Silver, Silliness, Gold, and Risk

The movie “The Big Short” features Michael Burry.  His statement from Zerohedge:

“It seems the world is headed toward negative real interest rates on a global scale.  This is toxic.  Interest rates are used to price risk, and so in the current environment, the risk pricing mechanism is broken.” 


What risks could be mispriced?  A few come to mind.

  • The world is saturated in debt – over $200 Trillion. Does anyone expect that debt to be repaid?  What are the risks when over $200 Trillion in debt can be counted as an asset ONLY if that massive and increasing debt can be rolled over and replaced with say $300 Trillion in debt?  What are the risks this exponentially increasing debt nonsense will be acknowledged for what it is – a train wreck in progress?
  • The US stock market looks like it is rolling over, just as it did 7+ years ago in 2008, and 15 years ago in 2000, and 1994, and 1987. What are the risks that the S&P 500 is overvalued, that the P/E and a dozen other measures are overvalued, and the stock market will correct/crash?  Think back to 2008, 2000, 1994, and 1987.  Read:  Tread Lightly – 2016 Technical Outlook.
  • People and countries in the Middle East are not playing nice with each other. Regardless of whether the problems are religious, a 2,000 year feud, outside interference, control over gas and oil pipelines, or foreign policy stupidity, the region appears ripe for turmoil and more violence.  Have risks been properly assessed?  What happens if WWIII is born out of the fires of Middle East hatred, energy markets, and political posturing?  Has that risk been properly priced into bond markets with negative yields, or stock markets with historically high P/E ratios, or crude oil prices at multi-year lows?
  • Silver (paper) prices have been crushed by nearly five years of paper selling, derivatives, central bank manipulations, support for stock and bond markets, and more. Have the risks of financial turmoil, economic catastrophe, and escalating war been properly priced into paper COMEX silver prices?
  • Actual physical gold has left the vaults in the western world and moved east into private and public vaults in Russia, India, and China. Have the risks of paper gold defaults (cash settlement) been priced into the COMEX paper price of gold?  What if much of the gold supposedly vaulted in London, New York, and Fort Knox has mysteriously been replaced by “IOU gold” paper promises?  Have the risks of missing gold and increasing demand for real physical gold been properly priced into the paper gold market?
  • What is the risk of nuclear confrontation between Russia and the US? If we believe the bond markets, the risk is exceptionally low, since the prices of money (interest rates), are at multi-decade or perhaps multi-century lows.  Have the risks of major war, or nuclear war, been mispriced in the bond market?

But looking on the silly side of a broken risk pricing mechanism …  (SARCASM ALERT)

  1. Wall Street financial firms are doing “God’s Work” here on earth and will take care of the rest of us.
  2. Social Security recipients will receive no cost of living increase in 2016 because, per the Social Security Administration, “The law does not permit an increase in benefits when there is no increase in the cost of living.” Good to know there has been no increase in the cost of living during 2015!  Apparently the Obamacare price INCREASES in premiums and deductibles compensated for other price increases…. (reminder – sarcasm alert).
  3. The Presidential race is heating up, but good things might happen in a single party political system masquerading as a two party process. Vote for the least offensive candidate and tell yourself there is a difference, not in the candidates, but in the policies that will be implemented.
  4. But don’t worry, be happy, trust debt based fiat currencies with no intrinsic value, and spend, spend, spend, because “deficits don’t matter.” Frankly, what could go wrong?  Remember – sarcasm alert!

Silver thrives, paper dies!  That mantra will serve us well in 2016 and 2017 since paper silver prices are currently very low compared to ratios to the US national debt, the S&P 500 Index, total global debt, fiscal and monetary silliness, and political stupidity (graphs not shown).  If risk has been mispriced because the “risk pricing mechanism is broken” as Michael Burry says, then we should expect a volatile and traumatic year in 2016 as risk pricing adjusts. 

Rig for stormy weather, expect surprises, markets regressing to the mean, pricing mechanisms failing, political systems collapsing, and Middle-East politics exploding.  There will be blood and trauma.  Do not trust the supposed value of paper assets and find security in real assets such as silver and gold bars and coins stored outside the financial system.


Silver thrives, paper dies!

Gary Christenson

The Deviant Investor


Read my new novel for sale on Amazon!


7 thoughts on “Silver, Silliness, Gold, and Risk

  1. Just had a look at the XAU index, and as far as I can tell, it has never been lower in it’s 30+ year history. Bullard just stated that the price of oil has to bottom sometime. Does the XAU have to also bottom some time, or does it go to zero?

    • My data shows a deep low in October 2000 at essentially where the XAU closed Jan. 13. It looks like today will be lower. But I don’t think it will go to zero.
      Thanks for your observation.
      The Deviant Investor

  2. To answer Mr. Maggard’s question:
    The Exchange Stabilization Fund at the Treasury is buying up all of the Treasuries the world is dumping.

  3. I tend to watch the silver market, but the gold market may be very similar. Paper silver is traded at many multiples of available physical silver. This has gone on for many years. I see my silver stack increasing – the paper price goes up, it goes down – I don’t care. If I don’t get to be a ba-jillion-aire in my lifetime, my children or grand children will.
    The real lesson to be learned, is to live beneath your means so that you are always saving and/or investing.

  4. A very timely piece considering the recent reporting of the supposedly decline of assets held by the Federal Reserve. Who is buying the bonds that the world is dumping?

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