Wednesday, February 17, 2010

The future inflation cloud (updated)

The future inflation cloud, does it have a silver lining?

Money printing in most countries (including digital numbers "money") has exploded in recent years due to the crisis. We are probably due for another very bad inflation decade, similar to the seventies. Which means your money in the retirement savings account may be losing value faster than the interest you're getting on them.

Various people, including reader Robb, has mentioned silver bullion as potentially an even better inflation hedge than gold. So I've started studying it a bit, and it does seem very interesting.
One thing I've found is this page, not the least the video clips lower on the page. Now obviously these people are biased, so it should be taken with a grain of salt, but unless the stats are made up then...
Electronics production is booming and using more and more silver... Silver prices have been depressed by governments/banks dumping their deposits, but these may be running out... Silver is used for money, but is also (unlike gold) being consumed industrially, in ways where you can't economically reclaim it.... The far East is booming and will expand these factors strongly...

And for myself I've noticed that while gold has doubled in the past couple of years, silver has stayed the same. This could mean it's a dead duck, but it could also mean that the popular market, like often, is just behind the times, and it's a great buying opportunity.
Also, just emotionally, "silver" is traditionally "the next best thing to gold", but currently it's sold at about 1/70th the price of gold! That just feels very cheap. And historically it is indeed lower than average, and this is without taking the factors above into consideration.
One downside to silver compared to gold here in the UK is that gold is excepted from the usual 17.5% VAT (sales tax) charge when buying, but other metals, including silver, are not. And individuals won't recover that expense when selling. I don't know how that stands in other countries.

Here's another perspective on silver, less breathless.


Jan said...

My fear may be unjustified, but I think the electronics market may implode if the crisis lasts much longer. China probably uses a lot of silver and currently looks awfully bubbly.
Gold behaves differently from other commodities, but silver mostly behaves as a commodity (maybe until it doesn't anymore, who knows!)

I hear that in the Netherland there's also VAT on silver, except on old silver coins. At certain dealers you can buy "guldens", "rijksdaalders", "tientjes", etc. by the kilo. They're 72% pure and you have to account for 3% wear, which means they probably respectively contain around 4,54g 10,48g and 18g pure silver. Some of these dealers: Kevelam, Theo Peters and Edelmetaal Uden. An online dealer is but I ignore if the VAT problem applies to his coins or not.
This info is summarized from

Bruce said...

Don't forget lead as an investment. And lithium is starting to look interesting...

Eolake Stobblehouse said...

Where do you study such things?

Pascal [P-04referent] said...

Electronics also use gold.

It's a field that MIGHT have its own crisis some day, but not a lasting one. Electronics have become too essential in our civilization. Look at the car industry: it's already soaring again. And let's not even mention the banking sector, already reporting record profits!

Silver is also being used more and more to make surgical instruments, I hear, because of highly interesting antibacterial properties.

Lithium is indeed another highly intesting investment. Electric cars, and all other rechargeable batteries today, use the lithium-ion system, which is probably the most efficient and interesting mineral process for batteries. Add to this the problem of Greenhouse Effect and the unavoidable depletion of oil... Lithium is destined to be REAL BIG, unless some miracle invention manages to make it obsolete. But it's most likely that Lithium will not crumble overnight. More like slowly over months or years, if/when something even better is finally developed at economical costs. So far today, any technology based on the remarkable efficiency of Life's organic molecules remains embryonic.

Solar cells are also definitely on the rise and promising. And, I dare predict, any nuclear energy that manages to not completely forget safety rules is also going to stay big. CO2 and its dramatic effects will see to that. Oil is passé.
The weather threat is so significant, that radioactive waste destined to become a problem in a few thousand years has practically become the last of our concerns... literally! Plus, fusion energy remains actively researched.

Maybe I wouldn't sell my oil company shares (if I had any!) just yet. The stock profits are still obscene. Oil remains excessively used, and its prices are bound to rise with the decrease of stocks. I watch the news to "feel" the global tendancies.

Eolake Stobblehouse said...

