Credit deflation and the reflation cycle to come (part 2)

Cattle Prod · December 2

On 30/11/2019 at 21:31, sancho panza said:

Questions if you have the time or inclination

looks like more well funded operations with scale are faring better.Is this the most hated you've seen the sector?

secondly,are you hearing much talk of insdier buying?

thirdly,how much of a dampener is the Aramco float putting on things?

I first graduated in 1999 with oil at $11 a barrel, it was pretty hated then. Of course we may just be doing a repeat of 1999/2000 in the markets just now! I haven't looked at the charts for this period closely, think I will now

No, but I dont really discuss investment in work. Overall the atmosphere is positive, my company and most of the industry is quite happy with $60 a barrel. We're making plenty of cash, which is the most important thing. If investors don't want it, fine! Edit: I've been buying my own company shares, so thats one!

I don't know how the Aramco float puts a dampner on things, Ive read that too but ts a red herring imo and considered a bit of a joke. Who in their right mind would invest in a company with declining fields with zero growth prospects in a risky jurisdiction with a tiny shareholding relative to a large quotad government shareholding? You might get a solid dividend, for a while, but there are plenty of other options. I don't think it affects industry sentiment negatively at all - the fact they are selling it is an admission the end (or decline anyway) is in sight, and so is bullish for the rest of us medium term. If it's putting a damper on investors, well... dyodd, investors!

Edited December 2 by Cattle Prod

Cattle Prod · December 2

Interesting article on silver supply. I agree jewelry has to come into the mix, I saw silverware being sold for scrap in 2011. Not sure how much industrial silver you'd get back, much of it is lost. However, even if you take his 1.6m ton above ground figure, it's only 8.4 x the above ground gold stock. Flow from mines is similar if you include industrial stocks of silver, but significantly lower for silver if you don't. Imagining they were treated equally (e.g. by central banks as reserves, by people as investment), should silver be currently $173 an oz? He doesn't discuss price, what am I missing here? This above ground supply ratio of silver to gold is close to the geological one (12:1 IIRC). I still don't understand the reasons for the current 84:1. I don't really buy 'bank manipulation'.

One other little calculation: from the 899,000 tons of investible silver works out at 3.7 ozt per human on earth. In some ways that's a lot, in others, not much at all...

Mine supply also looks to be plateauing, and I assume at much lower grades. I think this will become apparent in the price over the next decade, and you might have a palladium type of supply shock building into increased demand (from e.g. solar) along with a 'normalisation' of price. Long term holder here.

https://www.voimagold.com/insight/how-much-silver-is-above-ground

Jan Nieuwenhuijs

02.12.2019

RESEARCH

How Much Silver Is Above Ground?

Above-ground silver stocks are an order of magnitude higher than what is widely assumed.

<span id="hs_cos_wrapper_name" class="hs_cos_wrapper hs_cos_wrapper_meta_field hs_cos_wrapper_type_text" style="" data-hs-cos-general-type="meta_field" data-hs-cos-type="text" >How Much Silver Is Above Ground?</span>

In total, there were an estimated 1.6 million metric tonnes of physical silver above ground by late 2018. This amount is 20 times higher than what The Silver Institute discloses as “identifiable above-ground stocks,” which is what’s widely assumed to be the total above-ground stock. The huge discrepancy is important to analyze, as it reveals silver’s true stock to flow ratio and supply and demand dynamics. Misunderstanding these dynamics would mean failing to understand the price of silver.

Relatively shortly after humans discovered silver (and gold) thousands of years ago, they started using it as money and a store of value. Accordingly, silver has always been a highly valued monetary metal, and economic agents have been cautious not to waste any. While mining continued throughout the millennia, the total above-ground stock has been ever increasing.

VoimaGold.com@JanGold_

One of the earliest “price” (ratio) ever written down by humanity might be 1 shekel of silver (8.33 grams) for 5 litres of fat, in the 4th millennium BC.

36

6:54 PM - Oct 2, 2019

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For gold, the consensus is there are about 190,000 metric tonnes above ground, and yearly mine production amounts to 3,260 tonnes(2018). The above-ground stock divided by mine output is called the stock to flow ratio—an important variable for the price formation of commodities—which for gold is 58.

