Will Silver Supply Deficit Lead To Biggest Short Squeeze Since Gamestop?

Did you miss the Gamestop short squeeze? For most investors, a rational fear of getting in too late and being the greater fool that paid the higher price for an overvalued stock and being stuck with a money loser with no buyers left at the purchase price saved them from over paying for Gamestock during the $400 per share height of the squeeze.. .

Well, there is another short squeeze in play. This one is moving at a slow pace, and is focused on a  deeply undervalued asset. The asset is silver. Silver is in a supply deficit and there is a huge short position in silver. At some point, the supply deficit will lead to an increase in price, and short covering may rocket the price higher.

The Supply Deficit

My forecast is that demand for silver in 2021 will exceed supply by at least 20%. 

The deficit in silver in 2021 will be due to three sources:1) an increase in commercial demand for silver due to growth in the new energy era products, including use in EV's, solar panels, and electronics, 2) investment demand as an inflation hedge; and 3) a short squeeze from purchases being fueled by the Reddit crowd.

Supply

1.0187  billion - Mining and recycling will produce slightly over 1 billion ounces of silver in 2021. 

Demand

1.237 billion - Demand for silver will exceed supply in 2021 by at least 218 million ounces

Components of demand

- 600 million - Commercial users will consume about 600 million ounces in 2021

- 174 million - Demand for silver for jewellery will consume 174 million ounces

- 257 million - Purchases of bars and coins were forecast to take 186 - 257 million ounces off the market. But this was prior to the Reddit launch of a silver squeeze movement. The silver squueeze movement has vastly increased consumer demand for silver. 

- 200 million - The launch on Reddit of the silver squeeze in late Januuary has expanded the number of silver buyers and significantly increased demand. This new horde of buyers is buying both physical (coins and bars) and paper investments (Silver ETF's and futures). And the flood of new buyers has energized long time silver bugs, who are increasing their purchases of silver..The subreddit, WallStreetSilver, has grown to 64,000 members since it's creation just four months ago and is adding 100's of new members every day.. A leading ETF/Trust, PSLV, has had to add almost 40 million ounces of silver to their inventory already in 2021 in order to have sufficient supply to meet potential redemptions . At this pace, PSLV will take over 100 million ounces off the market in 2021. . 

The impact of the increase in demand for this precious metal with a limited supply is evident in the retail market. Local coin shops and online dealers are short on supply and are adding huge premiums to the price for coins and bars.  The price for silver coins and bars is 20% above the futures market price of silver, currently in the $25-27 oz. range. (The futures market is based on 1000 oz bars) This divergance in the price of coins and bars versus the price of 1000 oz bars and futures is unsustainable. The arbitrage opportunity is simply too large to remain is place. And not surprisingly, the inventory of 1000 oz bars is being drained from the vaults of the Comex and the LBMA in London. The Comex (silver futures exchange) inventory of silver available for delivery has declined from 151 million ounces in mid Febuary to 117 million ounces as of April 26.

Potential Short Squeeze

Silver is the most shorted commodity. As shown in the chart below, the 8 largest traders of silver on the Comex are short 170 days of production. Currently, sellers of Comex futures are short 860,000,000 ounces of silver (172,000 SI contracts @ 5000 troy ounces per contract). And this is just the transparent shorts on the Comex. The total numbr of ounces sold short worldwide is an opaque number but could be a significant multiple of the shorts on the Comex. 

There are many commentators that are skeptical that the silver shorts can be squeezed. However, even if the skeptics are correct, silver remains a good investment opportunity. Pandemic fueled fiscal deficit spending and monetary injections by central banks are debasing fiat currency. The Fed is actively working to increase inflation into an environment where prices are already rising. The Fed's assumption that inflation will be transitory seems short sighted. Further, the Biden administration announces a new spending plan every week. And don't even get me started on how absurd and dangerous MMT (modern monetary theory) is. Has MMT promoter Stepanie Kelton ever heard of the Weimar Republic? 

Conclusion

There is a strong likelihood that the price of silver is headed higher. There is a supply deficit and an increase in demand. The question is not whether the price will increase, but whether it will A) rocket higher due to a short squeeze, or B)  slowly grind higher due to increased demand. 

Which Is More Insane: Powell's "Inflation Will Be Transitory" or Kelton's MMT?

