Silver Linings

Hey There Income Hunters,

Well, retail investors may not succeed in getting silver to 50 …

But in three days they did what it took the Hunt brothers (the infamous siblings who tried to corner the silver market) four weeks to do …

Drive the market 25% higher.

There is a lot more to the Hunt Brothers story … and for what this means for silver in the short-term.

On the Hunts for Silver
Brothers Bill, Nelson and Lamar Hunt, from Texas, spent the latter part of the 1970s accumulating silver in an attempt to corner the market. (It was actually a strategy to hedge against the decade’s insane inflation.)

In the brothers’ case, they were fully “leveraged” as they moved silver 713% in the first few weeks of January 1980.

Leverage, it should be noted, is trading on borrowed money — it makes the good times better and the bad times worse.

For the Hunts, it turned into a debt-fueled boom … and then bust on what became known as “Silver Thursday," when prices collapsed.

Last week was another great example of how leverage works — and how it can turn the screws.

Several large hedge funds had maxed out their leverage …

The GameStop (Ticker: GME) squeeze forced the central counterparty clearing house (CCP) of the exchange to demand payment to satisfy the margin requirement … the dreaded “Margin Call."

And the hedge funds lost BIG.

Back in 1980, the Hunt Brothers received a margin call for $100 million and they didn’t have it.

That created the fear Wall Street brokerage firms might collapse.

So, as usual, a bank lent the Hunts the money … to protect itself from failing.

You know, I often wonder what the banks will do when blockchain’s digital ledger technology simultaneously settles all transactions via digital dollars …

Hmmm, not sure if banks would have a role in that scenario … and that doesn’t hurt my feelings one bit.

I think we will find out soon enough …

What’s Next for Silver?
So, onto what I see for silver …

Longtime readers of Power Income know how much I respect the Relative Strength Index (RSI) — a very helpful momentum indicator — when it diverges from the price trend.

Well, we got a bearish divergence in silver on Monday.

A bearish RSI divergence is confirmed when the following happens:

  1. A new high price is set (27.39)

  2. It’s confirmed with a new high in RSI (75.28)

  3. The market price corrects, comes back and makes a higher high (27.98)

  4. RSI does not confirm the strength in the move (68.11)

That’s what we have below …

 

It’s uncommon to get monthly RSI divergence. When you do, it usually signals a decent move …

Bring it Home

My big-picture view has not and will not change …

The US is in the final stages of a long-term debt cycle …

The $28 trillion of debt compared to $21 trillion of income (GDP) gap can never be reversed … and the Fed has chosen to go down the path of inflating the debt away.

We will see inflation above 2.5% before the end of the year — and it could be higher.

However, my short-term view is a bit different …

I don’t believe we’ll see the economic recovery the markets have priced in.

So, in the short term I do believe we could see deflationary forces at work. This will only force the Fed and the administration to be more aggressive with stimulus.

That, in turn, will reinforce the inflation I expect in the second half of the year.

So, here is a picture of my conflicting short-term/long-term views …

A little bit of deflation, meaning lower consumer prices (CPI) and soft economic numbers … 

This will fuel greater stimulus, then when the economy starts to re-open…

BAM!

Inflation will be unleashed!

Look, it’s hard to make money trading without having conviction.

I have traded through many economic cycles, but to trade through a transition to a new monetary system is thrilling …

The new system that I foresee will center around a basket of multiple central bank digital currencies and maybe even some gold and silver.

I’ll have much more on that in future posts …

You Income Hunters have been providing great feedback and asking great questions. Keep’em coming and as always …

Live and Trade With Passion My Friends,

Griff 

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.