11 May 2011
Investing Ideas: Can silver resume its breathless rally or has this bubble burst for good? And find out who is joining PIMCO in shorting U.S. Treasuries.
Investing Ideas: Going Long On Silver and Short On U.S. Treasuries
It happened so fast that many might have even missed up. Silver went down just as quickly as it went up over the last few weeks.
As we noted in our report Soaring Silver whether the metal was ready for a correction, many investors missed the rally completely.
Richard Russell, guru of the famous subscription-based Dow Theory Letters newsletter, captures the investor mood as silver fell off a cliff: "There was the incredible cheering and gloating about the fall of silver. The media and various experts were laughing and giving the "high sign" in reaction to the 30% decline in silver. The only regret seemed to be that gold didn't sink 30% along with silver. And I wondered why all the cheering over silver's decline. My conclusion was that actually very few people were 'in' silver and when silver rocketed up to near $50 an ounce, most investors' reactions was "sour grapes." And they grumbled, 'Who were those damn buffoons who made a killing in silver over the period of only a few months?'"
"I don't think I've ever seen so much gloating in the face of a plunge in a sector of the market. And I wonder, just wondering, whether silver will now cross up the crowd by bouncing back to a surprising degree," said Russell.
Standard Chartered Bank, which remains bullish on gold (and has $1,650 forecast for the yellow metal within a few months), expects further correction in silver:
"While the gold-silver ratio has bounced off its recent low, we expect silver to continue to correct near-term, ahead of USD 28/oz."
There are just as many naysayers of silver as they are advocates, but for now silver-bashing is fashionable.
Consider the analysis of Market Anthropology's Eric Swartz:
"As a critic of this sector I can reason with greater confidence that the parabolic move in silver is coming to an end. And while there is a possibility that the market will make another run at the previous highs - silver's fate has very likely been sealed. A market that trades with this much volatility (four standard deviations above the average price move after a 60% gain in three months) indicates it is in its death throes of upside momentum."
Undeterred, silver has made another run for a new high in the past two days.
Investing Ideas: Shorting With PIMCO
PIMCO, which runs Total Return Fund - the world's largest bond fund - has lost its love for the U.S. Treasuries and has been publicly bad-mouthing the triple-A rated U.S. bonds.
"The immediate threat to investment portfolios represented by low policy rates (fed funds in the U.S.) and the increasing negative real yields that they engender as inflation accelerates," wrote William (Bill) H. Gross, managing director at Pacific Investment Management Co. (PIMCO) in an investment note.
PIMCO's $240.7-billion Total Return Fund had minus 4% of its assets in government and related debt in April, versus negative 3% in March.
"I spoke last month (April) to the reality of investors being 'skunked' and having their pockets picked simply by receiving yields less than inflation, and suggested that as a major reason why the PIMCO ship was carrying a limited supply of Treasuries on board. Although we have warned for several years of the deteriorating creditworthiness of America's AAA rating, our de minimis Treasury positions had less to do with much more immediate issues than America's balance sheet prospects. We are highly sensitive to the pocket-picking policies that governments in general deploy to right the ship."
Bond - and stock - investors have been sailing on the "Good Ship Lollipop" for over 30 years and the return of high real interest rates to investment markets.
"Now, however, with governments attempting to impose financial repression, bond investors should revolt... PIMCO advocates not so much a mutiny but a renewed vigilance on this new ship, stressing bond market 'safe spread' alternatives available globally, including developing/emerging market debt at higher yields denominated in non-dollar currencies."
In fact, Gross suggests ditching U.S. Treasuries for Canadian or Australian AAA rated note. "The Treasury market is on a collision course with financial repression and it is time to adjust your rudder to starboard to get home safely."
PIMCO's stance is slowly finding more supporters.
Morgan Stanley and Goldman Sachs, two of the 20 primary dealers authorized to trade directly with the U.S. Federal Reserve, have both noted that they may turn more bearish but at a later stage.
"We have recently turned neutral from bearish on bonds," a Morgan Stanley analyst wrote in a research note. "We are also tactically looking to buy bonds if yields rise. Consensus forecasts for yields are at risk."
A JP Morgan survey of clients shows investors were 'long' on U.S. Treasuries fell from 10% to 8% a week ago, suggesting more investors are disenchanted with U.S. Bond yields. Meanwhile, those who 'shorted' rose from 21% to 27%.
A bet against a government is always a risky proposition. But with PIMCO, Goldman Sachs and Morgan Stanley, arguably more powerful than any government, the market may well swing their way.
alifarabia.com 2011
Investing Ideas: Can silver resume its breathless rally or has this bubble burst for good? And find out who is joining PIMCO in shorting U.S. Treasuries.
