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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (21620)	11/10/2004 2:50:34 PM
From: ild	Read Replies (1) \| Respond to of 110194

Date: Wed Nov 10 2004 13:55 trotsky (Earl Grey@'time to get bearish on bonds?') ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved i doubt it. time for a correction, yes, but imo not more than that. the problem is, everybody appears to be already bearish anyway. in Rydex funds, bond short positions still exceed long positions by a factor of 20 ( about 3bn. short vs. 150m. long ) . the 'recovery' is much hyped, but the fact remains that it has so far been the weakest ( by FAR ) of any post WW2 recovery, in spite of the most massive dose in fiscal and monetary stimulus ever administered in such a short time. if hedonic indexing were taken out of the data, there would in fact not be a recovery at all ( compared to 1980, GDP growth is now overstated by a full 3% annually ) . the 'deflationary gap' ( i.e, idle resources ) has barely moved from its recession high ( see capacity utilization ) . so the long term outlook for the bond market remains quite good. the only caveat imo is the possibility of a currency crisis, which would probably hurt bonds if it were to happen. Date: Wed Nov 10 2004 13:41 trotsky (Ted Butler@silver short position) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved i know you have dismissed Mr. Beaty's arguments out of hand, but i believe they have to be considered more carefully. 'visible' inventories and annual production alone are simply not enough to account for the positions in silver derivatives. this is because a large amount of silver STILL IN THE GROUND has been hedged, in some cases up to 10 years out, by mining companies. while that may be unwise, the fact remains that it has been done. when one party to such a transaction forward sells, its counterparty automatically acquires long exposure. but the bullion banks normally don't want such transactions to result in directional exposure - they just want to collect fees. by selling commensurate amounts short in the form of COMEX contracts, they offload the directional risk to speculators who are willing to take it on. that said, i haven't seen the total miner silver hedge position collated anywhere ( unlike gold, where several services provide a regular overview of the size of the global hedge book ) - so i don't know how big it really is, all in all. but e.g. Barrick has currently 16 million oz. sold forward with the bulk of the contracts expiring in 2014 ( per their most recent earnings release ) . considering that there are quite a few major base metals producers that produce a lot of silver as a by-product i wouldn't be surprised if there existed even larger silver forward sale contracts at several other firms. finally, as others have mentioned, 'visible' inventories may not really be a good indicator of actually available above ground supplies. GFMS reports that governments alone sold nearly 83 million oz. ( 2750 tons ) of silver last year - with the bulk provided by China. they have sold similar amounts for 6 years running - iow., over the past 6 years, between 400-500m. oz. have been provided to the market from what must have been 'invisible' inventories. no-one seems to know how large the remaining inventories are ( we do know they get smaller, but how much is left? ) , but China once had its money backed by silver, so can be expected to have owned a fairly large stash. it's fair to assume that China running out of silver would have a big impact on the market, but when will that be? 1 year from now? 10? GFMS btw. estimates that continental European silver inventories are far larger than those at the COMEX warehouses. isn't it possible that quite a bit of these 'invisible' inventories are being hedged via COMEX futures as well?