Dakryn's Batshit Theory of the Week

[Dak]

The recent high demand is largely a result of the extraordinary panic generated by the 2008 crisis. If we don't have a crisis of similar magnitude in the next few years, I don't see any reason to assume the present coins/bars demand will stay as high as it is - especially if supply keeps rising like it has been, and putting downward pressure on the price of silver.

I wouldn't call it a panic, that makes it sound irrational The response was very rational. You also have to look at international physical demand trends, I more or less ignore the paper price. A whole lot of the nominal market value is based on certificates being traded which cannot really be redeemed. The Euro is extremely unstable right, China is slowing way down, and with much of the recent "growth" in the US economy due to the explosion in shale oil drilling that is now getting capped, I don't see things improving either here or in general.

So you think scrap production could meaningfully decrease as the public becomes better informed about the real market price & price history of silver? It's possible, but I personally wouldn't assume that will translate to a long-term tapering off of this supply source. I think it's more likely another supply/demand balancing mechanism like I described with mine production, where supply rises as cost-effective reserves rise.

Well there has to be scrap to produce scrap. I'm not saying there wouldn't be any, but there is a finite amount of family heirlooms.

 

[zabu of nΩd]

Well there has to be scrap to produce scrap. I'm not saying there wouldn't be any, but there is a finite amount of family heirlooms.

There's a large and steady demand for jewelry, though, which I assume translates to a large long-term supply of eventual scrap.

Also it's hard to say how much of the silver used for industrial applications is recoverable - it could be a lot, and industry could get increasingly more efficient at recovering or recycling scrap over time.

 

[Dak]

There's a large and steady demand for jewelry, though, which I assume translates to a large long-term supply of eventual scrap.

Also it's hard to say how much of the silver used for industrial applications is recoverable - it could be a lot, and industry could get increasingly more efficient at recovering or recycling scrap over time.

Is that typical western consumerism demand or is it for wealth preservation though in emerging BRIC countries? I don't know honestly, but I would imagine the latter.

The industrial applications won't necessarily be directly recoverable, but "electronics trade in programs" are an example where materials can be recovered.

But I still think this has a minute pressure on price, because the price of silver is not in silver, and the national monetary policies and fiscal imbalances are going to over time exert greater pressure than small refinements in scrap recovery would. The bottom line is I expect some sort of monetary system reset in my lifetime, and barring an FDR-like confiscatory move (more likely with gold than silver), I see the purpose of silver as maintaining wealth/providing a parachute in the interim of the destruction of the old system and establishment of the new.

 

[zabu of nΩd]

I'm totally down with holding silver over the long term - I just wanted to point out that in the nearer term it's pretty risky

These days I look at silver as one of a number of ways to hedge against major disruptions in the economy. It'll probably stay my biggest single hedge in that respect (currently about 4% of my savings), but I also think there's a number of stocks that offer good hedges.

Companies like Google, IBM, and Microsoft are good hedges against disruptive developments in A.I. Solar panel companies are a hedge against the collapse of the fossil fuel industry. Independent investment firms could be a hedge inasmuch as they are able to detect and respond to another massive wealth-transferring Wall Street conspiracy without selling out their shareholders in the way the establishment firms might.

You can still assume some calamitous lapse in legal protection for investors, as I know you do, but as long as we're in the business of doomsday investing I don't want to assume the collapse of fiat currency will be the first "big one" to hit us.

As far as "non-paper" commodity investments, I think Bitcoin is comparable to gold and silver as a leading decentralized currency. It's a whole lot riskier, but I still like it as a sub-1% part of my savings.

That said, every one of those ideas is still a big what-if to me, and I'd consider it a waste of nearer-term opportunities to have more than 10% of my savings committed primarily to hedging and wealth preservation right now. My current holdings may only cash out for a few weeks or months of comfy living the year after the apocalypse, but until then I expect my 90% of traditional investments to do more to extend that lease than an extra 90% of "what-ifs".

 

[Dak]

Yeah, if I had the time to actively invest I would say Google et al or cyber defense oriented companies would be a pretty safe/profitable place to start. Unfortunately I do not have money to just toss into the market nor the time to do so with educated intent. Still investing in myself and the family right now.

 

[zabu of nΩd]

nor the time to do so with educated intent

I have a hard time believing that given how much ground you and Pat cover in this thread haha, but I'm glad to hear you're interested.

