inclination check out the Quaterra Resources story. Best.

murphy
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@ Larry, Schwartz, Yooper and Jasper

@ Schwartz- love the sound of Murphy's Law, however I don't have the power, or the intelligence to make them. Keep tryin' to come up with another one. You too Larry, I am not sold on " Contrarians"

@ Yooper- thanks for the link from Peter Schiff. BTW, I read http://www.thedailybell.com.  Great resource.

http://www.thedailybell.com/2741/Peter-Schiff-Gold-and-Silver-Beyond-the-Limit

@ Jasper- are you referring mainly to confidence in the US $$? Even if the US could get their spending under control and the dollar would go up in value compared to the other currencies, what would cause the rest of the world to  gain confidence in the Euro or the Yen? They would still need to buy metal to protect themselves, if they are not holding US $$. What about China and India? With the growth of their domestic economies, and their propensity to save that may cause their currency to gain more confidence. On the other hand, their government is encouraging and making it easy for the population to buy metal at banks and in retail stores. Selling gold in as small a quantity of one gram.

The People's Bank of China plans to sell 500,000 1-ounce gold coins, or 66 percent more than its earlier target of 300,000. It also tripled sales targets for half-ounce, quarter-ounce, 1/10-ounce and 1/20-ounce gold coins to 600,000 each from 200,000 earlier.

Where as our government continues to sell paper only. Still mainly bonds and stocks for safety. Even when Cramer screams to buy gold, he's not talking about the real thing. He says buy GLD.

Who will the populations of the world listen too now that the internet reformation is out there and the world becomes enlightened?

The US government who is somewhere between $15T and $100T in debt or the Chinese who are holding $3T in savings?
 

That's it for me till tonight. Going to the pool with the dog! Thanks for replying
Eric_2
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I've tried to tak a

I've tried to tak a contrarian view for the last couple years, but I've just never been able to find a real reason, other than massive deflation for pm prices to go down.

Especially in the case of silver - if you read up on Ted butler, Adrian Douglas and others who talk about the serious silver shortage then you will realize that even if there is a sudden rash of peace, love and understanding, the world muddles through this mess and everything gets back to "normal" - even then the industrial, high tech and medical demands for silver will send it's price to the stratosphere.

I just can't see a realistic scenario for the pm prices to go down to any meaningful degree and I have been looking these last few years.

Jasper Puddlemaker
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murphy wrote: @ Jasper- are

murphy wrote:

@ Jasper- are you referring mainly to confidence in the US $$? Even if the US could get their spending under control and the dollar would go up in value compared to the other currencies, what would cause the rest of the world to  gain confidence in the Euro or the Yen?

It was more of a general statement regarding what causes metals to go up verses what causes metals to fall.   I view metals bull markets as arising,  not so much from monetary inflation, but from loss of confidence.  It is possible to have monetary inflation with no loss of confidence.  (That is what we have had in the US until recently).  So...

A bull market in AU/AG can occur if confidence in one's government (local currency) is lost, but in that case one has the ability to move to a competing currency other than AU/AG.

A super-bull market in metals arises when loss of confidence occurs across  the board.  It occurs when there is no viable alternative out there.  So AU/AG becomes a preferable alternative worldwide.  That is where we are today.

I would be surprised if any of the big players (US, EU, Japan) can get their act together enough to restore confidence to a level that is needed in order to stop the rise of metals in their local currency.   Won't happen for many years I think, so I'm pretty certain this super-bull will be with us for a long time.

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Reduced demand in silver due to downslide in industry?

I find it difficult to make a good argument against gold rising in the long term, but an argument can be made against silver due to the fact that a significant portion of its demand comes from the industrial sector.  In a major recession/depression (maybe if the SHTF too) perhaps the reduced industrial usage could cause the supply to outstrip demand.  Investors seeking refuge from fiat currencies may neglect silver and decide that gold is the true store of money.

I'm not saying I believe this, but it seems like one way the devil could advocate against Ag.

murphy
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@ tko and Tom

Agreed the industrial use of silver could come down in a recession/depression, but I don't think it is likely. With all the uses of AG and most in such small quantities, in the most sought after products in electronics, solar and medicine,  don't think it would happen. In a SHTF scenario silver replaces paper currency before gold and increases in value.

Tom, I read some of your earlier posts today. Paper currency is for spending to facilitate trade and that is all. It has been proven to be a terrible store of wealth.

Gold is to store wealth. IMO silver would replace paper in the STHF world

Code The Plumber
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"The Federal deficit does not

"The Federal deficit does not get increased, the budget gets cut 10% and taxes are not increased (I know this is totally ridiculous). The result is the dollar goes up, unemployment goes up, GDP slows and tax revenue goes down."

When has a large budget cut caused higher unemployment?

When has a lack of tax increases caused unemployment?

When has a lack of tax increases caused reduced tax revenue?

The result of the above, historically, has been lower unemployment, higher tax revenues.

Someone else said sentiment drives the prices... but that's only short term.  Gold's purchasing power has been almost unchanged for longer than any of us has been alive, so how can measuring it in dollars guage its value?  Relative to currencies, it wiggles.  Relative to goods, currencies decrease in value outside of real deflation, while gold stays flat.

Your gold will  have a sustained and substantial loss in trading power absolutely never.

