Dr. Jeff Lewis Interviews Grant Williams : Outlook for 2012 and Keeping Your Emotions Away From Your Silver

If you’d like to listen to the interview, please go to Grant Williams site here.

Grant Williams is portfolio manager and strategist for Vulpes Investment Management in Singapore – a hedge fund running $200million of largely partners’ capital across multiple strategies. In 2012, all Vulpes funds will be opened to outside investors. Grant has 26 years of experience in finance on the Asian, Australian, European and US markets and has held senior positions at several international investment houses. Grant also writes the popular investment blog ‘Things That Make You Go Hmmm…..’ which is available to subscribers. For more information on Vulpes please visit About Vulpes | Vulpes Investment


Hi everyone, it’s Dr. Jeff Lewis here with Silvercoininvestor.com and Lewis and Mariani Publishing. I just wanted to wish everyone a Happy New Year and we thought we’d share an interview that I just recorded with Grant Williams the author of the newsletter that I love, it’s called Things That Make You Go Hmmm and I hope you enjoy. Take care, and again Happy and healthy New Year to all.

Dr. Jeff Lewis: It’s my sincere pleasure to speak with Grant Williams, author of the weekly newsletter “Things That Make You Go Hmmm…” Grant is coming to us from Singapore. He produces this entertaining, informative, very clever and down to earth view of current events from the perspective of someone who not only demonstrates a clear passion for history and a knack for weaving the past into the present, but he has also been an active participant in financial markets for quite some time now. We’ve spoken about this in the past, but perhaps you could give listeners some background on now how what I consider to be this somewhat underground newsletter evolved?

Grant Williams: It’s been something I’ve been putting together for two or three years now initially to a small group of friends and some clients out here in Asia. It’s just kind of grown in popularity and it’s grown in scope as well. It started off as a one-page report put out to people everyday just with a few things that I thought they ought at least be aware of and that they wouldn’t probably find on the front page of cnn.com or the BBC News website, these are things that I thought would have a potentially material impact on markets and finance but they weren’t necessarily in the mainstream. As it’s grown, it’s now, I guess in some weeks it can get up to 25, 30 pages long; including a collection of snippets of these articles we’re doing to the full piece for people to check out themselves and read.

All we’re really trying to do is provide a broader view, as I say, some issues that from both a macro and a micro-perspective that are probably a little bit more important than what one would think if you find where exactly on the totem pole they’ll appear. So, it’s really, that was the genesis of it. It’s something that I sit and do a lot of reading, a lot of thinking about this stuff and so it actually helps me to put this stuff down on paper; it helps clarify your thoughts and get some perspective around them. So that’s really how the whole thing came about.

Dr. Jeff Lewis: Great, well thanks for that. I certainly have been a big fan and listeners should rest-assured that I will provide some information on how people can find a copy.

Sign up for your Free copy of Things That Make You Go Hmmm…here

In the current issue of Things That Make You Go Hmmm you’ve used an interesting literary device as a way of predicting what we might see in the coming year. Maybe you could tell us a bit about why you chose that approach which by the way, it prophesies among other things the possibility of two resignations. One, Obama withdrawing from the Democratic ticket and, perhaps more shocking or more pertinent for those of us with the particular interest in silver, the resignation of CFTC commissioner Bart Chilton in protest of inaction on the part of the CFTC. But Grant, how serious are things getting out there? Do you think that 2012 contains enough road left for the proverbial can to be kicked?

Grant Williams:

Well, you know, this metaphor of kicking a can down the road has become – it’s just become ubiquitous in the last year or so; in the last couple of years. It really is, at very root of it, that’s what’s going on. We all know what the problems are. The problems are basically too much debt, too much spending and governments the world over are living on borrowed time but they’ve managed to put band-aides over wounds and keep the game going for this long and they will try and do that for as long as possible in the vain hope that they can find some organic way to grow their way out their problems. But realistically that’s not going to happen. As tumultuous as 2011 has been, you know, we took Europe and the Middle East and downgrades for the U.S. and all kinds of upheaval. We haven’t really had any resolution to any of those events. The European situation still goes, the Middle East is an absolute powder keg and getting worse with the fact that the U.S. has no withdrawn from Iraq or in the process of doing so and Iran are agitating for trouble.

