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Precious Metals SME NY Chapter 11 March 2010. 3 0 Broad Street | 37 th Floor New York, NY 10004 www.cpmgroup.com. Jeffrey M. Christian Managing Director jchristian@cpmgroup.com. The Macroeconomic Environment. Economic Tar Pits to Avoid.
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Precious Metals SME NY Chapter 11 March 2010 30 Broad Street | 37th Floor New York, NY 10004 www.cpmgroup.com Jeffrey M. Christian Managing Director jchristian@cpmgroup.com
Economic Tar Pits to Avoid • While the depth of the recent recession has exceeded the problems of past recessions since the Great Depression, the degree to which this recession has been in line with other post-war recessions probably is greater than the degree to which it has greatly exceeded past recessionary trends. • Global decoupling has not been happening. • In fact, global economies are more interwoven with each other than before. • The U.S. economy is not on its back, over the hill, passé, or particularly volatile. • The Chinese economy most likely does not face a bust.
The Economy has been less volatile than in the Good Old Days U.S. real GDP: 1850 – 1919, 16 recessions, 22 month average length; 1945 – 2007, 10 recessions, 10 months average length
The past 25 years to 2007 were the most stable in U.S. history U.S. real GDP: 1945 – 1983, 8 recessions, 11 month average length; 1983 – 2007, 2 recessions, 8 months average length
Inflation Fears Are Based On Narrow Money Supply’s Sharp Increase
But Inflation May Be Contained: Broad Money Supply Has Not Yet Expanded
Lagging Indicators • Many market commentaries are focusing on the high, if not still rising, unemployment figures in the United States (and other countries), and the continued absence of bank lending to corporations and individuals as indications that the recession is still underway. • Both of these factors tend to lag economic activity, however. Neither of them are leading indicators of an economic recovery. • Unemployment tends to continue rising into an economic recovery, and only peak and decline well into a recovery. • In past economic cycles banks have remained on the sidelines as lenders until an economic recovery is well established.
The Dollar Will Remain The Main Reserve Currency For Years • Slow diversification into the euro has been happening for a decade. It will continue to occur. • There is no credible alternative to the U.S. dollar as the dominant reserve currency for the foreseeable future. • Demand for U.S. dollars as a reserve currency is still strong. • The dollar is unlikely to lose its reserve currency status in the foreseeable future.
The Dollar Will Remain The Main Reserve Currency For Years Source: Goldman Sachs
Market Myths About China • There are many myths and misconceptions about short- and long-term trends in China’s economic development, and its place in the world. • Myth 1: China will soon displace the United States and other industrialized nations as the major economic engine. • Opposite Myth: The United States will continue to exert economic and political hegemony over the world. • Both extremes are wrong. • China is growing in importance. So, too, are other countries that are emerging from long periods of restrictive economic policies. • While they will become ever more important to the global economy, they will not supplant the United States in terms of total economic size, either in real output or in consumption and investing.
Myth 2: The Chinese Economy Faces a Bust Concerns about a potential collapse in Chinese economic growth seem overblown.
Investors Continue to Buy High Volumes of Silver • Net buying or selling by investors always has been the major driver behind price increases and decreases. • Net investment demand could reached 175.1 million ounces last year.
Silver Supply and Fabrication Demand Balance • Fabrication demand rose from the early 1980s to 2000, but has dropped steadily since 2000. • Supply lagged into the middle of the 1990s, but then started rising sharply. • From the early 1990s through 2005 silver from investor holdings filled the gap between demand and supply.
Annual Total Supply • Total supply is estimated to have been 813.0 million ounces last year. • This year total supply could rise to 849.6 million ounces. • Both mine production and secondary supply are expected to rise.
Silver Reserves and Reserve Base Source: USGS, CPM Group
Annual Total Fabrication Demand • Fabrication demand is projected to rise to 642.1 million ounces this year. • Fabrication demand is estimated to have been 637.9 million ounces in 2009. 10p
Strong Investor Interest in Silver Note: CEF-Central Fund of Canada traded on the Toronto Stock Exchange. SLV-iShares Silver Trust traded on the American Stock Exchange. ZKB-Zurich Cantonal traded on the Swiss Exchange. ETF-ETF Securities traded on the London Stock Exchange, New York Stock Exchange, and Australian Securities Exchange. Data as of 15 January 2010.
