Has Peak Silver Arrived?

Whilst a lot of precious metals investors are solely focusing on gold, we would almost forget about silver, also called ‘the poor man’s gold’ although things are changing fast on this market as well.

2016 was the first year in more than a decade wherein the primary silver production (coming from mines either as a main product or a by-product credit) decreased. After seeing a total silver production of approximately 668 million ounces in 2007 increasing to 891 million ounces in 2015, we saw a (first) decrease to 886 million ounces in 2016.

Source: The Silver Institute

As you can see on the previous image, the total recovery from scrap and the inflow from hedges decreased as well, causing the total silver supply to decrease by approximately 3% to 1.007 billion ounces, the lowest level since 2013.

Whilst the total demand for silver also decreased to 1.028 billion ounces, 2016 was the fourth consecutive year with a supply deficit. Sure, the deficit was just 21 million ounces, but that’s entirely due to the lower demanf for jewelry and investment purposes. As you can clearly see in the same table, the demand from those two end-uses was 519 million ounces in 2015, but fell to just 414 million ounces in 2016, a decrease of 105 million ounces.

Source: Ibidem

One of the arguments of bears is the decreasing use of the precious metal in the photographic sector. It’s absolutely impossible to deny that, but it’s also already clearly visible in the trend since 2007. In 2007 the silver demand for the photographic sector was 117 million ounces 12.32% of the total world demand, but last year, the sector needed just 45 million ounces of silver, which is now just over 4% of the total world demand.

This means that even if the demand for photographic uses would drop to zero (which isn’t impossible, although the sector demand has remained relatively stable since 2013), this would most definitely NOT cause a shift of the demand curve. One main contributor to the steady demand would be the increased use of the photovoltaic sector, where the silver demand reached its highest point éver.

So the supply side of silver isn’t really slowing down (yes, the total demand was lower due to lower demand for investment uses), but the silver demand from industrial sectors is still at an elevated level.

Source: Ibidem

This also means the supply side will have to (try to) keep up with the demand. According to the Silver Institute, only 30% of the mine supply is coming from mines which have the commodity as a primary product. 12% comes from primary gold mines, whilst an additional 23% is mined as part of primary copper deposit. With the current low gold and copper price, not a lot of new mines will be developed which will put pressure on the supply side of the equation.

Fortunately 35% of the mine supply came from lead-zinc mines, and as these two commodities are performing well, it’s not unlikely more lead and zinc mines will be brought into production, boosting the silver output in the process. That being said, several larger zinc mines have been shut down and are still shutting down, and it looks like the average grade of the precious metal as a by-product in the ‘advanced stage’ zinc mines is dropping, perhaps even to a level where smelters don’t deem the silver to be payable due to low recovery rates in the process.

Long story short: the demand for silver is there ‘to stay’, but will the supply side be able to keep up with the demand? Scrap supply seems to have peaked, whilst it won’t be easy to increase the mine supply.

Worried? Read our guide to gold right now >>>

John Paulson's Outside Capital Base Crashes To Under $2 Billion

Back in 2011, after making a killing off of his infamous mortgage short, John Paulson found himself running one of the largest hedge funds on wall street with $38 billion in total capital under management, including roughly $19 billion in outside capital.  But, after gaining instant fame with his massive subprime bet, Paulson can"t seem to buy a clue in recent years which has left many investors wondering whether he may have been nothing more than a "one-trick pony".

Certainly returns in his Paulson Advantage fund would indicate some difficultly replicating historical success:

• 2011: -51%


• 2012: -19%


• 2013:+32


• 2014: -36%


• 2015: -3%


• 2016: -20%


• 2017 YTD: -9.7%

For those keeping track, an investor who contributed $100,000 to the Paulson Advantage fund on 12/31/2010 would have under $24,000 left today...and that"s before removing Paulson"s annual fees.