So I suspect that 2012 could bring about resolution for some or several of those events that began in 2010, 2011 and with that resolution I suspect will come some real upheaval. A lot of people sit down at the end of the year and write their predictions for the year. It’s a fool’s errand really because we all sit in this because you have to kind of do a little thinking about how you see things playing out and sometimes to verbalize that it just puts a tiger on your back. While I tend to read people’s predictions for the year and I’ll evaluate what they see as possible outcomes through my own filters, I’m never going to hold someone to a prediction they made about what might happen in the future, I mean it’s crazy. But people do, it’s amazing what you’ll see, people get their feet held to the flames because they made a wrong guess about you know, the price of gold this year. Nobody has a crystal ball so I just figured when I wrote my piece I would kind of do it as a backward-looking piece of work that was to be published on the first of January next year just to kind of bring a little bit of levity to it and just try and make it less serious in other people’s eyes more than mine. All the things I discuss in there I think are real if not distinct possibilities and it’s just a question of sitting down and thinking about what potentially could happen next year in order to give yourself a fair chance to try and deal with them if and when they do arise.

Dr. Jeff Lewis: Yeah, I think it was very effective; it definitely opened my mind to some interesting possibilities. Speaking of silver and manipulation let’s say, we could probably leave out the actual mechanisms for how the recent raid on prices got underway and perhaps maybe focus on the price of silver and where it could be headed in light of this, I’m sure you’ve seen, this dramatic rearrangement of positions as they are reported in the most recent commitment of Trader’s Report. Many, including Ted Butler of Butler Research and Gene Arensberg of the Got Gold Report has done some work and pointed out that there’s this extremely rare situation that’s evolved. The fact that you have these large commercial traders or the bullion banks who have been able wield so much power over the price mechanism, they seem to have significantly reduced the size of their influence perhaps, in fact may have repositioned themselves – or it looks as if they’ve repositioned themselves for the long side. The question is how does this strike you, do you think it’s a signal that – in other words are we reading too much into this or is it a signal that large traders actually may know something or is it simply a result of having washed out so many long or weak speculators?

Grant Williams: I think the silver market is such a crazy place to be and we see some real violent moves. It’s important to try and keep a sense of balance because the way things trade, particularly in silver, it’s easy to get fixated upon an idea and to blame every move on that particular idea. In the case of silver, the big theory about silver is the manipulation of the COMEX futures.
Now, I’ve written a lot about this in the past. I definitely think there’s no smoke without a fire. It’s a dangerous game to sort of ascribe every single move in an instrument to a construct that has yet to be proven beyond any doubt. While I suspect there is definitely something untoward going on the silver futures as Bart Chilton has intimated in his comments this past year. I think it’s a very dangerous game to not have a balance, to just simply look at the way markets behave, look at the extraneous events that may have an effect and cause the de-leveraging or liquidation and to try and get a more rounded picture of why something moves now.

If you look on an intra day basis, some of the very sharp downdrafts in silver and gold in the past 60 days; they generally tend to have an overnight in quiet markets and it’s clear that the selling is not, shall we say, someone looking to maximize their profit. I mean these things fall in vacuums in very aggressive fashion. So it’s clear that people are trying to shake out weak holders and that’s happened. We’ve had some major falls in both precious metals, silver actually ended up being down on the year in 2011 which is any of us would have predicted that when we saw it top 50 bucks earlier this year. But I think the set up has changed dramatically and I think you will find that we are left with an awful lot of strong hands holding silver now. I’m here in Asia, the futures price is really more of an irrelevancy. Over here it’s all about physical metal both in gold and silver and so we see a lot of buying of physical metals here in Asia when the price comes down on the COMEX and we see premiums expand because it’s very tough to get delivery. I suspect going into 2012, the set up for both precious metals is bullish providing they can hold these levels and I think that is important to know. A lot of very good and well-respected chartists worry that gold could correct to 1,200 to 1,400 bucks. And certainly, if you look at the technical pictures, that could happen. Silver could correct down to the low-20s; it absolutely could happen. But it’s important to decide whether you’re a trader or whether you’re an investor. If you’re investing in silver and you’re investing in gold, based on the fundamental reasons to do so, then falls to the price aren’t that much of a problem for you because they give an opportunity to buy more metal at cheaper prices. If you’re a trader, it’s a whole different world and you have to be very agile and you have to be very attuned to moves like this that could go significantly lower. To be a trader in something like silver, it’s a really dangerous thing to have an emotional attachment to the metal or to the idea that there might be manipulation because you’ll find yourself fighting the tape every single day and that’s a certain way to lose money.

Dr. Jeff Lewis: Thanks for the words of wisdom; that’s very important to keep in mind. As a way of pulling all this together for our listeners, in the past we’ve had a couple of emails about the importance of what you allude to; investment demand versus the industrial demand for the metal. You point out that in Asia or in other places too that as soon as the price comes down you see a lot of investment demand return. What do you consider to be the most important long term fundamentals underlying precious metals, silver perhaps or in particular, things that those of us who have a tendency to get hung up with the short term or watch too closely perhaps the technical analysis? With things that may not be revealed today or in the next week, but most definitely lay beneath the surface, sort of an overview – what do you think are the most important fundamentals?

