It's STILL not too late!

A tired old investment saying goes "The markets can stay irrational longer than you can remain solvent" Now I don't know who originally said this and to be frank, I'm a little tired of hearing it. But just like most old quotes this one proves itself correct time and again. A whole bunch of people have hit the solvency wall during this commodities correction. For those new to investing, I will explain;

Many if not most traders employ the use of margin, or credit when they trade. In other words, they borrow against their existing shares and use that money to purchase more shares. This is just one way they leverage their capital to get more exposure to a market. Margin is a legitimate tool when used correctly but it also carries with it increased risk. That risk is that the shares that you borrowed against or that your broker used as collateral for the money it loaned you, might decrease in value. If that happens the broker can issue a "Margin Call" this means that you must either;

1. Deposit more money into your brokerage account.
2. Pay back enough of the borrowed money by selling enough shares to bring your margin balance back into line.
Or
3. Do nothing and let your broker liquidate your holdings so they get their money back.
(obviously none of these are pleasant.)

This is what happened to many people in this last commodity correction. Because it was so deep and swift, it caught many by surprise and wiped out much of their previous gains.
If you are not borrowing against your shares, you are not forced to sell them when their value drops and you can just sit tight and weather the storm or if you believe that the stock itself is going down much farther you can sell on a bounce instead of the dip. Margin Calls force you to sell at the worst possible times.
And that is what validates the tired old saying.

But is the market acting irrationally? I believe that it is. Let me provide the following evidence;
The dollar has given up on it's attempted rally. Gold and the dollar have an inverse relationship and while gold is reflecting the dollars' decline, Silver is not.
The spot price of silver, as a percentage, has plummeted nearly twice that of gold.
This in the face of real physical silver supply shortages.
Some analysts say that the current spot price doesn't even pay for the cost of production(mining).
Bullion prices are 20 to 30% over the spot price. That is the premium you will pay to a dealer over the spot price, to purchase their silver, if they have any.
While above ground supply of silver is one fifth that of gold, it takes over sixty times the amount of silver to equal one of gold.
Gold's industrial uses are negligible while silver's industrial use is huge, irreplaceable in many cases and growing rapidly not withstanding reduction in photographic use.
For the last 60 years we have been using more silver than we mine, so much so, that most of the stock piles are gone forever.
The US Mint Silver Eagle sales have sky rocketed to the extent that they are rationing to their dealers. (supply doesn't meet demand for whatever reason).
So with all these factors in mind, if you are still solvent, one might conclude that Silver might not be a bad place to park your cash at a time when some of our largest banking institutions are folding like a bunch of soft tacos and the US government is increasing monetary supply(printing dollars electronically) at an exponential pace.

Or maybe it's just me.

JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor. Which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.