Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Silver Squeeze Still Before Us

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After this recent spike, it is now fashionable for mainstream thinkers to view silver as in a bubble and now will collapse under the weight of speculators running for the exits.  This view is myopic, and will prove costly going into 2011.

First some interesting stats (sources include USGS, Silver Standard, Silver Institute, DFMS Research, London):

  • + The total value of above ground silver comes to only about $40 billion (can you say tiny).
  • + The silver/gold ratio is currently about 63:1, yet the total value of all the investable gold on the planet is about 235 times that of silver.
  • + The ratio of silver to gold in the earth’s crust is 17:1. That’s in the ballpark of the 15:1 average silver/gold ratio that has held sway over the centuries.
  • + The demand for silver well exceeds new mine supply, in 2009 total silver demand topped 889 million ounces, outstripping new mine supplies of 710 million ounces. The difference was made up by scrap recycling.
  • + Silver production is expected to grow by 4%, assuming strong mine activites in gold, zinc and lead production (57% of silver is produced as a by product).
  • + The inventory of above ground silver available for industrial uses is down 80% to 20 million ounces.
  • + Scrap available is down to 162 million ounces.
  • + Demand from new technologies are exceeding reductions from photography.  These include water purification, solar concentrators, anti microbial medical technologies, and electronics
My 2011 imputed supply is 927 million ounces if all scrap is used and inventory entirely depleted, and demand is estimated to be 939 million ounces, which implies a deficit. Price will need to rise to curb demand in 2011. 
Supply is always more fixed in the short term, due to the difficulty in opening new mines, demand is in high growth industries, and in my opinion relatively economically insensitive industries.  But if worldwide economic demand falls, silver production will fall faster than demand because 57% of silver is a by product of other more economically sensitive metals.
So my view is industrial demand remains strong.  Now looking at investment demand. It has increased 20% plus in the last two years, and trends favor that continuing;
  • + European instability, and dollar weakness supports the fear trade in favor of silver.
  • + Sprott recently priced a major purchase of silver for its vaults, and had to scour the world to take delivery.
  • + The Chinese are net buyers, and have been a bid to the market.
  • + The gold / silver price ratio is out of balance and this favors silver prices
  • + Silver is a more convenient investment vehicle than gold for those seeking currency safety.
  • + Current prices assume a stable dollar at todays value, do you think 900 billion dollars of new dollars support dollar strength.
  • + If you believe the silver markets are net naked short, and with industrial consumers looking for supply, a blow up in a demand squeeze is just a OPEX away.
  • + Small markets can lead to big moves, and the direction of that move is in my favor.
This is why I am staying long silver into 2011.  My next post will cover the Pink sheet silver miners I just purchased and why.
Discussions, comments, and smart remarks are welcome.  Bob www.arum-geld-gold.blogspot.com

Solar Storm is Coming (by BKudla)

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As I posted before, the Solar energy industry is producing a glut of solar panels.  Here is a quote by  John Hardy.  "Global annual manufacturing capacity for solar panels may reach 23,500 megawatts next year, exceeding demand by almost 40 percent, according to John Hardy, a solar analyst at Gleacher & Co. in Connecticut. Wind turbine makers will increase capacity to 64,200 megawatts, 30 percent more than expected orders, Bloomberg New Energy Finance forecasts." 

Note also, the glut in Windpower production.  Remember what goes into Wind Turbines, yes, that is right, Rare Earth materials.  I'd be selling on any momo push higher.

Check out these charts on Yingli Solar

If you want to buy solar, make it for your home or business instead. Deals will abound.

www.arum.geld-gold.blogspot.com

Terra-Nitrogen, No Laughing Matter (by BKudla)

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I think the Hard Asset markets are getting frothy, and am looking for some hedges on my long positions. Terra Nitrogen is simultaneously long fertilizers (Urea) and short natural gas (its feedstock), with 64% of their expense in natural gas.

