View Full Version : Hedgehogs and pole cats

9th June 2008, 10:34
Everyone knows that the price of silver is not driven by silver coin or silver bars, but by imaginary silver. Or, someday silver. Silver at the center of the earth.

Lets make the analogy.

Rafts of mortgage obligations were a staple of the hedge fund phenomenon. The presumption is that the value of the collateral continues to increase, making the mortgage intruments safe. Or, in other words, you can get to the asset in a hurry and get all of it when you really need it.

So, if most of the silver trades are silver in the ground, lets all bet a 1966 Kennedy half that there aren't enormous assumtions built into the trade. If I were betting that the "someday silver" backing the paper was as easy to get as everyone seems to think, I wouldn't bet the 1964 half dollar.

Folks with more knowledge maybe can tell me how much of the paper market is represented in vehicles explicitly tied to "proven reserves", or someday silver in the ground. I would also be intersted in knowing, ounce for ounce, how many of the paper trades are matched by "proven reserves", or whether this is a fractional reserve banking type situation. The distinction is that a contract to sell short can be filled by coin existing at the time of the trade or silver that can be mined at the proper time. Perhaps it doesn't matter.

Either way, it seems that there is an awful lot riding upon the ability to bring enough silver to the surface in a hurry. Lots can go wrong to disrupt those plans. Witness the collapse of Bears Stearns, Lehman, etc. Its all a hedge.

Another similarity is that the hedge funds were boosting short term profits for shareholders and bonuses for their execs. Does it really look like hedge funds were built for a solid future? Bear Stearns is again a testament to what their real plans were. In a word, they were shorts.

But, you are long. Don't forget it.

Also, take some confidence from the fact about the inherent blind side of shorts. Institutionally speaking, the hedge funds were blind to the realities of what was coming in 2007/2008. Whether it was willfully so is beside the point. When you borrow against your future, as in a hedge fund, this mentality tends to drive your institution toward a crisis. You happen to be holding something that becomes more valuable in a crisis.

9th June 2008, 19:19
I'm holding my silver very tightly---- Waiting for the Shorts' head to explode .while someone is, maybe. going to jail.