Date: Thu Apr 06 2006 10:55
trotsky (Hambone@fundamentals) ID#248269:
Copyright © 2002 trotsky/Kitco Inc. All rights reserved
sorry, i couldn't ge back to you yesterday on this, was too busy. i said, in reference to Alberich averring that some 'fundamental reason' must be behind silver's relentless rise:
""yes, it does have a fundamental reason - lots of speculative buying. it is psychology that moves markets, not 'fundamentals'.
gold and silver illustrate this nicely. between 1980 and 2000, US money supply exploded in exponential fashion, at rates hitherto unimaginable. yet, in spite of this great fundamental reason to buy gold, gold actually went down during this period. silver has been in a primary supply demand deficit for something like 12 years i believe. in spite of this bullish fundamental datum, it went down for the better part of this period."
to which you replied:
"Total rot, I'm afraid. Fundamentals preceed psychology. During the period you mention, there were no supply concerns for commodities in general, including oil, copper, - in fact all commodities. The excess money therefor found its way where? Into the stock market. In the case of silver you cite, a billion plus ounce inventory had to be worked down - hardly a supply shortage.
However, in the last few years demand from Asia is outstripping supply for nearly every commodity. Think the rise in oil is merely psychology? Yes, psychology enters the fray after things get moving - but only after fundamentals are in place."
well, i totally disagree with this. it is NOT 'fundamentals' that 'precede psychology'. where do you think the 'fundamentals' come from? do they just fall out of the sky one day, unannounced, and simply come into existence like something conjured up by a magician?
no, fundamental developments FOLLOW the direction that mass psychology takes. China did not just become a capitalist economy with a voracious appetite for commodities overnight for no reason. something first changed in China's social mood, a change that gripped its leadership and allowed it to take the step of discarding the communist model that they had faithfully followed for decades.
a very illustrative example of how psychology actually CREATES the fundamentals are the past 3 years of market and economic development in Europe. nowadays you can't find anything but articles expressing surprise at '15-year highs in German business confidence' , 'the strongest showing of Euro-zone manufacturing surveys in years', 'falling unemployment across the euro-zone' and so forth. contrast that with press articles 2 or 3 years ago - 'the sclerotic Eurozone economies' were decried as forever unable to produce anything positive on the economic front.
however, a more discerning observer would have noticed that the major barometer of European psychology, namely European stock markets, had begun to rise strongly, indeed outperforming the US stock market by a huge margin. in short, the social mood in Europe had begun to change from negative to positive, contrary to what the 'fundamentals' of the day actually seemed to say. and this change in psychology has now created the fundamentals that suddenly look so positive.
this is the main reason why fundamental macro forecasts of both markets and economic conditions rarely pan out - the fundamentals of TODAY describe only the past - a past which has been created by changes in mass psychology ( which in turn seems to move in generational cycles ) . they can't predict the fundamentals of the future - it is the markets themselves that predict the future, by depicting the direction which the social mood is taking TODAY.
technical analysis of the markets has a better chance of predicting future developments for the simple reason that it is ultimately a study of market psychology - and market psychology is THE most important fundamental one needs to be aware of.
all imho of course...
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