U.S. fiscal and monetary policy is being run by fools that seem oblivious to the dangers of hyper-inflation. I would suggest that the physical gold and silver buyers that want lower prices so that they can add more to their collections will soon be disappointed. Inflation is coming, and with it, even the price of gold and silver should rocket upward.

Jerome Powell and the Fed are actively working to increase inflation. The Fed's monthly purchases of $120 billion of bonds during a time when the price of everything is going up, the US govt. is disbursing helicopter money, and vaccinations may release a tidal wave of consumer spending, is almost certain to get the job done. However, Powell claims that the upcoming inflation will be "transitory". Maybe he is correct, but my guess is that once the inflation genie has been released, it will be impossible to put back in the bottle. And the Fed does not have the tools that Paul Volcker utilized to tame inflation. A taper in bond buying would lead to a stock market crash, and a significant increase in interest rates would lead to the US deficit exploding.

But I judge that Modern Monetary Theory (MMT) is even more insane than unbottling the inflation genie. At least Powell has a chance or being correct that an increase in inflation to greater than 2% per year may be transitory. Stephanie Kelton's theory that the Federal defict doesn't matter is truly insane.

My crystal ball on when US inflation will start exploding and what impact it will have on the price of gold and silver is cloudy. But I'm all in and judge that $2,500 gold and triple digit silver is coming in the fairly near future.

On a short term basis, I would not be surprised if the spot price of gold and silver fell even more. The dollar debasement by the US is being matched by other central banks around the world, particulary the EU and Japan. This is allowing a widely followed dollar index, the DXY to rise, and precious metal traders typically sell spot when the DXY is going up. It seems to be a race to the bottom, but only a matter of time before the US pulls ahead in this fiat currency race to the bottom and the dollar resumes its decline.

If the price of gold and silver continues its short term decline, this offers the benefit of allowing precious metal investors to dollar cost average down. Gold and silver investors will come out on top in the medium and long run.

Are UBS, Goldman Sachs, and Morgan Stanley Analysts Forecasting China 1st Quarter Economic Growth Kowtowing to China?

How any economic analyst can possibly still be forecasting China's economy will expand during the first quarter of 2020 is almost incomprehensible. Are the analysts doing so incompetent or are they kowtowing to China? The kindest thing I can say about it is that it offers an example of how cautious Wall Street analysts are about going out on a limb and upending the group think consensus.

Here are some examples of these ridiculous forecasts:

According to Forbes, "The UBS China Economics team expects that GDP growth will slow to 3.8% year-over-year in the first quarter"

"Morgan Stanley said on Wednesday the corona virus outbreak in China ... could shave up to 1 percentage point off Chinese growth in the first quarter."

"China's economy will face the brunt of the virus' near-term fallout, with Goldman estimating a 1.6 percentage-point reduction to first-quarter growth."

And this summary from Bloomberg provides more of these insanely optimistic forecasts for only mild drops in China 1st quarter economic growth.

How can a country's economy grow on a year over year basis when the much of it was shut down for over a week due to the extended Lunar New Year holiday. And given the annual Lunar New Year holiday already resulted in a week's shutdown, it reduced the productive weeks in the 1st quarter 2020 to 11 of 13, versus 12 productive weeks last year. So with much of the economy shut down for an extra 8% of the quarter, growing the economy would be unlikely even without the corona virus epidemic. 

Due to the extension of the Lunar New Year holiday, production will be significantly reduced at many factories for at least the rest of this month, and possibly into March. Further, the cancellations of airline travel to China by some airlines until late March and other travel restrictions on buyers, engineers, designers, and quality inspectors will have a negative impact on the production of Fall 2020 and Spring 2021 merchandise.

Conclusion

China has taken extraordinary measures to slow down the spread of the novel corona virus. And based on the slowdown in reported cases in both China and the world, they are having a positive impact and have greatly reduced the likelihood of this becoming a pandemic. But it is incredible that any reasonable analyst would think that China's economy could expand during the 1st quarter 2020. The question is how much of a decline will result. These overly optimistic forecasts bring into question  the credibility of any and all Wall Street economic forecasts.