The way the financial news establishment is set up right now, it's very hard to get a meaningful high-level overview of a company that offers real perspective on its future earnings potential. Getting free Morningstar stock reports as a perk through my brokerage (Merrill Edge) was oddly the one big turning point in my self-education, and almost three years later Morningstar is still the only company whose stock reports I trust.

Most of the mainstream "analyst consensus" analysts make recommendations primarily on short-term/technicals-based smoke signals, but Morningstar does only long-term valuations. They also include uncertainty levels in their valuations (which to me is crucial to finding safe investments), and they have good writeups on the competitive advantages, unique risks, and management quality of each company, which I've seen nothing close to in other analysts' reports.

 

[Einherjar86]

I'm totally unqualified to invest any of my money in individual stocks. My wife handles all that stuff; but other than the company she works for, we don't own any individual stocks. We have money with some investment funds.

I'm too bewildered by how the stock market works to be comfortable handling my own investments.

 

[Dak]

If I focused on it I think I could do alright. My main concern is that, as you said, typical public analyst info I expect is either just groupthink or intentional disinfo. Goldman has been caught redhanded advising clients in such a way as to make money for GS, so you know any other sort of "guidance" is going to be no better. On top of this, certain hedge funds/investment banks hold positions large enough to move the market on their own, so trying to make any money on temporary positions as a solo investor is extremely risky. There is, in general, currently a very loose connection between fundamentals and performance, all of which makes it almost impossible to do anything other than go long.

While I could probably right now come up with market sectors I would invest in, it would take some serious study to pick actual stocks.

 

[zabu of nΩd]

I've had a lot of free time to study it, and I was still pretty clueless for a long time. Macroeconomics, industry dynamics, competitive positioning, valuation, uncertainty and risk, portfolio strategy... understanding each of those concepts is a project all its own. I think I have enough knowledge of each to think critically about them, but I also know my knowledge is not at a professional level, and at the end of the day I have to trust a professional's opinion on any stock I consider.

I was thinking more about this idea of "disaster preparation" investment last night, and figured I could use a list of scenarios in order of how likely (in my totally subjective opinion) each one is to cause the next major disruption in our economy. Right now I've got:

1) communications infrastructure disaster (hacking, electrical grid attack, etc)
2) financial crisis
3) major war overseas
4) accelerating artificial intelligence / robotics breakthroughs
5) accelerating renewable energy efficiency
6) urban WMD disaster in US
7) mass civil unrest in US
8) rapid/runaway climate change
9) accelerating human longevity / anti-aging treatments
10) disease pandemic

Some of those scenarios lend themselves mainly to super-risky investments like silver or solar companies, but if you're buying shares of a defense contractor for #3, or a big pharma company for #9 and #10, you're not necessarily taking a big risk (in my case, those would actually be helpful for diversification).

 

[Dak]

2 words for long term, non-disaster based investment: Nanotech and drones (including the non-flying kind).

 

[The Ozzman]

I would put mass civil unrest higher

 

[Dak]

The thing about mass civil unrest is it's going to probably come along with 1/2/8/10, not just merely happen by itself.

 

[Dak]

Speaking of conspiracy theories: The old "Baptists and Bootleggers" situation:

http://freebeacon.com/issues/foreign-firm-funding-u-s-green-groups-tied-to-state-owned-russian-oil-company/

A shadowy Bermudan company that has funneled tens of millions of dollars to anti-fracking environmentalist groups in the United States is run by executives with deep ties to Russian oil interests and offshore money laundering schemes involving members of President Vladimir Putin’s inner circle.

This isn't radical by any means. "Rebels", "activists", etc usually have no inherent source of funding, and money comes from somewhere where there are moneyed interests. Whether it's the United States Govco, some other national govco, or some individual private corporation or cartel. To put it in quasi-literary terms: quoting some random thing I saw somewhere "Who is funding the Rebellion in Star Wars?"

Edit: Also related to Russia:

http://www.zerohedge.com/news/2015-02-13/thirst-war-sen-inhofe-releases-fake-photos-russian-troops-ukraine

In his best attempt to impersonate war crazed Senator John McCain, Sen. Jim Inhofe of Oklahoma released photographic proof of Russian solders in Ukraine in order to push forward his bill to provide U.S. arms to Ukraine. Or so he thought…

Fuhkin kunspercy thuhrees!

