Here’s Why Silver Crashed Last Week

Hate To Say “I Told You So…” The Hives are an awesome band. They’re one of the best Swedish exports since Absolut Vodka and porn. I discovered them during the Garage Rock Renaissance a few years back led by the White Stripes and The Strokes. My kids (11 and 8) heard them on Cartoon Network. We heard them on XM in the car and all three of us said “The Hives!” out loud. I had no idea.

Being the rock-n-roll equivalent of a jock sniffer, if there’s a band I like, I learn all about their gear (yeah..I’m a goober that way). The Hives’ guitarist has a homemade telecaster copy. Nothing fancy. No $9,000 vintage Les Paul and a boutique amp. Maybe it’s his Scandinavian sensibility. Maybe he doesn’t know any better. But obviously, the stuff that goes into making the product, i.e. the music, isn’t the focus. It’s the product that’s important. “Hate to Say ‘I Told You So’ ” is probably their finest tune and if last week’s commodities rout should have a theme song, that would be it.

Commodities, especially silver had its rear end handed to it in a zip loc bag last week. Why? Because the smart money that picked up SLV at 18 last year had the basic, mouth breathing wisdom to punch out at 48. There’re lots of other reasons, too. Margin requirements on silver and oil have been adjusted. That’ll keep things from getting too full tilt boogie. But, like we talked about a couple of weeks ago as we disputed Jeremy Grantham’s “New Paradigm” claim, prices come down eventually. Just gonna happen.

Here’re some fun facts we stumbled on. According to data from the Credit Suisse Global Investment Returns Yearbook 2011, the annualized return for stocks from 1900 to 2010 has been 9.4%. Bonds got you 4.8% for the same time period. Commodities? How about a whopping 2.6% annualized for over one hundred years. With inflation at 3.1%, an inflation sensitive “investment” couldn’t even keep pace. Hell, you would’ve gotten 3.9% if you’d stayed in cash. But, then again, after 110 years, you’d be too dead to spend it.

Yeah, commodities have snapped back. But what doesn’t after getting hammered big time in a short period? I’m sure Enron popped on the open at least once or twice. But it’s probably the last stand. From Cairo, Egypt to Athens, Georgia, consumers are sick and tired of paying too much whether it’s gasoline or a loaf of bread. They’re the market and the market is a voting mechanism. Looks like higher commodity prices have had term limits imposed. Judging by the return data we discussed, stocks are a better deal over the long haul. The VERY long haul. Short haul, too. Like the rock-n-roll, the ingredients, while necessary, aren’t nearly as important as the end product.