Sunday, March 6, 2011

Silver More Overvalued Than The Internets Of 1999

The precious metals "secular" rally might actually end sooner than I originally thought. It won't take a few years. It won't even take a year. This is a replay of 1980 for silver. It is now reaching the parabolic blowoff phase, similar to what oil did a few years ago from 100 to 147, and an exact duplicate of what silver did in 1980. Silver rally will probably end at near 50, a 50% upside from here. Will there be some sort of government intervention (resulting in silver's collapse) when it gets up there? Highly likely.

Now, I've looked at the valuation of stocks like SLW just based on the kind of revenue growth they are generating. Revenue for SLW was about $360 million last year, growing at 33% year over year. The impressive thing is their profit margin, which is near 60%, owing to the rise of the silver commodity. In many bull markets, that kind of growth and profit can garner a valuation of $15 billion market cap, as SLW does.

However, unlike many other bull markets, silver is different. For most companies, continued expansion of market cap is normally due to increase product offerings going to more and more people. I don't see that in silver. Growth and income are rather temporary if you think about it.  If the world is running out of silver (or at least most are being hoarded by individuals and investors at this time), where are these silver companies going to find more silver to justify their P/E's?

As such, this makes SLW and its ilk, extremely overvalued. I would say they are even more overvalued than the internets back in 1999. Some Internets then were making money, and they had a lot of future (many years down the line) potential. Even those that weren't making money (like had lots of future potential expected many years down the line.

However, the current inflated silver and gold  prices are very temporary. As such, this puts their valuations at nosebleed bubble levels only rivaled by the nonsense such as the Tulipmania. SLW's p/e is at 72 right now, but if you consider it has no future (meaning it will never be producing as much silver as its current p/e suggests), you can see what kind of ponzi fume this thing is running on.

50% more upside is what I think will be the ultimate end to the silver bubble. Now, if you knew there's a good chance a $34 stock, any stock, has only $16 upside before it all ends, what would you do? Not such a great investment; perhaps a good trade. If I knew KO (currently trading at $60) has another $30 to it before it all ends, I'd likely start finding myself a new investment. You would too.

It's a good idea to start locking in some silver profits on the way up (if you own silver), never to re-enter with those profits.  I know many will want to sell everything they have and go all-in silver as this bubble inflates more. Be careful out there. It could all end overnight with the government's magic wand.


  1. If I knew a stock had another 16 points upside...I'd focus on buying as much as I could.There's a lot of room to run here, but its good to be prepared as nothing lasts forever.

  2. Beanie your brains are fried. The whole world slathers over stocks that can take a 10% runup, Crammer blowing recommendations to that effect daily, and you think a fifty percent upside, YOUR limitation, has little meaning?

    You tout a 72 PE which is backward looking, when the PE is half that forward looking, and have zero comparison to make the overpriced claim. You compare PE 72 against NOTHING, when you should be talking royalty company, NOT miner, which normally have PE closer to 100.

    You state the government might intervene -- and they've already shown a futile presence in the form of JPMorgue, which inherited silver shorts from a bank it acquired, and is losing its shirt. Where the government has intervened is the dissipation of naked shorting, which benefits longs everywhere, including silver.

    You state history is on your side, the Tulip Bubble as an example. Well, gold and silver have been money for 4000 years, disappeared when FDR and Nixon took us off the CONSTITUTIONALLY MANDATED gold and silver standard, and left us with nothing but "full faith and credit", which we promptly squandered post 9/11 with real estate credit fraud, to the point that CHINA is accepting yuan as their currency of choice over the world's "reserve", the US dollar, the country that hasn't won a war since WWII when that standard was set.

    You say history is on your side--how? I made $10000 a year in 1971, I bought a $3500 car, I bought a $40000 house. Today I have to make $100,000 a year, to buy a $35,000 car, and a $400,000 house. Gold which was $105 an ounce is now pushing $1500 an ounce.

    Fiat currency hasn't inflated, it's DEFLATED against the price of silver and gold, and folks have noticed.

    Bernookie and the Fed WANT the dollar to deflate by about 6% a year, so that the massive debt incurred in the real estate bubble rights itself. That's why they ignore food and fuel in the PPI and CPI--and won't pay any attention until we've another three years to inflate housing and get to 6% unemployment.

    Yeah silver's a bubble all right, a bubble made of concrete.

    What's the real value of silver? At $50 it reaches nominal 1980 levels. Even at the fraudulent CPI government inflation figures since then, that 1980 $50 is $125 today.

    And you're looking at $50 skeptically. OK, good luck to you.

    You'll need it when US Zimbabwe dollars, we have to buy ourselves when we sell bonds from one part of the Federal government to another explode in our face. Talk about Ponzi schemes?

    Very well written article. Wish you'd have made any sense whatsoever.

  3. If gold and silver are the new money, then they are just catching up to the world's money printing and will reach a plateau somewhere and stay there.

  4. only someone who wasn't around the 1999/2000 mania would say silver is at same valuations. back then companies traded at 300-400 TIMES 2 to 3 years out SALES!!!!!!!! amateur at best to say that about silver and gold. FULL DISCLOSURE... i've made a fortune in AGQ and even if there is a slight pullback i will keep making lots of money with it

  5. Hey Beanie,

    Didn't you make a recent post that there were more put options out there than silver was available?

    Can't have it both ways!

  6. guess the silver info awakened the crowd!!

  7. silver is going down