Now, let us have a look at silver. The Silver Institute doesn’t collect its own data but hires the GFMS team at Refinitiv for this purpose. Once a year, The Silver Institute and GFMS publish a report that includes statistics on supply and demand. The most recent report is the World Silver Survey 2019 (covering 2018). On page 37, we can read the following quote, accompanied by a table:

Following nine consecutive annual increases, identifiable above-ground stocks fell 3% year-on-year to 2,549.8 Moz (79,308 t) in 2018.

From the quote and the table, readers are supposed to believe the above-ground silver stock stood at 79,308 tonnes by late 2018. Annual mine production in 2018 was 27,000 tonnes, implying a stock to flow ratio of 3.

However, in the World Silver Survey 2019, we also read:

Jewelry, silverware and other finished fabricated products that are in the possession of end-users are not included in our definition of above-ground refined stocks.

But why is jewelry excluded from the data? Silver jewelry should be included for the same reason gold jewelry is included in the above-ground stock of gold: if the price is right, jewelry can and will be sold into the market. We must conclude that the data from The Silver Institute is incomplete. Additionally, in the World Silver Survey 2019, we find all sorts of supply and demand figures that are not correlated with the price of silver, confirming this data is incomplete.

Strangely, in 1992, The Silver Institute published complete data on above-ground silver, disclosing above-ground volumes to be an order of magnitude higher than current “identifiable above-ground stocks,” but it stopped doing that.

To learn more about the above-ground stock of silver, I reached out to the United States Geological Survey (USGS). I asked how much silver has been mined throughout history, and how much of that has been lost. They replied 1,740,000 tonnes of silver had been dug up by 2017, of which 7 to 10 % has been lost. Based on their numbers, I’ve computed that 1,616,805 tonnes were still with us by late 2018.

I also found a spreadsheet on the USGS website with silver mining statistics going back to 1900. With the data at my disposal, I could reverse engineer the total above-ground silver stock from 1900 through 2018. See the chart below:

One can argue that because of the use of silver in industrial products since the late 19^th century, much of above-ground metal is in industrial products. And I agree. So, how much silver is in bullion, coin, jewelry, and silverware form, and how much is in industrial products?

To find out, I turned to the CPM Group Silver Yearbook 2019. The above-ground volume of silver disclosed by CPM Group is in line with the numbers from USGS. CPM Group estimates that by 2018, there were a little more than 1.7 million tonnes above ground, although to them, it’s unknown how much of that has been lost. Luckily for us, we have an estimate on how much has been lost from USGS.

CPM Group’s breakdown of above-ground silver is shown in the chart below:

Not displayed in the chart above, but CPM Group discloses “inventories” to be roughly 90,000 tonnes, which is more or less what the Silver Institute discloses as “identifiable above-ground stocks.” CPM Group discloses “inventories” to consist of “reported inventories” (exchange vault inventory, ETPs, etc.) and “unreported inventory” (i.e., estimated U.S. depositories and private holdings), and “unreported bullion and coins” (estimates for which they rely on industry sources and historical data).

Most important, we can see in the chart, based on CPM Group’s data, there are nearly 800,000 tonnes of silver in “jewelry, decorative, and religious” forms, and roughly an equal tonnage in industrial products.

Circling back to the question of what the silver stock to flow ratio is, I would suggest it’s somewhere between 30 and 60. If you take all bullion, coins, jewelry, and silverware, you will arrive at 30. If you add the silver in industrial products, you will arrive at 60.

For the ones that are skeptical towards my approach, consider the next quotes from CMP Group, for example on silver jewelry, decorative and religious objects (brackets added to convert ounces into tonnes):

Another [791,000 tonnes] are estimated to exist in jewelry and decorative and religious objects, much of which is recoverable and easily refined into bullion or used directly in various manufacturing applications. These are enormous volumes of a precious metal that has been cherished and held fast throughout history.

