Not a Lot of Steam Left
The title describes a bunch of different things but not the downside remaining in the stock markets. The title does probably describe: (1) the remaining downside in silver; (2) the remaining upside in the dollar; and (3) my stamina to write anything else for a while after the Fed is Bankrupt essay. Speaking of which, I’ve just finished making some important corrections and clarifications to what I consider my magnum opus on U.S. central banking. I hope some of you will consider going back over it knowing that it will take on average about seven readings to figure out just what the heck I was saying. Despite being short on steam, I’ve begun work on the next installment in which I will provide precise information about the first helicopter drop. I’m very sorry to disappoint those of you who were looking forward to lighter reading material!
Getting back to the monetary metals, we saw major safety buying in gold again today. The result was once again that gold disconnected from the dollar, which itself saw some decent action from those fleeing to its relative but not absolute safety. Meanwhile, silver suffered from sympathy selling as commodity-oriented investors ran for the hills even faster than Dow-oriented investors. The result was oil dropping below $90, copper below $2.50, and silver marching in place. If not for silver’s attractiveness in monetary and investment form, it could certainly have been much worse.
Speaking of copper, for those of you who actually bought the COMEX copper puts I discussed back in July, it is now time to seriously start thinking about taking profits, especially on the December $2.50 put positions. These are up about 2500% from around $200 in July to over $5,000 today, and while they may very well go much higher (my eventual target is $22,500), the rate at which they appreciate could slow. This is because the current $5,000 in option value is mostly in time premium. The next 20-30 cent fall in the price of copper, assuming it happens, will primarily serve to convert that time premium to inherent value. Inherent value is the amount by which the underlying price exceeds the strike price, representing the value of the option at expiration. In other words, as the option goes deeper and deeper into the money, the time premium will evaporate and that will tend to offset some of the resulting gains in the inherent value of the option.
I’d love to write more especially since there is a seemingly endless supply of important material but first I’ll need to recharge a bit of my lost mental steam.
Is it fair to say that “paper” silver has “disconnected” from real silver and gold? If it has, how did that happen?
JP Morgan looks like the culprit to me. Anybody have another reason?
I am jumping in on this thread to just leave a prelim comment on the “Fed is Bankrupt” essay, which I hogged the hotel computer for two hours (made me very unpopular!) to savor my way through after I saw its repost at Itulip.
I would have responded immediately, but I spent the next hours sending it out to friends and family, and the few fellow “Lifetime Learners” in economics I know who share my curiosity at the rapid events as we slide over the falls.
That WAS a masterful piece of writing, and you fall into the rare category of writers who marshall a massive amount of clear and focused thinking in one spontaneous stream (one of the miracles of intelligent life on Earth), or one who is able to rewrite so cogently as to tremendously improve and shape the voluminous data dump he did into his first draft.
With the time interval from your previous day’s comments, I guessed you had probably gotten no sleep, either way. But the contribution was so major, it is hopefully going to be passed around. (saw it on Prudent Bear this A.M.)
And now, the gorgeous blonde at the next computer has been offering a conversation I’d been looking forward to for some time, so…. back to ya later! The Depression 2 can wait!
(ok, she had to go, but I got digits and a dinner plan for tomorrow, so now think i’ll go for a late night re-read on your magnum opus, and then tell you why I liked it so much and what it did for me)
My trading setups have given me a buy signal. I shall shamelessly push my book. I have bought Jan calls in AUY SA TRE. I can only hope they will be as blessed as Tom’s copper puts. I developed this system along time ago and have learned not to ignore it. It usually beats my intuitive system 2.3 to one…
Regarding the copper puts: I assume that the real demand for copper remains high quite a while since the (electrical et al.) infrastructure in China and India will still be improved even when there is a slow-down in their economy.
I expect that some of the metals see a rebound when the dust clears (i.e. the hedge funds deleveraging terminates).
Hey Tom: Thanks for all these geat articles-not that I understand them. I only have a BA in Econ and an MBA. Maybe on about the 5th reading. Great work! Head and shoulders above most of the other stuff we see. Butler’s latest was rehashed broken clock stuff and drew some negative comments on silver seek. I guess he just has to crank some stuff out for his employers. You are rising to the top of financial writers, I’m glad I found you and your board is pretty darn good too.
So what’s up with the basis? I noticed last night that both spot silver and gold were trading within 1-3 cents/dollars of the Dec. futures. Look slike they closed within about the 1 cent/dollar spread. It had been more like 6-8 cents/dollars spread until then. Is this something we should be paying close attention to?
On another note some respected Swiss analyst on CNBC said there will be a default in the paper gold market (comex) just like the CDS defaults and gold will double. Meanwhile last night CNN/GlennBeck finally talked about gold with Peter Shiff saying don’t ask just buy gold and the CNN Your Money commentator Ari… saying saying buy silver. Gold and Silver seemed to be taboo subjects until this.
“top of the financial writers” is right!
But I’ll just throw in a negative here for us all to chew on for awhile (that was quite a dinner — need to lie down and rest)
Why — if we are talking about the collapse of the fiat fractional reserve banking and monetary system, or at least its filtering through a VERY tight filter of financial scalping (forget haircuts!) — are you still recommending distant paper holdings that designate profits on silver “market” pricing?
Of all the times when “in hand” has such a probabilistic premium (20%? 50%?) to it…!!!
Just had to get that out… i’ll take a glance at the newer thread, and take it with me to my dreams…