Grant Williams: The supply-demand picture is always at the base of any commodity. With silver and with gold, you’re looking at between two and four percent annual supply increase every year and obviously that’s getting more expensive. Even gold and silver has long since been found and extractived. So yeah, you’re bringing on between two and four percent of new supply every year. Silver, if you look at – a lot of people make a big deal about the slack in demand for silver in photographic film, and yes, historically that’s been a very, very big proportion of the usage of silver. But there are so many uses for silver now in nanotechnology and healthcare and particularly solar. In photovoltaic, for example, ten years ago that industry used less than 2 million ounces of silver. In 2010 it was up to about 50 million I think. By 2015, they’re talking about 100 million ounces to be used in solar photovoltaic cells alone. So there are all kinds of new technologies that are defining ways to use silver and I suspect, whether its thermal properties, its conductivity properties; it’s such a useful metal and it does everything that copper does better than copper; it’s just more expensive. People are going to find new uses for silver, that goes without question and if those uses expand at a rate greater than the supply and demand with its supply side, which is I said, between two and four percent a year then you are going to see higher prices. That’s a given.

Dr. Jeff Lewis: Just to add to that, do you think that the macro conditions, like the monetary problems or will feed that frenzy where investment demand might actually trump – some argue that industrial demand could fall and serious deflationary crisis for example, I mean you’re alluding to the fact that silver is used in so many things that surely it’s not going to fall completely, but in that situation and in an environment where there’s more easing or printing, do you think that we could see a much greater, robust awakening in terms of investment demand? We’ve already seen that, but could you imagine it increasing?

Grant Williams: The funny thing is, gold and silver as monetary metals are forever linked in everybody’s minds and they’ve always been so. But what you tend to see is silver tends to have its best spurts in performance when gold gets carried away and people just can’t afford to buy gold. So if somebody’s looking at investing in gold, we saw it when it went through 1,600 bucks, you know, all of a sudden silver had a big, big surge because at the margin, if someone’s about to spend $1,500 on an ounce of gold and the price suddenly goes to 1,600 bucks, he’s priced out that ounce of gold. So you see some of that demand come into silver because he says, well hey, I can buy an awful lot more silver with my 1,500 bucks, now I can’t buy an ounce of gold. We saw the same thing when gold was pushing up through 1,700–1,800 this year, you know, there was a lot of demand for silver and that will happen again. I think the Fed will come pretty hard with QE3 and maybe QE4 next year. I think Europe is already monetizing despite what the Germans are saying, despite what the ECB is saying, if you look at their balance sheet it’s pretty much doubled, so they are clearly printing money at will. The U.K. are doing it very conspicuously. The Swiss National Bank are also printing money to try and weaken the Swiss franc, so there’s an enormous amount of money creation going on and that is always bullish for gold and silver. We’re at a point now at the end of this year where there’s a mad scramble for cash and people are selling what they can sell. I think a lot of that downdraft we saw in both gold and silver going into year end, was just people who are having to raise cash and selling the thing that they had a little bit of profit built into.

Now, once they start going down, the shorts are going to press that; and so these falls get a lot more vicious than perhaps they would be in just an orderly market where people were looking to sell a bit of precious metals to raise some cash for year end. But as I say, you have to try and take your emotions out of this thing. And I’ve been actually surprised in the last couple of weeks to see some long term committed gold and silver bulls questioning their rationale, which is the first time I’ve heard it from some of these guys. I take that as a very, very bullish thing because whenever you buy gold or you buy silver, your emotions always cloud your judgment and so if you can find some way to deal against your emotions, generally that always going to work out pretty well for you. They always talk about the Rothchild’s quote about “buy when there’s blood in the streets” and people like Warren Buffet saying “I buy when people are selling and I sell when people are buying.” That really is the way to make money in the long term. The perfect example is the HUI, the HUI index this year. If you’d have bought that at 500 and stole it at 600, then three separate times this year you would have made 20% and that’s purely a function of the swift moves in both directions where emotions take hold in the precious metals. So you have to really take a step back and try not to let the emotion of these particular instruments cloud your judgment.

Dr. Jeff Lewis: Grant, thank you for those words of wisdom and I hope that you have a great happy and healthy New Year and thanks again for taking the time to speak with us and listeners. I will be sure to include a copy your most recent issue of “Things That Make You Go Hmm…” Grant Williams, author and editor of Things That Make You Go Hmm. Thanks again.

Grant Williams: It’s a pleasure and Happy New Year.