Guest Post by Bill H.
Can a barrel of oil “default”? A bushel of wheat? Gold or Silver? Of course not but these are, in today’s upside down backwards world considered “risk assets”. How whacked out have we become? Sovereign governments that just 20 years ago would have been taken out back to the financial “disciplinary woodshed” are considered AAA rated or close to it, but physical commodities are risk assets.
2013 Silver Eagles IN STOCK As Low As $2.69 Over Spot at SDBullion!
Great Britain lost their AAA rating last week and joined the club of “non AAA” insolvents. To be honest with you, this took me a bit by surprise. Not because they were downgraded but because they were AAA rated in the first place! I knew that they were AAA rated ”officially” but I guess my subconscious got the best of me because if asked I would have told you they were not. Britain? AAA? There is no comedy club on the planet that could have passed this off with a straight face.
While on the subject of AAA ratings, there are a few left like Germany and The Netherlands but I ask, is there really, truly…anything paper that deserves a ”triple A” rating? Is there anything, anywhere on “paper” that cannot default? This goes for bonds, bank accounts and of course the currencies themselves. Can a barrel of oil “default”? A bushel of wheat? Gold or Silver? Of course not but these are, in today’s upside down backwards world considered “risk assets”. How whacked out have we become? Sovereign governments that just 20 years ago would have been taken out back to the financial “disciplinary woodshed” are considered AAA rated or close to it.
Forget about the “AAA” ratings being fake, what exactly can you do with your money if you are a good little sheep and stay within the “box”? There are no bonds anywhere on the planet that compensate you for current inflation… When you add in and consider future inflation, the current “leak” of wealth annually will become a sudden event that discounts EVERYTHING. The “discounting” process is THE reason that governments are manipulating markets. They have lowered interest rates beyond any reasonable level (and been there for many years) so in order to justify this, “markets” have to reflect this.
It is important to understand that not only is the “quality” false in the bond markets, so is the “math”. When you look at inflation, bonds don’t make any sense. Forget about the reality that inflation is running at 8-10%, use the bogus mainstream inflation rates we are spoon fed daily. In what world does it make sense to lend your money for year at 1/4% when “official” inflation is running at 2%? How does it make any sense to lend your money for 10 years at 2%? Are bond investors in the business of locking in guaranteed losses year after year? Is this how the credit markets worked all these years? Is this normal? Or is it the “new normal”?
Maybe it is but you must understand that the math doesn’t work and will do nothing other than destroy capital…at a faster and faster pace as the credit markets get larger and the deadbeats borrow more and more. It doesn’t matter that the “sheep” are not the buyers anymore (they are through bond funds), capital is getting destroyed. It doesn’t matter who the “lender” is, the Fed, ECB, BOE or BOJ, it will still be destroyed. Mathematically and logically it makes no sense, morally and ethically it makes no sense. The ONLY area that it makes any sense at all is politically. Negative interest rates can only make sense in order to prolong the “wrong” and to cover your tracks. “Tracks” being past ill advised policy, theft and fraud.
As far as Britain is concerned, they were not AAA in the first place no matter how warped your thought process is.. They are (as is the rest of the world) embarking on further QE. They will issue more debt to lower rates further, this will increase inflation and water down the existing stock of paper. In what world would any sane investor choose this path? As far as I see it, the investment “options” available to those with any sanity left has been narrowed down to a mere handful and no matter what you choose it weighs more than paper with lots and lots of “zeroes” on it. Regards, Bill H.
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I’ll take Gold/Silver bullion anyday of the week. Twice on Sunday! Paper is worthless.
Gold and silver are risky becouse you never now the real value.
@silverman – Yes we do, WAY UNDERVALUED.
Bill Holter ALWAYS makes sense………I’ve been reading him for a good while and have lost count of how many AHA moments he has triggered with his writings.
Great to see The Doc now including him here. He can be found almost daily at http://blog.milesfranklin.com/category/authors/bill-holter
ZZ thanks for providing the link to milesfranklin. I’ve been looking to put that into my favs and read up on Bill’s essays
Gold and silver are the best non-renewable resources out there. Non renewable meaning you can’t print them and they are becoming increasingly hard to acquire.
I see the AAA as a Bank Owned and called DEBT. Hell that’s what it’s all about Control and DEBT. Stack The Physical. Keep Stacking.