Global Sea Level Rise Has Doubled in the Past Year

Global sea level rise has more than doubled in the past year according to NASA. Sea level rose 7.3 mm in the past year, versus the 3.3 mm average during the satellite era. (From a  little over a 1/10 inch per year to over a 1/4 inch in the past year). Between 3/16/18 and 3/28/19 sea level rose from 85.3 mm to 92.6 mm above the baseline in the record tracked since January 1, 1993. However, given how erratic the rise of global sea level in on an annual basis (and some years the decline), a one year period is too short a time frame to definitively say that sea level rise is accelerating. But the trend sure looks ugly.

While a 1/4 inch of sea level rise may not seem like a disaster in the making, if extrapolated over 10, 30, 50, or 100 years it is indeed going to be catastrophic. And the outcome gets far worse if sea level rise continues to accelerate, as many researchers have projected. Sunny day flooding is already a significant problem. Further, the crash in coastal real estate prices predicted by Joe Romm and others seems ever closer.

Source: https://climate.nasa.gov/vital-signs/sea-level/

Another Idiotic Global Warming Post on Townhall Authored by Matt Vespa

Here is a news flash: the impacts of climate change are not linear on an annual basis. New records are not being set for every impact of climate change every year. While the impacts of climate change are close to being linear on a decade long time frame, they are variable on an annual basis.

Yet it is easily predictable that any time there is a slight bounce back in results, some statistically illiterate climate science denier will claim that this shows that climate scientists predictions are "straight trash". As a specific example, Matt Vespa uses the fact that there was a slight bounce back in Arctic sea ice last month as support for his climate science denial claims. Somehow, he managed to meld the fact that Arctic sea ice area was up versus the previous year, the Jakobshavn is growing, and 2013 was a calm hurricane year into a case for denying climate science. And as incredibly thin as this support for his denialism is, it becomes completely ludicrous when taking into account that since the post was published, Arctic sea ice has declined so rapidly that it is now in record low territory for this time of year.

Arctic sea Ice extent and global sea level both provide results that are variable on an annual basis. But, as the charts below show, the downward trend in Arctic sea Ice and the upward trend in global sea level are in long term patterns. 

Arctic sea Ice has declined every decade during the satellite era. It is currently the lowest in recorded history for this time of year.(the red line)

Arctic Sea Ice Extent By Decade

https://forum.arctic-sea-ice.net/index.php/topic,2533.msg193563/topicseen.html#msg193563

The rise in global sea level has been erratic, but over time frames of multiple years has been consistently moving upward by a rate of 3.3 mm per year. The 2011 decline in sea level certainly did not indicate that "global warming has been cancelled" (the absurd title of Mr. Vespa's post). And as sea level rises, sunny day flooding is becoming an increasingly severe problem.

Global Sea Level Rise

Climate science deniers post frequently to their echo chamber of like minded folks. With the need to come up with new content, the authors grasp at any piece of evidence that provides support for their case,  They make their case by cherry picking dates, using the variability of climate change effects, and endlessly repeating false claims. Mr. Vespa trots out the hoary claim that "In the 1970s, the Earth was supposed to be undergoing a cooling period that could see periods of glaciation breakout across the Northern Hemisphere." This claim has been as thoroughly debunked as the claims made promoting the health benefits of menthol filtered cigarettes.

With all the clear cut evidence of the impacts of climate change, including 500 year floods on every inhabited continent, drought/flood whiplash, coral bleaching, disappearing arctic sea ice, and a wavy jet stream due to a warming arctic, it makes one wonder how much longer it will take before climate science deniers finally lose all vestiges of credibility. Sadly, the link between cigarette smoking and lung cancer was established in 1939. However, the turning point in the recognition of health harms from smoking did not occur until 1964, 25 years later. It's taking even longer for climate science to be widely accepted by the public 

More Global Warming Propaganda in a WSJ Opinion Article

The Wall Street Journal has an established track record of publishing global warming denying propaganda articles in their "Opinion" section. And today's opinion piece "Thirty Years On, How Well Do Global Warming Predictions Stand Up?" carries on in this pattern of providing "information, especially of a biased or misleading nature, used to promote or publicize a particular political cause or point of view." 

The WSJ opinion piece falsely claims, "James Hansen issued dire warnings in the summer of 1988. Today earth is only modestly warmer."

As shown in the chart below, the increase in global surface temperature has not only been much more than "modest", it has also accelerated since James Hansen issued his 1988 warning.

