When It's Obvious to the Public, it's Obviously Wrong

Silver buying Mania on eBay
eBay buyers are rushing to buy silver coins, paying 16% premium over the price you can find elsewhere. Moreover, sales of silver are now twice as much as gold sales. Alix Steel (no pun intended) from TheStreet.com was interviewed on DailyTicker. Here are a few quotes:

TheStreet.com's Alix Steel and I have a trade for you:
  1. Go to Kitco.com and buy a 100 oz. bar of silver for $3,706
  2. Follow some simple steps to smelt your silver in a regular microwave
  3. Pour your molten silver into homemade 1 oz. molds... carefully
  4. Sell your homemade 1 oz silver bars on Ebay for $43.75 per
At the heights of silver stampede, the premium for physical silver was as high as 16% over what could be bought in the pits a number drifting under 10% at the moment, according to Ebay.

See video below:

NAV for PHYS is back to March highs
ZeroHedge is reporting that the premium over the NAV for PHYS is the highest since the March highs, despite paper gold trading at all time records.

Google  Trend Shows Silver Price Query as Number One Search

Precious Metals Mania Ripples Down to the Commodities Complex
July 18 (Bloomberg) -- Funds boosted bets on rising commodity prices by the most in almost a year as traders added gold amid escalating debt crises in the U.S. and Europe.

Speculators raised their net-long positions in 18 commodities by 15 percent to 1.09 million futures and options contracts in the week ended July 12, government data compiled by Bloomberg show. That’s the biggest gain since early August. Gold holdings surged the most since September 2009 as prices climbed to a record. A measure of bullish agriculture bets climbed the most in 11 months.

[...] Gold futures climbed for nine straight sessions to July 15, the longest rally since November 2009, on increasing demand for the precious metal from those seeking to protect their investments. 
[...] “People know there is tangible value for metals and commodities. There is a store of value in these products.”
 Let's remember that "when it's obvious to the public, it's obviously wrong".

Speculators raised their net-long position in 11 U.S. farm goods by 16 percent to 655,798 contracts as of July 12, the biggest increase since August.

Holdings of soybeans surged 40 percent, the most in a year. Prices of the oilseed climbed for 10 straight sessions, the longest rally since September 2007, as hot, dry weather threatened crops in the U.S., the world’s leading exporter.


Tiho said...

Commodity speculators have cut their contracts by 40% in the last three months. Just look at my blog post. If anything, sentiment on the overall commodity complex is now neutral, neither bullish nor bearish. You got to check your facts before you write something, otherwise it starts to smell of that constant permanent-bearish deflationist reek!

Tiho said...

If the link doesn't work, just go here: http://theshortsideoflong.blogspot.com/2011/07/market-sentiment-update.html

pej said...

It's right that sentiment in the commodities complex turn to be quite neutral until a couple of weeks ago. I haven't had a chance to follow since then (i've got like 30 posts to catch up on your blog!).

But the market seems to be schizophrenic and sentiment seems to be shifting extremely rapidly (just check the Bloomberg report of this post).

Tiho said...

"But the market seems to be schizophrenic and sentiment seems to be shifting extremely rapidly."

That's true. Usually volatility swings as the trend is about to change. However, I am not so sure about a bear market just yet. My reasoning is this:

There is extreme pessimism in Europe. ML Fund Managers Survey, which was conducted last week on 300 fund managers, found two thirds... that's right, two thirds of managers expecting a default in EU. This is the highest tail risk reading ever in the surveys 12 year history and higher than in May 2010 when everyone thought EU was going to split up!

Also, these same managers are 56% underweight EU banks, the worst reading since March 09 lows! Finally, its not just the banks... between US, Japan, Emerging Markets, UK and European equities, managers are the most underweight Eurozone.

Everyone is so worried about all of this mess in Europe, so there is a good chance something else happens. I think we will see another risk rally for a few more months as ECB and EU kick the can down the road again... one last time... hahaha!

pej said...

Yes Tiho, I agree with your analysis. Everybody is worried about Europe. But, at the same time, what's very weird is that the EUR is levitating as if there was no issues, and equities markets are still at their multi-year high as well.

I interpret this as "I'm worried, but I'm not selling because the stock market is the place to be, and the USD is doomed". So

I'm not sure the can can be kicked much further as whatever they do with Greece will prompt the other PIIGS to request the same sweet deal, which obviously is not going to happen given the size of the aggregated economies.

Not sure what will happen from here though.

Tiho said...

The day I wrote my previous message was the day Eurozone equities and bonds bottomed. Ha, fucken nailed it!

I think you are mistaken on your thinking strategy by looking at the Euro. Once again that is the Gary Shilling / Robert Prechter / David Rosenberg outlook which favors the US Dollar. And majority freak and bet against the Euro. But they are so wrong...

You see...when Euro was falling last year, it was because the market was testing Germany and if they will have the political will to stay in the EU. The test passed and the Euro recovered.

PIIGS, mainly Greece, Ireland and Portugal are very very small part of the Eurzone economy and their default will not break the EU. Therefore, the Euro is now obviously in a bull market, not because it is a terrific currency, but because it's better than the US Dollar.

Where the problems remain are with the sovereign bonds and with the financial banks. They are the ones in a downtrend.

But if you do not like the Euro, to bet against the Dollar collapse over the long term (not now still too many bears from a contrarian point of view) you should buy commodities. Its a long term secular bull market!

pej said...

Hi Tiho,

Did you act on the move? Did you buy on the previous day and sell after the move? If you did, I'm glad for you.

Day traders can profit from the random daily movements. And they should.

My perspectives are more over the next 2-3 months (generally I aim for those durations) and sometimes 1-2 years.

I don't believe this is a long term secular bull, I think it's yet another gigantic dead cat bounce, bear rally, that will end in tears, as they did in 2000, and 2008.

And with every bubble, the damages are getting bigger and bigger. Now we have reached the point were insolvent countries are finally starting to default...

Tiho said...

Yes we have reached that point. So stop shorting companies and commodities and start shorting governments instead. They are the ones who are bust, not the private not sector.

So as I keep telling you, short BONDS! Buy commodities because it's a COMMODITY BULL MARKET.

p.s. That sentiment reading is not a one day bounce. When investor get that pessimistic, like in march 09, it takes weeks and weeks, months and months, to wash that fear away. Fuck man, do I gotta explain everything to you? Lol.

pej said...

Bonds just rallied massively since my post. God knows what will happen now that the US have been downgraded, but so far, i'm happy with my call. Not sure what I would do yet if I were long. Close/Keep/Short... have to think about that.

yeah yeah yeah, it's a commodity bull market... says who? what does that mean anyway?