I think your missing the point with bonds. The risk of a bond is built into its price. Britain lost its AAA rating but the bond price will not change. This makes private agencies that are unregulated, who are slapped on the hand lightly to be a joke. It matters not a jot if Britain were rated AAA or Anything less, the market decides the price not some dumb american based company servicing the agenda of the US economy. If you actual think that such outfits are fit for purpose then I have no respect what so ever. As for gold and silver they are not classed as money yet and so are judged by the market for the price of them, which is variable and dependent on macro economics, outside the usual keynesian elements of control, hence why they are treated as lesser asset classes.
WFS…Agreed, but you’re only seeing part of the picture. Institutional money is invested per Investment Policy Statements drafted by Corporate Board Audit and Finance Committees. I know because I have sat on several. Boards are always worried about being sued, so they protect themselves with policy. Best policy is to only invest other peoples’ money in AAA rated securities. Loss of AAA status removes a lot of institutional money from the bond arena. U.S. Treasury yields would have soared when the U.S. lost AAA status except the Fed stepped in and became the buyer of last resort. Bank of England will have to do the same now.
And that buyer of last resort is the start of the death spiral for a currency. It mat have temporary ups but in general it is going to crash at some point.
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The sun is adding some shine to the silver market.
One of the growing industrial uses for silver is photovoltaic cells in solar panels as the world seeks alternative forms of energy, metal consultancies said. There has been a jump in such demand in recent years, and analysts said millions more ounces of silver may be consumed for this over the next decade.
“Solar panels will probably be one of the leading industrial uses,” said Jessica Cross, CEO of VM Group.
Use of the long-established photovoltaic technology, referred to as PV, “really took” off in the last half decade, helped by government subsidies, said Philip Newman, research director for GFMS.
“The growth in demand did not primarily come about because of technological developments,” he said. “It came about because of changing attitudes of governments and government policy.”
Ultimately, the amount of silver used will hinge on growth that emerges in the PV solar market. This will depend on both future government support, as well as technology innovations that bring down the cost of solar power, said Erica Rannestad, commodities analyst with CPM Group. As it is, the cost for a typical PV module fell by around 40% in 2009 from mid-2008, she said, citing data from the trade group Solar Energy Industries Association.
One of the most popular government programs is a “feed-in tariff” mechanism in which electrical-grid operators pay producers of renewable energy long-term fixed prices for energy they feed into the grid. This originated in Germany and is especially popular in Europe, Rannestad said.
Any government policies calling for more renewable energy are likely to boost demand for solar cells. Europe is pushing for renewable energy to amount to 20% of total energy consumption by 2020, compared to around 10% in 2008, Rannestad said. “I expect new installations of solar panels to continue to rise on an annual basis,” she said.
Globally, solar-panel installations during 2009 meant 7.2 gigawatts of new electrical capacity, Rannestad said. (A gigawatt equals 1 billion watts.) Industry estimates suggest newly installed capacity will more than double to 16.5 gigawatts in 2010, Rannestad said. This may rise to 23.3 gigawatts by 2013 and 40.9 gigawatts by 2019.
German, Spain and Japan are the leaders in existing PV solar power generation, said Monique Hanis, spokeswoman for SEIA. The U.S. is No. 4. “But everybody is really eyeing the U.S. market because it perhaps has the greatest potential in terms of solar resources and demand,” she said.
India plans to up solar output to 20 gigawatts by 2020 from virtually zero now, while China aims to raise capacity from 5.5 to 30 gigawatts by then, said VM Group.
“We definitely see the solar market growing quite substantially,” said Rob Cockerill, North American PV segment manager with DuPont Microcircuit Materials. DuPont is a material supplier for the solar industry.
Silver Consumption To Rise As Solar-Energy Market Grows
Solar power is generated in PV technology when a silicon wafer converts incoming photons of light into electrical current, Cockerill said. Silver helps collect electrons for the current and transports them out of the module for use as power. A typical solar panel has about 20 grams of silver, he said. This is around two-thirds of a troy ounce.
“Silver fabrication will grow as the (solar-energy) market grows,” Rannestad said.
CPM Group estimates that 2010 use of silver in solar cells will be 64 million ounces, up from 20.9 million in 2009. Rannestad looks for 15% compounded annual growth from 2009 to 2019, with the amount of silver used for solar cells forecast to rise to 84.5 million ounces over the next 10 years.