Surely, silver jewelry plays an essential part in this metal’s supply and demand dynamics. Another quote by CPM Group on “silver in product form” points out, that when the product turns into waste (or the silver inside the product is worth more than the product), the silver is recycled into, i.e., bullion and coins:

Everyone involved in silver refining and manufacturing of silver products knows that there are continuous unreported flows of silver in product form that are melted and reused directly in new jewelry, decorative objects, and other fabricated products, metal that does not get reported anywhere as silver entering the market. As a result of this flow of unreported metal the amount of silver that exists in bullion and coin form tends to rise over time at a rate that is greater than the amounts captured in estimated newly refined supply and demand.

The silver in industrial products is also part of this metal’s supply and demand—not surprisingly—just like jewelry and silverware.

CPM Group is honest that all their numbers are estimates of a market that is opaque. Their figures are based on their industry sources and their experience in precious metals research since the 1980s.

My conclusion, and the reason I wrote this article, is that silver is a monetary metal with a much higher stock to flow ratio than 3 (as suggested by The Silver Institute). Although it’s difficult to assess an exact stock to flow ratio for silver, it’s at least ten times higher than 3. In my next post, we’ll shift our attention back to gold to discuss gold’s high stock to flow ratio, zoom in on gold’s supply and demand dynamics, and how all this relates to gold’s price formation.

Lavalas · December 2

Recent interview with David Hunter...

Democorruptcy · December 2

Amerman's latest:

Calculating Your Personal Cost If Stock, Bond & Home Prices Return To Average

Majorpain · December 3

November retail sales were dire, but is it going to a merry Christmas for the retailers in December I wonder?

Craig · December 3

Hmm...

https://www.bloomberg.com/news/articles/2019-12-03/german-banks-open-floodgates-to-negative-rates-for-all-savers

kibuc · December 3

For what it's worth, this Black Friday Weekend at a certain online fashion retailer absolutely smahed it, with revenue increasing a whooping 35% YoY. For the financial year so far they're 24% up YoY. Obv that's only revenue and there's a long way for it to trickle down to the bottom line, especially with all that aggresive promotional activity cutting into margins, but the numbers are surprisingly robust nevertheless.

Popuplights · December 3

3 hours ago, Craig said:

Hmm...

https://www.bloomberg.com/news/articles/2019-12-03/german-banks-open-floodgates-to-negative-rates-for-all-savers

Bloody hell. Better get that mattress ready to receive my savings....

DurhamBorn · December 3

18 hours ago, Democorruptcy said:

Amerman's latest:

Calculating Your Personal Cost If Stock, Bond & Home Prices Return To Average

Very interesting.I think bonds will lose 70%+,but they wont start to see the losses for a year yet.Its highly likely in the first main stages of a debt deflation that bonds increase.I also set most of my buy orders for stocks at PE ratios below 10.I expect we will see mid single digit and already have in many sectors in the UK market.The question is when the big cap stocks that have driven the index up crack.I think its really crucial to be avoiding high PE areas.Its very likely the next cycle will favour asset heavy areas rather than growth as capital will need to be raised from equity instead of debt.

UnconventionalWisdom · December 3

7 hours ago, Craig said:

Hmm...

https://www.bloomberg.com/news/articles/2019-12-03/german-banks-open-floodgates-to-negative-rates-for-all-savers

First it cost to lend money to the German government. Now it costs to lend to the German banks. They pay you to take out a mortgage in Denmark.

Financial madness

Loki · December 3

I have lunacy fatigue from reading about this shit

DurhamBorn · December 3

3 hours ago, UnconventionalWisdom said:

First it cost to lend money to the German government. Now it costs to lend to the German banks. They pay you to take out a mortgage in Denmark.

Financial madness

Its exactly what we expect on this thread,and exactly what we are planning for the last 2 years.Deflation leads to this and we are in a debt deflation.All the seeds are being set for an inflationary recovery cycle.They keep printing expecting some inflation,but the liquidity is below the level needed to stand still.The Fed are way behind as well.They will panic soon and open the floodgates and it will likely pile into bonds.Its that key moment where we get an inflection point.As that slowly reverses all that money will leave bonds and enter commodity stocks and real asset owning ones.We might see bonds keep doing well for another year yet,then snap the first 20% down in a few weeks,then a bear market where rates end up around double figures.

