Silver Confessions

  • This isn’t over: Silver-squeeze story
  • Silver demand exceeds supply…
  • … and hastens Zero Hour
  • Synchronous financial headlines (Coincidence?)
  • Cannabis companies form JOINT lobbying group
  • Hong Kong flight attendants land on their feet
  • A reader on Nord Stream 2… and “buttering” Europe’s “security bread.”

We knew the silver-squeeze story wasn’t over. But we didn’t figure on a new chapter being written so quickly.

When last we left the saga two weeks ago, it appeared the WallStreetBets crowd on Reddit failed to pull off what was proposed to be “the world’s biggest short squeeze” in silver.

The price of silver futures made its biggest one-day jump in nearly a decade, past $30 an ounce… only to sink the following day to previous levels.

In both duration and magnitude, the silver ramp-up was peanuts next to what the Redditors achieved with shares of “meme stocks” like GameStop and AMC Entertainment.

But we also suggested a silver squeeze would be a process, not an event.

Sure enough, eight days ago, the minders of the world’s biggest silver ETF quietly made an amendment to their prospectus.

The amendment said the iShares Silver Trust (SLV) might be vulnerable to a “dramatic” short squeeze.

The change was first spotted by researchers at the Singapore-based metals dealer BullionStar.

Bullion Star

While SLV’s parent firm BlackRock snuck in the amendment with no fanfare… the amendment’s language is refreshingly plain.

“The demand for silver may temporarily exceed available supply that is acceptable for delivery to the trust, which may adversely affect an investment in the shares,” says the new disclosure.

“Speculation on the price of silver may involve long and short exposures. To the extent that the aggregate short exposure exceeds the number of shares available for purchase, investors with short exposure may have to pay a premium to repurchase shares for delivery to share lenders.

“In turn, those repurchases may dramatically increase the price of the shares until additional shares are issued through the creation process. This could lead to volatile price movements in shares that are not directly correlated to the price of silver.”

The No. 2 silver ETF, the Aberdeen Standard Silver ETF Trust (SIVR), also revised its prospectus, with similar but even more direct language. “A short squeeze could lead to volatile price movements in shares that are not directly correlated to the price of silver.”

The “paper silver” price not “directly correlated” to the actual price of silver? That’s the “Zero Hour” scenario for precious metals we’ve been entertaining in these virtual pages for eight years.

But why the changes now? It can’t just be butt-covering after a bunch of Redditors made a half-hearted attempt to burn the short sellers, right?

“There may be serious shortages of silver in the physical bullion market,” says our Jim Rickards.

Jim has been leafing through a new report, also generated by BullionStar researchers. It sheds additional light on what SLV and SIVR are up against.

His CliffsNotes version: “Almost 85% of the physical silver in the London market is already held by ETFs, which leaves relatively little to satisfy physical demand if it should arise on the commodity exchanges.

“There is also a scarcity of silver to satisfy further demand from the ETFs themselves or from banks that sell ‘unallocated’ silver forward contracts not backed by actual silver. Typically, the silver futures traders on the exchange simply close out open contracts or roll them forward to another calendar month without actually demanding physical delivery.

“But these are not typical times. Could there be another short squeeze underway in which those long silver futures contracts demand delivery knowing full well that the exchange cannot meet the demand? At the same time, silver ETFs may be selling shares for silver they cannot actually source in physical form.”

As it stands, the price you’ll pay for real hold-in-your-hand silver remains significantly higher than the paper price.

We figured two weeks ago that the gap would have narrowed by now. But as we check our screens, the bid on silver futures is $27.11. Meanwhile, generic silver rounds from our friends at Hard Assets Alliance go for $32.61. If you want a silver coin issued by a government mint, you’ll pay even more.

Maybe the gap will narrow from here. Maybe not. We don’t know. But we do know that from now on, every day that passes will bring us closer to Zero Hour — when the paper silver price is rendered meaningless because physical silver will cost vastly more, if it’s available at all.

In the meantime, Hard Assets Alliance will continue moving heaven and Earth with its unrivaled network of wholesalers to meet demand from retail customers just like you. And as always, the premiums it charges are among the lowest in the business.

You can open an account right here. It works very much like a brokerage account — in contrast with the hoops other dealers make you jump through. Disclosure: Our firm owns a stake in Hard Assets Alliance, so you can expect us to collect a small cut once you fund your account. We purchased that stake in 2019 because we were so impressed by the value Hard Assets Alliance was already delivering our customers.

To the markets, where the headline is $50,000 Bitcoin.

Actually, that high-water mark didn’t last long. Checking our screens, it’s pulled back slightly to $49,204. But clearly the halo from last week’s bullish developments — including adoption by BNY Mellon for its asset-management clients — hasn’t worn off.

“This is huge, round-number resistance for the flagship crypto,” says our chart hound Greg Guenthner, “and I imagine it will run for a bit if and when we get that decisive breakout.”

The major U.S. stock indexes are all pushing higher into record territory — the Dow now past 31,500, the S&P 500 less than 60 points from 4,000 and the Nasdaq at 14,135.

Gold took a quick trip below $1,800 this morning, but has clambered its way back to $1,810. Crude briefly poked its nose above $60 this morning and at last check is $59.87. The deep freeze in Texas and elsewhere is giving a lift to the entire energy complex.