.

https://climate.nasa.gov/vital-signs/global-temperature/

A particularly misleading claim in the "opinion" is the following statement in which the authors manipulate data to support their conclusion, "Global surface temperature has not increased significantly since 2000, discounting the larger-than-usual El Niño of 2015-16". As the authors have done in this case, it is possible to make most multi year data sets fit preconceived conclusions by excluding the years with the highest or lowest results. The Mark Twain quote "figures don't lie, but liars figure" seems appropriate when considering the authors' conclusion.

The authors also cherry pick data by focusing on the UAH Global Average Tropospheric Temperatures report to make their case. The problem with using this data source is that there are six major sources of global temperature data which are most often referred to, and of the six, only the UAH satellite data suggests that the increase in global temperature has been only "modest".

Four of the global temperature data reports are estimates of surface temperature, from NASA GISS (Goddard Institute for Space Studies), HadCRU (Hadley Centre/Climate Research Unit in the U.K.), NCDC (National Climate Data Center), and Japan Meteorological Agency. The other two are estimates of lower-troposphere temperature, from RSS (Remote Sensing Systems) and UAH (Univ. of Alabama at Huntsville).

The Washington Post explained that the satellite data in question are derived from polar orbiting satellites that carry microwave sounding units that can measure the microwave emissions given off by oxygen molecules in the atmosphere.

“Satellites are not a thermometer in space, they’re not making direct measurements of atmospheric temperature, they’re measuring the microwave emissions from oxygen molecules,” according to Benjamin Santer, a climate scientist at Lawrence Livermore National Laboratory. He cites numerous types of uncertainty associated with satellite temperature data and numerous corrections to it required — such as due to satellites’ orbital drifts

“There’s over a dozen satellites that you need to string together and each of them have calibration and drift issues that need to be dealt with,” added Gavin Schmidt, director of the Goddard Institute for Space Studies at NASA. “If there’s an issue with any particular satellite or any particular calibration it affects all the temperatures, so it’s much easier to have systematic issues that affect the whole record.”

The WSJ's global warming denialist propaganda has been exposed in previously written articles. Two of the best examples of take downs of this "fake news" camoflauged as "opinions" are:

The Wall Street Journal Still Treats Climate Change as "Opinion", And This Practice Needs to Stop
and
Reviews of articles from: The Wall Street Journal

It's long past time for the WSJ to stop allowing their "Opinion" section to be filled with misleading editorials featuring manipulated data and cherry picked data sources.  As the Associated Press points out 30 years after warning, global warming "is in our living room"

Are Caribbean Islands Uninhabitable Due to Global Warming Fueled Hurricanes?

There is no way to know whether the series of hurricanes that barreled across the Atlantic in 2017 toward the islands of the Caribbean: a) foreshadow a trend, or b) were due to favorable conditions unique to the 2017 hurricane season. But it is indisputable that these storms have intensified unusually quickly and dropped huge amounts of rain. Global warming has contributed to Harvey, Irma, and Maria being particularly ferocious. Irma was the strongest Atlantic hurricane ever, and Hurricane Maria is the second fastest to reach Category 5. And in addition to Harvey, Irma, Jose and Maria in 2017, last year, Hurricane Matthew underwent a remarkable rapid intensification of 80 mph in 24 hours, intensifying from a Category 1 hurricane to a Category 5 hurricane.

The 2017 season has reversed the "so-called" hurricane drought of the past decade. But 2017 could very well turn out to be an outlier, and the next few years could return to the relative tranquility of the past decade. However, the ongoing warming of the waters of the Atlantic may have led to a tipping point being reached. Major hurricanes may hit the Caribbean islands with increasing frequency in the future. And if this year becomes the new normal, then many of the Caribbean islands are uninhabitable. Barbuda has already been evacuated, and unfortunately it may not be the last island that has to be evacuated. Time will tell whether Barbuda will be fully rebuilt.

More Information
Number of cat 5 hurricane landfalls on an island in the Lesser Antilles:
1851-2016 : Hurricane David in 1979 
2017: 2 #Irma, #Maria 
https://twitter.com/isodrosotherm/status/909958594551877632

3 reasons why America’s ‘major hurricane drought’ is misleading - PBS
Hellish Intensification — Maria’s Winds Jump 50 mph to CAT 5 Strength in Just 12 Hours - RobertScribbler.com
Storms are Getting Stronger - NASA
Rapid Intensification - Hurricane Wiki