I wouldn't count the Correction out just yet. I think the current high is desperation. The correction has been no way as big as the bubble.

Also there's the huge trade imbalance between East and West, which must be corrected sooner or later. If that hits now too, this may be a worse decade than the thirties.

Pascal [P-04referent] said...

"If that hits now too, this may be a worse decade than the thirties."
Wise words, Cassandra. :-(
Like with the banks crisis, I'm sure Governments will do everything in their power to keep the System alive, because there's such huge interests in it (literally! ;-).
But, if EVERYTHING crumbles...
Then again, in that case, what becomes of your investments may turn into the last of your worries.

Not to mention the stubborn ignoring of Nature's realities, which are bound to cause several crises of their own.

Just read in the news that Ethiopia is struck again by famin. They had organized a very proper agriculture thanks to Peace time, but Global Warming has hit the country these last 3 years with the worst drought anybody has ever seen. So now their harvests are close to nothing.
What when some major producer countries finish ruining their own soils with their "intensive" plundering methods?

I'm already highly worried about the West's dependance in the domain of food products. If the USA import almost all of their cereals, it means at the slightest hint of serious conflict they might just starve like so many third-worlders.
Or, they'll just have to slaughter all their cattle, eat them, and then start eating their GMO soybeans directly. Might decrease their diabetes statistics. ):-P

Yup, "the times, they are changing".

That's why I've canceled my subscription to the NYT. It just wasn't the same any more. ;-)

Eolake Stobblehouse said...

"Like with the banks crisis, I'm sure Governments will do everything in their power to keep the System alive, because there's such huge interests in it"

Yes, but they did that the last time, and there's no more bail-out money.

Pascal [P-04referent] said...

What, you mean this bail-out money was a GIFT, not a LOAN???

Eolake Stobblehouse said...

I don't know. Do you think there's much of a difference in those circles?

Pascal [P-04referent] said...

Well, I see at least one difference that's significant enough, yes: if the aid is a $50 billion GIFT, the State directly loses 50 billion, and it goes straight into our taxes. At the very moment when people are losing their jobs and incomes because of those same banks. (You'll readily concur that this is a VERY bad move for a politician...) If it's a loan, people don't directly pay those who lost their money so they can immediately gamble with more of it!
In the second instance, the State can DEMAND that the banks pay back, and with significant interest.

Not a huge difference overall in the big scheme of things, but very important to me as a taxpayer!
And I notice we were never told what exactly those aids to banks were: emergency gifts, or temporary loans.
In any case, there absolutely NEEDS to be a law prohibiting the transfer of benefits as CEO bonuses or stockholders cash when it's threatening a company's durability. A law stating that real people have priority over abstract capitalism.
Because a steady job is part of basic human rights. ESPECIALLY in a Society, like today, where those very banks have made life on credit unavoidable! Jeopardized job equals loss of your home, health coverage, education fees, and maybe even food. So I dare say it IS something that a civilized State should protect.

Someone told me that in Europe/France, if you decide to pay off the full of your remaining car credit in one go, they impose penalties on you, "because you're causing them to lose interest rate profits"! Otherwise put: the law FORCES you to pay more in order to fatten the loan establishments, regardless of the fair actual market value of what you purchased, "protecting" their "right" to cash in benefits at your expense!

Anybody knows whether this preposterous outlandishness is true? Sounds to me like grounds for a new Revolution!

Pascal [P-04referent] said...

P.S.: I've heard that, very officially, 10% of the speculation profits go directly to the traders as bonuses.
Which is probably the least unfair of all that money distribution: they gamble, but they make the money (unlike Bernie Madhoff)! Usually from those who gamble poorly on the same stock market, so I'd say that's rather "ethical".

Only a fool gambles without knowing how to "walk the walk".
I only ever gamble (more like "make a bet") with something I'm ready to lose.
And, usually, it's a bet with the kids, which I am confident I'm going to lose. :-)

Legalizing casinos? That's just admitting that doing it small is just as legitimate as doing it big.
A one-armed bandit is far more honest than a banker. Sometimes, by extraordinary chance, it DOES give you a jackpot.