 

[Dak]

On money systems:

Henry Dampier -

If we can learn anything from history, an attempt to reform would probably be the worst thing for America, because nation-states, due to the way that they are structured (reliant on fixed institutions of ever-metastasizing growth), a mere slowdown in the rate of growth is sufficient to implode most of its critical institutions, in part owing to the ironic lack of flexibility inherent in an ‘elastic’ monetary system requiring ever-exponentially-rising issuances of new debts to support older debts.

The reason why it’s ironic is that the elastic monetary system, resting on ideas that hold that the quantity of money can be ‘insufficient’ to fuel economic growth, is supposed to be the flexible option, whereas hard-money systems are supposed to be a ‘straitjacket’ which prevents economic growth. The truth is actually inverted — a hard money system permits expansion and contraction in the economy depending on real conditions, whereas a pure paper-money system demands permanent expansion regardless of real conditions, which leads to routine collapses in activity owing to that predictably excessive enthusiasm.

 

[Einherjar86]

The fist sentence in that quoted segment is not only excessively long, but also incomplete. There's a verb missing somewhere: "Because nation-states" what? Should it say "Because for nation-states"?

Paper money is only a placeholder for something else. It doesn't matter what the currency is: gold, silver, etc. would serve the same function. I'm not sure what a "hard money" system would be.

 

[Dak]

The fist sentence in that quoted segment is not only excessively long, but also incomplete. There's a verb missing somewhere: "Because nation-states" what? Should it say "Because for nation-states"?

Paper money is only a placeholder for something else. It doesn't matter what the currency is: gold, silver, etc. would serve the same function. I'm not sure what a "hard money" system would be.

Yeah it's a poorly written run on, and yeah, it should be "because for nation states".

Hard money, I imagine for that writer, is specifically metal, and mostly likely gold and or silver. It's physically hard, and the limits of the supply, particularly relative to fiat currencies (I hesitate to use either fiat or paper, since most national currencies are no longer printed but digitally "appeared", and you could have a hard money system via fiat) are "hard". In the latter sense, bitcoin is also relatively "hard".

Not anything can function as money, but many things could. But that shouldn't be the standard. Paper money is "functioning". Salt has "functioned". Beads have "functioned".

 

[Dak]

http://www.theatlantic.com/features/archive/2015/02/what-isis-really-wants/384980/

This is a long read, but felt a lot more even-handed than anything else I've read regarding ISIS. I was waiting for wardrumming at the end given the outlet source, but the author seemed to conclude that airstrikes were probably the best of a bad list of options. War of attrition without the botg and nation building.

 

[Dak]

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2564009

You may or may not be interested in this Pat.

'We Do Not Sow': The Economics and Politics of A Song of Ice and Fire

Abstract:
George R.R. Martin's fantasy epic A Song of Ice and Fire brilliantly illustrates a number of basic principles of political economy. In particular, the richness of his world allows for a detailed account of economic and political relations in human society, and the saga uses its fantasy setting to dramatize and explore important questions about power, conflict, and the state. This essay discusses three economic themes in A Song of Ice and Fire. First, Martin's novels illustrate some fundamental ideas about political institutions, showing that organized economic exploitation is the foundation of the state. Second, they dramatize the relationship between war-making and public finance, describing the immense (networks of) political power created through control of the treasury, as well as the political logic that drives Lord Baelish and the Lannisters from taxation to borrowing to inflation in order to sustain and conceal the crown's war debt. Third, we examine how the rhetoric of Westeros's ruling class prevents the emergence of institutions friendly to peace and social cooperation, especially in the form of market exchange.

 

[rms]

Isnt Game of Thrones fantasy based on Medieval England? So of course it would apply to those things?

 

[Dak]

Loosely based on Medieval England. But it's not like these issues in political economy are restricted to a particular geotemporal situation.

http://www.theguardian.com/news/2015/feb/18/yanis-varoufakis-how-i-became-an-erratic-marxist

Interesting read. His knowledge of Marx is much more complete than his knowledge of "vulgar economists" though. He also implicitly defends a sort of not knowing what to do by condemning SJWs and neoliberals. The most striking section was this:

How could Marx be so deluded? Why did he not recognise that no truth about capitalism can ever spring out of any mathematical model, however brilliant the modeller may be? Did he not have the intellectual tools to realise that capitalist dynamics spring from the unquantifiable part of human labour; ie from a variable that can never be well-defined mathematically?

Because he was working with what he had. Between a ltov and blank slate theory that's what you get. Unquanitifiable and fluctuating differences in ability and preferences (the latter being subjective value theory) explain the unquantifiable aspect that makes capitalism work.