While silver is completely off the radar to most investors, it will turn
out to be one of the best investments to own as the massive amount of
leverage in the stock and real estate market evaporates. Unfortunately,
investors, today are no longer capable of recognizing when an asset displays
a HIGH or LOW risk. Thus, fundamental indicators are ignored as the
investors continue the insane strategy of “Buying the Dip.”
A prudent investor is able to spot when an asset becomes a high risk and
then has the sense to move his or her funds into one that is a lower
risk. However, the majority of investors do not follow this practice as
they are caught by surprise when a Market Crash occurs… again and again and
again. Even worse, when investors are shown that the indicators are
pointing to assets that are extremely risky, then ignore it and continue
business as usual.
Today, complacency has turned investors’ brains into mush.
They are no longer able to discern RIGHT from WRONG. So, when
the market really starts to correction-crash, they will hold on to their
stocks waiting for Wall Street’s next BUY THE DIP call.
Regardless, if we can understand the fundamentals, then we would be
foolish to keep most of our investment funds in Stock and Real Estate
assets. The following chart follows the KISS Principle – Keep It Simple
Stupid:
You don’t need to be a highly-trained financial or technical
analyst to spot the HIGH vs. LOW-RISK assets in the chart above.
Hell, you don’t even need to see the figures in the chart. If we
understand that all markets behave in cycles, then it’s common sense that
asset prices will peak and decline. We can plainly see that both Real
Estate and Stocks asset values are near their top while the silver price is
closer to its bottom.
Thus, assets that are near a top are HIGH RISK, and those near a bottom
are LOW RISK. It’s really that simple.
Now, if we look at each chart separately, we can easily spot which assets
will be the BIG LOSERS in the future. According to the St. Louis
Federal Reserve data (FRED), the U.S. Median Home Sales Price of $324,550 is
nearly $100,000 higher than the bubble in 2007:
So, the current U.S. Median Home Sales Price is 30% higher than
its previous peak in 2007 and 52% above its low in 2009. If I
was going to invest in real estate, the best time to do so at a bottom (LOW
RISK), then at the top (HIGH RISK). However, Americans are piling into
new and existing homes because they believe the prices will continue higher
forever. Unfortunately for American homeowners and buyers, the Fed’s
current policy to increase interest rates over the next year is not positive
for the real estate market.
While U.S. Median home prices are 52% higher than their low in 2009, the
Dow Jones Index is a staggering 220% higher during the same period. If
U.S. real estate values are HIGH RISK, then the Dow Jones Index must be
EXTREMELY RISKY:
Going by the 200 Month Moving Average (MA), shown in red, the Dow Jones
Index is 11,000 points higher, or 45% over-valued. However, if we went
by the Dow Jones low in 2009, then the index is 73% over-valued. Again,
when assets are way above their baseline values, then they enter into a
HIGH-RISK category. It doesn’t matter if U.S. home prices or the
broader stock markets continue to move higher for a while, they are still
highly risky assets.
Now, if we look at the Silver Price, we see a much different setup.
Not only is the silver price way off its highs set back in 2011, but it is
also just 40 cents above its 200 MA:
With the silver price being 2% above its 200 MA, it is clearly the
LOWEST RISK asset compared to the Dow Jones or U.S. residential real estate
values. Furthermore, the Commitment Of Traders (COT) Report
suggests that the very low net commercial silver short position also
indicates that the silver price is bottoming:
The chart above shows that the Commercials present net short position in
silver is back to its cycle lows. While the Commercials could continue
to liquidate more short contracts, as the silver price falls a bit
lower, we are closer to forming a bottom than a top. So, if we use
logic, then the silver price is the LOW-RISK asset to purchase and hold while
U.S. residential real estate and stocks are HIGH-RISK assets to sell.
Of course, it will take time for these markets to correct, but nothing
goes up or down forever. However, the horrible irony of how the
markets will play out in the future is to watch investors get wiped out
because they are unable to distinguish between HIGH and LOW-RISK assets.
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