Silver, revisited.

In a prior post on silver I did a short recap of what a mania is and then pointed out that silver had a big, exponential run up which could make it look like a mania.  I wrote,

"Since late 2009, Silver has been on incredible tear rising from $9 to $50 in that time frame.  The cause: fear of Bernanke and his printing presses.  Now that it looks like Bernanke is going to stop printing QE2 money in June, the herd has run back out of silver taking it to the $35 range.  Traders will now determine whether this is just the Elliott Wave a-b-c pullback that refreshes (caution, these pullbacks have 3 common retracements: 38.2%, 50%, and 61.8%) or a complete run out of silver by the herd - a complete mania retracement."

My assertion was that it was not a mania.  I wrote:"My humble opinion on the matter is that the silver chart will eventually form some sort of inclining double bottom and then take off again to reach new highs."

Since then, silver took another wave down only to stop its plummeting (for now) at the 61.8% fib.  In my

experience, the 61.8% fib is generally the largest price retracement that an assest will encounter during a normal Elliott wave a-b-c retracement.  If that observation holds true again this time then we should expect another run at a new high as a 5th wave unfolds.  Of course this is only a model, models are just models, even the Federal Reserve's models don't always hold, blah blah blah.  Do keep in mind that I never asserted that silver or gold were anything but money.  They are not an investment (especially gold - silver has one foot in both camps because it is an industrial commodity).  The purpose of money is not to make you rich but rather to ensure that you keep your buying power until you 

are ready to trade what is in effect your stored excess labor (for that is the only thing that real money was ever invented to be) for goods and services offered by someone else. 

So if gold (and to a lesser degree) silver are money then their buying power should not be falling against everything.  And so it is not.  As you can see from the charts to the left, despite having fallen hundreds of dollars per oz. recently, gold is rocketing relative to Hewlett Packard

common shares (ticker HPQ) and also relative to the solar sector ETF (ticker TAN).  I could post many other chart comparisons including gold vs. oil, gold vs. steel, gold vs. a major commodities index ETF such as DBC and all of these charts would show gold holding its own or actually gaining against them on a relative basis.

Note: I generally try not to talk about individual stocks, stock picking, etc. because I would rather focus on the big picture in this blog, but solar stocks (especially Chinese solars) have recently entered smack down territory which is far worse in many cases than the smack down received by the Dow during the great depression.  Chinese solars with plenty of cash are trading for PS of well under 0.5, PEs of 5, PB of less than 0.5, etc.  The reasons are many and varied but in many cases it is a complete panic sell off which will result in the strong buying out the weak for pennies on the dollar.  I expect to see the gold:tan ratio come back down rapidly to at least its 50 day moving average over the next few months.  That will probably be due to a bottoming of solars and a massive short covering of the sector. 

Keep an eye on Congress for the next move.  Mish reports that Bernanke is out of bullets (i.e. does not want to put the private bank called the Federal Reserve in more financial risk by taking on more bad assets than it has already done) and thus Bernanke wants congress to do something to slow the path of deflation. 

If congress does nothing then deflation will take hold with great shock and the stock market will crash thus killing the powerful Wall St. speculators.  In this case the rich and the powerful will move to protect themselves and there will be congressmen falling left and right as the past bribes paid to them are revealed and scandals will appear that could rock the very foundations of this country.  The corruption is there but nobody cares because it is out of sight and out of mind.  But if rich Wall Streeters don't get their bailouts then everything will be exposed because that is what happens when criminal organizations fall into problems: they start ratting each other out.  On the other hand, if congress opens up the printing presses and debt machine in the historic way which will be needed in order to address the Greater Depression then it will kill main street whose dollar based savings will evaporate.  In this case, there will be riots and crime will skyrocket and people will die.  As Harry Dent said, "The Fed Is Checkmated".  The fiat money and fractional reserve banking based debt Ponzi will unravel at some point one way or the other.

Economati's view remains the same as always:  If we get the massive deflation then silver and gold can temporarily retrace, perhaps dramatically if government finally stops stimulating everything, as dollars become highly demanded.  But know in advance that this is only a temporary condition.  Deflation never lasts very long because deflation = honesty and leaders do not value honesty.  Also, and this is absolutely key to know, while deflation increases the value of dollars held by US citizens, it also increases the value of dollars held by foreigners.  Deflation results in lower salaries, lower taxation, lower everything.  There is no way we can repay China et al. if we just allow deflation to take place.  In a deflationary scenario, the debts remain at inflated levels while the earnings and thus ability to make repayment plummet.  We will someday have to choose between sovereign default or opening up the printing presses.  The con men running the show know that outright default will put them in danger personally (bribes they took and past corruption they were involved in will be exposed; some will go to jail.  Some of them will even have "unfortunate accidents" and forced suicides will be seen.  Future history will show that internal corruption in US government really is no less than any 3rd world $hithole because people are people the world over) and so they will open the printing presses. 

Just keep buying metals on a slow, measured, dollar cost averaged basis.  Do it instead of contributing to corrupt, government controlled savings accounts like 401ks and IRAs (both will be exposed as scam-ridden traps within the next decade).  Do it instead of gambling in the stock markets.  Always buy physical metal and store it yourself.  If you just do this type of saving on a regular basis then you will find that come retirement you will still have the stored labor that you worked so hard for.  If you trust government, Wall St. or anyone else besides yourself then you will end up getting taken for a patsy, fleeced of everything.  You will end up angry at the world for what amounts to your owned damned foolishness.  It really is time to figure out that you don't want to trust a con man, especially when the con is in the collapse stage like it is right now.