Im convinced equity and bond markets will go down ,and those 60/40 sure thing pensions will be smashed by inflation.Everyone has forgot there is another asset class.Its real assets,real commods,real industrial products.Hopefully we can get most of the oilies when oil goes below $40.

Tdog · December 4

44 minutes ago, DurhamBorn said:

Im convinced equity and bond markets will go down ,and those 60/40 sure thing pensions will be smashed by inflation.Everyone has forgot there is another asset class.Its real assets,real commods,real industrial products.Hopefully we can get most of the oilies when oil goes below $40.

https://oilprice.com/Energy/Crude-Oil/Oil-Could-Fall-To-40-If-OPEC-Fails-To-Deepen-Cuts.html

Loki · December 4

@DurhamBorn do you think it's worth buying bonds to get that last hurrah or is the timing too risky?

U.S. bonds i assume?

Castlevania · December 4

Which Endeavour is trying to merge with Centamin. The good one or the bad one?

kibuc · December 4

5 minutes ago, Castlevania said:

Which Endeavour is trying to merge with Centamin. The good one or the bad one?

The gold one, not the silver one.

Castlevania · December 4

7 minutes ago, kibuc said:

The gold one, not the silver one.

The silver one was the forum favourite, no?

kibuc · December 4

2 minutes ago, Castlevania said:

The silver one was the forum favourite, no?

It was definitely getting much more mention than the other one.

janch · December 4

What a setup for silver miners. Incredibly bullish. The spread against gold miners suggests a huge upside potential. We’re on the cusp of a multi-year breakout.

1:37 PM - 3 Dec 2019

Source for the above is Otavio Costa on twitter

DoINeedOne · December 4

Investors in a £2.5bn UK property fund have been blocked from withdrawing cash after “unusually high and sustained outflows.”

M&G Investments (MNG.L) said on Wednesday afternoon it was halting withdrawals from its UK-focused Property Portfolio Fund with immediate affect.

The company said that “unusually high and sustained outflows” combined with “continued Brexit-related political uncertainty and ongoing structural shifts in the UK retail sector” have made it “difficult” to sell buildings it is invested fast enough to meet redemptions.

Loki · December 4

24 minutes ago, DoINeedOne said:

Investors in a £2.5bn UK property fund have been blocked from withdrawing cash after “unusually high and sustained outflows.”

M&G Investments (MNG.L) said on Wednesday afternoon it was halting withdrawals from its UK-focused Property Portfolio Fund with immediate affect.

The company said that “unusually high and sustained outflows” combined with “continued Brexit-related political uncertainty and ongoing structural shifts in the UK retail sector” have made it “difficult” to sell buildings it is invested fast enough to meet redemptions.

Sounds big. Is this big? I hope it's big.

Majorpain · December 4

24 minutes ago, Loki said:

Sounds big. Is this big? I hope it's big.

Nah, £2.5bn is peanuts in the grand scheme of things, and they did the same thing in 2016.

Its the confidence thing though, second time this year that a fund has suspended withdrawals due to liquidity, and unsurprisingly its right after the UK retail sales plumbed new depths in the graph i posted up page.

Loki · December 4

6 minutes ago, Majorpain said:

Nah, £2.5bn is peanuts in the grand scheme of things, and they did the same thing in 2016.

Its the confidence thing though, second time this year that a fund has suspended withdrawals due to liquidity, and unsurprisingly its right after the UK retail sales plumbed new depths in the graph i posted up page.

I thought as much, but yes a step in the right direction

Democorruptcy · December 4

Hussman latest downdate

https://www.hussmanfunds.com/comment/mc191203/

Errol · December 4

7 hours ago, janch said:

What a setup for silver miners. Incredibly bullish. The spread against gold miners suggests a huge upside potential. We’re on the cusp of a multi-year breakout.

1:37 PM - 3 Dec 2019

Source for the above is Otavio Costa on twitter

Shame we can't buy SIL in the uk.

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Credit deflation and the reflation cycle to come (part 2)

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