Investing Ideas: Going Long On Silver and Short On U.S. Treasuries
It happened so fast that many might have even missed up. Silver went down just as quickly as it went up over the last few weeks.
As we noted in our report Soaring Silver whether the metal was ready for a correction, many investors missed the rally completely.
Richard Russell, guru of the famous subscription-based Dow Theory Letters newsletter, captures the investor mood as silver fell off a cliff: "There was the incredible cheering and gloating about the fall of silver. The media and various experts were laughing and giving the "high sign" in reaction to the 30% decline in silver. The only regret seemed to be that gold didn't sink 30% along with silver. And I wondered why all the cheering over silver's decline. My conclusion was that actually very few people were 'in' silver and when silver rocketed up to near $50 an ounce, most investors' reactions was "sour grapes." And they grumbled, 'Who were those damn buffoons who made a killing in silver over the period of only a few months?'"
"I don't think I've ever seen so much gloating in the face of a plunge in a sector of the market. And I wonder, just wondering, whether silver will now cross up the crowd by bouncing back to a surprising degree," said Russell.
Standard Chartered Bank, which remains bullish on gold (and has $1,650 forecast for the yellow metal within a few months), expects further correction in silver:
"While the gold-silver ratio has bounced off its recent low, we expect silver to continue to correct near-term, ahead of USD 28/oz."
There are just as many naysayers of silver as they are advocates, but for now silver-bashing is fashionable.
Consider the analysis of Market Anthropology's Eric Swartz:
"As a critic of this sector I can reason with greater confidence that the parabolic move in silver is coming to an end. And while there is a possibility that the market will make another run at the previous highs - silver's fate has very likely been sealed. A market that trades with this much volatility (four standard deviations above the average price move after a 60% gain in three months) indicates it is in its death throes of upside momentum."
Undeterred, silver has made another run for a new high in the past two days.
Investing Ideas: Shorting With PIMCO
PIMCO, which runs Total Return Fund - the world's largest bond fund - has lost its love for the U.S. Treasuries and has been publicly bad-mouthing the triple-A rated U.S. bonds.
"The immediate threat to investment portfolios represented by low policy rates (fed funds in the U.S.) and the increasing negative real yields that they engender as inflation accelerates," wrote William (Bill) H. Gross, managing director at Pacific Investment Management Co. (PIMCO) in an investment note.
PIMCO's $240.7-billion Total Return Fund had minus 4% of its assets in government and related debt in April, versus negative 3% in March.
"I spoke last month (April) to the reality of investors being 'skunked' and having their pockets picked simply by receiving yields less than inflation, and suggested that as a major reason why the PIMCO ship was carrying a limited supply of Treasuries on board. Although we have warned for several years of the deteriorating creditworthiness of America's AAA rating, our de minimis Treasury positions had less to do with much more immediate issues than America's balance sheet prospects. We are highly sensitive to the pocket-picking policies that governments in general deploy to right the ship."
Bond - and stock - investors have been sailing on the "Good Ship Lollipop" for over 30 years and the return of high real interest rates to investment markets.
"Now, however, with governments attempting to impose financial repression, bond investors should revolt... PIMCO advocates not so much a mutiny but a renewed vigilance on this new ship, stressing bond market 'safe spread' alternatives available globally, including developing/emerging market debt at higher yields denominated in non-dollar currencies."
In fact, Gross suggests ditching U.S. Treasuries for Canadian or Australian AAA rated note. "The Treasury market is on a collision course with financial repression and it is time to adjust your rudder to starboard to get home safely."
PIMCO's stance is slowly finding more supporters.
Morgan Stanley and Goldman Sachs, two of the 20 primary dealers authorized to trade directly with the U.S. Federal Reserve, have both noted that they may turn more bearish but at a later stage.
"We have recently turned neutral from bearish on bonds," a Morgan Stanley analyst wrote in a research note. "We are also tactically looking to buy bonds if yields rise. Consensus forecasts for yields are at risk."
A JP Morgan survey of clients shows investors were 'long' on U.S. Treasuries fell from 10% to 8% a week ago, suggesting more investors are disenchanted with U.S. Bond yields. Meanwhile, those who 'shorted' rose from 21% to 27%.
A bet against a government is always a risky proposition. But with PIMCO, Goldman Sachs and Morgan Stanley, arguably more powerful than any government, the market may well swing their way.
alifarabia.com 2011