Your gold miners are tools for moving money around in markets.   The machines own more than the rational minds, and they can lose you a lot of money for any reason the machines choose.  If the machines have sentiment and feel that a PE ratio of .5:1  is appropriate, then the little percentage of shareholders wishing for 30:1 PE's will not see such a thing.. If the machines decide selling makes the machines money, they sell.  That is all.  Look at 2008.  For periods, miners follow metals, during others they follow broader equities indexes and sometimes they just react to earnings and news.  The only time these periods last long is when the machines are making money off of you, ie when you are losing or getting set up to lose soon.  High oil and local currency fluctuations can make mines inoperable at some point too.  They are not a guarantee in  a reset.  They may go bust even as metal soars.  They require a certain amount of stability to operate as a financed enterprise.

Really, objectively looking at charts shows that the only way to lose value invested with a long-term horizon is to buy miners.  Since pre 2008, metals have kicked miners' ass (the deeper dip offered a better opportunity in miners if you had already sold and lost, but if you held, metal wins).  Lots of them are still way down.  Metals are clearly well above 2008 prices, because they are based on reality long-term, not market sentiment, liquidity, money supplies, or currency worth or whatever, not except for little wiggles.  Gold is gold, and it always has been.  For a currency to outperform gold, it would be an amazing feat, where the currency is more available than gold, but the only currency worth a damn in a sea of suddenly devalued currencies.  Unless there is that one last standing currencies that everyone runs to because it is more obtainable than gold, no currency should outperform gold on any long horizon. 

What can make you lose your value in metals?  A truly massive discovery of gold.  My understanding is that all the Au is exogenous to earth, so maybe if a big gold rock is intact somewhere because it just magically glided to the surface instead a scorching descent and explosion, you might lose.  Cold fusion might have the ability to screw you too.  If Ben had the fusion press and could print either FRN's or Golden Eagles from nitrogen, well I think you'd never hear about it, but we'd get a campaign about how the atmosphere is too high in nitrogen, risks a mass extinction, and we should figure out how to reduce it most quickly.  In the event that neither of these unlikely scenarios unfolds, gold should preserve your purchasing power and, if only sold during strength, also get you extra stuff in your life over the long haul.

murphy
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@ C the P

Check out http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/8/1_Stephen_Leeb_-_Expect_Silver_to_Trade_in_the_Three_Digits.html

today. Leeb says

When asked about government cuts in spending being deflationary Leeb responded, “It is, it’s deflationary and inflationary at the same time.  It’s inflationary because it’s going to assure that the Fed engages in some form of quantitive easing again.  We cannot afford in this country to see unemployment go up to 20%.

mespe
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Here's a Scenario,,,

The USD or FRN is replaced with the "New" dollars at 100:1 (when gold hits $3500/ounce) at which point your gold is revalued to $35/ounce. The "New" dollars are not debt instruments, but rather backed by something,,, (Maybe FRN's, knowing those bastards,,,) but more likely Gold and other PMs.

murphy
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Mespe

So if I understand correctly. Gold goes to $3500. They revalue the US $ and the $100 bill becomes a $1 bill ?

Seems to me that gold hasn't lost anything. What it bought at $3500 it now buys at $35. Now we can start the whole process all over again.

Gold is doing exactly what it has done and is supposed to do. Storing wealth no matter what paper price you put on it.

Jasper Puddlemaker
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murphy wrote: Agreed the

murphy wrote:

Agreed the industrial use of silver could come down in a recession/depression, but I don't think it is likely.

I agree.  What baffles me is the view that silver is not money.  Sure it is; has been for thousands of years.  Short term reactions aside, there is no way silver is gong to fall in price if gold is appreciating in price.

Eric_2
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One more thing to consider -

One more thing to consider - in a big depression or SHTF scenario where the industrial or high tech demand for silver collapses, it seems to me that a large percentage of the sheeple will suddenly wake up and make a rush for physical silver (since gold is too expensive for many). I think it possible that this popular demand for physical silver would male up for the lack of industrial demand. Just my opinion tho.

murphy
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another theory

As I try to wrap my head around this I come up with only one simple simple solution. The answer is quite obvious, reduce spending by 20%. That would  knock the gold price down and install new confidence in the US dollar. Until our elective officials can do that gold / silver keeps climbing as they have been on the debt ceiling / gold chart we have all seen. Although the solution is simple the implementation, not so much. Revise tax code, cut military, gov't., entitlements, subsidies, loopholes, etc.  Yada, yada and yada.

Until that happens the only other and more probable alternative I can envision is new technology. One example: We already know that they can produce energy from sea water / plankton in the ocean. Could this create millions of new  jobs manufacturing what is needed to do so?   Will they wait to wring all the profits from oil first and have the world economy on it's last breath before they come to it's rescue?

Just askin?

Jasper Puddlemaker
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New technology...

For something to come along and stop this avalanche (or tidal wave if you prefer the beach) it would have to have to be incredible enough to change the world almost overnight.  So ya, a new energy breakthrough or something would likely be the only thing that would break this downward spiral.

Ok, lets see:
Door #1:  World changing energy breakthrough, or, governments/politicians actually reduce spending 20% now.

or

Door #2: Another black swan comes along, causes all hell to break loose, and the panic is on.

or

Door #3:  No black swans, and governments are able to keep up this slow, managed collapse.

So, which one is most likely?  My money is on Door #2.

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