Like the uranium and coal markets, I believe agriculture chemicals are relatively inelastic to the price of the dollar, and nitrogen has another boost in that it is a feed component to corn, which has its own economics of ethanol production.  If my view on colder winters and shorter growing seasons hold true, farmers will need to apply extra Urea to ensure rapid crop growth.  These benefit TNH.

Terra – Nitrogen also pays out a 8.7% dividend through an MLP, and is 75% owned by insiders.  This makes them shareholder friendly a nice source of cash while you await capital appreciation.

I have two buy areas, and will scale in at these points.

2010-11-08_1451_TNH 

US Dollar Bottoming?

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USD failed to consolidate a new low last week and closed the week above triangle support:

On the daily USD chart we can see positive divergence on RSI and a big spike on Friday that has been continued in the forex markets over the weekend:

AUDUSD hasn't reached my broadening formation target but has nonetheless reached an interesting level:

Copper is now close to making all time highs. Copper has made highs over 400 twice before in 2006 and 2008 but has retraced sharply afterwards both times:

So where does that leave us on SPX? Near a wave top I think, but I'm not expecting to see the main wave top until the SPX IHS has played out to target in the 1244 to 1250 SPX area. I'd be surprised to see SPX top here, and the break up through the top of the rising channel of recent weeks leaves the path open to reach the SPX IHS target in the next few days:

Behind the Scenes (by BKudla)

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As we watch the Federal Reserve launch QEII, and other programs to "support" growth in our economy, many of us are saying this will ruin us, we will have a run on the dollar, etc. and these guys can't be that stupid, can they.  Then there are those of us that try to pierce the veil to determine what is really the strategic end game here.  Here is my take, and before I share it, I don't necessarily endorse it or morally judge it.  That is when I lose money.  I am simply trying to see if I can get an edge.

The Federal Reserve has taken the role of executing our trade policy, this is nice and convenient for the Administration, as they can appear reasonable in public, and say things like, we support a strong dollar, and a rising Yuan would be helpful, while behind the scenes we have declared war on the Mercanilist nations. 

From a currency perspective, the players of world are divided into three camps;

  • The resource currency countries such as Australia, the Gulf States, Canada, South  Africa, Russia, etc.
  • The Mercanilist nations, which are of two flavors;
    • The overt, which simply tie the nations currency to ours, such as China.
    • The indirects, which use a variety of regulatory, tax, currency and trade policy to artificially support exports and suppress imports.  Those would be Germany, Brazil, any other Southeast Asian nation, and Japan.
  • The rest of the nations are not engaged or relevant in this fight, but will still suffer collateral damage.

The U.S. has put themselves in a box by allowing their budgets and current account deficits to become unsustainable (the why or whose fault it is, is irrelevant). We have been trying to rebalance global trade to save ourselves, and at the same time been printing dollars (along with every other consuming nation) to reinflate the world economy.

The Mercanilists and the Resource countries like things just the way they are now. But, they are vulnerable; by tying to our dollar, and having a high need for raw material imports, we are now in a position to cause them great pain, unless they revalue their currencies.

So my thesis is, we are playing a great game of chicken to see how long these countries can stand the internal inflation and the havoc of higher food and fuel prices on their populations, and the reduced profits for their business owners.  The squealing has already begun.

Brazil is having great difficulty handling the money flows, Korea, Japan and Germany are concerned enough to take this fight public, and China is struggling with higher food and fuel prices, and disappearing margins.  Here in America, the Federal Reserve has maybe a six month window before higher fuel and food costs embed themselves into the supply chain and come out with intolerable retail price increases. 

Between now and then, expect this new money to flow into hard assets that are internationally trade able.  These prices, I suspect will rise far faster than most expect, with high volatility throughout this complex and within it.  That is where I am positioned. When our energy and food prices get too high, we will force the Fed's hand to stop (Average gasoline in the $3.75-$4.00 range). That is when I step off. I suspect after this, a new managed world trade policy will be hammered out if we did not tip the world over the falls into real deflation and depression.

One man's view www.arum-geld-gold.blogspot.com