A couple of weeks ago I had two posts (here and here) outlining the mania in precious metals. Then starting early Monday of this week silver started to blow up. As I mentioned in the second post, I got some push back from some commenters on Seeking Alpha who essentially were saying that the fundamental argument of debt and money printing meant that precious metals could not go down.
Even if I was incorrectly interpreting those comments we have all read commentaries that have said precious metals can't go down. My reply to this is and always has been that anything can go down in price at any time for no apparent reason. That silver started to drop so quickly after my comments is just a coincidence as I can assure you I had no idea when it would correct and now that it is correcting I have no idea how long this will last.
What I try to understand is when manias are occurring and how they might impact client portfolios. Those two posts, among other things, reminded any clients who read them that occasionally there are distortions in the market like the extreme lift up and now a decline that seems to be pretty big. We have increased volatility in our exposure to materials and energy so for example we were down a hair more than the SPX yesterday and I would expect that with our current exposure anytime energy, materials and related foreign markets fare worse than the SPX so too will our portfolio.
As I said yesterday in an interview about the decline in silver "a long term strategy that unravels based on one week's trading was never a long term strategy to begin with."
I would also repeat something else I always say during these sorts of things; these type of events have come along before and are guaranteed to come along again in the future. The key for most types of market participants is to not learn that you had too much exposure to something that is going down a lot after it has declined - such that you panic out at a low.