Therefore, it"s not terribly surprising that, as Bloomberg points out today, Paulson"s assets under management have crashed since 2011 to under $10 billion due a combination of abysmal returns and investor redemptions.  But, what is surprising is that, per the charts below, of the the $9.5 billion currently under management at Paulson & Co., only $1.8 billion is from outside investors.

Of course, it"s hard work losing that much money...it requires an army of Harvard MBAs and those guys aren"t cheap.  Unfortunately, since Paulson probably doesn"t pay fees on his personal ~$8 billion in AUM, we suspect it"s getting a bit harder to pay that Harvard army these days prompting speculation that Paulson will eventually have to return outside capital and convert to a family office.  Per Bloomberg:

“As outside assets continue to erode, the running question for Paulson becomes more forceful: Why doesn’t he just convert to a family office?” said David Tawil, the founder of Maglan Capital LP, a New York based hedge fund that specializes in event-driven strategies. “But to get the firm back on the rails, I don’t think is impossible.”

Paulson, 61, is making the choice to fight back. The billionaire has no plans to turn the firm into one that solely manages his own wealth, according to a person familiar with his thinking. He’s opened at least three new funds in the past two years, including a private equity fund with a seven-year lock up. But at the end of 2016, that fund contained almost all internal money, the filing shows.

As we pointed out last November, Paulson"s losses came in part due to a massive bet on the consolidation of large multi-national pharmaceutical businesses which he hedged with bearish bets on the broader markets.  Unfortunately, exactly the opposite happened with the broader markets holding up while his largest pharma holdings collapsed anywhere from 20% - 40%. 

Mr. Paulson’s hedge-fund firm, Paulson & Co., is suffering painful losses this year, extending a period of uneven performance that has left the firm managing about $12 billion, down from $38 billion in 2011. Behind the recent difficulties: A big, faulty bet on pharmaceutical companies, as well as excessive caution about the broader market, according to people close to the matter.

Over the past two years, Mr. Paulson has argued to his investors that the pharmaceutical industry’s consolidation would accelerate, boosting growth prospects of specialty drug companies cutting deals. Six of Paulson & Co.’s 10 largest holdings as of June 30 were pharmaceutical companies, the most recent securities filings show, including the firm’s four largest positions. At one point in late 2014, Mr. Paulson told a client that one of Paulson’s major holdings, Valeant Pharmaceuticals Inc., would hit $250 a share. At the time, the stock was trading at around $140. To hedge, or protect, his drug investments, Paulson adopted bearish positions on the overall market, viewing stocks to be expensive.

The trades haven’t worked out. Health care is the worst performer among the 11 sectors in the S&P 500, with a drop of 6.1% so far this year. Paulson’s holdings have done worse. Shares of the firm’s largest investment, U.K. pharmaceutical company Shire PLC, are down 19% so far in 2016. The holding, worth about $864 million at current share prices, represented 9.1% of Paulson & Co.’s portfolio at the end of June, according to FactSet Research Systems Inc. The next three biggest Paulson investments, Mylan NV, Allergan PLC and Teva Pharmaceutical Industries, are down 37%, 40% and 40% this year, respectively. The three stocks represent $2.16 billion of investments for the firm at current prices. Meanwhile, the S&P 500 is up 2.2% this year, undercutting Paulson’s bearish position.

But sure, all you pension managers out there should continue to consolidate your hedge fund allocations to just the "smartest" hedge fund managers.

Stocks Sink As Big Banks Stumble Deeper Into Red

"Financials" fade.

LMAO.  Let"s call them what they really are FFS:  Insolvent social welfare recipients !!!!

Fucking banks, lol.  They are licensed white-collar criminals in our midst yet no one will do anything to fight CRIME.  The populace is simply too apathetic and too addicted to credit.

END the FED and we end this financial repression.  Many will then have a real life, not a slave life.  If you think your slavery index ( I mean, credit rating ) is something to be cherished then you"ve bought into the grand financial lie these big banks are peddling.  Continue being a good slave at your peril.