We’re getting our first glimpse of the economy’s performance so far in February with the Federal Reserve’s Empire State Manufacturing Index. It reversed four months of decline, coming in way higher than expected at 12.1. Anything above zero indicates growth, and the number’s been in positive territory for eight months now after a pandemic plunge last spring.

Uhhh… Were the editors of the two leading financial newspapers consulting each other today?

Financial Times

Wall Street Journal

Both front page, above the fold. That’s common for breaking news, of course, but these are “enterprise” stories — that is, hunted down by enterprising reporters on their own.

The Financial Times is relying on figures from Refinitiv that say, “The riskiest borrowers in corporate America are making up their largest share of junk-bond sales since 2007.” So far this year, more than 15 cents of every dollar raised on the junk-bond market has been sold by companies rated triple C or lower.

The Wall Street Journal’s variation on the theme cites numbers from a firm called LCD: Companies have issued a record $139 billion in junk debt since the first of the year, and $13 billion was rated triple C or lower.

Chalk it up to the continued vaccine-recovery narrative… along with those low, low interest rates pushing investors to reach deeper toward the bottom of the barrel to get any sort of yield.

The WSJ says the typical junk bond delivers a yield of 3.97%. In other words, you can lend right now to a risky brick-and-mortar retailer struggling to stay alive… and you’ll get a lower yield than you could have gotten from a rock-solid 10 year U.S. Treasury note back in — well, almost any time before the onset of the “Great Recession” 13 years ago.

It’s enough to convince us this stock market rally still has juice in it, thanks to the TINA trade — “there is no alternative” to dividend-paying shares if you’re looking for income.

As it happens, we’ll be reopening subscriptions soon to our entry-level Lifetime Income Report newsletter. Watch this space…

You know the cannabis industry has arrived when it forms its own lobbying group.

“Disparate players from the cannabis industry banded together last week in a new organization, called the U.S. Cannabis Council, to push their interests in Washington, D.C., and state capitals,” according to Bloomberg. “Meanwhile, Marlboro maker Altria Group Inc. and Corona beer producer Constellation Brands Inc. are becoming more prominent in advocating for their marijuana investments.”

Last year, marijuana lobbying amounted to only a $4 million business, according to the Center for Responsive Politics. That compares with $27 million spent by Big Tobacco, and $30 million by the alcohol industry.

“This is an important milestone for the industry,” said David Klein, CEO of Canopy Growth Corp., on his firm’s quarterly conference call. “The overwhelming feedback we heard in our conversations with elected officials and regulatory bodies is how disjointed and fragmented the industry currently is.”

No wonder Klein is feeling confident, as we related last week, about the federal cannabis ban being lifted sooner rather than later.

Well, it’s good to know some people outside the top 0.1% have turned the pandemic’s lemons into lemonade…

SCMP News

Seems many of Hong Kong’s flight attendants who were grounded in 2020 have reinvented themselves selling insurance.

“Their training and skills have proved a perfect match for the city’s insurance giants, who have been busily recruiting as the industry ploughs unscathed through the turbulence of the pandemic,” says the South China Morning Post. Insurers value “their hospitality training and experience in dealing face-to-face with customers.”

At age 23, Yuko Wang Yuk-sin was content being a flight attendant with Cathay Dragon. The travel was nice, but she was bummed at the lack of time for sightseeing. Now she’s making three or four times what she did before and “I can afford to travel with my family at my own cost. I also have a clearer career path at Prudential, which gives me a lot of training.”

Also, she doesn’t have to badger anyone to put their seat belt back on before landing…

On the latest developments with the Nord Stream 2 pipeline in Europe, a reader writes…

“Dave, as long as the U.S. is committed to defend Europe (as the primary contributor of money and troops) against the likes of Russia I think it is prudent to make sure these dependents don’t get themselves into needless risk, especially when we have cheap gas to sell them too.

“The Europeans, and Germany in particular (richest but stingiest partner), should keep in mind who is buttering their security bread. And I am saying this as a native German with family connections still over there.”

The 5: Understood. But with a debt-to-GDP ratio now in Japan-Italy-Lebanon territory, Washington can no longer afford to butter Europe’s security bread.

And at the same time, European leaders are coming around to the conclusion that the trade-off they’ve made with Washington for the last 75 years — surrendering a measure of sovereignty in exchange for “security” — is no longer worth it. They’re tired of being caught in the crossfire between Washington and its assorted adversaries in Moscow, Beijing and Tehran.

We come back to the words of French finance minister Bruno Le Maire in 2018, after Donald Trump pulled out of the Iran nuclear deal and imposed sanctions affecting European companies: “The international reach of U.S. sanctions makes the U.S. the economic policeman of the planet, and that is not acceptable.”

The resentments were building before Trump came along, and they won’t go away now that he’s been sent packing to Mar-a-Lago.

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. Amid the energy rally this morning, readers of Alan Knuckman’s Rapid Riches Report booked 100% gains trading options on XLE, the big energy ETF. Not bad for a little over two months, huh?

If you’ve been hesitant to try your hand at options — or if the subscription fee for the typical options trading service is too rich for your blood — Rapid Riches Report is designed to help you overcome those hurdles. Check it out right here.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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