VM Group’s Silver Survey, published earlier this year, called for compounded annual growth of 17.5% for silver use in solar panels over the next decade. VM Group estimated 18 million ounces of silver were used in 2009. This is likely to rise to as much as 70 million by 2020, even when factoring in some impact from a rising market share for “thin-film” technology that requires little silver. Furthermore, VM said, still more silver also will be used for reflective mirrors in solar-power-concentrator power plants, perhaps rising to 60 million ounces per year over the next decade.
In its Silver Survey earlier this year, GFMS estimated that PV-cell production rose 30% last year to 28 million ounces of silver. The growth doubled from 2008, and GFMS also looks for “fairly aggressive growth rates this year,” Newman said.
While more growth can be expected, the rate may moderate, he said. Percentage gains may slow simply as the industry becomes more mature, especially if government subsidies are scaled back, Newman said. Yet, demand could be encouraged if manufacturing costs fall, other energy prices surge again or another country institutes a new subsidy.
Cross said silver also will benefit from limited recycling of the metal from solar panels compared to other uses such as photography. Plus, any such recycling may not occur for a while. Most solar panels have a warranty for 25 years, Cockerill said.
Still, not all are convinced of the future silver demand for solar panels. “I don’t see it becoming a major market for silver,” said Jeffrey R. Ellis, senior technology consultant to the Silver Institute and adjunct professor of environmental science and chemistry at Florida International University.
Silver traditionally is used in the infancy of many new electronic products to gain efficiency. But once the rest of the products become more efficient, there can be a tendency to shift toward cheaper metals such as copper or a silver alloy, meaning less use of pure silver, Ellis said. Furthermore, he questioned how popular solar panels will become. “It seems like it’s the technology of the future and always will be,” he said.
“Thick-Film” Technology Using Silver Remains Dominant
There are two kinds of solar panels. The traditional “thick-film” technology has crystalline silicon cells that use silver to help convert light energy into electricity. However, newer, less-expensive “thin-film” technology uses other materials, such as cadmium telluride. Solar panels for both also use silver outside of the cells for reflectivity and other functions, Rannestad explained.
Still, the thick-film technology is considered more efficient in capturing energy. Analysts say it has a roughly 80% to 90% market share, although thin-film may gain in market share. “We are going to see growth in both segments,” Haas said.
Nevertheless, with the gains by thin film, if the overall solar industry doubles, silver consumption will maybe increase by 1 ½ times, Cockerill said.
“The future for crystalline silicon (thick film) is market growth (that will be) definitely higher than any market-share erosion silicon will see in the next five years,” he said. “Beyond that, it’s hard to say what kind of disruptive technologies might emerge.”
Solar power in the People’s Republic of China is a growing industry. China has over 400 photovoltaic (PV) companies. In 2007 China produced 1.7 GW of solar panel capacity, nearly half of the world production of 3.8 GW, although 99% was exported. As of 2011, about 3.3 GW of photovoltaics contribute towards power generation in China.[1] Solar water heating is extensively implemented as well.[2]
http://www.guardian.co.uk/environment/2012/jun/11/renewable-energy-global-investment-solar-power
http://www.guardian.co.uk/environment/2013/feb/19/solar-panel-duty-chinese-imports
“Sovereign governments that just 20 years ago would have been taken out back to the financial “disciplinary woodshed” are considered AAA rated or close to it, but physical commodities are risk assets.”
These ratings are a joke. Other than perhaps Germany, there is not a single Western country that deserves a bond rating higher than BB. Yes, this IS a junk rating and that IS what they deserve. Unfortunately, while this is the truth, it will not happen because it could collapse the bond market. Yes, the Fed is buying bonds galore to make sure that FedZilla gets to squander all that it wants. What the Fed cannot do, however, is handle the sudden flood of bond redemptions that would occur if the US credit rating was drastically cut. Because of this, they do stupid s**t like institute a $5B law suit against S&P for lowering the US credit rating from AAA to AA1. This is clearly a punitive measure designed to intimidate the other rating companies into not following S&P’s “mistake” by also lowering the US credit rating. In any case, while this does represent a loss of AAA status via ONE credit rating agency, it is also FAR better than US Treasury bonds actually deserve based on the fundamentals of those bonds. It remains to be seen how Moody’s and Fitch’s credit ratings will come out. Something tells me that they will stick with a AAA rating even though everyone knows it is 100% BS.